This post was written by Paul Bond and Chris Cwalina.
In her new article, "The Intersection of Consumer Protection and Competition in the New World of Privacy," Federal Trade Commissioner Julie Brill cautions that the pursuit of privacy may conflict with the pursuit of a competitive market. Commissioner Brill's article, published in the Spring Edition of Competition Policy International, notes that the Federal Trade Commission's role is to protect consumers from many types of market failures. The FTC strives to protect consumers from unfair and deceptive information collection and use practices. But, at the same time, the FTC protects consumers from collusive and other anti-competitive behaviors. Commissioner Brill identifies a potentially problematic range of privacy enhancements which could, paradoxically, harm consumers by stifling competition. In this position, Commissioner Brill goes further than the FTC's preliminary white paper, "Protecting Consumer Privacy in an Era of Rapid Change: A Proposed Framework for Businesses and Policymakers" (2010 Privacy Report).
For example, Commissioner Brill asserts that self-regulation to date has been "slow and inadequate". This mirrors criticisms in the 2010 Privacy Report. But Commissioner Brill goes on to posit that dominant companies can misuse privacy self-regulation to stifle market entry by new competitors. The Commissioner does not describe in any detail the manner in which such an anti-competitive plan would be carried out. Presumably, the cost in money or time of complying with the industry's self-regulation would prove prohibitive for fledgling businesses, while just a "cost of doing business" for better capitalized industry leaders. There may also be a concern that existing businesses, which already hold stockpiles of consumer information, would erect barriers to data collection which would affect new enterprises disproportionately.
Commissioner Brill also raises the competitive concern that privacy regulation not unfairly benefit new entrants. "Indeed," she recognizes, "some more established data brokers and other information firms believe it is much easier for their newer competitors to design privacy protections into their new business models and new forms of communications than it is to retrofit old systems to meet the realities of today's privacy concerns."
Until now, a strategic analysis of the competitive impact of privacy regulation has not been an FTC priority. Indeed, in her Article, Commissioner Brill notes that she writes only for herself, and is not reflecting the views of the Commission or the other Commissioners. Still, taken in conjunction with Commissioner Roach's recent opinion that the Google Buzz settlement may have been a strategic ploy by Google to create insurmountable regulatory barriers to entry, it is safe to say the FTC is increasingly wary of privacy regulation being misused for private ends. Advocates of self-regulation, as well as those seeking to advance or defeat governmental regulation, must be prepared to explain why their privacy regulation or self-regulation proposals are consistent with a vigorous free market. Advocates of industry self-regulation already know that the FTC has criticized efforts to date and here is another hurdle that must be addressed before self-regulation is deemed by the FTC to be robust enough and workable.
Given how extremely easy it is to transfer information as an asset between corporate forms, and from one area of the world to another, the prospect for strategic resistance to or abuse of privacy regulation by companies around the world is substantial. Commissioner Brill performs a service by injecting a note of economic realism into the ongoing debate about how information can and should be regulated in the 21st century.
