Privacy issues will be central to the forthcoming antitrust merger review of today's $44.6 billion bid by Microsoft
Corp. for Yahoo Inc. U.S. antitrust authorities have already studied
these privacy issues in connection with the proposed merger of Google
Inc. and DoubleClick, which is still under review in Europe. U.S. and
European authorities will almost certainly investigate the privacy
aspects of today's proposed merger more fully than any other merger in
history.
The Warm-up Act: Google/DoubleClick
When it comes to the intersection of privacy and antitrust, the Google/DoubleClick merger will now look like a warm-up act for Microsoft/Yahoo. In the Google case, all five commissioners agreed with the central point of my testimony to the FTC this past October, in which I detailed why privacy can be an important non-price aspect of competition.
Commissioner Pamela Harbour
cited my testimony in voting to block the merger. She recognized that
antitrust law should ensure competition "based on privacy protections
or related non-price dimensions."
The majority,
while voting to approve the merger, agreed with the key point that
privacy can be relevant to a merger, saying "we investigated the
possibility that this transaction could adversely affect non-price
attributes of competition, such as consumer privacy."
The first message from the Google/DoubleClick merger review is that
the FTC understands competition is not only about price. Competition
has always included non-price aspects, such as the quality of goods. In
the information age, a merger can shift practices from low-surveillance
to high-surveillance.
Case in point: Where this reduction in the quality of surfing
occurs, consumers lose the choice to surf with less tracking. The
merger can then violate the Clayton Act because it "substantially
affects competition." In short, loss of competition on privacy can be
the basis for blocking a merger.
The second message from the Google/DoubleClick case is that the FTC
will ask probing questions about privacy for upcoming mergers.
Commissioner Harbour specifically emphasized that companies seeking a
merger in data-rich industries should receive detailed questions about
data practices in "second requests," which are the questions that the
FTC sends companies when it is investigating major mergers.
The Curtain Rises on Microsoft/Yahoo
Although more issues may emerge over time, the market for search
looks like it will be the focus of privacy issues of the proposed Microsoft/Yahoo
merger. The two companies are probably No. 2 and No. 3, respectively,
in the enormous global market for search. The companies will likely
argue that their merger will make them a more effective competitor
against market leader Google.
The privacy concern is that the merger could reduce competition for
privacy in search. We have seen major privacy initiatives in search
engines in the past year. Microsoft
announced new privacy protections last fall. Google did the same during
the merger discussions. And the fifth-largest search company,
Ask.com, recently rolled out its "AskEraser" anonymized search.
Antitrust authorities thus need to investigate the effects on competition for search privacy from the proposed Microsoft/Yahoo
merger. Based on the Commissioners' statements in the Google decision,
it seems highly likely that the FTC would conduct that investigation if
it reviews this merger.
It is also possible that the Department of Justice will investigate
the proposed merger instead, especially considering DOJ's role in the
earlier Microsoft antitrust litigation.
Either way, though, this proposed merger will likely raise other
important privacy-related issues beyond search, among them:
- Will Yahoo's and Microsoft's existing databases of personal information be merged?
- How will the pre-merger privacy policies apply after the merger?
- What privacy guarantees arising out of the merger might be incorporated into the post-merger privacy policies?
As with the Google/DoubleClick merger, I am not taking any position
on the ultimate decision of whether the FTC and other antitrust
authorities should block the merger. In merger reviews, government
agencies receive detailed factual information that is not available to
the public. The important point, however, is that the merger raises
serious privacy issues.
Under standard antitrust law, these privacy issues affect non-price
aspects of competition. Privacy will be an important part of the
debates about this merger.