As Germany Targets Facebook’s Data Collection, DOJ Antitrust Division Suggests Friendlier Approach to Data-Powered Digital Market Leaders

by Patterson Belknap Webb & Tyler LLP
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Information can be an invaluable asset.  This is especially evident in the technology sector, where companies use increasingly sophisticated methods to collect, aggregate, and analyze data.  Exclusive possession of data can, of course, confer significant competitive advantages—but may also prompt legal challenges from competitors or scrutiny from regulators.  Authorities in France and Germany have investigations underway into whether the collection and use of consumer data by major online platforms including Facebook and Google are having anticompetitive effects.  And on December 19, 2017, Germany’s competition authority—the Bundeskartellamt— informed Facebook that it “holds the view that Facebook is abusing [a dominant market position] by making the use of its social network conditional on its being allowed to limitlessly amass every kind of data generated by using third-party websites and merge it with the user’s Facebook account.”

So far, however, the United States has not followed the European example.  Speaking earlier this month at a New York conference on Tech, Media & Telecom Competition, Deputy Assistant Attorney General Barry Nigro suggested that the Department of Justice has no current plans to do so, expressing “skeptic[ism]” of using federal antitrust laws to force companies to share their data.

Nigro distinguished between two uses of data.  First, companies may use data in a more traditional way—to “become more efficient” and to obtain “important feedback and insights” to “solve problems and improve its products and offerings.”  Second, recent technological developments have allowed the “aggregation and commercial use of large quantities of data,” which can “give a firm a competitive advantage over its rivals.”  Such advantages may be compounded by network effects “as the data becomes more comprehensive or the platform gains more users.”  It is this second use, he observed, that has caused “some enforcers” to express concerns—either that “amassing data, and not sharing it with rivals” may in itself be anticompetitive, or that, if “certain critical data” is a source of market power, refusing access to it means that potential competitors in downstream markets might not be able to overcome barriers to entry.  Indeed, these concerns are animating the German Facebook proceeding: the Bundeskartellamt based its preliminary assessment of Facebook’s dominance in part on findings that direct network effects make users “effectively ‘locked in’” and indirect network effects disadvantage would-be competitors, because user-base-driven advertising revenue is impossible to earn when competitors cannot attract users.  More to the point, it found that “Facebook has superior access to the personal data of its users and other competition-relevant data,” and “[b]ecause social networks are data-driven products, access to such data is an essential factor for competition in the market.”

In response to such concerns, Nigro pointed out that the Antitrust Division already looks at data, among other assets, in determining whether a merger or acquisition would result in reduced competition under Section 7 of the Clayton Act.  It asks, for example, whether “the transaction combines substitutable datasets” or “transfers control of critical data on which the acquiring firm’s competitors depend and for which there are inadequate alternatives.”  He explained that such concerns prompted the Antitrust Division to require Thomson to divest several financial datasets before approving its 2008 merger with Reuters. 

But apart from the DOJ’s routine Clayton Act review, Nigro observed, United States “antitrust law generally does not impose a unilateral duty to share one’s assets with competitors.”  He added that such claims have only been recognized in very limited, almost unique circumstances and are “very rare, and for good reason.”  “There are many reasons to be skeptical of using the antitrust laws to force the sharing of data,” he explained:

First, “forced sharing of critical access reduces the incentive to invest in innovation” because “[d]ata collection, storage, and analysis is not free and not always easily accomplished.”  While acknowledging the potential for forced sharing to promote competition within a market, Nigro suggested that such benefits were outweighed by the prospect of “undermining future incentives to invest in innovation” to create new markets, and would incentivize free riding by competitors.  In his view, “stretch[ing] antitrust law to create competition within the market” by “[m]andating access to data is just as (or perhaps more) likely to result in less . . . innovation as it is to enable new competition within existing markets.”

Second, forced sharing “is an inherently regulatory approach” and, in his view, outside the proper purview of antitrust enforcement.  Nigro invoked Justice Scalia’s warning in Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP—which affirmed dismissal of a Sherman Act claim against Verizon for refusing to share its telephone network—that forced sharing “requires antitrust courts to act as central planners,” a role for which they are fundamentally unsuited.  Nigro noted that after Trinko, there remain some narrow circumstances under which forced sharing may be appropriate, such as the FTC’s requirement that branded prescription drug manufacturers make drug samples available to potential developers of generic versions.  But, importantly, he indicated that this requirement does not discourage competition or innovation—rather, it was imposed to “facilitate compliance” with an explicitly prescribed statutory process.

Nigro concluded by addressing the argument, advanced by advocates of more aggressive enforcement, that “network effects,” the “winner-take-all nature of digital markets[,] and the existence of tipping points” require “new tools” to assess market power, or make data inherently different from other assets.  Economic theory, Nigro observed, indicates that, while network effects may diminish competition within existing markets, they do not stifle competition for markets, i.e., “compet[ing] intensely to become the solution most people choose” by developing “innovative products and services.”  For this reason, he concluded, the traditional antitrust framework—which already accounts for network effects, as in the Antitrust Division’s Microsoft case in the late 1990s and recent Clayton Act merger reviews—remains adequate to the task of evaluating and policing competition in data-driven digital markets. 

We’ll be keeping an eye on developments in the German Facebook proceeding and any further indications from the Antitrust Division on how it will approach data and its place in competition policy.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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