This piece analyzes data-driven mergers in the context of American anti-trust law.
Introduction
Competition authorities across the globe are actively discussing the regulation of big data and its role in merger control. The EU- aggressively pursuing big-tech regulation through Commissioner of Competition Magrethe Vestager- opened consultations for regulating digital platforms in June 2020.[1] Across the Atlantic, earlier this year[2], the Federal Trade Commission (FTC) issued a probe of all acquisitions undertaken by Google, Amazon, Facebook, Apple (GAFA) and Microsoft between 1 January 2010 and 31 December 2019. The inquiry focused on a key question: “how acquired assets were integrated and how acquired data has been treated.”[3] The FTC also held held hearings on issues of competition and consumer protection, including the role of big data in competition.[4] The seminal US Senate hearing and testimony of GAFA also considered the question of ‘big tech’ mergers. [5]
This article focuses on big data as a relevant consideration in merger control analysis in the US. It also discusses the policy takeaways from the US experience of data driven mergers.
What is big data?
While there is no consensus on a definition of big data, there is some common understanding regarding its key attributes viz. volume, velocity, variety[6] (value and veracity being the additional attributes). Data is also characterized by economies of scale (i.e. cost of additional use of data / algorithm is very low), economies of scope (i.e. it is beneficial to analyze aggregated datasets), and non-rivalry (i.e. data can be used simultaneously by several users without diminishing its utility, and sometimes enhancing it).[7] Big data finds many applications including in product development (by using predictive analytics, analyzing consumer data), predictive maintenance (extrapolating potential issues in hardware and services), enhancing customer experience (making data informed customized offers, proactive handling of customer complaints, etc.), fraud and compliance (identification of patterns and sifting through large data sets), machine learning, enhancing operational efficiencies, driving innovation, etc.[8] Often, large data sets are analysed through complex algorithms and machine learning tools to eke patterns and insights from the data. Further, there may be several ways to collect certain data given the multiplicity of its points of generations. Let us now turn to treatment of big data in merger control in the US.
Big data & merger control in the US
It appears that the US has approached big data and merger control issues on a case by case basis. In several instances, the FTC has ordered divestitures of datasets and sharing of data with third parties in order to assuage competition concerns[9]. In others it permitted the merger after appraising the possible theories of harms arising in each transaction[10]. In these cases, the FTC found that the merger actually increased competition in the market. For instance, while deliberating over Microsoft’s purchase of search engine Yahoo!, the FTC concluded that the acquisition of datasets by Microsoft would lead to rapid innovation in search- related products, changes in search results presentation, user interface, and search algorithms[11]. This would not hurt competition, but promote it.
Takeaways from the American experience
Policy takeaways for other jurisdictions in relation to data related or data driven mergers are:
Privacy concerns: It has been argued that mergers involving data need to factor in privacy concerns[12] and deferring to data privacy laws[13] is flawed[14]. However, privacy law and data protection issues do not lie within the remit of antitrust law[15]. Overall, a separation of jurisdiction and powers between both privacy and anti-trust frameworks would lead to better governance. If consumers deem privacy terms or data protection measures as a key feature of the product or service been offered, then there may be reason for competition authorities to analyse them while discerning the relevant product market. The US Horizontal Merger Guidelines[16] (as well the European Union Merger Guidelines[17]), and the decisional practice[18], are broad enough to encompass non-price effects in the analysis (such as privacy concerns) if the need arises.
Case by case approach: Several theories of harm have been proposed in relation to data mergers such as consumer harm due to horizontal effects,[19] consumer harm due to vertical integration[20], and foreclosure of essential input,[21] among others. However, a case by case approach that assesses the likelihood of harm while considering potential pro-competitive effects is best suited for dynamic data driven mergers. In contrast, a prescriptive set of rules devised to address data mergers may not be needed, even as special methods or expertise to analyze relevant markets may be required.
Lowering merger notification threshold:[22] Several suggestions have been made in the EU[23]and the US [24] to re-look at monetary/asset thresholds for merger notifications. This is because the acquisition of smaller firms by bigger companies may escape merger scrutiny in data driven mergers, on account of low turnover / asset base of the target company. Germany’s Federal Cartel Office[25] and the Italian Competition Authority[26] have already amended rules to this effect. The FTC also takes cognizance of mergers that can harm competition despite not meeting merger notification thresholds[27]. Whether a competition authority has the power to review a consummated merger or examine mergers that fall below the notification threshold will vary from jurisdiction to jurisdiction. Where the legislative framework is wide enough, the competition authorities may be able to address the so called ‘killer acquisitions’ without changing notification thresholds or undertaking legislative crafting. These cases, especially post-merger reviews, should be handled carefully having due regards to incentives of entrepreneurs to innovate, pro-competitive effects of the merger and the need for a predictable merger control regime for businesses to thrive.
Conclusion
The US antitrust tradition of a case by case analysis provides useful guidance regarding mergers involving data. It appears that existing competition frameworks will likely suffice in dealing with such mergers. Further, national competition authorities are better off isolating privacy issues from pure competition issues unless the privacy issues impinge on competition assessment (such as where the consumers view privacy policy of a platform as relevant factor when making the decision to choose a platform). On whether notification thresholds need to be recalibrated to net “killer acquisitions”, the answer will depend on each jurisdiction’s legal framework. This should be done cautiously, as any over regulation (that may result in either muzzling of funds or incentives to the entrepreneur, or disturbing the certainty of business environment) may have chilling effect on competition and consumer welfare.
This piece has been authored by Gargi Yadav, external consultant, with inputs from Nehaa Chaudhari, Partner, Ikigai Law.
For more on the topic, please feel free to reach out to us at contact@ikigailaw.com
[1] Natasha Lomas, Europe Asks for Views on Platform Governance and Competition Tools, TechCrunch, 2nd June 2020, available at https://techcrunch.com/2020/06/02/europe-asks-for-views-on-platform-governance-and-competition-tools/, last accessed on 5th November 2020.
[2] Federal Trade Commission, FTC to Examine Past Acquisitions by Large Technology Companies, (2020).
[3] Jonathan Rubin, FTC Taking a 10-year Antitrust Look-Back at Big Tech, 10 The National Law Review, (2020).
[4] Federal Trade Commission, Hearings on Competition and Consumer Protection in the 21st Century, page 2, (2020).
[5] Big Tech Antitrust Hearing, Rev, 29th July 2020, available https://www.rev.com/blog/transcripts/big-tech-antitrust-hearing-full-transcript-july-29, last accessed on 5th November 2020.
[6] Andrea de Mauro, Mauro Greco and Micheli Grimaldi, What is Big Data? A Consensual Definition and a Review of Key Research Topics, 4th International Conference on Integrated Information, September 2014, available at https://www.researchgate.net/publication/265775800_What_is_Big_ Data_A_Consensual_De nition_and_a_Review_of_Key_Research_Topics, last acccesed on 5th November, 2020.
[7] Bertin Martens, The Impact of Data Access Regimes on Artificial Intelligence and Machine Learning, JRC Digital Economy Working Paper 2018-09 1, page 8, (2018).
[8] The Definition of Big Data, Oracle, 2020, available at https://www.oracle.com/big-data/what-is-big-data.html, last accessed on 4th November 2020.
[9] Federal Trade Commission, Analysis of Agreement Containing Consent Order to Aid Public Comment In the Matter of the Dun & Bradstreet Corporation, Docket No. 9342, page 4, (2013); U.S. v. Bazaarvoice, Inc., 2014 WL 203966; In the Matter of Reed Elseview NV, et al., FTC Docket No. C-4257; U.S. v. The Thomson Corp. and Reuters Group PLC, C (2008) 654; In re Nielsen Holdings N.V., FTC Docket No. C-4439; In re CoreLogic, Inc., FTC Docket No. C-4458; U.S. Department of Justice, Justice Department Requires CVS and Aetna to Divest Aetna’s Medicare Individual Part D Prescription Drug Plan Business to Proceed with Merger, (2018); United States v. Google Inc., Case No. 1:11-cv-0068 (RLW).
[10] United States v. AT&T Inc., 552 F. Supp. 131 (D.D.C. 1982); Federal Trade Commission, Statement of Federal Trade Commission’s Acting Director of the Bureau of Competition on the Agency’s Review of Amazon.com, Inc.’s Acquisition of Whole Foods Market Inc., (2017); Facebook/Whatsapp, C (2014) 7239.
[11] “The increased queries received by the combined operation will further provide Microsoft with a much larger pool of data than it currently has or is likely to obtain without this transaction. This larger data pool may enable more effective testing and thus more rapid innovation of potential new search-related products, changes in the presentation of search results and paid search listings, other changes in the user interface, and changes in the search or paid search algorithms. This enhanced performance, if realized, should exert correspondingly greater competitive pressure in the marketplace”, Federal Trade Commission, Statement of the Department of Justice Antitrust Division on its Decision to Close its Investigation of the Internet Search and Paid Search Advertising Agreement Between Microsoft Corporation and Yahoo! Inc., (2010);
“..it is important to remember that acquisitions that improve competitiveness are not anticompetitive. When a firm acquires an asset that enables it to provide better service and by doing so, becomes more attractive to customers—rendering its rivals’ jobs that much more difficult—that’s not normally an antitrust problem…” , D. Bruce Hoffman, Competition Policy and the Tech Industry – What’s at Stake?, Federal Trade Commission, 12th April 2018, available at https://www.ftc.gov/system/files/documents/public_statements/1375444/ccia_speech_final_april30.pdf, last accessed on 5th November 2020.
[12] Robert H. Lande, The Microsoft-Yahoo Merger: Yes, Privacy is an Antitrust Concern, University of Baltimore School of Law Legal Studies Research Paper No. 2008-06, (2008).
[13] “…Not only does the Commission lack legal authority to require conditions to this merger that do not relate to antitrust, regulating the privacy requirements of just one company could itself pose a serious detriment to competition in this vast and rapidly evolving industry. That said, we investigated the possibility that this transaction could adversely affect non-price attributes of competition such as consumer privacy. We have concluded that the evidence does not support a conclusion that it would do so. We have therefore concluded that privacy considerations, as such, do not provide a basis to challenge this transaction”, Federal Trade Commission,Statement of Federal Trade Commission Concerning Google/DoubleClick, page 3, (2007).
[14] “..the dismissal of privacy considerations on grounds based largely on the classical divide between competition and data protection is unhelpful in instrumenting the case against behavioural price discrimination, which is something that privacy cannot deal with..the current assessment of mergers has to activate the public policy clause and to consider the economic implications of privacy following a merger. No merger should be unconditionally cleared if it involves a large amount of users’ data”, Anca D Chirita, Data-Driven Mergers under EU Competition Law, Durham University Law School 1, page 31, (2018).
[15] Commission Christine S. Wilson, Why We Should All Play by the Same Antitrust Rules from Big Tech to Small Business, Federal Trade Commission, 4th May 2019, available at ), https://www.ftc.gov/system/files/documents/public_statements/1527497/wilson_remarks_aei_5-4-19.pdf, last accessed on 5th November 2020.
[16] “..enhanced market power can also be manifested in non-price terms and conditions that adversely affect customers, including reduced product quality, reduced product variety, reduced service, or diminished innovation. Such non-price effects may coexist with price effects, or can arise in their absence”, Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines, §1 (2010).
[17] European Union, Guidelines on the Assessment of Horizontal Mergers & Non-Horizontal Merger Guidelines Under the Council Regulation on the Control of Concentrations Between Undertakings, (2008).
[18] The consumer preference for privacy on Whatsapp was given due consideration, Facebook/Whatsapp, C (2014) 7239; Privacy was found to be an important parameter of competition among professional social networks, Microsoft/ LinkedIn, C (2016) 8404; Federal Trade Commission, Analysis of Agreement Containing Consent Order to Aid Public Comment In the Matter of the Dun & Bradstreet Corporation, (2010); In the Matter of Reed Elseview NV, et al., FTC Docket No. C-4257.
[19] Federal Trade Commission, Statement of Commissioner Wright and Commissioner McSweeny Concerning Zillow, Inc./Trullia, Inc., (2015).
[20] Microsoft-LinkedIn Deal Raises New Competition Concerns, Financial Times.
[21] “..the evidence indicates that neither the data available to Google, nor the data available to DoubleClick, constitutes an essential input to a successful online advertising product. A number of Google’s competitors have at their disposal valuable stores of data not available to Google…”, Federal Trade Commission,Statement of Federal Trade Commission Concerning Google/DoubleClick, page 12, (2007).
[22] European Union, Speech by Margrethe Vestager ‘Refining the EU merger control system’, (2016).
[23] Oskar Torngren, Mergers in Data Driven Markets – Is the dimension of privacy and protection of personal data something to consider in a merger review?, Faculty of Law Stockholm University, (2017).
[24] “Cunningham, Ederer, and Ma (2018) find that acquired pharmaceutical projects are less likely to be developed when they overlap with the product portfolio of the acquiring firm; these “killer acquisitions” disproportionately occur just below the reporting threshold. Wollmann (2019) also provides worrisome evidence about mergers taking place just below the threshold”, Carl Shapiro, Protecting Competition in the American Economy: Merger Control, Tech Titans, Labor Markets, 33 Journal of Economic Perspectives 69, page 78, (2019).
[25] European Union, Joint guidance on new transaction value threshold in German and Austrian merger control submitted for public consultation, (2018).
[26]“The ICA’s proposed changes to Law no. 287/90 would permit it to review “killer acquisitions” under its “significant impediment to effective competition” test”, Global Merger Control Update 2020, Jones Day, February 2020, available at https://www.jonesday.com/en/insights/2020/02/global-merger-control-update-2020, last accessed on 5th November 2020.
[27] “Mallinckrodt ARD Inc., formerly known as Questcor Pharmaceuticals, Inc., and its parent company, Mallinckrodt plc, have agreed to pay $100 million to settle Federal Trade Commission charges that they violated the antitrust laws when Questcor acquired the rights to a drug that threatened its monopoly in the U.S. market for adrenocorticotropic hormone (ACTH) drugs…. while benefitting from an existing monopoly over the only U.S. ACTH drug, Acthar, Questcor illegally acquired the U.S. rights to develop a competing drug, Synacthen Depot. The acquisition stifled competition by preventing any other compsany from using the Synacthen assets to develop a synthetic ACTH drug, preserving Questcor’s monopoly and allowing it to maintain extremely high prices for Acthar”, Federal Trade Commission, Mallickrodt Will Pay $100 Million to Settle FTC, State Charges it Illegally Maintained its Monopoly of Specialty Drug Used to Treat Infants, (2017); Federal Trade Commission, Analysis of Agreement Containing Consent Order to Aid Public Comment, In the Matter of Ossue Hf., Ossur Americas Holdings, Inc., and College Park Industries, Inc., (2020).
