FTC’s 21st Century Hearings: Paving the Way for Principles and Guidance

Operator:  Welcome to The Federalist Society's Practice Group Podcast. The following podcast, hosted by The Federalist Society's Telecommunications & Electronic Media Practice Group and Corporation, Securities, & Antitrust Practice Group, was recorded on Friday, October 4, 2019, during a live teleforum conference call held exclusively for Federalist Society members.

 

Micah Wallen:  Welcome to The Federalist Society’s teleforum conference call. This afternoon’s topic is entitled “FTC’s 21^st Century Hearings: Paving the Way for Principles and Guidance. My name is Micah Wallen, and I’m the Assistant Director of Practice Groups at The Federalist Society.

 

As always, please note that all expressions of opinion are those of the experts on today’s call.

 

Today, we are fortunate to have with us three premier experts on this topic, including our moderator, Svetlana Gans, who is Vice President and Associate General Counsel at the NCTA. After our panel gives their opening remarks, we will then go to audience Q&A. Thank you all for sharing with us today. Svetlana, the floor is yours.

 

Svetlana Gans:  Great. Thank you so very much and thank you all for joining us this afternoon where we’ll be discussion the FTC’s 21^st Century Hearings. We have with us two exceptional presenters. The first is Maureen Ohlhausen. She is the chair of the Antitrust Practice Group at Baker Botts. As many of you know, she was the acting chairman and commissioner at the Federal Trade Commission. She direct all aspects of the FTC’s work, including merger review, conduct enforcement, and she steered all FTC consumer protection enforcement with a particular emphasis on privacy and technology issues.

 

As a thought leader, Commissioner Ohlhausen has published dozens of articles on antitrust, privacy, intellectual property, regulation, FTC litigation, telecommunications, and international law in prestigious publications. And she has testified numerous times before the U.S. Congress. So thank you Maureen for joining us.

 

We also have with us Duane Pozza. He is a partner at Wiley Rein. Duane advises clients on key legal issues, advocacy positions, and regulatory compliance involving consumer uses of developing technologies.

 

Prior to joining Wiley Rein, Duane was an assistant director in the division of financial practices at the FTC’s Bureau of Consumer protection. There he led consumer protection efforts in financial technology and other sectors and supervised investigations and enforcement actions involving consumer protection issues on technology platforms. Duane, thank you for joining us.

 

So as we know, the FTC has held a series of hearings in the fall and spring examining whether broad-based changes to the economy, technology, and international development might require any adjustments to competition and consumer protection law, policy, and enforcement. Maureen, can you let us know why the FTC undertook the hearings?

 

Maureen Ohlhausen:  When Chairman Simons came into office in May of 2018, he expressed an interest in revisiting an approach that his former professor, Chairman Bob Pitofsky, took in 1995, which was to have a wide-ranging set of hearings which were called the Global Competition and Innovation Hearings. Chairman Simons’ opening remarks for the new round of hearings pointed back to those hearings as a first major step in establishing the FTC as a key modern center for competition policy research and development and to seek recommendations to ensure the competitive of U.S. market would continue.

 

So harkening back to those 1995 hearings as a template, Chairman Simons has used these hearings as an attempt to address some of the issues that are being -- the hard questions that are being asked of antitrust and the agency these days. Is antitrust up to the task? Is consumer welfare the right standard? Have the agencies payed enough attention to other types of issues? What about vertical mergers? There’s kind of a host of questions that are being raised these days involving antitrust and privacy and consumer protection issues.

 

And Chairman Simon’s view as that having these hearings would be an opportunity to bring lots of voices into the debate: academics, industry, economists, other policy makers in other parts of the government--have a discussion and then, from that, to be able to develop some ideas of where changes might be necessary and, if so, what those changes would be.

 

Svetlana Gans:  Great.  Thanks. Duane, the Office of Policy Planning is the office that is putting these hearings together. Can you talk about each other office or division’s role in organizing the hearings and helping with the hearings?

 

Duane Pozza:  That’s a great question. I really think that these hearings have been a commission-wide team effort that has involved really just all aspects of the different bureaus and divisions of the commission. As you mentioned, the Office of Policy Planning has taken the laboring oar on organizing all the hearings, which is quite a task. And that is an important office within the agency for developing these sorts of policy approaches through these kind of things, like workshops. They’ve had substantial input from each of the bureaus, as well as the divisions within the bureaus. So there’s both the Bureau of Consumer Protection and of Competition.

 

Just looking at the privacy hearing, for example, you see, among the moderators, everyone from all levels of the Bureau down to staff attorneys who are actually doing a lot of work in privacy who are moderating many of these panels. Another key input is the Bureau of Economics, which is a very important part of the agency’s mission and work. Certainly, members--economist and management there also participated. And we even saw in the hearing on international affairs, International Affairs -- that’s a separate office -- also involved and really bringing together stakeholders globally on a lot of these same issues. So I think it’s been a real big group effort and quite a logistical challenge that they have pulled off.

 

Svetlana Gans: So with OPP leading the charge, with other divisions helping out by moderating and providing questions and content for the panels, how does that work internally in terms of the process for the FTC to issue any output or summaries from the hearing?

 

Maureen Ohlhausen:  Previous iteration at the Federal Trade Commission, I was head of the Office of Policy Planning. So I held hearings and issued reports and recommendations. So there’s a lot of different ways it can go, actually, from hearings like these. These are so wide-ranging I don’t quite know what the output will look like. We have some ideas that we can talk about later. But from these broad-based hearings, you could end up with a broad-based report, much like the 1995 hearing ended up with two kind of broad-based reports. The FTC has sometimes done a very deep dive on particular issues based on hearings. For example, when we did the hearing on competition in broadband, we ended up with a very lengthy but focused report just on that issue. So there can be a host of different outputs from these types of hearings.

 

I think that these have been so broad in scope I wouldn’t anticipate that there would be one report that encapsulates all of it because I think that would be quite a large project. But typically, the output -- the reports have the input. They take all their public comments, the things that each presenters at each particular hearing said and try to synthesize it. And you have input from the Bureau of Economics, the Enforcement Bureau, Bureau of Competition, Bureau of Consumer protection to fashion whatever is the output. If it is going to be an official report of the agency, then it would need to be presented before the commissioners, and they could approve it as a staff report or approve it as guidance or something like that.

 

There is also the option -- when we did the FTC at 100 in anticipation of the FTC’s 100^th anniversary, which I headed up for Chairman Kovacic, that ended up just being a chairman’s report. So there are a lot of different outputs that could emerge. We have some ideas of what might come out of it, but the possibilities are quite broad.

 

Svetlana Gans:  Okay. Great. Thank you so much. That’s really helpful. So let’s take a deep dive in terms of the specific topics that the FTC explored at the hearings and get your thoughts on what you think, number one, what the FTC examined, the questions presented, and, number two, what you think might be the output from the specific hearings that the FTC put on. So Maureen, let’s start with you. The FTC had a hearing concerning platforms. Can you talk a little bit about what the FTC examined in that hearing?

 

Maureen Ohlhausen:  Multisided platforms, they’ve been a hot topic in antitrust. We think about them in the tech space. A lot of big tech players are multisided platforms, but that’s not the only place where they arise. In fact, a recent Supreme Court case, the Amex case, involved payment systems as a multisided platform. And what the FTC -- the questions that the FTC put forth for discuss where what are the defining characteristics of multisided platforms, which still bears discussion.

 

I actually went to the oral argument for the Amex case, and that was a big part of the discussion in front of the justices. Well, what makes a multisided platform? Is every transaction a two-sided market, or are some just direct? What makes something a platform like that? Are there adjustments to antitrust analysis necessary to account for the special characteristics of multisided businesses? The way I think of a platform is that you’re taking people on one side of the market, whether it is viewers or it is merchants, and then the platform is connecting them with people on the other side of the market, whether it’s advertisers or it’s purchasers or something like that.

 

And the platform brings them together to create a transaction that would be very difficult to do otherwise. It’s a very efficient way to connect these two sides. But sometimes the demand on one side is relevant to the demand on the other side, and sometimes it’s not. It’s kind of not a one-size-fits-all kind of analysis.

 

Some of the other questions the FTC asked were how should the courts and agencies define relevant antitrust markets and measure market power for multisided platform businesses? What side of the market do you look at for market power? And for platforms in a tech space, people are often saying, “Well, antitrust doesn’t work because people are using this platform for free,” so there’s no price. And it can’t be measured. But you might say, well, there’s a price on the other side. There might be a commission that needs to be paid. Or for advertisers, they’re paying to have their ad served to the viewers who are seeing things free. So I think that definitely bears some -- requires some important discussion.

 

Other questions is what’s the relevant network effect? The FTC looked at that in multisided platform markets. You tend to have strong -- you might have strong network effects because the platform and the network becomes more valuable to each user the more people who are using it. You join a social network because you want to see all the other people on it. And as more people join, it becomes more valuable to all of you, and that creates network effects.

 

Another question the FTC asked is how should the courts and agencies evaluate exclusionary conduct by firms competing in multisided platform market? And they identified things like predatory pricing or vertical restrained, most favored nations clauses, and actions to undermine rivals who depend on platform infrastructure. The fifth question was are there unique pro-competitive justifications for these types of conduct by firms competing in multisided platform markets? And then the final question the FTC identified is what’s the relevant legal precedent

for evaluating antitrust concerns related to multisided platform businesses?

 

So you can see in the questions the FTC identified they were bringing forth the kinds of questions and trying to spur input and debate on some of the hottest topics in antitrust today, often related to the tech industry but not solely.

 

Svetlana Gans:  And what have some of your key takeaways been on that topic through the FTC hearings process?

 

Maureen Ohlhausen:  Well, personally, I think some of the key takeaways from this have been figuring out what the relationship -- or trying to figure out what the relationship is from these hearings to then the FTC announced that its got this tech task force and that the task force would be looking at in mostly the antitrust space but also has some possible overlap with consumer protection/privacy issues. So are these kinds of issues now being explored -- I think they are being explored by the tech task force and involving particular players in the market. So the hearings seemed to lay some of the groundwork, and then you’ve got the tech task force kind of taking that theory and applying it in particular investigations. We’ll see what the ultimate output is.

 

But it went from hearings to the tech task force talking to a lot of people, asking a lot of questions. And now, reportedly, the tech task force has started some investigation. So it kind of remains to be seen what will be the outcome. We have some suggestions from Bilal Sayyed, the head of the Office of Policy Planning, that some guidance document might emerge, or a series of guidance documents might emerge. And one of them Bilal identified in a recent speech at Georgetown. He said one of the next steps in the hearings is the articulation and publication of a clear analytical framework for the evaluation of unilateral conduct by allegedly dominate technology platforms. So it will be interesting to see how they take what they heard at the hearing and perhaps distill it down into what this guidance document might look like.

 

Svetlana Gans:  The FTC also examined the issue of vertical mergers in the hearings. Can you describe what key questions were presented in those hearings and what your key takeaways have been?

 

Maureen Ohlhausen:  Sure. So vertical mergers have been a very hot issue, and you see it in the FTC enforcement itself. There have been some issues involving strong disagreements between the commissioners about how vertical mergers should be treated and what concerns there should be. So they explored some of those kinds of questions. They looked at issues like should the U.S. antitrust agencies publish vertical merger guidelines.

 

Right now, there’s a set of guidelines that DOJ had put out, but everyone agrees they’re out of date. I think the agreement is less full on, well, what should the new vertical merger guidelines look like? One of the things that we’ve heard is that DOJ is working on new vertical merger guidelines. And the FTC has said that it’s working on commentary to vertical merger guidelines. So that will be interesting.

 

So one of the questions that the FTC raised at the hearings are what should be done? What guidance should they provide regarding theories of competitive harm and the treatment of transaction related deficiencies in vertical mergers? Should the guidelines recognize the presumption of anticompetitive harm? Then, how do you overcome that presumption? There’s a big debate about using behavioral remedy in a vertical merger.

 

In a horizontal merger, we often have a structural remedy if there’s a problem that can be solved that way. The entities need to devest the assets. You can sell an overlapping asset to some other player in the market who can maintain the competition. But by definition, a vertical merger does not create a horizontal overlap, so there’s not that easy spin off an asset kind of issue. So there’s this question about, well, should behavioral remedies be the right approach in vertical merger?

 

Makan Delrahim, the head of the antitrust division, has expressed a strong, leaning against having any behavioral remedies. The FTC has been less categorical. It has accepted a behavioral remedy in, for example, the Northrop-Orbital ATK merger. So that’s one of the questions that they teed up for discussion. And then, also, at the vertical merger hearing, one of the other questions is, interestingly, how does consumer welfare play into this also?

 

So I think those are some of the issues that might be discussed. Well, obviously, consumer welfare is kind of a big freestanding topic on its own. But in whatever comes out on vertical mergers is interesting. And that’s one of the other areas that Bilal identified as needing a clear analytical framework for the evaluation of vertical integration through acquisition or merger. So we’ll see what emerges from the FTC on that and also the DOJ.

 

Svetlana Gans:  One other topic that they explored at the antitrust hearing was nascent competition and how the purchase of nascent competitors might change the marketplace dynamic for both other competitors and for the purchaser. Can you describe a little bit what the FTC focused on with respect to nascent competition issues?

 

Maureen Ohlhausen:  So again, that’s become a very hot topic, catch-and-kill mergers, elimination of a nascent competitor. So the questions they asked are what’s the appropriate antitrust framework to evaluate acquisitions of potential or nascent competitors? And they specifically focused on high tech knowledge-y markets. So when I was there, we actually brought up an actual potential competition case.

 

It wasn’t in a high tech market. It had to do with sterilization of medical equipment and other things like that. It was called Steris. And we weren’t successful. We couldn’t convince the courts. We did bring a case called CDK Automate. It was a merger challenge where, in a concentrated market, one of the big players was buying an upstart. And we had reason to believe, I should say, not just felt -- we had reason to believe that it was going to reduce competition because this smaller player was poised to start really cutting into, we thought, the market share of the big player. And it seemed like the big player had plans to, in the merger, take over the little player and kind of take away what made it special and disable some of its most appealing attributes.

 

So the FTC has been dealing with these issues, and parties band in that. But it’s been a challenging area of enforcement, so the FTC in these hearings is asking what the appropriate antitrust framework -- is the current antitrust less sufficient for developing challenges to these types of acquisitions? There are serious questions being raised about whether the agencies can detect early enough that this new merger is going to be anticompetitive in a product or market that hasn’t even been really developed yet.

 

The third question is how should the antitrust agencies evaluate whether a nascent technology is likely to develop into a competitive threat in a dynamic high technology market? So there’s that problem teed up. And then finally, what are some pragmatic approaches that the antitrust enforcement agencies could consider for enhancing their evaluation of these types of acquisitions? Because that’s always the challenge as an enforcement agency.

 

They’re going to have to show proof if they’re going to challenge one of these or try to, even more difficult, undo one that had previously occurred. They have to be able to show the evidence that this was anticompetitive. That was one of the other questions -- well, issues that the FTC raised in workshop -- sorry, in the hearings.

 

Svetlana Gans:  Right. Thanks so much, Maureen. Duane, let’s turn to you and talk a little bit about the FTC’s hearings covering consumer protection issues. The FTC had two days of hearings in April covering privacy. Can you talk a little bit about the key issues that the FTC analyzed in that hearing and any thoughts you may have on what the FTC may be doing in terms of output with respect to the privacy hearing?

 

Duane Pozza:  Sure. As you mentioned, the privacy hearing took place over two days in April of this year, and it consisted of ten panels. And each panel had a discrete topic. So they asked a lot of questions, safe to say, about privacy. And the backdrop is that, in 2012, the Commission put out a privacy report that sort of outlined views on privacy best practices. And part of the idea behind this hearing was to attempt to comprehensively reevaluate whether or not there should be sort of a change in the FTC’s approach to privacy, in part caused by technological changes. So that was the backdrop, I think, of all of the different panels.

 

It sort of grouped them into five basic questions. This is a general overview of what I think their main questions were. The first is what are the goals of privacy protection? There is quite a debate about really what the point of having specific kinds of privacy laws is. Is it to protect consumers against specific identifiable harms? Is it a more nebulous version of privacy interest that consumers have?

 

So for example, some of the panelists talked about the need to ground any sort of privacy enforcement in vindicating specific kinds of injury, like a risk of financial harm from your information, for example, being stolen or maybe a risk of reputational damage. Although, that was also debated based on some sort of privacy harm. On the flip side, there are definitely certain advocates who think that the sharing of information for use in, say, targeted advertising is itself something that the privacy laws should attempt to address. And there’s a question as to whether or not that’s really sort of harmful to consumers. Targeted advertising, obviously, has many benefits and it doesn’t necessarily fit into that same sort of harm framework. So that, I think, is a foundational question of trying to figure out where we go on privacy.

 

The second big question was what are consumer expectations around privacy? The backdrop to trying to figure out the way forward on privacy from a consumer protection side is what do consumers really want. You see, for example, that if you’re talking about your standard data driven advertising model, a model that allows platforms and websites to provide sort of free information services in exchange for consumer data they use for advertising, that’s incredibly popular. There’s a question about whether or not costs should be imposed on those operators if consumer behavior is such that they keep using them, that they seem to be desirable. So there’s a lot of discussion around the consumer expectations around privacy and these advertising models specifically.

 

The third is what kind of information is highly sensitive and it deserves greater protection? Traditionally, privacy advocates and enforcers have distinguished between different kinds of highly private information, like social security numbers or health records, for example. So there’s a discussion about sort of the range of what would be considered to be highly sensitive, things like geolocation data, for example, or data that could potentially be deidentified using modern technology. The fourth is getting to sort of really big questions. What’s the best regulatory framework?

 

So traditionally, a lot of the approach to privacy has been the so-called notice-and-choice model, which is the idea that consumers should have an understanding, be given notice of what the privacy practices are of a website or a service or anyone who they’re dealing with on a commercial basis and then make a choice about whether or not they want to continue to engage in that service. Obviously, privacy policies are very long, and people probably don’t read them. There’s statistics about that. And there’s a question about whether or not there should be something more protective or whether or not that’s an effective way of setting up sort of privacy framework from empowering consumers.

 

You see -- and there was a discussion about more specific kinds of consumer tools or often, in the GDPR framework, rights to, for example, access to a consumer’s own data, the right to request deletion of the data or correction of the data. These go a step further. They’re giving consumers the opportunity to sort of control, in some sense, their data after it’s been collected by a company that they’re engaged with. These imposed significant compliance costs on the companies themselves. Obviously, there’s empirical evidence that’s coming out of what’s going on in Europe under the GDPR. And there will, I think, continue to be effects as we see some states moving towards this kind of general framework of something that is more regulatory.

 

And then the last piece was “How should companies be held sort of accountable?” is how they put it. There’s different views on this. One is sort of the market driven view that consumers should have the tools to make a choice to deal with companies. And if they are choosing to deal with them, that is the best way to control any sort of perceived privacy violation. Let folks decide. And that obviously -- there are different views on that. There was also a discussion about whether or not, if there are violations, the FTC has the right tools. This commission has called for, for example, civil penalties for the first time violation to basically have some financial penalties if there are privacy violations.

 

And then sort of on the spectrum of potential ways in which companies could be held accountable would be whether or not there need to be new laws. So the FTC has the authority to enforce a variety of privacy laws. A lot of it is under Section 5 of the FTC Act. But obviously, there’s a broader discussion about whether or not there should be more specific laws that would be passed and be given to the FTC. You’d also asked, Svetlana, about where we see it going in terms of an output.

 

I think that remains to be determined. I think, unlike the competition side where we have a little bit more of a hint on what the actual outcome would be, it’s a little bit harder to tell. I think if you look at what’s been done in the past, it’s reasonable to think there will be a report of some sort that talks about the current stage of the FTC’s thinking on privacy. It’s also an area where there might not be a lot of consensus. It’s hard to tell exactly what the report looks like or whatever statements coming out of it look like.

 

Svetlana Gans:  So sticking with the privacy topic, does the FTC’s work on privacy impact in any way what Congress is looking into right now with respect to a potential baseline privacy law?

 

Duane Pozza:  I think it does. I think where we are, generally, in terms of the broader side-all debates over privacy is there’s some what of a dialogue going on here where Congress is currently -- between Congress and the agency. Congress is considering various proposals, although they have not advanced very far, to develop different kinds of sort of models of a privacy law. And they have not yet reached consensus. Yet, the Commission has indicated that it would like to see a few specific things that have impacted the privacy enforcement, like civil penalties and also the ability to go after common carriers and non-profits.

 

But beyond that, on the substance, I think it will be interesting to see where the Commission goes in terms of any concrete recommendations on anything that would be sort of more substantive, beyond just augmenting their sort of authorities or powers or rulemaking, for example, with Congress. I think there could be, again, differences of opinion among commissioners as to whether or not they are for sort of a more prescriptive privacy law being passed by Congress. But I think whatever output comes out of these hearings will influence, in part because it is a bipartisan agency, what Congress might be able to possibly pass, not saying they will -- but as they look towards trying to pass something next year.

 

I will say the other piece to this is -- the elephant in the room is that, while Congress has not really been acting, states have gone forward. California passed its CCPA, which is a much more regulatory model than with these additional sort of consumer rights. That is different from sort of the framework that the FTC is enforcing. So that’s also been suggested that that could be something that Congress would act. And it will be interesting to see how the existence of these separate state by state laws influences sort of what the FTC says about its privacy recommendations.

 

Svetlana Gans:  So one other topic for -- it might actually be on the intersection of competition and consumer protection, but it was big data and AI. Duane, can you talk a little bit about the issues the FTC examined in that hearing and what some of your key takeaways were from those hearings?

 

Duane Pozza:  So there was a hearing on -- they called it algorithms, artificial intelligence, and predictive analytics, which was pretty broad. It had both consumer protection and competition angles, competition angles like the issue of algorithmic collusion, for example. On the consumer protection side, I think a big takeaway from the hearing, which I think was really designed to flesh out what are the potential issues, was that it’s sort of early days. I think this hearing was a model of the Commission trying to get a sense of the areas in which it is likely to focus some additional efforts. It’s not as far along or developed, obviously, as sort of privacy.

 

But that said, the hearing on AI built on work that the Commission previously had done, specifically on facial recognition, but then also, in big data, I believe that report was from, I think, 2016. The big data report has a lot of takeaways, and I think it goes through a lot of the issues that underlie the kind of consumer protection issues that we’ll see in AI. And it builds on top of it. I’ll just run through three that I think surfaced and that were talked about a lot.

 

The first one is issues of bias and fairness. There’s a concern that, for example, AI processes might replicate biases that are in the underlying dataset in a way that might cause some sort of discriminatory outcomes. Once you start talking about fairness, you start getting away from something that fits into a regulatory framework. But that is sort of the language still being used. As the big data report pointed out and as was discussed here, there’s some sector specific rules around the way AI could be used that might result in some unlawful bias or discriminatory outputs, for example, fair credit. But then there are some areas where it sort of -- there aren’t those very specific laws.

 

The second piece that was talked about was I would group as explain-ability and transparency. There was concern that AI might not be sufficiently explainable or transparent. If something goes wrong, you don’t know why or even that it’s something that sort of humans who develop the algorithms would not be able to sort of control. Again, if you look at the big data report, they point to credit decisions. That’s an area where there already is this sort of established framework of, okay, you need to be able to explain credit decisions. And if you map AI on top of that, you’re mapping it into an existing regulatory framework. Again, and these are laws like the FTC would also be able to enforce. But outside of that, it’s still going to be developed a bit.

 

And the last piece was a question about whether or not this notice-and-choice regime that you have from privacy would also apply to AI or there would be some sort of disclosure requirement around use of AI or algorithmic processes. I think that there was a recognition that, given that machine learning, AI, algorithmic decision making has become more and more ubiquitous, that it’s not really the kind of thing where you can require disclosure everywhere. Your voice-activated speaker in your house might be using AI or it might not. But that is sort of a background to a lot of modern technology. So I think, overall, there was a recognition that the technology is moving quickly and an attempt to get a sense of what might be the consumer facing and potential competition issues that continue to focus on.

 

Svetlana Gans:  Maureen, one of the issues that we’ve been hearing a lot about in the news and at the FTC hearings is the potential intersection between competition and privacy. Can you explain a little bit about what folks are talking about and your view as to whether there is some sort of intersection between the two?

 

Maureen Ohlhausen:  This is a topic that really started to percolate into the antitrust debate starting probably five or six years ago. This question of whether private -- well, even before that, actually, going back to the Google-DoubleClick merger, which I think was around 2004, so even further back. So there’s this question of whether -- what was kind of started out with -- whether allowing a merger between two companies that had consumer -- datasets of consumer information, allowing them to merge even if it created efficiencies and new products or something like that -- whether, if it had a negative impact on privacy, that would be a grounds to stop the merger under antitrust law. So the FTC, the majority rejected that contention, allowed the Google-DoubleClick merger to go forward, pointed out that antitrust law is different. It’s a separate goal than privacy law.

 

There are subsequent mergers where these issues have been raised, and the FTC had pointed out that if there is a consumer protection privacy violation by the company -- say it made a promise about how it was going to use certain data -- that was in the Amazon buying WhatsApp. The question was, well, the data on WhatsApp had been collected under one set of privacy promises. Was Facebook going to adhere to those? And the head of the Bureau of Consumer Protection wrote a letter saying, “Well, you have to keep your privacy promises. And if you don’t, it’s a consumer protection violation.” But it wasn’t, again, a reason to stop the merger.

 

So initially, I think it started out with that kind of question. Should an agency challenge a merger because of its impact on consumer privacy, not where the entities were competing on privacy, where that’s a kind of normal merger kind of factor you might look at. Is this going to reduce competition in the area in which the entities are currently competing? From there, then, the debate has moved on into the question of whether the fact that a company has a large amount of consumer data -- is it giving it some kind of ability through its market power to impose terms on consumers to get more information out of them? And therefore, it would be some kind of antitrust violation.

 

So that theory was teed up by the German antitrust agency, the Bundeskarellamt. It brought an issue to decision saying that because Facebook was a dominant player in social media that it had used that dominance to extract more information from consumers than consumers wanted to share and that it had violated the general data protection regulation in the European privacy law, GDPR. Which is interesting when you have the antitrust agency saying, which doesn’t enforce the privacy law, that it was a violation. So the Germans, kind of relying on old German case law, the German antitrust enforcers said it’s a violation of antitrust law because you’re violating people’s privacy.

 

Interestingly, that’s at appeal to the intermediate court in Germany who disagreed, who said that’s not what an antitrust analysis is supposed to be. It’s supposed to look at competition, not at a consumer protection, privacy kind of theory. So that’s a case that’s actually played out, still to be resolved because the Bundeskartellamt said it’s going to take an appeal from that intermediate court decision. But these are the kinds of issues that are being raised right now. Does a dominant platform or big platform’s ability to collect a lot of data about consumers or about people who transact business on their platform who might also be competitors to them -- is that an antitrust violation? Should it be? If it’s not, should it be an antitrust violation? So I think those are some of the issues.

 

Now, my view has been that you can -- we’ve used antitrust for many years to look at is there going to be an impact on competition from a merger. Are there datasets about information, sometimes even consumer information, that combining them is going to allow an anticompetitive effect to occur? So we kind of have the tools to look at that. And then separately, what’s consumer protection law? What’s privacy law supposed to do? Privacy law is supposed to look at an individual consumer’s interest, a promise that was made to that person or some sort of unfair practice that is causing them some kind of harm. And if there’s a problem there, whether you’re a big company or a small company, consumer protection privacy law is the right path towards that. I’m concerned about using a tool like antitrust when you have a perfectly good tool in privacy law.

 

So that’s kind of where those issues are coming from. Now, interestingly, kind of a third strain of this is if privacy law means -- like the new privacy law in Europe, GDPR, if there’s a new privacy law implemented in the U.S. caused a reduction in the ability of companies to collect or share information about consumers, would that give an undue advantage to the large online players who already have that information such that they should be forced to share their data to foster competition? It creates some very strange cross currents and dynamics. But that’s definitely something that’s being discussed in Europe. And some people are sort of raising some of those issues here as well.

 

Svetlana Gans:  Duane, you mentioned a little bit about the FTC’s big data report and kind of some of the relevance in that report to the AI concepts that were discussed at the hearings. Can you tell us how the FTC has handled emerging technology issues earlier? Are there other things they’re looking at for baseline information outside of the big data report?

 

Duane Pozza:  You know, I think, historically, the FTC often has workshops or hearings or other sorts of ways for public comment when dealing with new technologies in an effort to really understand the potential issues and have a public dialogue about it before launching into sort of enforcement. That tends to be the trend. I think, if you look at over the last few years, there’s been, for example, some of the stuff I worked on when I was there was financial technology or FinTech. There were a number of public workshops, among many other things dealing with privacy, that dealt with these emerging issues and how potentially to engage on them.

 

On the enforcement piece, because so much of what the agency does do with enforcement, a lot of the way that -- not always, but it attempts to take enforcement actions in ways that are technology neutral. So the idea would be that, if there’s an enforcement provision, it’s applying established consumer protection principles. And you have something like Section 5 of the FTC Act, which is principle based, as opposed to really trying to regulate the underlying technology itself. I think, from my experience, there was a lot of care given at the time or attention paid to trying to talk about principles as opposed to really going after or imposing orders that might restrict the technology. So I think that that is part of the ongoing dialogue. I think some of the technology, just to take AI, are really putting pressure on that in a way that is a little concerning to me.

 

To take one example, facial recognition technology is not always driven by AI, but it’s something that there’s quite a large public debate about the extent to which it’s used. Is it accurate? Does it have problems? Is it offensive in some way? The reaction that some have had, not just at the FTC but even some local governments, has been to ban the technology, ban the uses of it. Whereas, I think that there’s a role for an approach that is more about trying to figure out the potential harms, or the potential things that could go wrong, and then try not to restrict the technology, which has many, many beneficial uses, but instead to try to figure out where there are harms and ways to cure them. And I think that as the FTC considers these new technologies it is best situated to try to make sure that it’s looking at them in ways that doesn’t impose additional sort of tech specific obligations.

 

Svetlana Gans:  Thanks, Duane. Duane’s discussion of the identification of potential harms and trying to remedy those harms made me think of, Maureen, your initiative at the Federal Trade Commission when you were acting chairman -- was the informational injury workshop, which was a great idea and initiative. Can you just tell us a bit more about what the informational injury initiative tried to do at the FTC while you were chairman?

 

Maureen Ohlhausen:  The FTC Act in the consumer protection area has two parts. So it’s unfair or deceptive acts. So deception is pretty straightforward. You make a promise about how data is going to be used, collected, shared, protected. You don’t keep it, and you deceive consumers. Unfairness doesn’t rely on a promise. It relies on whether there is an act or practice that causes or is likely to cause substantial injury to a consumer that the consumer can’t reasonably avoid and that’s not outweighed by [Inaudible 44:49] benefits to competition or consumers.

 

So the FTC has brought a lot of enforcement actions based on unfairness. So to continue to use that tool, I thought it was important to get a good handle on what are the kinds of injuries that can result to consumers that could rise to the level of substantial injury. Hence triggering meeting the statutory requirement for unfairness caused by the exposure of information. So a lot of the original early enforcement cases focused on the exposure of financial information, social security numbers, credit cards, account numbers, things like that where the consumer would suffer financial injury. And everyone could agree that’s substantial injury. Because the other thing about the unfairness -- the kind of gloss on unfairness as a substantial injury is it can’t be something that is too speculative or that is too unpredictable.

 

So I wanted to talk about what types of informational injury, so injury from the exposure of information, would meet that test. The FTC has brought cases about the exposure of medical information, and often that’s a HIPAA violation. So you can kind of proceed under that. But were there types of injuries from the exposure of things like medical information that would rise to this level? And we did find -- the FTC did bring certain cases based on that type of injury where someone lost their job, for example, because their medical information was exposed.

 

We also looked at the exposure -- there are some cases the FTC brought where it was unauthorized surveillance in the home where web cameras or laptop cameras were turned on, and it collected pictures of people in private moments, things like that. And we thought we needed to have a good grounding in that would that be a substantial injury that would meet the test. That was what the workshop was directed to. Given the increasing pressure on the FTC to take action, to be an active enforcer of privacy, I thought it was important to put better definitional boundaries around what kinds of substantial injury might rise to the level of an FTC unfairness case. So that’s what the workshop focused on and also perhaps what wouldn’t be sufficient, what kinds of information wouldn’t be causing substantial injury. So that’s what the workshop was about.

 

You had asked about privacy and competition, and my answer neglected to mention that Bilal Sayyed, in his Georgetown speech, mentioned that the FTC was going to prepare and update an addendum to the commentary on the horizontal merger guidelines that address acquisitions where the concern is diminished competition for non-price attributes. So that could be diminished competition on quality. And privacy could be considered a quality attribute and acquisitions where data is a key asset or output of both parties. So that may be one of the paths that the FTC is going to follow to try to give more guidance on this: how do data and privacy and competition kind of intersect? Now, that’s in the merger guidelines, as I said, but we’ll see how it might play out more broadly in conduct cases as well.

 

Svetlana Gans:  That makes sense. So the last question, since we’re almost at shore, we talked a lot about the hearings and the potential output. Do you have a sense on when the FTC may begin issuing reports or commentary stemming from the hearings process?

 

Maureen Ohlhausen:  Well, Bilal said that this was the number one priority for the Office of Policy Planning, that they were already working on these. So my expectation would be we might start to see -- we’re what is it? Early October. Perhaps we would see something -- the first one this winter. But they’ve taken on quite a big task for themselves. So I hesitate to predict when they will all emerge. And of course, as I already mentioned, I think some of the learning from the hearings is already being taken up with the tech task force.

 

Svetlana Gans:  I wanted to thank both of you so much for your time and work on this panel. We shall see what happens at the FTC. So thank you all for joining us. And Micah, I’ll turn it back over to you.

 

Micah Wallen:  Thank you, Svetlana. And on behalf of The Federalist Society, I’d like to thank all of our experts for the benefit of their valuable time and expertise today. We welcome listener feedback by email at [email protected]. Thank you all for joining us. We are adjourned.

 

Operator:  Thank you for listening. We hope you enjoyed this practice group podcast. For materials related to this podcast and other Federalist Society multimedia, please visit The Federalist Society's website at fedsoc.org/multimedia.