Apologies for the late notice on this.  Last week I was on a Federalist Society panel discussing Google’s antitrust issues with Rick Rule, Susan Creighton and Scott Cleland.  The event description follows, and you can find audio of the panel here.  It was an interesting discussion, full of nice ironies in that Microsoft’s chief outside antitrust defender was attacking Google with theories similar to those used against him in the DOJ case, and Google’s chief outside antitrust defender was the author of antitrust case against Microsoft and author of the paper (on cheap exclusion) that was being used as the basis for the case against . . . Google.  Good fun.  Any thoughts from anyone who attended?

Is Google Monopolizing Something, and If So, What?

Federalist Society Corporations, Securities and Antitrust Practice Group

December 7, 2009.  Last June, Christine Varney, then a lawyer in private practice, now President Obama’s nominee to be the next Assistant Attorney General for Antitrust, warned that Google, not Microsoft, is the monopolist of the future.  “For me, Microsoft is so last century. They are not the problem,” Varney said at a June 19 panel discussion sponsored by the American Antitrust Institute. The U.S. economy will “continually see a problem — potentially with Google” because it already “has acquired a monopoly in Internet online advertising.”  Concerns of this nature ultimately led Tom Barnett, the last Assistant Attorney General for Antitrust, to threaten a Sherman Act monopolization lawsuit if Google went through with plans to buy Yahoo.  Google, on the other hand, contends that the concerns are completely misplaced.  “The nature of the Internet is just a fundamentally different world from the sale of packaged software or the bundling of software with OEMs (original equipment manufacturers),” according to Kent Walker, Google’s General Counsel.  “The standard line we have is that competition is just one click away.”

[ Full Audio]
Audio Running Time: 01:32:58

Panelists:

• Mr. Scott Cleland, President, Precursor LLC and Chairman, NetCompetition.org
• Ms. Susan Creighton, Partner, Wilson Sonsini Goodrich & Rosati, PC
• Prof. Geoffrey Manne, Founder and Executive Director, International Center for Law & Economics and Lecturer in Law, Lewis & Clark Law School
• Mr. Rick Rule, Partner, Cadwalader, Wickersham & Taft LLP
• Moderator: Mr. Montgomery N. Kosma, Vice President of Legal Services Outsourcing, CPA Global

Well, you probably know my answer to that one.

I was interested to read Fred von Lohmann’s short take on the privacy aspects of the Google Books Settlement, available here.

Fred and the EFF have, basically, two concerns.  The first is that

[t]he products and services envisioned by the proposed settlement will give Google not only an unprecedented abililty to track our reading habits, but to do so at an unprecedented level of granularity. Because the books will be accessed on Google’s servers, Google will not only know what books readers search for and access, but will also know which pages they read, how long they stayed on each page, what book they read before, and which books they access next. This is a level of reader surveillance that no library or bookstore has ever had.

But who–or what–is “Google” in this statement?  Is there ever an actual person, rather than a software program, tracking our reading habits?  If not, what’s the concern?  Computers don’t judge, and any chilling effect would have to be severely, if not completely, mitigated by the knowledge that the only tracking being done is being done by a string of 1s and 0s in a computer.  And even if there is an actual person at Google with access, who cares?  I don’t mean that rhetorically.  I mean, how many people care if some random Google employee could possibly, maybe know their reading habits?  How likely is it that out of the massive amount of data streaming through Google’s computers, any particular person’s data would be noticed or viewed by a person?  I’d have to say the risk is statistically indistinguishable from zero.

Moreover, privacy advocates like the EFF often act as if there are no corresponding benefits to Google’s ability to track our reading habits.  In fact, I can think of many, and at first glance it seems like these dramatically outweigh the potential cost of Google’s computers “knowing” even everything about me, let alone just my reading habits.

The EFF’s second concern is that

it’s not just Google that might want records about your reading habits. A core concern EFF has with the proposed settlement is that under it Google need not insist on a warrant before turning over this sensitive reader information to governmental authorities or private third parties. This is hardly a hypothetical risk: between 2001 and 2005, libraries were contacted by law enforcement seeking information on patrons at least 200 times. And in 2006 alone, AOL received almost 1,000 requests each month for information in civil and criminal cases.

Now I have much more sympathy with the concern about the government snooping–after all, even if “Google” knows my reading habits perfectly, it’s not clear to me that they have any incentive or ability to do anything about it.  The government, on the other hand, is very different.  I just don’t see how this is Google’s problem.

I have never understood why organizations like the EFF and commentators like Larry Lessig make so little of the distinction between private and public access to personal information.  In one case, the consequence could be the use of force by the state; in the other the consequence could be . . . that a computer programmer in Mountain View laughs at the fact that you read “Getting It Up Without Viagra” 4 times last month.

Why this should be Google’s problem, I have no idea.  I discussed this issue before:

I find it interesting that the “blame” for privacy incursions by the government is being laid at Google’s feet. Google isn’t doing the . . . incursioning, and we wouldn’t have to saddle Google with any costs of protection (perhaps even lessening functionality) if we just nipped the problem in the bud. Importantly, the implication here is that government should not have access to the information in question–a decision that sounds inherently political to me. I’m just a little surprised to hear anyone (other than me) saying that corporations should take it upon themselves to “fix” government policy by, in effect, destroying records.

If the problem is government access to private information, then take away the government’s right to access that information.  In fact, as Fred points out,

This lack of protections for reader privacy stands in sharp contrast to the privacy protections that librarians and bookstores have been fighting for in connection with physical books for decades. Nearly every state has laws protecting the privacy of library patrons. Yet when Google scans books it got from libraries, privacy protections could be left behind at the digital threshold if Google doesn’t stand up for them.

Precisely.  Pass a law.  This is not an issue for Google, and certainly not a reason to oppose the settlement.  Use of Google Books is entirely voluntary, and the only appreciable threat is from the government’s access to private information via Google.  So stop the government, don’t stop Google.

UPDATE 3:  It just keeps getting better.  Now we’ve added Mike Baye, formerly Director of the Bureau of Economics at the FTC, now returned to his post at Indiana.  He’ll be moderating and I’m sure commenting on many of the papers. 

UPDATE 2: And now Susan DeSanti, newly-appointed Director of the Office of Policy and Planning at the FTC has signed on for our industry/regulator roundtable.  A not-to-be-missed event! 

UPDATE:  We’re delighted to announce that Bill Kovacic will be joining us to deliver the conference’s morning keynote, as well.  A great conference just got even better!

 For the third year, Josh and I have organized the annual George Mason Law School/Microsoft Conference on the Law and Economics of Innovation.  The conference is at the Arlington Hilton on May 7; registration is free. 

This year’s conference is on “Online Markets vs. Traditional Markets,” and once again we have a stellar line-up.  The (beautifully re-designed) conference website is here.  You can register for the conference here. 

This year features a keynote address from Susan Athey (Harvard Economics; Clark Medal winner), as well as the following presentations:

Peter Klein (Missouri Economics)– Does the New Economy Need a New Economics?
Thomas W. Hazlett (George Mason Law) – The Role of Exclusive Spectrum Rights in Wireless Network Innovations: Of Newtons, Blackberries, iPhones & G-Phones
Eric Goldman (Santa Clara Law) – The Economics of Reputational Information

Florencia Marotta-Wurgler (NYU Law) – Does Anyone Read Fine Print? A Test of the Informed Minority Hypothesis
Howard Beales (George Washington Business) – Public Goods, Private Information, and Anonymous Transactions: Providing a Safe and Interesting Internet
Peter Swire (Ohio State Law) – Privacy and Antitrust

Philip J. Weiser (Colorado Law; DOJ)— Re-evaluating the Theory and Realities of Online Contracts
Randal C. Picker (Chicago Law) — The Mediated Book
F. Scott Kieff (Wash U. Law (moving to George Washington Law)) — Commerce in the Shadow of the Commons: Business Models in Cyberspace

We’ll also have an industry roundtable to reflect on the day with representatives from Microsoft, Amazon and Facebook.

Should be a great conference–Please join us!

In the comments to this post, Peter Swire (Ohio State) points to some recent comments (see also here and  here) he submitted to the Federal Trade Commission on how to incorporate privacy into conventional antitrust analysis.  The privacy and antitrust link appears to be something that will receive quite a bit of attention in the coming months and years.  The basic argument in favor of incorporating privacy into antitrust analysis under appropriate circumstances is not too controversial:

• Antitrust exists to protect against the exercise of market power that reduces consumer welfare
• Reductions in non-price competition can reduce consumer welfare
• Privacy can be a form of non-price competition in some markets
• Ergo, antitrust analysis ought to be concerned with privacy concerns

The first three bullet points are easy to understand.  I agree with Swire’s comments that to the extent that privacy amenities (or services or rights) can be an important dimension of non-price competition, antitrust analysis must be flexible enough to incorporate those concerns.  Indeed, each of the Commissioners evaluating the Google/Doubleclick merger agreed that privacy concerns are part of the consumer welfare analysis.

What seems to me to be missing in this discussion is a theory of how a particular merger will change the incentives of the firm to provide privacy amenities as a form of non-price competition.  Modern merger analysis, especially in the unilateral effects context which seems most relevant here, focuses on the question of how the pricing incentives of the post-merger firm change after the merger.   There is a substantial economics literature now which has increased our understanding of how mergers might impact pricing incentives.  It is generally no longer sufficient in merger cases to point to an increase in concentration by itself as support for the assertion that consumer welfare will be harmed.  An agency challenging a merger must present a compelling competitive effects story.  Here, the competitive effects are going to be privacy-related.  It seems to me that to move forward from “privacy should count in antitrust analysis because it is a form of non-price competition” to “this merger will reduce privacy and harm consumers” one must have a theory that explains: (1) why the specific merger changes the firms incentives to provide privacy amenities above and beyond a showing that the merger increases concentration, and (2) if the merger creates market power, why the firm will exercise that power in the form of reducing privacy rather than increasing the price.

Thoughts?

Randy Picker (HT: Randy) has posted an interesting new paper to SSRN entitled “Competition and Privacy in Web 2.0 and the Cloud“.   It is an insightful look at the how privacy rules imposed on Web intermediaries might raise competition concerns.  Consider, for example, the relationship between privacy rules and vertical integration that Picker highlights as a potential unintended consequence of privacy rules:

As most disclosure limits don’t prevent disclosure within a particular firm but only bar disclosure across firm boundaries, a firm will have an artificial incentive to expand the size and scope of the firm so as to use the information fully. Vertical integration renders the disclosure limit ineffective. We might see mergers that would otherwise be unattractive as a way to end-run the
across-firm disclosure limits.

A related issue that is outside the scope of Picker’s short essay, but will likely remain a hot-button issue in the years to come, is the question of whether antitrust law should incorporate privacy concerns into its competitive effects analysis, and if so, how?  (See, e.g. the various positions taken by Commissioners in approving the recent Google/Doubleclick matter at the FTC)

I have some questions about Google’s reluctance to turn over user search data to the government. (For background on this story, see here.)

1. Why does Google gather this data to begin with? Wouldn’t the best way to protect user privacy be not to save this information in the first place? Why does Google need to know the identities of those who use the Google product?

2. Does Google release the information it collects to private third parties such as advertisers? If so, why the public-private distinction? Aren’t the same privacy interests implicated in both the private and public contexts? Why not ask the users themselves when they contract with search engines about the circumstances under which their data may be disclosed to third parties? In the early days of the Web, I published a paper, “Regulating Cyberactivity Disclosures: A Contractarian Approach,” 1996 University of Chicago Legal Forum 639, arguing that disclosure of a user’s “cyberactivities” to private third parties should be permitted as a default matter, so long as users have the affirmative right to opt for non-disclosure. Additional “public disclosure” language could easily be added to such opt out clauses.

3. If Google and other search engines such as Yahoo continue to collect user data, then shouldn’t there be a market opportunity for a search engine to break away from the pack and offer users the guarantee of privacy by simply not collecting user data to begin with? If this were to happen, it would be interesting to see which data collection procedure will end up becoming the norm. If enough users vote with their keystrokes in favor a “no collection” regime, one could imagine all the search engines feeling some pressure to adopt such a policy. But it’s equally plausible to think that many users will not care very much one way or the other, in which case users who are idiosyncratically private will have the “no collection” option but the majority of other users will stay with search engines that continue to collect search data.

The government subpoenas Google’s records, and also Yahoo!’s and Microsoft’s. MSFT and YHOO cave: Their stocks are down a little over and a little under 2%, respectively. Google resists. Its stock drops almost 9%. And yet a headline for an article by MSNBC’s chief economics correspondent–with the relevant stock prices immediately alongside–notes, “Google stand could be good for business.” Maybe he’s talking about Microsoft’s business?

The article quotes Dan Solove who has thoughts about the matter here, here and here. Solove and others view Google’s resistance as primarily a matter of principle, but I bet Google is quick to claim that it is (or at least “will be eventually. Really. We promise”) good for the bottom line. And perhaps here principle and profit coincide: That principle in this case seems to require resisting government interference in markets is a good indication that this might be true. But what if the two remain divergent?

Think about how Google’s actions square with one or more of these claims, Tyler Cowen’s attempted distillation of Milton Friedman’s thoughts on Corporate Social Responsibility:

1. Profit maximization is the best rule available, even though it fails society in particular instances (in that case, isn’t there some slightly more convoluted rule that can cover at least some of these situations and modify the outcomes? If only “very simple” rules are allowed, why?)

2. Businesses have no responsibility to behave in an act utilitarian fashion. Rules are rules, and we should follow them, come what may.

3. Following the doctrine of fiduciary responsibility — in this case to shareholders — is the greatest social good in these situations. It outweighs potential act utilitarian considerations pointing in other directions.

4. Force and fraud aside, profit maximization always coincides with the social good, at least in the absence of bad government interventions.

5. It is a public choice argument. The claim is a noble lie, for otherwise business will be regulated by government in a counterproductive manner.

6. So much anti-corporate nonsense has been written, so we need to shock people with an extreme claim in the opposite direction.

Defenders of Google’s actions on principle will point to the caveat in #4 and will deny especially #2 and #3.

I would like to rest my defense of profit maximization on #4, but as a descriptive matter, I think the exception is in serious danger of subsuming the rule. I suppose that leaves me with #3, which looks to me like a slightly weaker version of #4. (And Steve Bainbridge has mounted a compelling justification of #1 and #2).

Either way, I’ve said it before and I’ll say it again: Google does not have a duty here to saddle its shareholders with the cost of saving the world from itself. Although if I knew its leaders believed in any of the claims above, I’d give them the benefit of the doubt.

Via the WSJblog, I see that Google and the government are tangling again over the government’s effort to obtain search records (this time relating to porn-viewing-by-children enforcement efforts) (I guess that should read anti-porn-viewing-by-children enforcement efforts). It reminds me of a post of Dan’s on Concurring Opinions from a while back that I wanted to comment on, but, well, I didn’t have a blog then. I do now.

In that post, commenting on a NYT article suggesting that Google curtail certain information retention practices, Dan contends that

No matter what Google’s privacy policy says, the fact that it maintains information about people’s search activity enables the government to gather that data, often with a mere subpoena, which provides virtually no protection to privacy — and sometimes without even a subpoena. (emphasis added)

I find it interesting that the “blame” for privacy incursions by the government is being laid at Google’s feet. Google isn’t doing the . . . incursioning, and we wouldn’t have to saddle Google with any costs of protection (perhaps even lessening functionality) if we just nipped the problem in the bud. Importantly, the implication here is that government should not have access to the information in question–a decision that sounds inherently political to me. I’m just a little surprised to hear anyone (other than me) saying that corporations should take it upon themselves to “fix” government policy by, in effect, destroying records.

But at the same time, it makes some sense to look to Google to ameliorate these costs. Google is, after all, responsive to market forces, and (once in a while) I’m sure markets respond to consumer preferences more quickly and effectively than politicians do. And if Google perceives that offering more protection for its customers can be more cheaply done by restraining the government than by curtailing its own practices, then Dan’s suggestion that Google take the lead in lobbying for greater legislative protections of personal information may come to pass. Of course we’re still left with the problem of Google and not the politicians bearing the cost of their folly (if it is folly).

UPDATE:

So it turns out that although it may be a moral victory (for what precise vision of morality I don’t know), it surely isn’t looking like a financial one: Google’s stock plummets following news that it intends to fight the government’s subpoenas of its records. Now, does the drop in value reflect a recognition by shareholders that the “problem” is not, in fact, worth what Google will be paying to fix it (because perhaps it isn’t perceived as much of a problem outside the blawgosphere)? Or is it a reflection that the entire business model is imperiled, whether Google fights or not?