InsideSources

2020 presidential contender Elizabeth Warren put up a billboard in San Francisco yesterday calling for the break up of Big Tech and urging voters to join her antitrust crusade. But a Big Tech trade group representing e-commerce businesses — NetChoice — called Warren’s billboard a “populist rant” without substance.

The message on Warren’s billboard is simple and straightforward: “Break Up Big Tech,” with a photo of the Massachusetts senator and a text number to connect to her campaign.  As if following Warren’s lead, advocacy group Freedom from Facebook, an offshoot of the Open Markets Institute, flew a banner reading “Break up Facebook! Save Silicon Valley!” over Facebook’s shareholders meeting in Menlo Park, California on Thursday.

“I think what we’re starting to see is weaponization of antitrust law,” Carl Szabo, vice president and general counsel for NetChoice, told InsideSources. “We have over 100 years of antitrust law and enforcement and it’s always done on an objective base. You look at the market and competition and anticompetitive activities and then you do your conclusion. What we’re hearing from people like Elizabeth Warren is they want to move to a subjective test: ‘I don’t like that business, therefore it should be broken up.’ What’s ironic is in their efforts to allegedly protect consumers, many of the calls we’ve heard to break up tech would harm [consumers].”

Breaking up Big Tech divides economists and tech experts. Some dismiss antitrust arguments like Warren’s as unsubstantial, but others say the tech sector is evolving too quickly for the old standards of consumer welfare and antitrust law to keep up.

At an event hosted by the Hoover Institution on May 2, Sen. Josh Hawley (R-Mo.) joined economists and tech experts in slamming tech giants like Facebook and Google for systemically buying up their competition, manipulating regulatory policy to benefit their companies, and claiming to protect users’ personal data while selling and sharing it with third-party advertisers to boost the bottom line.

“The biggest monopolies are in the technology sector,” Open Markets Institute Deputy Director Sarah Miller told InsideSources. “We’ve been advocating for the FTC to break up Facebook since the Cambridge Analytica scandal broke, putting some focus on what is now broadly seen as a mistaken decision to allow Facebook to acquire Instagram and WhatsApp among other smaller competitors and companies.”

Lawmakers and economists discussed separating Instagram and WhatsApp from Facebook, but as one economist said, trying to undo a merger is a bit like trying to “unscramble an egg.” But that isn’t stopping advocacy groups from drilling their point home.

“This year we wanted to emphasize that Facebook’s monopoly power is fundamentally warping Silicon Valley and its ability to be a [powerhouse] for innovation,” Miller said. “We’re seeing more innovators and entrepreneurs in the tech sector — most recently Chris Hughes — saying Facebook is a monopoly and really is destroying Silicon Valley as we know it.”

Szabo says proof that competition is robust within the tech industry is the fact that consumers prices continue to fall. Two-day delivery was “unfathomable a decade ago,” he said.  Plus, Amazon is only the third-largest retailer and half its e-commerce revenue comes from third-party sellers, so how could it be a “monopoly”?

Some argue that while consumers don’t pay to use Facebook and Google with a monetary price, they do pay too high a price with their personal data. Szabo thinks consumers should just use a different service.

“If you’re using a social network, there’s a multitude of different choices,” Szabo told InsideSources. “There’s Facebook, Twitter, Nextdoor, Reddit. If you don’t want to use one search engine, there are many other search engines. There’s Google, Bing, Duck Duck Go, Yahoo. The market is robust with alternatives and that’s really what empowers consumers.”

But just because there may be other choices doesn’t mean one company should be allowed to get away with harmful or anticompetitive practices, Miller points out.

“Big Tech is a version of Big Tobacco, they’re not necessarily out to make the world a more beautiful place, they’re out to make money,” she said.

Progressives were once very friendly with Big Tech — the Obama administration fostered a cozy relationship with Silicon Valley, resulting in a revolving door between ex-Obama administration officials and Big Tech. Silicon Valley still gives hundreds of thousands of dollars to Democrats (more than Republicans) every year — except Elizabeth Warren.

“Sen. Warren (D-Mass.) has a track record of taking on corporate power, which implies follow-through,” Miller said. “She first talked about tech monopolies back in 2016, she was the first one to talk about it in 2016 and the first person to set forward a detailed plan for restructuring the tech sector. She’s been the pace-setter. Her track record suggests she’s serious about it.”

And that’s what scares Big Tech: other Democratic candidates like Sen. Kamala Harris (D-Calif.) and former vice president and senator Joe Biden skirt around the idea of breaking up Big Tech, but Warren said exactly what she’s going to do and her track record with Wall Street following the 2008 financial crisis suggests she won’t back down.

“It does concern us” going into the 2020 race, Szabo said, because he doesn’t think there’s a legitimate antitrust case against Big Tech in the first place. From Big Tech’s perspective, it’s a smear campaign.

“Weaponization of antitrust is essentially handing an enormous amount of political power to whomever controls the White House to attack businesses with whom they disagree,” Szabo said. “Handing over such power to the government should concern all Americans regardless of political affiliation.”

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Facebook’s plans to integrate Instagram, Messenger and WhatsApp may provide more profits for them and more convenience to you, but tech experts also fear it will mean less privacy for just about everyone.

From a business standpoint, Facebook’s merger makes sense: it will likely result in cost savings for Facebook and simultaneously improve users’ messaging and posting activities by merging them into one platform.

But merging the three apps will also allow Facebook to put together a more comprehensive picture of users’ lives by combining three different data sets.

“Data becomes more powerful when it’s combined,” said Aram Sinnreich, chair of communication studies at American University. “There is a consumer expectation that if you sign up for Instagram and not for WhatsApp, then your data will exist only in one of those silos. Most consumers are not even aware that WhatsApp and Instagram are operated by Facebook, so they have a reasonable expectation that those will be treated separately and not be combined to create a much more thorough portrait of their lives, their personal location information, their network of contacts, etc.”

People use the three different apps for different reasons, and people who use Instagram and Messenger may not necessarily use WhatsApp, or some users might use WhatsApp but not Instagram. If the three apps merge, suddenly your professional contacts who you message on WhatsApp and have no part of your personal life will be able to see your personal activities and recreational pursuits on Instagram — essentially eliminating users’ ability to keep certain aspects of their life concealed from certain contacts or groups of people.

“The collapse of those boundaries can be embarrassing at best and catastrophic at worst for the end user,” Sinnreich told InsideSources. “I have a friend who is a high school principal and also a successful drag queen. It’s up to him where his life as a drag queen is viewable. Those spheres are separate for a reason.”

To further complicate the issue, there is no regulatory playbook for how to deal with a move like this. If Facebook’s plan is anticompetitive, for example, then it’s already too late to pursue antitrust litigation. Regulators should have stopped Facebook from acquiring Instagram and WhatsApp in the first place, said Lawrence White, professor of economics at New York University’s Leonard N. Stern School of Business.

When Facebook acquired Instagram in 2012 and WhatsApp in 2014, regulators didn’t bat an eye, despite consumer complaints file with the Federal Trade Commission (FTC) over WhatsApp’s data collecting practices following the acquisition.

According to White, the FTC probably cleared both acquisitions based on the belief that online advertising is the heart of the tech industry’s business model.

“They would have been thinking, where do they make their money? In online advertising, there are multiple players like Google and Amazon and lots of other guys out there competing in the online advertising area, so it would have been hard to bring an antitrust case against them,” White said. “The only other case that they could have tried, which would have been even harder, would have been one that said, consumer attention is a relevant market and with this acquisition there is going to be less innovation in consumer attention going forward and more possibility for abuse going forward.”

Many economists now believe tech companies’ business models revolve around consumers’ attention. This “attention economy” purports that whichever tech company dominates consumers’ attention will be able to harvest the most data and the most ad revenue.

If a tech giant like Facebook secures so much of consumers’ attention by buying and merging various tech platforms, then Facebook essentially dominates the market. That’s where the antitrust argument comes in.

But, neither Sinnreich or White think U.S. regulators will do anything about Facebook’s integration plan, other than tweet their concerns.

“I can imagine a few people standing up in Congress and saying we think this is a problem and the FTC should look into this,” White said. “It wouldn’t be an antitrust issue, it would be concerns about privacy, and my guess is at the end of the day they won’t do a whole lot.”

In Europe, Facebook may face more intense regulatory scrutiny due to their General Data Protection Regulation (GDPR). The Irish Data Protection Commission, for example, issued a statement yesterday announcing plans to “closely scrutiniz[e] Facebook’s plans as they develop, particularly insofar as they involve the sharing and merging of personal data between different Facebook companies. Previous proposals to share data between Facebook companies have given rise to significant data protection concerns and the Irish DPC will be seeking early assurances that all such concerns will be fully taken into account by Facebook in further developing this proposal. It must be emphasized that ultimately the proposed integration can only occur in the EU if it is capable of meeting all of the requirements of the GDPR.”

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State attorneys general may have found a way to bring antitrust suits against Big Tech, but it means overhauling the current antitrust framework and redefining competition.

In a letter to the Federal Trade Commission (FTC) filed in October, a group of state AGs claim companies like Amazon, Facebook and Google unfairly monopolize technology markets because they are so entrenched in the personal data of consumers.

In today’s data-driven markets, they argue, tech companies rely on troves of consumer data in order to target advertisements and turn a profit. The more data a company has, the more likely it is to succeed. Thus, data is the key to profit in today’s economy.

“However, the data collected is concentrated in a small number of dominant companies/platforms,” the AGs wrote. “Today around 90 percent of internet searches use one search engine, and over 90 percent of young people have a profile on one social media platform. Just 1 percent of smartphones use an operating system other than Apple’s iOS or Google’s Android.”

Therefore, data concentration in the hands of a few tech companies may limit competition.

“A firm’s deeply entrenched knowledge of individual consumers’ habits can make it nearly impossible for a rival or potential rival to target advertisements with comparable accuracy, or woo third-party online advertisers based on a dramatically thinner accumulation of historical data,” the AGs argue in their letter. “Studies show that the historical search improves search results up to 31 percent.”

FTC commissioner Rohit Chopra recently corroborated the AGs’ claims when he told the Senate Commerce Subcommittee on Consumer Protection, Product Safety and Data Security last week that “if you talk to investors, many will tell you that they’re not going to fund a start up unless they can figure out how to sell that company to an existing large incumbent like Google or Facebook.”

But there’s the a rub: economists don’t agree on how competition should be defined in a 21st century economy. The current approach to antitrust issues relies on the Chicago School of Economics definition of competition, which is, good competition leads to lower prices for goods and services and thus benefits the consumer.

In the current tech climate, that is exactly what’s happening: Facebook and Google provide their services for free, and Amazon provides almost unbeatably cheap prices for the products sold on its website.

As Lina Kahn, a legal fellow at Yale Law specializing in competition law, puts it in her 2017 paper, “the present approach fails even if one believes that antitrust should promote only consumer interests. Critically, consumer interests include not only cost but also product quality, variety, and innovation. Protecting these long-term interests requires a much thicker conception of “consumer welfare” than what guides the current approach.”

Lawrence White, professor of economics at New York University’s Leonard N. Stern School of Business, however, thinks the state AGs’ argument rings hollow.

“The first part of the proposition is correct — historical data does provide an advantage to larger companies, but I would think of this as an economy of scale,” he told InsideSources.

Basically, he said, having more data is just an advantage of being bigger and better at business, and regulators shouldn’t punish companies simply for their size.

“Is this worth doing anything in the antitrust arena? My instincts are not, partly because this is just another advantage of size, and if we start going after all the advantages of size, we’re never going to stop,” he said.

Instead of trying to break up the current tech companies, White said, the FTC should stop them from acquiring the competition. For example, allowing Facebook to acquire Instagram and WhatsApp was a “mistake.”

AGs and the FTC could bring antitrust cases against big tech companies, but first, they need to convince economists and the courts that the current antitrust framework needs to be updated to deal with 21st century tech issues.

“Antitrust has often been described as a consumer welfare statute,” the AGs wrote. “At a minimum, it focuses on the price effects that challenged conduct may have on the consumer. But it does — and should — encompass more. For example, antitrust law also reaches conduct with harmful effects on innovation and quality, as well as effects that are likely to cause consumer harm, albeit indirectly. It seeks to protect the competitive process, for the ultimate benefit of consumers.”

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Apple is hitting back against against a bill in the UK that could require tech firms to give British authorities a back door into encrypted communications services — a fight lawmakers in Congress hint could be coming to the United States.

The iPhone maker submitted an eight-page letter to the British Parliamentary Scrutiny Committee Monday highlighting what it believes are flaws in the Investigatory Powers Bill — legislation aimed at increasing the scope of online surveillance in the UK.

Revised and proposed by Home Secretary Theresa May in early November, the bill would mandate Internet service providers keep the web browsing histories of their users for one year and give British authorities access to their connection records without having to obtain prior judicial authorization — allowing them to see the websites users have visited, but not the particular pages or content viewed.

The bill has gained traction across the Atlantic since the Islamic State-inspired attacks in Paris last month.

Investigators revealed last week at least some of the suspects in the attack used encrypted messaging apps Telegram and WhatsApp to plan their assaults, reigniting the debate surrounding governments’ inability to surveil end-to-end encrypted communications, accessible to the sender and receiver exclusively.

Apple has offered such encryption on all iPhone software since last fall, and warned British lawmakers Monday the new surveillance powers being weighed by Parliament, which could compel Apple and others to build encryption back doors into their products, threaten the cybersecurity of all its users.

“The bill threatens to hurt law-abiding citizens in its effort to combat the few bad actors who have a variety of ways to carry out their attacks,” Apple told lawmakers.

While the law doesn’t specifically mandate back doors or state companies must alter the code of any products, it would compel tech firms to comply with warrants for data, which in Apple’s case would mean having to build a back door into encrypted devices that the company currently can’t access without a users’ password.

“The creation of back doors and intercept capabilities would weaken the protections built into Apple products and endanger all our customers,” Apple wrote. “A key left under the doormat would not just be there for the good guys. The bad guys would find it too.”

The Cupertino-based company went on to warn the bill threatens to open a Pandora’s Box that would “likely be the catalyst for other countries to enact similar laws, paralyzing multinational corporations under the weight of what could be dozens or hundreds of contradictory country-specific laws,” and puts companies like Apple in legal purgatory by having to choose between breaking the privacy law of one country to comply with the surveillance law of another.

“What the British are attempting to do, and what the French have already done post-Charlie Hebdo, would never have seen the light of day in the American political system,” former CIA and National Security Agency Director Michael Hayden told Reuters last month.

While it’s true the debate over criminals and terrorists “going dark” online via encrypted communications services was largely shelved earlier this year after the administration stepped back from a policy of compelling Silicon Valley to cooperate, the Paris attacks and the ISIS-inspired shooting in San Bernardino earlier this month have re-energized the issue.

The resurgence is nowhere more apparent than on Capitol Hill, where lawmakers including Senate Intelligence Committee Chairman Richard Burr, ranking Democrat Sen. Dianne Feinstein, Republican Sen. Tom Cotton and House Homeland Security Committee Chairman Michael McCaul spent the last weeks of the legislative calendar slamming companies’ lack of cooperation and advocating the need for legislation to address the issue.

“If they communicate in darkness and you can’t shine a light on it, quite honestly you just can’t stop it,” McCaul, who helped usher the first cyber bill aimed at expanding surveillance in years through Congress’ year-end budget deal, said earlier this month. “People say why didn’t you see Paris? It was under the radar because they were using an app called Telegram and they were communicating through an encrypted application.”

While hearing testimony from FBI Director James Comey on the issue two weeks ago, Feinstein revealed she’s working on legislation with Burr that would compel companies to cut through encryption for authorities.

“Well, I’m going to seek legislation if nobody else is, and I know Senator Burr thinks somewhat similarly,” Feinstein said. “If there is conspiracy going on over the Internet, that encryption ought to be able to be pierced.”

On Monday, Cotton called out Apple CEO Tim Cook directly, saying he “omitted critical facts about data encryption” during a recent interview.

“He claimed that Apple does not comply with lawful subpoenas because it cannot,” Cotton wrote. “While it may be true that Apple doesn’t have access to encrypted data, that’s only because it designed its messaging service that way.”

“As a society, we don’t allow phone companies to design their systems to avoid lawful, court-ordered searches.”

Senate Majority Leader Mitch McConnell has already indicated the upper chamber will look to re-examine the surveillance debate during the next Congress via legislation from Cotton, endorsed by Florida Republican Sen. Marco Rubio, to roll back recent restrictions and expand NSA surveillance powers.

“Based on what’s going on in the world, I think we can’t put blinders on here,” McConnell said last week. “This is a growing and serious problem, and to the extent that our intelligence capabilities — which in my view have never been inconsistent with American privacy concerns — are weakened, you have to ask the question: Is that a smart thing to do? I don’t think it is.”

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