FTC clears Google + DoubleClick, says privacy isn't a big problem
Perhaps this morning's FTC blessing of Google's intended merger with DoubleClick was no surprise, but a read of the final decision reveals an astonishing reason: The Commission claims it wouldn't really have the authority to stop it.
By a 4-1 vote, the US Federal Trade Commission voted this morning to approve the pending merger between contextual ad giant Google and display ad giant DoubleClick, lifting one of the major roadblocks to the deal finally taking place.
The arguments against the merger that the FTC received during its review period centered largely on the possible detriment to consumer privacy: specifically, the possibility that both the combination of the two companies' databases of user trends, added to the coupling of their data acquisition and analytics services, could lead to one private institution that knows too much about its customers. What's possibly worse, with that database arguably accessible via the Internet, it could theoretically one day be pilfered or tampered with.
But in its official decision this morning (PDF available here), the Commission argued that while it takes these privacy concerns very seriously, there frankly isn't very much it could do about them. It could theoretically block the merger on antitrust concerns, which by definition deal with threats to the competitive landscape. However, privacy is by definition not a threat to the competitive landscape.
"This is not the first time that the Commission has been asked to block a merger, notwithstanding that the transaction is not likely to create, enhance, or facilitate market power in violation of the antitrust statutes we enforce," the FTC wrote. "The Commission has been asked before to intervene in transactions for reasons unrelated to antitrust concerns, such as concerns about environmental quality or impact on employees. Although such issues may present important policy questions for the Nation, the sole purpose of federal antitrust review of mergers and acquisitions is to identify and remedy transactions that harm competition. Not only does the Commission lack legal authority to require conditions to this merger that do not relate to antitrust, regulating the privacy requirements of just one company could itself pose a serious detriment to competition in this vast and rapidly evolving industry."
The FTC did go ahead and study how the merger would affect competition, including aspects of the market not dealing with pricing of services. And yes, consumer privacy was one of the factors that its anti-competitive study did take into account, but the overall objective was to determine whether the merger would affect competition by definition.
"We have concluded that the evidence does not support a conclusion that it would do so," the FTC wrote. "We have therefore concluded that privacy considerations, as such, do not provide a basis to challenge this transaction."
The single dissenting vote came from Commissioner Pamela Jones Harbour, who in her dissent (PDF available here) argued that the reason her colleagues came to the conclusion that privacy doesn't play a big role in anti-competition is because they're taking too traditional an approach in evaluating it.
"The transaction will combine not only the two firms' products and services, but also their vast troves of data about consumer behavior on the Internet," Comm. Harbour wrote. "Thus, the transaction reflects an interplay between traditional competition and consumer protection issues. The Commission is uniquely situated to evaluate the implications of this kind of data merger, from a competition as well as a consumer protection perspective."
That interplay could coalesce, Harbour argued, in the creation of a massive "Database of Intentions," borrowing both a phrase and a citation from author and publisher John Battelle. Four years ago, Battelle coined the phrase in a post to his personal blog, as a reference to an emerging database he argued was forming itself on the Internet through a kind of evolutionary merger of the aggregate data being collected by Google, Yahoo, MSN, and others.
In Harbour's dissent, she quoted this paragraph from Battelle: "This information represents, in aggregate form, a place holder for the intentions of humankind -- a massive database of desires, needs, wants, and likes that can be discovered, subpoenaed, archived, tracked, and exploited to all sorts of ends. Such a beast has never before existed in the history of culture, but is almost guaranteed to grow exponentially from this day forward. This artifact can tell us extraordinary things about who we are and what we want as a culture. And it has the potential to be abused in equally extraordinary fashion."
But speaking out separately in favor of the FTC vote, Commissioner Jon Leibowitz argued in his concurrence (PDF available here) that perhaps the only way to effectively regulate "such a beast," as Battelle called it, is to actually let it form first, and then collect a kind of aggregate database on its own behavior.
The first step in that direction, Comm. Leibowitz argued, was taken by the FTC this morning: the issuance of a set of self-regulatory principles for businesses in the behavioral advertising business to follow, whether they're merged or not. This way, hopefully the industry will be inclined to follow these guidelines on its own, especially since the FTC itself believes it may not be able to regulate those particular principles on their behalf.
"The proposed Self-Regulatory Principles that FTC staff announced today are a very useful first step to move the discussion forward," Leibowitz wrote, "but certainly not the last word. We surely need further information and comment to more fully develop an appropriate privacy protocol. More and better empirical data is vital to the effort to develop governing principles and best practices for behavioral marketing, as well as to learn which practices are so egregious as to be deemed 'unfair or deceptive' and subject to enforcement action by the Commission. Simply put, industry participants must stop being coy and start being more forthcoming about their practices, the consumer information they collect, and how they use it."
In applauding the FTC's decision this morning, Google CEO Eric Schmidt simply said privacy was always his company's foremost concern, and that its policy from here on out will be to just stay the course. "For us, privacy does not begin or end with our purchase of DoubleClick," reads Schmidt's prepared statement. "We have been protecting our users' privacy since our inception, and will continue to innovate in how we safeguard their information and maintain their trust."