Divergence
Last September, Open Markets Institute director of legal policy Lina M. Khan published a lengthy law review article discussing two related topics: American courts' narrowing of antitrust law to focus on pricing and profits rather than promoting competition and balancing market power, and the application of that approach to Amazon in particular. The US's present conception of antitrust law, she writes and we see in action, provides no lens through which to curb the power of data-driven platforms. If cheaper is always better, what can possibly be wrong with free?
This week, the US Supreme Court provided another look at this sort of reasoning when it issued its opinion in Ohio v. American Express. The short version, as Henry Farrell explains on Twitter: SCOTUS sided with American Express, and in doing so made it harder to bring antitrust action against the big technology companies in the US *and* widened the gulf between the EU and US approaches to such things.
As Erik Hovenkamp explains in a paper analyzing the case (PDF), credit card transactions, like online platforms, are multi-sided markets. That is, they connect two distinguishable groups of customers whose relationships with the platform are markedly different. For Facebook and Google, these groups are consumers and advertisers; for credit card companies they're consumers and retailers. The intermediary platforms make their money by taking a small slice of each transaction. Credit card companies' slice is a percentage of the value of the transaction, paid directly by the merchant and indirectly by card holders through fees and interest; social media's slice is the revenue from the advertising it can display when you interact with your friends. Historically, American Express charges merchants a higher commission than other cards, money the merchant can't reclaim by selectively raising prices. Network effects - the fact that the more people use them the more useful they are to users - mean all these platforms benefit hugely from scale.
American Express v. Ohio, began in 2010, when the US Department of Justice, eventually joined by 17 states, filed a civil antitrust suit against American Express, Visa, and Mastercard. At issue were their "anti-steering" merchant contract clause rules, which barred merchants from steering customers toward cheaper (to the merchant) forms of payment.
Visa and Mastercard settled and removed the language. In 2015, the District Court ruled in favor of the DoJ. American Express then won in the 2nd Circuit Appeals Court in 2016; 11 of the states appealed. Now, SCOTUS has upheld the circuit court, and the precedent it sets, Beth Farmer writes at SCOTUSblog suggests that the plaintiffs in future antitrust cases covering two-sided markets will have to show that both sides have suffered harm in order to succeed. Applied to Facebook, this judgment would appear to say that harm to users (the loss of privacy) or to society at large (gamed elections) wouldn't count if no advertisers were harmed.
Farrell goes on to note the EU's very different tack, like last year's fine against Google for abusing its market dominance. Americans also underestimate the importance of Max Schrems's case against Google, Instagram, WhatsApp, and Facebook, launched the day the General Data Protection Regulation came into force. For 20 years, American companies have tried to cut a deal with data protection law, but, as Simon Davies warned in 1999, this is no more feasible than Europeans doing the same to the US 1st Amendment.
Schrems's case is that the all-or-nothing approach ("give us your data or go away") is not the law's required meaningful consent. In its new report, Deceived by Design, the Norwegian Consumer Council finds plenty of evidence to back up this contention. After studying the privacy settings provided by Windows 10, Facebook, and Google, the NCC argues that the latter two in particular deliberately make it easier for users to accept the most intrusive options than to opt out; they also use "nudge" techniques to stress the benefits of accepting the intrusive defaults.
"This is not privacy by default," the authors conclude after showing that opting into Facebook's most open privacy setting requires only a single click, while opting out requires foraging through "Manage your privacy settings". These are dark patterns - nudges intended to mislead users into doing things they wouldn't normally choose. In advising users to turn on photo tagging, for example, Facebook implies that choosing otherwise will harm the visually impaired using screenreaders, a technique the Dark Patterns website calls confirmshaming. Five NGOs have written to EU Data Protection Board chair Andrea Jelinek to highlight the report and asking her to investigate further.
The US has no comparable GDPR on which to base regulatory action, even if it were inclined to do so, and the American Express case makes clear that it has little interest in applying antitrust law to curb market power. For now, the EU is the only other region or government large enough to push back and make it stick. The initial response from some American companies', ghosting everyone in the EU, is unlikely to be sufficient. It's hard to see a reconciliation of these diverging approaches any time soon.
Illustrations: Silicon Valleyopoly game, 1996..
Wendy M. Grossman is the 2013 winner of the Enigma Award. Her Web site has an extensive archive of her books, articles, and music, and an archive of earlier columns in this series. Stories about the border wars between cyberspace and real life are posted occasionally during the week at the net.wars Pinboard - or follow on Twitter.