On October 15, 16, and 17, 2018, the Federal Trade Commission (FTC, or the Commission) held the third hearing in its series of Hearings on Competition and Consumer Protection in the 21st Century. During this three-day event, the FTC invite
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Litigation; and Data Privacy & Security Practices
Predatory Conduct on Digital Platforms
Third FTC hearing on Competition and Consumer Protection in the 21st Century considers
calls for additional scrutiny in multi-sided digital platform industries.
On October 15, 16, and 17, 2018, the Federal Trade Commission (FTC, or the Commission) held the third
hearing in its series of Hearings on Competition and Consumer Protection in the 21st Century. During this
three-day event, the FTC invited comment on whether competition policy should evolve in light of criticism
from some antitrust experts and observers that the current regulatory framework is insufficient to address
growing market power in multi-sided digital platforms. Panelists also discussed antitrust issues related to
labor markets and acquisitions of nascent competitors.
Latham & Watkins is monitoring and sharing periodic insights on the FTC hearings, with a focus
on significant statements from regulators, hints about where the FTCâ€™s enforcement priorities lie,
and key points of disagreement among antitrust and consumer protection influencers. For prior
analysis of the FTC hearings, please visit Lathamâ€™s library of Thought Leadership.
Hearing #3â€™s Big Idea: Zeroing In on Digital Platforms
Recently appointed FTC Commissioner Rohit Chopra opened FTC Hearing #3 by noting the significant
economic and social benefits of digital marketplaces and multi-sided platforms. He cautioned, however,
that the emergence of mass data collection and monetization â€” what he called â€œsurveillance capitalismâ€
â€” has created new consumer protection and competition issues that require serious examination. The
FTC must â€œengage in analytically rigorous examination of data surveillance and monetization techniques,â€
Chopra said, â€œas well as an analytically rigorous assessment of the regulations and restraints imposed by
todayâ€™s digital marketplaces.â€ Several other panelists echoed his views throughout the day.
Chopra noted that digital market places are different from traditional marketplaces. â€œThese marketplaces
may not operate like they did in history or how we learned about them in economics textbooks,â€ Chopra
said, â€œand if we do not understand them we are in big trouble.â€ In particular, Chopra was suspicious of the
vast collection and monetization of buyer and seller data. He observed that this data is often unrelated to
marketplace participation, and consumers and businesses are often completely unaware that the data is
being collected. Chopra posed three questions to guide further investigation into these issues:
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ï‚· What are digital marketplaces and how do they compare to other marketplaces?
ï‚· What are the implications of mass data collection in these marketplaces?
ï‚· How do existing rules promote or destroy the competitive process in these markets?
â€œWithout this information about how our digital economy is governed by some of the largest companies
and operators, we wonâ€™t know if our marketplaces are working or if they may be broken down,â€ Chopra
Hearing #3 focused on three principal areas:
ï‚· The identification and analysis of collusive, exclusionary, and predatory conduct by digital and
technology-based platform businesses
ï‚· The antitrust framework for evaluating acquisitions of potential or nascent competitors in digital
ï‚· The antitrust evaluation of labor markets
In addition to Commissioner Chopraâ€™s remarks detailed above, key comments from regulators,
stakeholders, and FTC influencers that best encapsulate the issues discussed during Hearing #3 include
ï‚· After the Amex decision, â€œthe definitional issue [of whether a firm is a platform] will be front
and center.â€ Howard Shelanski, Georgetown University Law Center
Dr. Shelanski and other speakers on the panel â€œThe Current Economic Understanding of Multi-Sided
Platformsâ€ remarked that the recent Supreme Court case Ohio v. American Express Company (Amex)
would lead to â€œtons of defendantsâ€ claiming they are a platform â€œbecause the fundamental burden on the
plaintiff hinges on whether or not the court decides that we are dealing with a transactional platform with
significant cross-network effects.â€ Many panelists cautioned that this is problematic because there are
platform and multi-sided aspects to almost any business. Dr. Shelanski therefore called on fellow
economists to â€œget a jump onâ€ giving guidance to courts â€œon what constitutes a strong [cross-]network
Eric Citron of Goldstein & Russel reflected similar sentiments when he said â€œThe Amex decision is more
or less economically illiterate,â€ and â€œAlmost all uses of the Amex decision are likely to be misuses.â€ He
accused the Supreme Court of not understanding why economists care about market power, and called
on economists to â€œrelentlessly shame judges into understanding the economics underlying antitrustâ€ as
they had 60 years ago.
Other speakers on various panels, however, thought these concerns were overblown. They observed that
whether a business is a platform is quite clear in the usual case, and the Amex decision is likely to reduce
false positives and false negatives.
Most speakers agreed with the sentiment expressed by Dr. Catherine Tucker from MIT that antitrust
practitioners â€œshouldnâ€™t do this silly thing where we look at firms and say thatâ€™s a platform, thatâ€™s not a
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platform.â€ What matters, Tucker explained, is whether â€œplatform issues are important in this particular
caseâ€ to the antitrust analysis and the outcomes of the firm and the market. There was rough consensus
on the panel that triggering the new defenses the Supreme Court facilitated in Amex merely because
there is a two-sided nature to a defendantâ€™s business would be a mistake.
ï‚· â€œWe must view data as currency.â€ Roger McNamee, Elevation Partners
Several panelists drew distinctions between transactional platforms like eBay versus those that trade
services for consumer data like Google and Facebook. Roger McNamee suggested that the latter should
face more intense antitrust scrutiny because multisided platforms that trade data for services â€œuse data to
create barriers to entry for competitors, barriers to exit for consumers, and to undermine business models
of content suppliers.â€ Further, McNamee said â€œthe current antitrust modelâ€ provides these companies â€œa
safe harbor because consumers do not pay for their services with currency.â€
Other panelists pushed back. Dr. Steven Tadelis from the Hass School of Business at UC Berkeley
asserted â€œUnderstanding the ease of entry and multi-homing is critical to understanding the strength of
competition in these markets.â€ â€œIf youâ€™re concerned about a certain anticompetitive behavior,â€ Tadelis
said, â€œyou need to have a theory of harm, and if your theory of harm is this looks big; big makes me feel
uncomfortable; and something therefore needs to be done; thatâ€™s a problem.â€
ï‚· â€œHistory tells us that the levels of enforcement [against acquisitions of nascent competitors]
is pretty low.â€ Diana Moss, American Antitrust Institute (AAI)
In a panel discussing whether current levels of enforcement in markets involving nascent competition are
appropriate, Moss pointed to AAI data that tracked more than 700 acquisitions the AAI characterized as
â€œnascent acquisitionsâ€ (i.e., transactions in which a player acquires a new or growing competitor). Moss
added that the FTC and the DOJ have challenged only 2.5% of the 700 plus acquisitions. Moss argued
that agencies should be especially wary of a class of transactions in which a dominant platform acquires
a nascent competitor when the platform itself already has the nascent competitorâ€™s functionalities. In
these situations, Moss remarked that enforcers should focus on innovation theories of harm and ask how
these acquisitions affect incentives to innovate.
Panelist Sally Hubbard of The Capitol Forum echoed Mossâ€™ calls for increased scrutiny. Hubbard
cautioned that enforcers â€œshould not be distracted by promises of short term consumer-welfare
enhancements, because what benefits consumers, is competition.â€ She also noted that the usual tools
antitrust enforcers are used to relying on â€” â€œprices, market shares, market definitionsâ€ â€” are not reliable
when looking at acquisitions of tech platforms because digital markets are â€œvery fluid.â€ Thus, Hubbard
took the position that enforcers should look beyond just price effects because â€œLow prices are not the goal
â€¦ competition is the goal.â€
Whether the FTC will amend its enforcement priorities or processes in response to calls like those from
Moss and Hubbard remains to be seen. For now, the FTCâ€™s willingness to provide a forum for critiques in
this series of hearings is instructive.
Latham & Watkins October 22, 2018 | Number 2397 | Page 4
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