Deep Dive Episode 141 – Interoperability and Data Sharing: An Antitrust Remedy in Search of a Market Problem?

Data portability has been a hot topic of late, from GDPR to CCPA to the FTC’s recent Data to Go Workshop. To some, data portability is a consumer right to access and move individual data. For others, data portability means the sharing of larger swaths of data with other services and platforms to lower entry barriers to effective competition.

Although both forms of portability aim to enhance consumer welfare and increase competition, data portability raises a host of issues, such as privacy protection, data security, and intellectual property rights. Additionally, there is evidence that data portability mandates, when used as a competition remedy, is costly, ineffective, and may reduce business incentives, and could entrench incumbents by making it difficult for smaller competitors to change their services and modernize their products.

This comes as many competition agencies and legislatures alike are considering interoperability and data portability mandates to increase competition. And, Congress is set to release a report with recommendations for reducing the market power of online platforms, which may include these mandates.

The Regulatory Transparency Project explored the hot topic of data portability over the course of a two-part virtual panel series entitled, “Data Portability Mandates, Consumer Privacy Protections, and Competition Law.” The first panel discussed the consumer protection and privacy implications of data portability, and this panel turned to the use of portability and interoperability mandates in competition law.


Although this transcript is largely accurate, in some cases it could be incomplete or inaccurate due to inaudible passages or transcription errors.

Colton Graub:  Good afternoon and welcome to The Federalist Society’s Fourth Branch podcast for the Regulatory Transparency Project. My name is Colton Graub. I’m the Deputy Director of RTP. As always, please note that all expressions of opinion are those of the guest speakers on today’s call. If you would like to learn more about each of our speakers and their work, you can visit where we have their full bios. 


After opening remarks and discussion between our panelists, we will go to audience Q&A, so please be thinking of the questions you’d like to ask our speakers. This afternoon, we’re pleased to host a second of a two-part discussion exploring the topic of data portability. 


We’re pleased to welcome Jay Ezrielev, Founder and Managing Partner of Elevecon LLC; Bruce Hoffman, Partner at Cleary Gottlieb Steen & Hamilton LLP; and Alex Petros, Policy Counsel at Public Knowledge. Today’s conversation will be moderated by Ashley Baker, Director of Public Policy and Committee for Justice. I’ll now hand it off to Ashley to kick things off. Ashley.


Ashley Baker:  Thank you for that introduction. So, by way of background, just a bit about data portability and interoperability, so many competition agencies today, including those in the U.S., are considering data portability mandates to increase, or smoothly increase depending on how you look at it, competition. 


These would require companies to make customers’ data available to move to other services or to make their services interoperable with others so that users could share their data between services on ongoing basis. However, there is evidence that data portability mandates, when used as a competition remedy, is costly ineffective and may reduce business incentives and could entrench incumbents by making it difficult for smaller competitors to change their services and modernize their products. 


This comes as many competition agencies and legislatures alike are considering interoperability and data portability mandates to increase competition, and Congress is set to release a report—and now they have released a report—with recommendations for reducing the market power of online platforms, which may include these mandates. 


So for those of you who don’t know, over the past two days, we’ve had two reports come out from the House Judiciary Committee—one from the majority, and one from the minority. There is one specific section entitled Data Portability and Interoperability. So, to kick off this conversation, I would just like the panelists to weigh in on the more open-ended question of, and their view, to data portability and interoperability mandated data sharing having a role to play in remedying these competition issues that were the focus of the just released House Judiciary Committee report on antitrust. And with that, I will hand it over to Bruce. 


Bruce Hoffman:  Sure. Thanks. So I want to give you a couple of quick thoughts. I would say, as general proposition, I think data portability, interoperability, or mandatory data sharing, which — those are things that overlap quite a bit, although, there are some differences on the margin or can be differences in terms of what they actually are or what they might require in particular circumstances. 


But I think any of those tools or all of them together can be appropriate tools to remedy anticompetitive conduct or perhaps as remedy use in a merger transaction of some kind. But I think it’s important to bear in mind that when you impose those kinds of requirements, they have significant effects, right? 


So data portability — well, first of all, interoperability raises a lot of questions about, what are you doing to competitive incentives to interactions between competitors? Are you actually just [inaudible 04:27] a situation where firms are going to piggyback on more innovative or more successful firms, which in turn might suppress the incentives of the innovators to really work as a hard as they can to provide the best products or the most innovative products possible. 


Data portability and data sharing have similar issues, right? So data portability can be a solution if, for example, you have a circumstance where there’s arguable customer lock-in because they’ve accumulated a lot of data in a particular system or in a particular ecosystem, and so it’s very difficult to switch to another ecosystem, which in turn could, at least, in theory, create entry barriers. 


So if you allow data portability, then you could resolve those kinds of concerns, but, on the other hand, if you do that, then you’re perhaps going to suppress the incentives of firms to collect and do things with that data in the first place. Data sharing may be somewhat broader, where you say not only do people have — just the user, the person who’s created the data, have the right to move their data with them if they choose to switch, which obviously has competitive implications, right—that certain competition between platforms. 


But data sharing is more of a requirement I think can be better viewed as imposing your requirement on firms to share data with their potential rivals, even where the customers haven’t requested it. And I think, again, you can imagine the circumstances where that’s an appropriate path, and I’ll get to just a couple of those in a second. But the risk there is quite high that you’re essentially imposing on firms a duty to help their rivals and particularly to help the rivals that are less effective or less innovative, less successful, which I think is highly problematic. 


And so I think any of these tools, you got to be very cautious about how you use them and when you use them. So that said, how and when you use these, well, one I think the best setting in which you employ these kind of tools is where you have demonstrated anticompetitive harm. So you have a case where a firm is engaged in anticompetitive conduct, and that conduct involves data issues or interoperability issues, denial of interoperability, for example, and where you can be reasonably confident that you can craft a remedy using one of these tools that’s going to be effective in solving that competitive problem, addressing that anticompetitive conduct and won’t create a high risk of unanticipated negative effects. 


The second scenario is where you do it writ large, ex ante, perhaps with some sort of regulatory tool. There I think antitrust doesn’t have a lot to say. Antitrust is not, for the most part, a system of ex ante regulation of sectoral regulation. Sector regulators do impose these kinds of things. For example, there’s interoperability requirements in the phone system. 


But I think the cautionary note, there, is a lot of regulated environments, that have these kinds of obligations imposed in a broad, ex ante kind of way, often seem to exhibit less innovation and less competition over time than markets that don’t have these kinds of regulatory systems imposed. 


Now, there’s a question about — it’s kind of a chicken-and-egg question. Do you have the market that doesn’t work well, and so you impose these kinds of requirements to help improve competition and what otherwise would be an uncompetitive market, or are you constraining innovation and keeping the market functioning badly by imposing these restrictions? And, actually, both of those things can be true. But I think as a sectoral regulator, or as an ex-ante regulation, this is an area to be very cautious about. Though, I wouldn’t rule it out. It depends on the market. But I think I just stunned everyone into silence. 


Jay Ezrielev:  All right. I’m going to go next. Thank you, Ashley, and thanks to The Federalist Society for organizing this great and timely panel. But let me first speak about data portability, interoperability, and mandatory data sharing as potential antitrust remedy. Called for using these regulatory tools, these antitrust remedies are premised on this notion that large technology firms are holding large quantities of data and that smaller firms and entrants need access to that data to compete effectively. 


I believe this notion is misguided. Data are non-rivalrous. This means that the use of data of one firm does not preclude another firm from using the same data. If a user gives his data to a service provider, he can just as easily give the same data to another provider. Access to incumbent’s data is not necessary for successful entry. 


Data can be an important aspect, but advocates of regulations overstate the role of data as an obstacle to entry. Entrants can acquire data by acquiring customers, investing in research, or licensing data from data vendors. This is the same way that incumbents acquire their data when they enter their markets. There are countless examples of successful entry by online service providers without entrants obtaining access to incumbent’s data—take, for example, Instagram, Tinder, and most recently, TikTok. 

I should also say that, from my perspective, it’s not clear that the antitrust issues discussed in the House Report are actually antitrust harm. But this is a conversation for another day. But if the targets of the House Report actually engaged in anticompetitive behavior by acquiring market power to anticompetitive acquisitions or anticompetitive conduct, there are remedies that are much more direct and effective than data portability, interoperability with data sharing. 


Antitrust enforcers could seek to unwind anticompetitive mergers, break up big tech companies, stop anticompetitive conduct directly, and seek monetary relief. So let me now speak about the potential economic effect of portability, interoperability, and data sharing. 


Data portability allows users to move their personal data between platforms of vendors. This is a benefit for users. Online platforms offer data portability as a feature to their users. For example, the Data Transfer Project is an initiative by Microsoft, Google, Facebook, Apple, and Twitter to create a service-to-service data-portability platform allowing individuals to move their data between online service providers. 


Data portability implicates privacy issues, and there are significant implementation challenges. However, data portability may enhance competition in some cases by making it easier for consumers to switch online providers and avoid lock-in. 


That said, data portability also has some potentially negative effects. Data portability may encourage free riding, which may be bad for innovation. This is especially the case under the proposals that would require incumbents support not just the data provider by the users but also the data that the incumbents develop about the users and their usage pattern. 


So let me now speak about interoperability. Interoperability brings a different set of policy challenges. Interoperability is the ability of different systems to work together or to communicate with each other. Interoperability often uses open standards that allow systems to exchange data. For example, the hypertext transfer protocol is the basis of all communication on the internet. That’s an open interoperability standard. 


Interoperability is often a really good thing. Because of interoperability, iPhones can communicate with Android phones—the important consumer benefit. However, there are also important benefits with having closed systems. Closed and open systems can coexist and compete. For example, the iOS system is relatively closed, whereas the Android system is open. 


The advantage of a closed system is that it gives its operator more control of its functionality and gives it more flexibility to make changes through the system. A closed system, such as iOS, may have stronger privacy and private security protections than an open system based on an Android operating system. An interoperability standard may also force participants into having some common functionality. Whether the benefits of interoperability outweighs disadvantages is the question for the marketplace. 

Should the government force private companies to adopt open interoperability standards for the sake of enhancing competition? I think it’s a bad idea, especially, in markets undergoing changes and innovation and where users use multiple platforms. Closed systems can and do compete with each other. And it’s not at all clear that interoperability with enhanced competition would make entry any easier. 


Imposing interoperability may also inhibit [inaudible 14:13] competition that provides significant innovation. For example, if regulators required interoperability on social media platforms, we may also be using Myspace and be stuck with all of its features or lack of features. Well, on the other hand, we would still have Myspace Tom as a friend. 


So, the last thing, on data sharing proposals that would force companies to share the internal data with competitors, I think that is a very bad idea. Data sharing proposals would diminish incentives to innovate. The incumbent would have weaker incentives to acquire new data and to have to share its data with a competitor. The entrants would also have weaker incentives to acquire new data if you could just free ride and get the data from an incumbent. 


The data sharing proposals would also create unhealthy entanglements between competitors that may facilitate coordination and harm competition. In addition, data sharing proposals may undermine formation of new markets for data transfer, data licensing, where incumbents having generating a lot of data could license their data to other users, or third parties can aggregate data from different sources and merge different datasets. And it merged the data into new data sets and license those out. So I think I’ll stop here. 


Ashley Baker:  Okay. And with that, Alex, the floor is yours.


Alex Petros:  Thank you, Ashley. So, at the outset, I want to say how incredibly honored I am to be speaking alongside Bruce and Jay today. They’ve both had amazing careers, and it’s incredibly humbling to be speaking on the same panel as them. 


So I am here to defend data portability and interoperability. To me, these are objectively good things not just for competition writ large but consumers too. If you were to quiz consumers and their thoughts on data portability and interoperability, their feelings, to me, would be almost universally positive. Well, maybe first they’d ask what those things mean. 


There’s a tendency to talk about these things in a pie-in-the-sky fashion with abstract theories, but really at its heart, data portability and interoperability are about freedom. It’s about freedom to own your own data. Freedom to take your data to the companies you want. It’s important to note that we have interoperability in current regime, and it works great. 


Think about how you can call someone on any telephone network, email someone on any email service. Even on this call, I bet the four of us called in from different networks. You don’t need to worry what networks the person your calling is on. But just imagine the headache if this wasn’t the case; the outrage if tomorrow AT&T was like, “Sorry, you can only call AT&T customers now. No more Verizon or T-Mobil.” That’s exactly what a lot of digital markets are like today. 


Perhaps, the two biggest weapons in a competitive arsenal of a company like Facebook are its network effects and its use of data. Data portability and interoperability helps to weaken both. 


So, first up: network effects. What’s this? I’d like to think of the Little Mermaid who said she wanted to be where the people are. Think about how as more people join Facebook, it gets more competitively powerful. Users gain from other users being on the social network. Your aunt joining Facebook is good for you in that you can follow your aunt now. Well, maybe, it’s not great if you’re not a fan of your aunt. 


But it’s also good for all the other people who can now connect to your aunt in turn. Don’t take my word for it. According to the blockbuster House Judiciary Report, I’m sure we will find some ways to work in on this call. Mark Zuckerberg sees his market in the same way. Documents from his acquisition of Instagram are all about strengthening Facebook’s network effects. 


Second: data. To me, data is the currency and the lifeblood of these online platforms. The reason that so many of them are free, up front, are because they collect massive amounts of data on you, and that data can then in turn become targeted ads. Data portability means they have to give you your data when you ask for it. We know exactly what data a company like Facebook has on us. Maybe, they would think twice before exploiting our privacy. 


Now, imagine if a platform, like Facebook, had true data portability and interoperability—something beyond their weak and relatively hidden download-your-information tool. You know exactly what data Facebook has on you. And imagine if you could take your hard-won friends list with you. 


So I’m 26. So I grew up on Facebook. My many friends span different times in my life: middle school to high school, various summer camps, college, summer jobs. Many of the camps I attended growing up, we didn’t have access to phones or computers during the actual camp, so after the camp, it was almost a ritual of adding all your newfound friends on Facebook when you got home. 


I have friends from all over the state of Kentucky, where I’m from—the country, the world, even. And not losing that is what keeps me on Facebook. You’re not going to leave Facebook if it means losing those connections. But imagine if you could connect with your Facebook friends on a different platform. You’d be far more likely to change platforms. 


Now, interoperability and data portability, data sharing mandates, they won’t magically solve all the competition problems in digital platform markets. It’s not a silver bullet. There’s a reason why it’s just one of many potential reforms offered up by something like that House Judiciary Report. But it is needed to allow true competition to grow, and the good news is there’s bipartisan support for these things. If you look at the Ken Buck report, he talked up interoperability, data portability as “Hey, this is something I think Republicans can get onboard with.” 


And I agree with some of what Jay and Bruce have said and that data portability and the interoperability are not perfect by any means. But I think it is a step in the right direction. It’s something that’s feasible and most importantly could be pretty quick—something that could happen tomorrow. So I say let’s do it. That’s all for me, Ashley. Back to you.


Ashley Baker:  Thank you, Jay. So with that, let’s go ahead and just jump right into the House Judiciary Committee Report and the Minority Report because I know that’s what’s on top of everyone’s mind right now. So can you guys all take a bit of time just to weigh in on what’s in those reports, what’s not in those reports, what should be in the report, the pro-cons of each of those.


Bruce Hoffman:  Sure. This is Bruce. Maybe, I’ll take a stab first at some of the discussion about the reports generally, and let me just probably a disclaimer and say I’m still wading through them all. These are—how should I put this—they’re not short. But there’s a lot there. But I think a couple of things about the reports. 


One is I don’t think that the reports — and I think this is true for both really. I don’t think they do a great job of identifying antitrust enforcement problems as opposed to what they, I think, more generally describe as or seem to think of that is what they perceive, or the authors perceive as market problems. And I think a lot of that bears on this point: when you think about data portability, mandatory data sharing, or interoperability, and think of those as remedies, it’s kind of important to really understand what problem is it you’re trying to fix, right? 


So if you say, “Well, I’ve got a market that has a relatively small number of players—let’s talk about, say, for example, social networking, right? Let’s assume that’s a market. What a market is in antitrust is actually a really complicated question that isn’t something that you just resolve by saying, “Well, social networking looks like a thing, so we’ll call that a market,” but for ease of discussion, why don’t we just take that as a market. 


So you could say, “Yeah. So, right now, it appears that in social networking you’ve got a player, Facebook, that’s very strong with a very high share and including all of its various subsidiaries. And you don’t see a whole lot of challengers out there.” So one of the problems, I think, in the report is it tends to jump from that to the conclusion that this is because there’s some kind of failure of competition law, which may or may not be the case, right? It’s certainly the case that — or it certainly isn’t the case that competition law enforcement is perfect. 


Facebook did a number of acquisitions under the Obama administration that people like to look back at afterwards and say, “Well, with the benefit of hindsight, we think those were bad.” So maybe those were mistaken; maybe they weren’t. Maybe, those deals should’ve been locked; maybe not. 


But, as a general proposition, the fact that you have a firm, which has a really large share and is maintaining that share for a period of time, could be the result of the failure of competition law. It could be a result of the failure of antitrust enforcement or on some failure of the overall regulatory environment. 


But it also could be the result of that firm just being a better and more effective competitor, right? So when you consider Facebook, or you consider Google, or any other firm—Apple, any of these firms—that are frequently singled out, and then they’re singled out in the report, a lot of what’s missing is an analysis of whether anything they’ve done or whether much of what they’ve done has been anticompetitive in the sense that it restricts the opportunities for their rivals to compete by some means other than competing with them on the merits, other than being a better competitor. I think that’s a huge omission. And by the way, the report is not unique in this. 


I spoke at a conference in Europe in early winter of 2018, where basically a whole slew of panelists or speakers got up and said, “Well, we have a lot of — we have these digital firms that are really large, and so what do we do about it?” And I raised my hand, I said, “Well, wait a minute. The fact that they’re large is equally consistent with them being better competitors as it is with them having behaved anticompetitively, so why do you think you have to do anything about it?” 


The second thing that’s missing in the report, or really understated in the report, is the question of whether we’re making, what I could call, an efficiencies offense kind of argument. So one of the things the report tends to highlight is data makes your product better, right? So information makes what you do better. This is a point, I think, that’s pretty obvious, right? And Alex made this point as well. When you have more data about somebody, you can offer them a better product because you know more about what they want. 


Easiest example to conceptualize this is mapping software or a mapping app. So if I have a mapping app on my phone, it’s going to be a hell of a lot more useful if it knows, for example, where I am. If it doesn’t know where I am, it’s not going to be that useful for me. It’ll be somewhat useful, just like an old paper map was, but that’s it. But by knowing where I am, it provides us better info. 


Then, if it takes that information about where I am and how fast I’m moving, and puts that information together with similar information about lots of other people, the value of that product to me becomes exponentially better, right? Because that way, the app can tell me “Hey, there’s traffic,” or “People are moving slowly here,” or “They’re moving quickly here.” There’s lots of other information it can give me that’s incredibly useful. And there’s a tendency in the report to confuse providing additional benefit to users with something that’s anticompetitive, and that’s a really dangerous trap to fall into. 


None of this is to say — I think Alex made good points that—and I made, I think, similar points, at the beginning—that the report indicates that whether you view this as an ex-ante-regulatory solution or as some kind of competition law solution, you can restructure the way markets work by imposing data portability requirements that allows people to move back and forth. 


It might sharpen competition between ecosystems that otherwise might be difficult to achieve. You can impose interoperability requirements by some form of ex ante regulation. So you can say, for example, with telephone systems that they have to interoperate, and that makes them much more useful. Those things are all true, but I don’t think that they’re unmitigated goods, and I don’t think the report does a great job of sorting out what is beneficial, and what is not, and what are the real causes of the issues that we’re seeing. 


Alex Petros:  Yeah, this is Alex. I agree with some of that, but I just want to push back on some of that as well. So, partly, I was a huge fan of the report. We had public knowledge, then anxiously awaiting for a very, very long time, and I think it’s going to be an incredible resource moving forward, for whether it be policymakers, Congress’s next steps, but also advocates like me. 


So I would push back on the report just saying, “Okay. A company like, say, Facebook, has monopoly power in social networking.” And I think there is a little bit more there than it’s just that they’re big. The report details email exchanges, documents, all on whether it be Instagram, WhatsApp, about how they very much saw these as a way to neutralize a potential competitor. 


One of my favorite parts of the report is an email exchange where Zuckerberg just comes right out and says that “Oh, we’re buying Instagram to neutralize a potential competitor,” but then, hours — so later, he sends a follow-up email, and he’s like, “Oh, I didn’t really mean to say that.” 


He’d obviously consulted with somebody and realized he has made a mistake there. And then I think with data portability and interoperability, I think it’s important to note that some of the potential anticompetitive conduct that Facebook has engaged in has to do with the strategic use of interoperability. 


So ways in which if you are a complement to the Facebook platform — so think of [inaudible 31:23] back in the day or the games that your grandmother was really into. Facebook welcomed you into the ecosystem. Because, at the end of the day, they could use your vector as a way to keep people on Facebook services, continue growing Facebook, continue collecting that data. But then as soon as they saw you as a threat, they would cut off access to Facebook. And that’s something that as an upstart company, social network, kind of a death knell for you. 


So the big example here is that Vine, which was a Twitter product that really took off a couple of years ago, and in many ways is similar to TikTok, but was cut off personally by Mark Zuckerberg, and then proceeded to wither out and die. Maybe, that story is more complicated. It again can be hard to say, “Well, if this didn’t happen, then Vine would’ve flourished.” But it certainly contributed. 


And I think when you look at — I think it’s an important question to ask of why isn’t Tiktok, an American company, and the complete lack of innovation we’ve had in the social networking market, or search, or these markets where we have a dominant player, and would consumers be better served by having more competition? I would say yes. 


Ashley Baker:  Jay, do you have anything to add to that? It’s not [crosstalk 33:19]— 


Bruce Hoffman:  Ashley, before Jay actually—


Ashley Baker:  Sure. Go ahead.


Bruce Hoffman:  Actually, well, Jay may be on mute, but let me – this is Bruce. Let me just make three very quick points. And just, by the way, I think the points Alex made are all valid points, and I don’t disagree with any of them, but I would say that it’s – again, the story is a little more complicated, right? 


So number one, the facts that Mark Zuckerberg thought that the Instagram acquisition was done to the purpose of eliminating a competitor, or a potential competitor, a nation threat, is an important fact, right? It’s worthwhile taking people seriously, right? Especially when they’re the CEO of a company, and they’re saying what they think is the truth. 


But Facebook/Instagram has been studied repeatedly in the academic literature, and there is no robust conclusion that that merger was actually anticompetitive. Because the critical thing that you have to bear in mind is it’s not clear what Instagram would have done had it not been acquired, right? You’re talking about 10 or 12 people who had no real revenue, and it’s possible that Instagram would’ve flourished and grown into a major competitor of Facebook or it’s possible that it would disappeared and amounted to nothing. Who knows? 


Offsetting that, though, it’s not the case that Facebook brought Instagram and buried the technology and did nothing with it. Instead, it improved it and rolled it out to across the Facebook platform, so it gave millions of people much faster access to the Instagram system then would ever have been the case had Instagram been a standalone company, which is a substantial procompetitive benefit. 


Now, how you net those two things out, to determine which is better, that’s a complicated question. I’m just saying it’s not — the mere fact that Zuckerberg says “X” does not necessarily make it so, and, in fact, when you look at that specific transaction, the actual competitive effect is highly ambiguous. 


Second, the point that Alex made about firms suddenly deciding that — what previously was a complement becomes a competitor, then the firm that previously was dealing with it changes its course of dealing, that’s not surprising at all, right? When you’re a firm, and you’re dealing with a complement — so suppose I’m a supermarket, or I’m a shopping mall, or whatever, and there’s somebody who wants to sell something in my market or sell it in my mall, and I like doing that, and I work with them because it’s a complement, it drives more traffic to my market or my mall, so everybody’s better off. 


Now, they decide they’re going to go and open a competing store next door, and I treat them differently. Well, of course, this is not unique to digital. This is a ubiquitous feature of human economies through all of recorded history. We treat competitors differently than we treat complements. And there are good reasons for that. 


And forced duties to share with your competitors—forced duties to help your competitors—sometimes are necessary and clear, and, particularly, in industries that have natural monopoly issues where you have to regulate, they can be very valuable. But there is serious negative consequences to forced duties to share with competitors that are not present when you’re dealing with complements. 


The last point in terms of buying and what happens when Facebook acquires a firm and what do we judge about why did Tiktok evolve versus others. Well, again, all of this could be true, right? But it’s not clear—it’s not necessarily the case that simply because, for example, Facebook by treating Vine differently, it harmed its ability to compete, but that is ultimately bad for competition. 


Competition doesn’t necessarily require competitors to give each other helping hands, and, in fact, when they do, that can lead to collusion. It’s not the case that there’s been no competition in social networking or search. There’s been a lot. It’s just nobody has been able to win. 


Google tried to compete with Facebook in social networking and failed. Does that mean that something anticompetitive was going on or that there’s some natural monopoly that needs to be addressed by regulation? Maybe. It’s certainly possible. But could it also simply mean that Facebook just did a better job than Google? Also possible. And you got to be very careful not to destroy the incentive to do a better job in the name of remedying a problem that may or may not exist, or may or may not exist at the level we think it does.


Jay Ezrielev:  Yes. So, Bruce, you were right. I was on mute. I hope you can hear me now. So first, I want to say a few things about the House Report and also respond to some of the things that Alex said in his opening statement. First, I agree with Bruce about the dangers of forcing firms to engage with competitors and duty to deal because lots of negative implications. On Facebook/Instagram, I think that lots of people have looked at the effects, and there is no evidence of any anticompetitive effect of the transaction. 


In fact, the CMA has done a retrospective look at the transaction. Granted, it’s very difficult to analyze the effect of the transaction because you don’t know what would’ve happened, but for the transaction, but CMA commissioned a study that found no evidence of anticompetitive effect. In fact, when Facebook bought Instagram, it had 30 million users. It has over a billion users now. It had tremendous growth, so it’s very hard to make a case that the acquisition itself was anticompetitive. 


On the House Report, I think there are several issues, several problems. The issues they focused on in the report are not clear to me they are actually antitrust harms. They focus on the big tech companies being very large. They focus on exploitive abuse, but under our system, that’s not a harm. If you are big, if you’re successful, you can — being a monopolist is not illegal. You could charge whatever you want and within reason set conditions for dealing with other firms. 


The other problem would be with the report is that it’s a little unclear what antitrust — what is the goal of antitrust in their vision of antitrust? Is it something that protects consumers, looks to maximize consumer wellbeing surplus, or is it something where being big is bad? And the two notions are different and not consistent. 


We have a free market system where if you’re successful, and you gain a lot of business, gain a lot of customers—you make a lot of money—you’re rewarded for providing a lot of benefit and innovation. And the report acknowledges that these companies, the focus of their investigation, had generated a tremendous amount of consumer benefits. I think it’s obvious to everybody. 


So is the problem that they invested in something, became very successful, and it grew the business. Amazon, Google are tremendous success stories, and now the companies are very large. Is that something that they should be punished for? So the other issue with the House Report is that it’s unclear what the remedy is. The remedies that they propose, the recommendations, are sort of vague, but more importantly, it’s not clear what they would do to solve the problem, or whatever the problem is. 


I guess the issue is they don’t tell you exactly what the problem is. Is it that the companies are too big or is that consumers are being harmed? And preventing large tech from acquiring new firms to grow and be efficient could have very bad negative consequences for innovation. And this is an important exit strategy for startups and venture capital that it’s really driving innovation and cutting that off could have very bad severe consequences for innovation. 


So I wanted to say a couple of things about what Alex said in his opening statement. So I agree with the first part of Alex’s statement. I think that data portability and interoperability could be a really good thing, and they may do even to have more of it, but I just don’t think those are necessarily good antitrust remedy. As an antitrust remedy, there could more harm than good, especially, on interoperability. 


Fourth thing, social media platforms to work together and talk to each other, I think there is more potential for anticompetitive effect than remedying of competition. And I also don’t agree that there has not been a lot of innovation in social and media platforms. It’s just hard for smaller social media platforms to grow, but there’s lots and lots of niche social media platforms, and they’re successful, and users have lots of options. 


Yes, there are network effects, and this is something that makes a lot of people use Facebook because Facebook has a lot of users, and you want to be on a platform that has a lot of users that you can connect it. But that’s actually a consumer benefit. The network effects create consumer benefits. The reason why people want to use Facebook, be on Facebook, is because there is a benefit to having lots and lots of users on the same network. 


And the last thing about data. I don’t think data is a competition problem. I see it as something that enhances competition, makes product better, and makes firms compete more attentively. So I don’t think we need to prevent firms from looking to acquire more data. They should be encouraged to gather more data in a way that respects users’ privacy. 


But it is a very important source of innovation, and it’s driving innovation in artificial intelligence, and perhaps we need to find a way to share this data more widely because that will improve innovation. But we should definitely not stop companies from looking to acquire more data. So I’ll stop right there.


Ashley Baker:  So before I allow each of you a minute or two to wrap up your arguments and then we go into Q&A, one last final question is we’ve been focused on data portability and interoperability as if it’s kind of—I wouldn’t say a cure all, but the only remedy that’s really set forth in the report without going too much into the other proposals out there. But how do data portability mandates compare to other competition enhancing mandates or remedies that might be under consideration right now by the FTC, or the DOJ, or Congress?


Alex Petros:  Yeah. This is Alex. Happy to start off with this. So one is I really liked about the report is that it really does not take in either-or view of things. These markets are incredibly complex. I think they are competition issues rife in them. And, thus, I think the report recognized that [dog barking 46:16] we need to do many different — sorry, that’s my new puppy in the background.


Bruce Hoffman:  Well, hello to the puppy.


Alex Petros:  Yeah, he’s very excited that somebody is dropping off our mail.


So what the report does is there’s three buckets. The first bucket is making sure our antitrust laws, as currently written, are strongly enforcing against these online platforms. And I think there you look at calling for more resources and staff so that dedicated professionals at the FTC and DOJ can really go after these tech platforms and not be completely outgunned, like this is big to — back to 2.0.


And then there’s also changes to the antitrust laws to level the playing field. Whether you look at various Supreme Court precedents that in my view are misguided, whether it be for precedents that basically make predatory pricing claims just dead in the water, you-sold-a-deal claims dead in the water, looking at burdens, presumptions, and ways in which — quite frankly, why I think there is a reason that the FTC and DOJ didn’t bring more cases on the rise of Facebook, on the rise of Google, Amazon, Apple to a lesser extent, I would say, and that’s that our laws as currently written have done a poor job of getting at the unique nature of these digital platforms. 


And then the third bucket, which is why data portability and interoperability fall into our regulatory remedies beyond antitrust law. So there they look at that. I think also in there is a self-preferencing rule, public knowledge that is called for new digital regulatory agency, which we think would be best left handled to go after many of these regulations. But these powers could also be given to the FTC or DOJ, and really by doing all three at once, you have the ability to really reign in these platforms in a way that just doing one of them does not. 


There are many people on my side of the aisle who are constantly like, “Okay. We need to break up big tech. That’s the only forward. Facebook must spinoff Instagram, spinoff WhatsApp. Google, you have to separate your search and your online advertising business.” And while that may be needed, I think it’s important to know that we’ve done breakups in the past, and it takes a really, really long time of filing a case, and then I almost guarantee you there’s going to be appeals. There’s going to be — so we’re taking years, maybe, even a decade to — which will see actual results there. 


But a lot of these regulatory remedies, like I had mentioned earlier, data portability, interoperability, there are bills introduced now that have bipartisan support. You can look at the Access Act in the Senate, which has a Josh Hawley along with a Dick Blumenthal—two people who don’t agree on a ton, but yet are coming together on this as something that again won’t solve everything, and I don’t think it’s just overnight is going to – Facebook’s going to see they have a million and one new competitives, but I think it’ll have some effect. 


And I also think there is really something to be said for making Facebook face some competitive pressure in a way that I don’t think that they face now. There’s really, I think, a lot of consumer benefit to be gained from Facebook being worried about of startup competitors. Whether that means strengthen their privacy policies, innovating and adding new features, I think that could be a real consumer good. 


Bruce Hoffman:  This is Bruce. I’ll start with that last point, which I completely agree with, right? The more competitive pressure you face, the more likely you are to compete well, or, in other words, innovate to provide better service, provide lower price, or any of the metrics on which you choose to measure competition. 


Ashley, to go back to your question. Look, the FTC and the DOJ, they’re not industrial players, right? So they don’t set up markets to be the way they want. They bring cases [inaudible 51:50]. Well, the FTC has a significant research and development aspect, so it does reports; it does analysis. So that’s a thought-leadership piece that the FTC leads in for the federal government. DOJ contributes to that, but DOJ is more of a law enforcer, qua-law enforcer. FTC has this kind of dual mission. But in terms of law enforcement and in terms of remedies, both the FTC and the DOJ remedy specific anticompetitive conduct. 


So if you look at Facebook or anybody like that, you say “Okay. well, did Facebook engage in some specific act of anticompetitive conduct or in a specific merger or a set of mergers, which were anticompetitive,” and if so, then you’re the FTC. You try to remedy that by whatever means are appropriate, including who least that may go beyond narrowly addressing the problem that you found because there’s a well-known concept called fencing in, where you take other steps to ensure your remedy works. So I think a lot of what’s in the House Report goes well beyond that. 


As Alex pointed out, a lot of what’s in the House Report is more industrial engineering, industrial planning. It’s regulatory. It’s how should the markets be set up as opposed to have the market participants behaved anticompetitively, and if so, what do we do about it? So I think the overlap between law enforcement and industrial planning, there is slight overlap. But they’re really different things, and the House Report takes on both, whereas the FTC or the DOJ would only take on anticompetitive conduct and not industrial planning. 


All those things said, I think there’s a very — the concern that I have here is we’re right at the step of remedy without clear evidence that we’re remedying anything that’s actually bad. I think there’s a real danger here. That’s problem one. And then problem two is there’s a serious danger in doing things to fix a perceived problem that have ramifications that go well beyond anything that we can currently anticipate. 


Jay highlighted a few of those. I won’t say much about them other than to highlight one particular point, which is self-preferencing. So it’s easy to make self-preferencing sound bad, right? In the words of Senator Warren, how can you be the umpire and play the game, right? It’s a great soundbite. It’s total gibberish from an economic standpoint. The economics of self-preferencing are very ambiguous and a canonical example. The basic point in self-preferencing is that it’s usually procompetitive. And think about why that might be so. 


And I always give an example I’ve given in some other talks. A shopping mall is a platform. A shopping mall has stores in it. The shopping mall doesn’t care what those stores are selling. It just wants more people to come to the mall and go to more stores and buy more stuff at those stores so it can get more rent. It’s totally indifferent as to what the mix of store is except insofar as that mix of stores makes the customer experience better, and so it causes more people to come to the mall. 


So why would a shopping mall vertically integrate and self-preference. So why would a shopping mall, for example, open its own burger joint or shoe store? Is it to gain extra profit? No. Because all it needs to do to get extra profit is just raise the rent. It doesn’t need to go to all the trouble to learn how to make burgers or sell shoes, and then get space, and open it up, and hire people, and do all that stuff that you need to do. You can just raise the rent. So there’s no obvious anticompetitive motive. 


The most likely reason why a shopping would decide to vertically integrate and provide a service itself and even to put itself in the most prominent place, for example, is not because it’s trying to make more money. It’s because the shopping mall has concluded that something in the current offering is deficient, and customers don’t like it, and customers are not coming to the mall, or they’re not coming and staying as long as they otherwise would, or they’re not spending as much as they otherwise would because the burger joints there are bad or the shoe stores are bad. 


And so the shopping mall decides, “Well, I can fix that. I’m going to make better burgers, or I’m going to sell better shoes, and that will get more people in my mall, and they’ll spend longer, and they’ll spend more money, and everyone will be better off.” It’s an unambiguous consumer benefit. 


Now, there are well recognized theories of anticompetitive harm for self-preferencing, but they require very specific facts to this. And it’s too easy, and the House Report falls into this trap repeatedly to simply conflate the idea of self-preferencing with behaving anticompetitively. They are not the same thing. 


So it’s perfectly legitimate for the House to recommend industrial planning, to recommend regulatory solutions, and the solutions may in some cases be good, right? But I think it’s too easy to lead to the conclusion that big is bad, and we must then hobble the giants. That’s a dangerous path to go down.


Jay Ezrielev:  So let me chime in here for a few minutes. So let me first say some good things about the House Report. I think it highlights some important issues, and raises questions, and suggests that, maybe, we don’t fully understand the economic effect of some of these markets, and maybe, our antitrust enforcement has gotten it wrong. 


And those are perfectly legitimate questions they examine and consider. Giving enforcers more resources is a good thing. It enforces more capability to go after the right cases. And also some of the regulatory suggestions, like data portability, may be a good thing for consumers and other recommendations as well. 


Where I think the main issue lies with the recommendation is that it’s not clear, to me, that they’re going to do more good than harm. In fact, they may do more harm than good. There are unintended consequences. And something that looks like it may be harm may, in fact, be a benefit, and Bruce alluded to it in his example with self-preferencing. 


Alex mentioned that antitrust cases are very hard to win, and there is a reason for that. The reason is that you have to show harm to competition. You have to show antitrust harm, and it’s very hard to show, in many cases, because there are both benefits, and there are harms, and sometimes benefits outweigh the harms of any specific conduct, like self-preferencing. 


What the House Report seems to be doing is short-circuiting the answer. They want to overturn certain Supreme Court decisions without really showing that they got things wrong. They highlight certain issues, but they do not do a good job of demonstrating that antitrust laws have gotten things wrong. So I’ll stop right there.


Ashley Baker:  So we only have a couple of minutes. We’re leaving that before we get to Q&A. Could you each, in under two minutes each, maybe chime in with any concluding thoughts?


Bruce Hoffman:  Pick one of us to go first. 


Jay Ezrielev:  I can go first.


Ashley Baker:  You go first then. Okay. 


Jay Ezrielev:  Sure. So the issues about data portability, data sharing, mandatory data sharing, interoperability, implicates some very, very important issues that are at the heart of our information in digital economy. What I want to stress is that we shouldn’t come to solutions without really thinking through all the consequences because there’s a potential for a lot of harms. Data is a source for tremendous innovation now and much more innovation to come. 


So whatever we do, we need to tread very carefully because we could harm innovation, and that could erase tremendous value in our world and our welfare. It’s fine to think about data portability and interoperability in sharing as some sort of regulatory solutions, and we could debate the pros and cons. I think we need to really think twice before using those as remedies for antitrust because there are lots and lots of problems and reasons not to use these tools as solutions for antitrust.


Ashley Baker:  Okay, Bruce. 


Alex Petros:  Yeah, this is — oh, sorry, Bruce, you want to go?


Bruce Hoffman:  Yeah. Alex, I think you should get the last word, so I’ll be really brief. I think basically I would say the same things Jay said. I think, as I said at the outset, I think both antitrust remedies for actual anticompetitive conduct for anticompetitive mergers could include any of these kinds of data issues that we’ve been talking about. I think those are perfectly legitimate where the conduct calls for that as a remedy. 


And I think as a regulatory matter, governments can and do—and sometimes with great success, and sometimes with serious negative, unforeseen consequences—impose these kinds of requirements. So I don’t have a strong ex-ante view as to whether imposing these kinds of requirements is always going to be good or always going to be bad, or should or shouldn’t be done. 


But I do think Jay’s point that it’s not clear to me that the case has been made that there are systemic problems either in the markets or in competition enforcement that call for these kinds of remedies. So I think caution is called for here. I think the agencies, the antitrust agencies and private enforcers, have been working hard on antitrust cases. I think it might be worthwhile to see how those turn out before jumping to conclusions. But these are all issues that are quite complex and are certainly worthy of continued study.


Ashley Baker:  And Alex.


Alex Petros:  Sure. So I came in defending data portability, interoperability, and I will leave continuing to defend data portability and interoperability. I think when you look at digital platform markets—whether it be the companies we all know and maybe don’t love that much; Google, Facebook, Apple, Amazon—doing nothing is not an option here, that these companies have become dominant, and we need to do something about it. 


And I would argue we should do something as soon as — and in looking for that, I think it’s important to — and you can sometimes be lost, quite frankly, on my side of the aisle of what’s a feasible remedy, what’s something that could actually be somewhat accepted by the companies, what’s something that you could get buy-in from both Democrats and Republicans for.


And to me, data portability and interoperability is a great low — I wouldn’t just call it a low hanging fruit, but a medium hanging fruit, maybe, of something to strive for and work for. And I think, at the end of the day, what’s so great about it is we had historical evidence of markets in which this has worked, so I don’t see a reason why it shouldn’t work here. 


And it will align incentives for dominant players to face a competitive pressure that right now I don’t think that they feel at all, and that is the upstart rival coming in. It knows it has interoperability with the dominant player in its pocket. I think we are giving that upstart rival a fighting chance, and I think that’s maybe good for the upstart rival but good for competition generally and good for consumers as a whole. 


Ashley Baker:  Okay. So now we have just a couple of quick minutes left for the Q&A section if the folks who are at FedSoc could take the wheels here.


Colton Graub:  We’ll go to the first question now. 


Ashley Gunn (sp):  Hi, it’s Ashley Gunn from AT&T, and I appreciate everyone’s thoughts today. This has been fantastic. My question’s about really the Data Transfer Project. I think its very existence and robustness apply to most or all of the arguments against using composed data portability as a competitive solution. Most arguments, like fear of collusion, seem to fall way as pretextual, in my mind. 


The one that doesn’t completely fall away, I suppose, going back to I think Bruce’s comments, is the argument that it might reduce innovation. Though, I think at this point, we’re not talking about exit strategies when we’re talking about the members, at least, the founding members of the DTP, and I don’t know offhand why, for instance, Facebook would have to buy Instagram technology to improve upon it. 


So I guess I’m just wondering, does the panel have a reaction? Is there a surviving argument that I’m missing, or why truly can’t we use it as an antitrust remedy if it’s already being used and improved upon itself as a consumer protection tool? 


 Colton Graub:  So, Ashley, do you want to decide who answers or how should we proceed here?


Ashley Baker:  Bruce, you seem eager to answer. Why don’t you go ahead and take this?


Bruce Hoffman:  Well, that wasn’t the case, but I suppose I made the mistake of stepping forward. Hi, Ashley, so I guess [inaudible 66:57].


Ashley Baker:  Well, [inaudible 66:57] then.


Bruce Hoffman:  Yeah. I’m paying for my big mouth. A couple of things: one, I think there’s a significant difference between a voluntary opensource initiative that companies decided to enter into to figure out ways to enhance data portability among themselves and others as open source and imposed data portability remedies. 


I don’t think you can necessarily equate the effects of those things, right? Companies do a lot of things voluntarily where if you try to impose something that has the same words in the title but might be very different in practice, either as a remedy in a particular case or as a broader statutory-regulatory remedy might have very different effects. 


So, for example, if you went to supermarkets and said, “Well, you have to share all your customer information, all of your loyalty card information—Publix, you got to share it with Kroger—they might just stop collecting it. I don’t know. Who knows? But I don’t think they’re necessarily the same. 


In terms of innovation — again, let me be clear, I would not take the position that data portability or portability requirements are ipso facto problematic that you can’t ever have them. As I said, I think they can be viable. They can work. Of the various things that we talked about; I think they seem, to me, to be the least likely to create negative consequences. I just don’t think I would say that they’re definitely always going to be good. 


And then insofar as thinking about say, a Facebook/Instagram, the question you asked, I think, was why would Facebook need to buy Instagram. Well, the short answer to that is economic integration creates drastically different incentives and capabilities. How would Facebook have improved Instagram’s offering its systems, etc., without acquiring it or why couldn’t it have done that without acquiring? Well, the short answer is, I don’t know, right? 


Instagram may have had a whole series of tools, or attributes, or frankly just engineering capability in its employees that Facebook could not have replicated from the outside, or it might not have had the economic incentive to replicate. So firms acquire for lots of reasons. 


A big reason why you do acquisitions though is to eliminate transactions costs that make otherwise cooperating impossible or replicating impossible, so some acquisitions are anticompetitive, and, maybe, that one was. I don’t know. But it’s not necessarily the case that you can simply replicate without an acquisition [inaudible 69:40] that, I would say, we get from the acquisition. 


Jay Ezrielev:  So I would just briefly add that the Data Transfer Project is a pretty good initiative. Some people have to adjust that the reason why these firms have initiated this project is fear of regulations that would actually have a worse solution, and this is opensource initiative. It’s not everybody may join, so data portability would work under the Data Transfer Project to the extent that firms would be willing to join the project. 


Alex Petros:  Yeah. And then just to quickly chime in. I think an important point I have with interoperability, data portability is — you can think of it just aligning incentives in that I don’t think that Mark Zuckerberg, or [inaudible 70:38], Sundar Pichai sit around and — or are plotting evil, evil things all day. 


But at the same time, they have duties to their shareholders to maximize value, and a lot of what regulations and a lot of what the work we try to do is, is “Okay. Let’s align in that incentive in a way that — align incentive that’s in a way where Facebook is acting in the best interest of consumers.” And that’s not something that I think without some sort of regulatory framework, like interoperability, data sharing, that you can’t just expect a company to do this out of the kindest of its heart. You have to make them do it.


Ashley Baker:  Do we have any more questions? I think we’re hitting up close against the 2:15, and some of us have some other presentations to get on right now. It’s a busy time for antitrust.


Colton Graub:  We don’t. I would like to thank you, Ashley, Bruce, Alex, and Jay. We are very grateful to you for your time and to our live audience for joining us. We welcome listener feedback by email at [email protected]. Thank you for joining us. This concludes today’s call.

Jay Ezrielev

Founder and Managing Principal

Elevecon LLC

Bruce Hoffman


Cleary Gottlieb Steen & Hamilton LLP

Alex Petros

Policy Counsel

Public Knowledge

Ashley Baker

Director of Public Policy

Committee for Justice

Cyber & Privacy

Data Portability Mandates, Consumer Privacy Protections, and Competition Law

The Federalist Society and Regulatory Transparency Project take no position on particular legal or public policy matters. All expressions of opinion are those of the speaker(s). To join the debate, please email us at [email protected].

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