AB EXTRA – PRIVACY AND MERGER CONTROL
PRICE AND PRIVACY
Alec Burnside responds to an article in our previous issue on privacy and merger
control, by Francisco Enrique González-Díaz
I
t is a truth universally acknowledged, that a single norm
must determine the parties’ fortune when the European
Commission is in possession of their merger filing.
No-one doubts that the EU Merger Regulation prescribes
significant impediment to effective competition as the test of
compatibility, and that there is no broader public policy test. But
to leap from that truism, as Francisco Enrique González-Díaz
does in the last issue, to the view that privacy considerations
can never be relevant in merger cases, is a sleight of hand that
should not go unremarked.1
Consumer welfare has long been established as the goal of
European competition law and policy, as Neelie Kroes noted in
a speech of October 2005:
“Consumer welfare is now well established as the standard the
Commission applies when assessing mergers and infringements
of the Treaty rules on cartels and monopolies. Our aim is
simple: to protect competition in the market as a means
of enhancing consumer welfare and ensuring an efficient
allocation of resources.”2
A key facet of consumer welfare is for purchasers to have access
to a wide selection of goods and services, varying not only by
price but also in quality. This is reflected in the Commission
Guidelines on horizontal mergers:
“Effective competition brings benefits to consumers, such as
low prices, high-quality products, a wide selection of goods and
services, and innovation. Through its control of mergers, the
Commission prevents mergers that would be likely to deprive
customers of these benefits by significantly increasing the
market power of firms. By ‘increased market power’ is meant
the ability of one or more firms to profitably increase prices,
reduce output, choice or quality of goods and services, diminish
innovation, or otherwise influence parameters of competition.”3
Recent merger decisions bear out this emphasis. For example,
in Ryanair/Aer Lingus, the Commission examined consumer
preferences as follows:
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“In order to analyse the substitutability of scheduled airtransport services from different airports, the Commission
has sought to identify the main factors which are relevant for
individual customers when it comes to choosing between airtransport services out of different airports. The results of the
Commission’s investigation show that the customers take into
account mainly the following elements:
(i) Travel time: All customers have a preference to minimise the
travel time (and costs) and prefer, other things being equal, the
closer airport to the more remote one......
(ii) Travel cost: Customers have a general preference for the
cheapest solution for their journey…..
(iii) Flight times/schedules/frequencies: Most customers also
have a preference for a specific departure and return time and
date and will chose (sic) the airline (and the airport from which
it is operating) which corresponds most to their preferences.
(iv) Quality of service:…air carriers offer different levels of
service. Similarly, airports offer different levels of service. By
way of example, shopping facilities at large main airports may
be relevant for the airport choice of some customers, while
shorter check-in times at some airports might be considered as
an advantage by other customers. ”4
With these tools of analysis the Commission defined
the markets in which competition was to be protected –
competition in which price was only one of four relevant types
of parameter, with quality and other non-price characteristics
giving consumers the basis to distinguish between the services
offered by competitors.
More recently, the European Commission investigated
Microsoft’s acquisition of Yahoo’s Internet Search and Search
Advertising business. The Commission investigated potential
theories of harm affecting the position of internet users,
publishers, distributors and advertisers, i.e. the four main
constituencies with an interest in Internet Search and Search
AB EXTRA – PRIVACY AND MERGER CONTROL
Advertising. With respect to users of Internet Search, the
Commission investigated whether the transaction would:
“post-merger influence the incentive of the players to innovate,
to lower the quality of organic search (i.e. degrading the
relevance of the results) and whether users will be harmed by
a loss of variety.”5
On the facts of the case, not only did the Commission find
these theories of competitive harm unlikely to materialise,
but “the respondents to the market investigation stated that
the transaction will be pro-competitive”.6 Nevertheless, the
case illustrates that, in certain circumstances, the Commission
will consider whether a merger will give rise to a significant
impediment to effective competition by significantly increasing
the market power with reference to non-price factors such
as quality of service (e.g. degradation of search results by
manipulation of these results).
It is no surprise to see the Commission investigating the impact
of a merger on non-price factors of competition, in view of
the business model of many two-sided platforms operating
on the internet: one category of market participants (often
individuals) use the platform free of charge, while another
category (for instance advertisers) pay for use of the platform.
Given that the first group do not pay for use of the service, the
merger can have no impact on price for that group. But it does
not follow that the merger is automatically neutral as regards
their interests. Rather, it may then be relevant to focus the
investigation on other parameters of competition that influence
those users’ choice of service, and whether market power will
increase, and competition suffer, through a foreseeable impact
on the services they receive.
The relevant question to ask for present purposes is therefore
whether internet privacy is such a non-price, quality of
service, parameter of competition. In common with other
pertinent questions of merger analysis, this question needs to
be answered with regard to relevant empirical evidence rather
than dogma. And there is indeed a recognition among users
and competition authorities (and privacy regulators) that the
respect for privacy shown by a service provider is a factor that
influences consumer choice, and so may affect competition.
There have been waves of media coverage recently reflecting
consumer concern over the treatment of personal information,
with consumers abandoning one service provider in favour of
another that shows greater restraint in the use of private data.
Of course privacy advocates call at such moments for action
under specific privacy rules, but consumers may also switch
provider to one showing greater restraint in the use made
of private information received from users. And conversely,
service providers compete to make their offerings attractive by
the privacy attributes of their products.
Privacy is an increasingly important quality-of-service element
for users. As individuals, we expect our service providers to
handle our sensitive and confidential data with due care. This
can be illustrated by the very strong reactions in the wake of
Google’s Street View “screw-up.”7 According to a report in
The Economist,8 the global leader in internet search explained
that an experimental software project designed to gather data
from unencrypted Wi-Fi networks had been rolled out along
with its Street View initiative, which uses cameras mounted on
cars to film streets and buildings. As a result, Google collected
and stored sensitive private data over a number of years. A
representative of the Electronic Privacy Information Center
commented that this “really flies in the face of [Google’s]
assertion that customers should just trust them.”9
The close and increasing trend for consumers to choose service
providers whom they ‘trust’ with their data is noted by the UK’s
Ofcom in its 2010 Media Literacy report:
“...internet users are becoming more knowledgeable about
security issues and less willing to provide personal information
online, according to new Ofcom research. It reveals that 80 per
cent of adults with a social networking profile are now more
likely to only allow friends or family to see it, compared to 48
per cent in 2007.”10
The dynamic process of service providers adapting the privacy
settings of their offerings, in face of consumer expectations,
was amply demonstrated when Google launched Buzz as a
direct competitor to Facebook. Thus “at launch, [Google] set
the default to link Gmail users to people they had frequently
emailed.”11 It then retreated, in the ensuing furore over this
extended use of consumer information that it held for other
reasons. In this episode one can see both privacy issues in
a regulatory sense, but also a competitive dynamic in which
Google must have formed a view as to how best to attract
users. This called for a judgment on privacy attributes of its
existing and new service offerings, and it was one that soon
produced a consumer response.
In line with this description, competition authorities have
considered the impact of privacy policies in merger cases.
Google’s acquisition of DoubleClick brought together two
leaders in the online advertising space (Google, a leader in the
intermediation of ads, and DoubleClick, a leader in various adserving tools used by publishers and advertisers). In the US,
this merger was reviewed by the Federal Trade Commission,
which noted that it had:
“…investigated the possibility that this transaction could
adversely affect non-price attributes of competition, such as
consumer privacy.”12
And on this point the minority was aligned, Commissioner
Pamela Jones noting the argument that:
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AB EXTRA – PRIVACY AND MERGER CONTROL
“…if network effects lead to a reduction in the number of
search competitors, consumers will suffer from a diversity of
choice among search engines, which will reduce the incentives
related non-price dimensions.”13
The European Commission also reviewed this transaction,
but did not explicitly consider a theory of competitive harm
however, at issue in its more recent decision in TomTom/Tele
Atlas. TomTom is the European market leader in software for
personal navigation devices (PND), using the global positioning
technology. It proposed to acquire Tele Atlas, one of only two
providers of digital maps (the other being NAVTEQ) with
a complete coverage of Europe and North America. In its
decision, the Commission noted that:
concerns can be considered as similar to product degradation
in that the perceived value of the map for PND manufacturers
could be revealed [by Tele Atlas, post-transaction] to TomTom.
As a consequence, Tele Atlas’s map database could be perceived
as relatively less valuable than NAVTEQ’s map database.
to consider switching to NAVTEQ.”14
The Commission ultimately dismissed this theory of harm,
to mitigate third-party concerns related to its treatment of
legitimate source of concern for customers, in a manner that
is relevant to merger analysis, and also how suppliers respond
to those concerns, likewise in a manner that is relevant to
merger analysis. So, both TomTom/Tele Atlas and Google/
DoubleClick were cleared, on their facts, but that is no basis
for excluding generally the relevance of privacy attributes as a
well be a matter of legitimate interest with its own body of
open to consideration in competition cases.
In view of case law, commercial realities and consumer
behaviour, therefore, privacy is entirely germane in an
assessment of market dynamics and consumer welfare, for
competition-law purposes. It is a crucial qualitative element
for consumer choice. Far from falling outside the scope of
European and US merger control, it is unavoidable that privacy
considerations are included in competition analysis as one
relevant non-price attribute, in order to maintain a market in
which a multiplicity of competing providers offer consumers
a choice between services with greater or lesser respect-forprivacy attributes.
Competition authorities will therefore pride themselves on
privacy laws are without prejudice to their doing so. n
Alec Burnside represented Microsoft in the Microsoft/Yahoo merger
proceedings, and as a third party in the Google/DoubleClick proceedings.
Footnotes
1
Privacy and Merger Control in the EU, Francisco Enrique GonzálezDíaz, MLex Magazine, April-June 2010 (58-60).
2
Neelie Kroes, London, October 2005, quoted in Richard Whish,
Competition Law (6th Edition), Oxford 2009, p19.
3
38
Guidelines on the assessment of horizontal mergers under the
Council Regulation on the control of concentrations between
undertakings (2004/C 31/03), paragraph 8.
4
Case No COMP/M.4439 – Ryanair / Aer Lingus, [73-74].
5
Case No COMP/M.5727 – Microsoft / Yahoo! Search Business
[202].
6
Ibidem, para. 256.
7
Sergey Brin, quoted in ‘Brin Says Google ‘Screwed Up’ Collecting
Wi-Fi Data (Update1)’, Bloomberg Businessweek, 19 May 2010
8
Lives of others, Economist, 24 May 2010. According to The
Economist, no less than ten privacy “watchdog” authorities around
the world are currently investigating privacy aspects of Google’s
business practices.
mlex MAGAZINE
July-September 2010
9
Google: Street View spycars did slurp your Wi-Fi, The Register, 14
May 2010, (http://www.theregister.co.uk/2010/05/14/google_street_
10
http://www.ofcom.org.uk/consumer/2010/05/uk-internet-usersbecoming-more-security-conscious/
11
Facebook’s Open Disdain for Privacy, John Gapper, Financial
Times, 13 May 2010.
12
File No. 071-0170 - Google / DoubleClick FTC, pp.2-3.
13
File No. 071-0170 - Google / DoubleClick FTC, dissenting
statement of Commissioner Pamela Jones Harbour, footnote 25.
Similarly BEUC (the European Consumers’ Organisation) noted in
a submission to the European Commission in this case that: “The
monopoly power that Google will acquire through this acquisition
will further weaken its incentives to compete on the non-price
aspects of its services, including such quality factors as the privacy
protections it offers consumers”. 27 June 2007. http://epic.org/
privacy/ftc/google/beuc_062707.pdf
14
Case No COMP/M.4854 - TomTom / Tele Atlas [274, 276].