Facebooks Dominance in the Market for Private Personal Data: Legal Frameworks, Technological Fixes, and Policy Responses

Matthew Bruchon

ESD.S40: Internet Law & Policy May 4, 2012

Its hard to avoid the conclusion that we are living in an age of large information monopolies, argues Tim Wu, Columbia Law School professor and senior advisor to the Federal Trade Commission (FTC). According to Wu, society increasingly depends on a small number of giant Internet firms, and most of us would find it more difficult to avoid those firms than to (bypass) Starbucks, Wal-Mart or other companies that dominate brick-and-mortar marketplaces. Wu places a special emphasis on the power of social networking firms: Forgoing Google and Amazon is just inconvenient; forgoing Facebook or Twitter means giving up whole categories of activity. He notes that these firms derive much of their market power from the sheer quantity of users and volume of private data they control, particularly Facebook, which is huge and happens to know more about us than the IRS1. If Wus concerns regarding Facebooks market power and the implication of related privacy issues are legitimate, then attention should be devoted now to assessing the markets in which it operates and the question of whether, under existing legal frameworks, Facebooks market power can be tempered by government regulators. Moving beyond todays economic and legal landscape, it is also worth assessing technological fixes to mitigate antitrust concerns and the fixes privacy impacts, as well the role regulators, the courts and Congress can play. Background: Relevant Case Law Before discussing a possible framework for antitrust prosecution of Facebook, it is worth noting that the prospects of success for any antitrust prosecution of Facebook are highly speculative given the lack of relevant case law. J. Thomas Rosch, a commissioner for the FTC
1

Wu, Tim. In the Grip of the New Monopolists. Wall Street Journal Online (November 13, 2010). <http://online.wsj.com/article/SB10001424052748704635704575604993311538482.html>

one of two government bodies which prosecutes antitrust violations, along with the Department of Justice (DOJ)notes that a general state of antitrust in the high-technology sector is that when it comes to the cutting edge issues we are apt to litigate there is very little that is settled under conventional case law.2 According to Spencer W. Waller, there is only a glimmering of a roadmap for antitrust in the social networking space, consisting of cases dealing with computer hardware and software issues only tangentially related to those most relevant for interactive Internet sites like social networking.3 Even antitrust-related decisions by the FTC and DOJ offer little insight because none directly deal with social networking sites and none directly deal with issues of monopolization.4 One of the tangentially related cases is the DOJs pursuit from 1998 to 2001 of antitrust claims against Microsoft for allegedly attempting to illegally maintain its operating system monopoly and obtain a monopoly in Web browsers. A federal district court concluded that Microsoft did enjoy monopoly power in the operating system market, and that their practice of preventing un-bundling of their web browser from Windows was anticompetitive. The district court ruled that Microsoft be split into two firms, one limited to operating systems and one to

Rosch, J. Thomas (Commissioner, Federal Trade Commission). Intel, Apple, Google, Microsoft and Facebook: Observations on Antitrust and the High-Tech Sector. Remarks before the ABA Antitrust Section Fall Forum, Washington, DC (November 18, 2010). <http://www.ftc.gov/speeches/rosch/101118fallforum.pdf>
3

Waller, Spencer W. Antitrust and Social Networking. North Carolina Law Review (2012). <http://ssrn.com/abstract=1948690>
4

Ibid.

applications, but the appeals court reversed much of the ruling for largely procedural reasons and the remaining concerns were addressed via a settlement between Microsoft and the DOJ.5 The facts of the Microsoft case, and thus the antitrust questions addressed by the courts, are largely different from those relevant to Facebook. Microsoft had an interest in using its market power to (control) the path of development of applications, since software developed in-house by Microsoft for its operating system was a major source of profits and additional market power. Facebook, on the other hand, essentially captures all the value of a successful application that it is interested in (the traffic it drives to the site) whether it was developed by Facebook or not. Facebook monetizes not its technology, but rather the social information about, and access to, its vast user base and as discussed further below, the core of any likely antitrust inquiry would deal with Facebooks use of those large quantities of information to impede new market entrants and its unwillingness to make (the) information freely available.6 Framework for Antitrust Prosecution of Facebook Under the Sherman Act At the very least, the Microsoft case illustrates an application of Section 2 of the Sherman Antitrust Act, which is the most natural framework under which an antitrust prosecution of Facebook would likely take place. The Microsoft case was brought under both Sections 1 and 2 of the Sherman Act. The DOJ argued that Microsofts web browser bundling violated Section 1s prohibition of any contract, combination in the form of a trust or otherwise, or conspiracy, in restraint of trade or commerce, and that Microsoft had also more generally violated Section

Butts, Chris. The Microsoft Case 10 Years Later: Antitrust and New Leading New Economy Firms. 8 Nw. J. Tech. & Intell. Prop. 275 (2010). <http://scholarlycommons.law.northwestern.edu/njtip/vol8/iss2/5>
6

Ibid.

2s prohibition of monopolizing or attempting monopolize any part of interstate commerce. In the case of Facebook, Section 1 concerns such as exclusive contracts or bundling are less salient than Section 2s more general language. To establish Section 2 violations, the government would have to first prove that Facebook possesses monopoly power in a marketwhich typically includes all possible substitutes for (their) product as perceived by the buyerand then prove the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.7 Defining the market in which Facebook may be willfully maintaining a monopoly is not simple: is it the market for users, or the market for advertisers, or something else? Rosch points out that market definition is complicated by the multi-sided nature of the markets in many high-tech industries; for example, a firm may operate both in a market for advertisements and a market for consumers of the ads, and gaining control of one market increases control in the other. He states that the challenge of market definition can be crippling to an agency, and the easiest way is to focus on the market in which the firm at issue monetizes its intellectual property or innovation.8 This seems to favor advertising as the most salient market. Chris Butts reaches a similar conclusion using a slightly different path, arguing that information about and access to users is Facebooks product and advertisers are the customer.9 Rather than assume a given market, such as advertising, will present the strongest antitrust case, Waller looks at market power in several markets using Facebooks market share as

Ibid. Rosch, supra note 2. Butts, supra note 5.

a metric; U.S. courts often apply a rule that 90% of a well-defined market is a monopoly and 66% may be a monopoly. In the simplest marketthat of usersFacebook is already at the cusp of monopoly; using page views as a proxy for user market share, Facebook hovers near 63%. Looking at the advertising market and using share of total U.S. advertising revenues across all of the Internet as a metric, Waller concludes Facebooks 30% market share is impressive but simply not enough to satisfy the market power requirement for antitrust liability for monopolization in the U.S.10 However, these numbers may both underestimate Facebooks true market share. The 63% figure for market share of users includes YouTube, which has a 20% market share. As Waller notes,11 both sites may be considered some form of social networking, it seems highly debatable that they are competing in the same market for users. Since, as stated above, Section 2 of the Sherman Act describes a market as all possible substitutes for a product as perceived by the buyer,12 it seems doubtful that a court would consider Facebook, a service fundamentally (offering) communication with friends,13 to occupy the same market as YouTube, which is a more focused video sharing service. Similarly, the 30% figure cited for Facebooks advertising market share includes advertisements on all websites, and would rise significantly if only social networking advertisements were included. There is some (admittedly limited) precedent for this narrower market definition. Waller notes the FTC has often assumed on-line search advertising

10

Waller, supra note 3. Ibid. Butts, supra note 5. Rosch, supra note 2.

11

12

13

to be a separate market from other on-line advertising, for example;14 it might not be unreasonable to separate social networking advertising similarly, given, for instance, its highly personalized nature. More generally, there is precedent for narrow market definition for hightech industries in the Microsoft case, the most relevant precedent despite its many differences from Facebooks case. In the Microsoft case, presented with arguments for two different market definitions, courts opted for the narrow definition of operating systems for Intel-compatible personal computers.15 Aside from the markets of users, for which Facebook may have a dominant market share, and advertisers, for which evidence of market dominance can be argued but is more tenuous, Waller also looks briefly at a third possible market. This market is a more abstract information market in which social networking sites compete in a market for both the aggregate and individual information that users post to their social networking sites and/or reveal through their communications with others on the network; in this case the market is monetized by not only advertising, but also revenues from application developers and the ability to raise money in capital markets. Waller contends that in this information market, the zone of effective competition is the one in which firms monetize their operations,16 making this formulation consistent with the logical framework applied by Rosch and Butts, in which monetization defines the market of interest. Since the Facebook platform is built to incent users to disclose more

14

Waller, supra note 3. Butts, supra note 5. Waller, supra note 3.

15

16

information and the more users share, the more valuable the platform becomes,17 this market is the one in which perhaps the strongest case for market dominance can be made. Unfortunately, it seems difficult to quantify a market share in this market. However, percent market share is not always the most useful metric for assessing a companys market power. Rosch notes broadly that rather than relying on convincing generalist judges with complex formulae and other economic evidence, framing a trial strategy around a story allows an agency to introduce more qualitative evidence and gives courts more latitude.18 There is no shortage of qualitative evidence that in the market for personal information described by Waller, Facebooks market power includes network effects, switching costs and economies of scale [which] give rise to very high entry barriers as a result of which effective competition is hard to achieve.19 Wu argues that the network effect not only for Facebook, but for various high-tech firms since telegraphs and telephones, since a single firm can dominate the market if the product becomes more valuable to each user as the number of users rises. A positive feedback system develops in which the more customers (the firm reaches), the more impervious the firm (becomes) to challengers.20 The network effect is readily seen in the case of Facebook, given the very conservative estimate mentioned above of 63% market share for users; these users are the basis for the personal information market. Regarding switching costs,
17

Gelman, Lauren A. Privacy, Free Speech, and Blurry-Edged Social Networks. Boston College Law Review. 50.5 (2009): 1315-1344. <http://ssrn.com/abstract=1520111>
18

Rosch, supra note 2.

19

Graef, Inge. Tailoring the Essential Facilities Doctrine to the IT Sector: Compulsory Licensing of Intellectual Property Rights After Microsoft. Cambridge Student Law Review. 7.1 (2011): 1-20. <http://ssrn.com/abstract=1915076>
20

Wu, supra note 1.

Waller argues that Facebook is de facto mandatory for mllions ofusers for purely social reasons, that deactivating ones account requires jumping through hurdles, and most significantly, that porting information from Facebook to competitors is not simple. Regarding the third factor, economies of scale, the number of users and the array of finegrained information that users have posted is on a scale vastly superior to its competitors, creating an obvious market choice for users, advertisers, application developers and other service providers.21 Simply put, with networks, size brings convenience.22 Even if the argument for market dominance is convincing, the prosecuting agency must prove under Section 2 of the Sherman Act that Facebook is willfully maintaining market dominance in one or more markets. This willful intent is disputable, given the role of selfperpetuating network effects regardless of Facebooks intent. Most literature on Facebooks efforts to preserve market power deal with its use of relatively closed systems, in which the information channel is strictly controlled by a single corporation or cartel.23 Many scholars argue that the use of closed systems is an inherently anticompetitive act; Hanno Kaiser disputes this notion but agrees that it may be anticompetitive and thus a basis for imposing antitrust liability if significant market power and the threat of a high level of market foreclosure.24 In the case of Facebook and the market of user information, the market power is significant, as is the threat of foreclosure via exclusionary systems and lack of information sharing.

21

Waller, supra note 3. Wu, supra note 1. Wu, Tim. The Master Switch: The Rise and Fall of Information Empires (2010):6.

22

23

24

Kaiser, Hanno F. Are Closed Systems an Antitrust Problem? Competition Policy International. 7.1 (Spring 2011): 91-113. <http://ssrn.com/abstract=1844944>

If, in fact, the closed nature of Facebooks plethora of personal user data is an exclusionary and anticompetitive policy, there is ample evidence that Facebook is actively defending that exclusion and (demonstrating) an unwillingness to make [user] information freely available.25 Examples of this include banning users who attempted to run scripts to download their own social network data26 and blocking web browser extensions designed to export personal data so it could be imported into competing social networks.27 Some critics point out that blocking the export of data into competing social networks, while allowing much of the same data to be exported to non-competing platforms such as Yahoo Email, seems blatantly anti-competitive in intent.28 In an antitrust lawsuit, it seems possible that this willfully exclusionary policy could be deemed an attempt to maintain a monopoly in the market of personal social network data, and thus a violation of the Section 2 of the Sherman Act. Framework for Treating Facebook as an Essential Facility or Public Utility Aside from the standard blueprint outlined above for antitrust action under Section 2, it is also conceivable that an agency could argue Facebook should be treated a common carrier entrusted to provide its network to the public, meaning it requires open access to both consumers and competitors and its denial of access to competitors to user information is a

25

Butts, supra note 5.

26

McCarthy, Caroline. The Scoble scuffle: Facebook, Plaxo at odds over data portability. CNET News (January 3, 2008). <http://news.cnet.com/8301-13577_3-9839474-36.html>
27

Ingram, Mathew. Who owns your social graph-you or Facebook? GigaOM (July 6, 2011). <http://gigaom.com/2011/07/06/who-owns-your-social-graph-you-or-facebook/>
28

Ibid.

violation of the essential facilities doctrine.29 This is another type of Section 2 claim. The essential facilities doctrine, a product of case law, has traditionally held that a firm is guilty of illegal restraint of trade if (1) an asset essential for operation in a market is controlled by one firm, (2) competitors cannot reasonably duplicate the asset, (3) the controlling firm denies use of the asset to competitors, and (4) it is feasible to allow access to the asset.30 Waller argues that network industries and software platforms are the modern infrastructure equivalents of the bottlenecks that generated the essential facilities doctrine in the first place.31 Jake Levine argues that social networks are a critical layer of infrastructure for a wide variety of applications and content and lock-in may emerge at the social layer: our connections. Arguments in the discussion of Section 2 above demonstrate how Facebooks massive network of personal data is an essential aspect of its operations and how network effects may prevent competitors from reasonably duplicating it; Facebooks deliberate blocking of scripts and browser extensions to gain access to that data appear to satisfy the other components of an essential facilities case. Levine argues that without antitrust action or some other regulation, Facebook and other high-tech monopolies will inevitably block access to the essential asset, whether by exclusionary policies or by monopolistic integration. He asks somewhat prophetically, What happens when Facebook (decides) that it is too confusing for users to

29

Waller, supra note 5.

30

Pitofsky, Robert, Donna Patterson, and Jonathan Hooks. The Essential Facilities Doctrine Under United States Antitrust Law. Georgetown Law Faculty Publications and Other Works Paper 346 (2002). <http://scholarship.law.georgetown.edu/facpub/346>
31

Waller, Spencer W. Access and Information Remedies in High Tech Antitrust. Loyola University Chicago School of Law Research Paper No. 2011-018 (July 25, 2011). <http://ssrn.com/abstract=1895018>

10

see photos from Instagram posted to their network, instead of through Facebook Photos?32 This question was seemingly answered in April 2012 when Facebook purchased Instagram.33 Adam Thierer, an advocate for a laissez faire approach to the Internet, argues that social networks are not essential facilities. His argument largely hinges on the fact that social networks are not physical resources with high fixed costs and that even if network effects exist, there is no bottleneck to accessing an asset or duplicating Facebooks business model.34 This distinction between physical resources and virtual ones seems artificial, given that barriers to entry can exist in the online world. Regarding the online market for personal information, the bottleneck to data access is a result of the arguably exclusionary policies of Facebook. Even if the technical operation of Facebook can be easily duplicated, the essential asset of a massive collection of data cannot. Paul Tassi argues that Google Plus, effectively a duplicate of Facebook, has failed to match Facebooks success because it is the same party with different decorations and 3% of the guests.35 This argument is compelling, since there is little reason for a given user to maintain two different social network profiles when one will be seen by many more people, and there is no likelihood of everyone (quitting) Facebook and instantly (migrating) to Google Plus.36

32

Levine, Jake. Its Time For a Social Network Neutrality. Business Insider (July 18, 2011). <http://www.businessinsider.com/its-time-for-a-social-network-neutrality-2011-7>
33

Barnett, Emma. Facebook turns umbrella company via Instagram purchase. The Telegraph (April 12, 2012). <http://www.telegraph.co.uk/technology/facebook/9197598/Facebook-turns-umbrella-company-via-Instagrampurchase.html>
34

Thierer, Adam. The Perils of Classifying Social Media Platforms as Public Utilities (Working Paper) (March 2012). <http://mercatus.org/publication/perils-classifying-social-media-platforms-public-utilities>
35

Tassi, Paul. A Eulogy for Google Plus. Forbes Online (August 15, 2011). <http://www.forbes.com/sites/insertcoin/2011/08/15/a-eulogy-for-google-plus/2/>
36

Ibid.

11

The viability of an essential facilities prosecution has been reduced somewhat by the Supreme Courts 2004 decision in Trinko v Verizon, which added a burdensome requirement of showing anticompetitive intent before being allowed to allege in court an essential facilities claim.37 Waller states that Trinko makes the essential facilities doctrine a shadow of its former self.38 Proving intent is more challenging than the original, more objective criteria for essential facilities;39 still, the evidence described above might be of some use in demonstrating that Facebooks denial of access to user data includes some anticompetitive intent. The Trinko decision additionally makes it more difficult for regulatory agencies to bring essential facilities claims against firms whose competitive conduct is subject to regulatory oversight already, although the FTC still claims the right to bring such claims;40 this new restriction may be less relevant to the case at hand, since antitrust action against Facebook is still a speculative matter. Even more speculatively, others have argued that Facebook constitutes a sort of public utility which might be subjected to greater regulation. Zeynep Tufekci, for example, argues that Facebook has become a private owner of a shared social infrastructurecreated by the people in which much of our social interactions occur, and antitrust tension exists because the infrastructure owner wants to claim primary control of this social commons.41 danah boyd, a

37

Albeck, David B. "Defining Essential Facilities after Trinko." http://www.davidalbeck.com/writings/trinko.htm> Waller, supra note 31. Ibid.

38

39

40

Federal Trade Commission. Statement to the House Committee on the Judiciary, Subcommittee on Courts and Competition Policy. Is There Life After Trinko and Credit Suisse? The Role of Antitrust in Regulated Industries, Hearing, June 15, 2010. <http://www.ftc.gov/os/testimony/100615antitrusttestimony.pdf>
41

Tufekci, Zeynep. Facebook: The Privatization of our Privates and Life in the Company Town. technosociology: our tools, ourselves (May 14, 2010). <http://technosociology.org/?p=131>

12

social media researcher, states more succinctly that Facebook is now a utility for many and that, like water, power, [or] sewage, most people need Facebook more than they want it and cannot give up Facebook, regardless of how much they grow to hate them. boyd notes that in its marketing, Facebook labels itself not as a social network service, but as a social utility.42 Thierer challenges this notion because users can take advantage of LinkedIn, Google Plus, MySpace, Twitter, or a number of other, smaller social media services.43 However, each of these competitors is either targeted to a less universal need, such as career networking, or lacks the network effects of a large, shared social commons. Tassi bluntly describes Google Pluss failure as a Facebook substitute: Its not Facebook.44 Thierer further notes that life can go on without online social networking, since substitutes such as telephones exist;45 this may well be true, but its also arguable that societys reliance on a technology changes over time, and that we would have once made a similar argument for telephones, which are now considered a utility. Technological Approaches to Mitigate Antitrust Concerns Regardless of whether the legal pathways described abovea traditional Section 2 claim, an essential facilities claim, or regulation as a utilityare viable, a discussion of possible fixes for antitrust concerns is necessary. Technological fixes could be an expedient way for Facebook to proactively avoid dealing with regulatory oversight with respect to antitrust, and if agencies do intervene (or if Congress passes relevant legislation), there may be a technological change of
42

boyd, danah. Facebook is a utility; utilities get regulated. apophenia (May15, 2010). <http://www.zephoria.org/thoughts/archives/2010/05/15/facebook-is-a-utility-utilities-get-regulated.html>
43

Thierer, supra note 34. Tassi, supra note 35. Thierer, supra note 34.

44

45

13

some kind required of Facebook. In the specific context of addressing antitrust concerns, much literature focuses on the idea of increased interoperability and the portability of personal data as possible solutions. Unfortunately, these solutions suffer from limited applicability to the problem and could create major privacy concerns, and there are no simple technology fixes at present. In the general area of Internet platforms such as Facebook, the value of open systems and application interoperability has been the subject of much attention. Gelman refers to Jonathan Zittrains analysis of closed systems such as Facebook, which finds that even when they allow applications to be created on top of the platform, they still maintain control by leaving open the possibility they could change the terms for application developers at any time.46 Inge Graef notes in a slightly different contextthat of intellectual property licensingthat when high-tech firms become owners of essential facilities due to network effects, that increasing access to the facility can mitigate antitrust concerns,47 and changing a closed system to an open, interoperable system is an obvious way to increase that access. However, given the above analysis of the nature of antitrust concerns likely to arise with Facebook, increasing application interoperability does not appear to solve the problem in the correct market. While there are some concerns related to Facebooks dealings with application developersevidenced by Facebooks power to force developers to share application revenue with Facebook, for example48 - Facebook (has) strong incentives to create highly responsive

46

Gelman, supra note 17. Graef, supra note 19. Levine, supra note 32.

47

48

14

connections between the platform and third party contributions, since it benefits from additional the network effects and revenue. On balance, it benefits from increased participation by thirdparty developers and is unlikely to shut them out.49 In fact, James Grimmelman believes that if anything, Facebook already shares too much personal data with developers, citing one study showing that ninety percent of Facebook applications gather more data than strictly required.50 In order to address Facebooks market power in the specific market of personal information, rather than that of application development, a different solution is needed. One idea that holds potential is that of increased portability of personal data. Making data portable, and thus giving users ownership of their personal data stored on Facebook, could reduce customer lock-in and thus reduce barriers to entry for other firms. As described above, while Facebook does have a tool allowing users to download their personal data to their home computer, it has actively attempted to prevent other social networking firms from making it easy to transfer ones personal data from Facebook to another website. In the face of these actions, and Facebooks market power more generally, Jake Levine goes so far as to say that users must stand and be counted by (demanding) portability, and that the future of the Internet and the future of social interactions are at stake.51 Waller argues that short of drastic interventionist antitrust action, such as structural separation and structural remedies, open access to information is likely to be the most viable antitrust fix, and points to successful legal precedents

49

Kaiser, supra note 24.

50

Grimmelman, James. Saving Facebook. Iowa Law Review, Volume 94 (2009): 1137-1206. <http://ssrn.com/abstract=1262822>
51

Levine, supra note 32.

15

involving access to Ticketmasters and Googles information.52 Even critics of the idea of data portability acknowledge that it would likely help with competitive lock-in.53 Unfortunately, the general consensus that data portability helps mitigate antitrust is equaled by a widespread sentiment that it creates serious privacy concerns. FTC Commissioner Rosch believes the need to balance consumer privacy on the one hand, and vigorous competition on the other is the most significant issue on the horizon in the high-tech sphere.
54

James Grimmelman states the privacy consequences would be disastrous; the essence of the

problem is that giving one person the ownership to take their personal data, including what they know about their Facebook friends, violates those friends privacy.55 This is the defense Facebook has presented for preventing greater data portability: The most important principle for Facebook is that every person owns and controls her information but not her friends information. A person has no more right to mass export all of her friends private email addresses than she does to mass export all of her friends private photo albums.56 Rosch clearly recognizes that firms often pride themselves on closed access to data because it gives them more control over privacy (and thus more power in the market for personal information), and also anticipates firms such as Facebook starting to use the need to protect consumers privacy as a defense to an antitrust claim.57

52

Waller, supra note 31. Grimmelman, supra note 50. Rosch, supra note 2. Ibid. Ingram, supra note 27. Rosch, supra note 2.

53

54

55

56

57

16

This is a case in which the most obvious solution to antitrust concernsmaking data portableinherently leads to privacy issues. Compromise solutions that, for example, make only a subset of data portable such that privacy concerns are reduced will inherently reduce their efficacy in reducing customer lock-in. Picker describes an analogous situation in the context of migrating ones personal data from Google Reader, an RSS feed reader. A user can easily export their list of RSS feeds in XML format to be imported into another RSS reading tool, but there is no way to export the detailed matching of news stories and tags, which represents a much greater share of the value.58 Facebook is a similar case, because making only certain data portable would reduce the datas usefulness and encourage lock-in. There is no obvious right answer, and involves fundamental tradeoffs between values. The Role of Regulators, Courts and Congress The challenge facing regulatory agencies, the courts, and Congress is formidable; they must find creative solutions to ensure that information regarding the vast user base of Facebook is available to potential competitors,59 while somehow mitigating privacy harms to the extent possible. Adam Thierer argues that the role of regulators and the courts is to intervene as little as possible, and that market choices, not regulatory edicts should determine the future of the Internet. He notes that even in situations where market power is largely held by a small number of firms, innovation and competitive entry remain possible in many cases, and points to the

58

Picker, Randal C. Competition and Privacy in Web 2.0 and the Cloud. University of Chicago Law & Economics, Olin Working Paper No. 414 (June 17, 2008).
59

Butts, supra note 5.

17

history of disruptive innovation making firms such as AOL and MySpace fall from power.60 Waller, on the other hand, points to the massive barriers to entry, lock-in, and network effects inherent to social networking and argues that even ardent free market advocates should be concerned about a world where open competition in stage one leads to durable market power in stage two. In cases where abuse of power is evident, such as (arguably) that of Facebooks anti-portability measures, Waller counsels against a policy of laissez-faire.61 Short of new legislation passing Congress, the regulatory bodies (particularly the DOJ and FTC) have the most power to influence the high-tech antitrust landscape, and that of Facebook specifically, by bringing lawsuits to the courts. Rosch argues that the FTCs power to regulate antitrust under its consumer protection authority makes it better equipped than the DOJ to address high-technology antitrust matters, because it has the benefit of both antitrust and consumer protection (and by that (he means), privacy) expertise and can assess issues such as whether to intervene when a firm is on the cusp of gaining monopoly power.62 Thierer argues against vigorous regulation of social networking firms partly because it may lead to regulatory capture.63 The issue of capture is a serious one. Ryan Tate notes that the FTC could have done much more in a recent privacy settlement with Facebook, and argues Facebook was let off the

60

Thierer, supra note 32. Waller, supra note 3. Rosch, supra note 2. Thierer, supra note 32.

61

62

63

18

hook because of its collection of ex-FTC staffers on its payroll.64 The issue of capture should be addressed, but does not itself imply regulation shouldnt be attempted. As the arbiters of any antitrust litigation, the role of the courts is obvious, but legal precedent has failed to clarify the antitrust landscape. The Microsoft case seems to be the most frequently cited precedent for antitrust in the social networking landscape, but it did not provide a structure for antitrust regulation that can be rigidly or faithfully applied to antitrust analyses in many cases, such as those related to data portability with Facebook. The viability of the essential facilities doctrine to address antitrust is questionable, for reasons described above. Furthermore, the usual antitrust tools used by courts to measure market power, such as analyzing the ability of price increases to push customers to competing firms, simply dont apply to Internet firms.65 A visionary federal court could outline a legal doctrine which applies more clearly to high-technology firms, in the area of social networking or simply the Internet in general. However, the ability of generalist judges66 to fully anticipate all of the possible concerns is questionable, and it certainly hasnt played that role yet. Given the potential for regulatory capture and the lack of a defined framework for assessing high-technology antitrust through the courts, Congressional action may be necessary to address antitrust concerns in social networking. With regard to capture of a regulatory agency such as the FTC, it would be nave to assume the agency alone can, or would, prevent capture; rather, Congress would need to devise a way to make its organizational structure relatively
64

Tate, Ryan. Facebook Just Played the Government. Gawker (November 29, 2011). <http://gawker.com/5863493/facebook-just-played-the-government>
65

Waller, supra note 3. Rosch, supra note 2.

66

19

capture-proof. More broadly speaking, if Congress were to pass a law clarifying what constitutes an antitrust violation in the unique environment of the Internet, the regulatory agencies would have a better defined mandate, the courts would have a consistent set of criteria to apply. Furthermore, high-technology firms would have a clear set of guidelines to follow, rather than either actively pushing the boundaries of antitrust and privacy concerns or potentially declining to innovate in the face of regulatory uncertainty. The exact nature of such a high-tech antitrust law is difficult to forecast or recommend since, as discussed above, there are no simple solutions. There are certain actions with relatively narrow scope that seem logical, such as the need to clarify certain legal gaps post-Trinko.67 Still, broader action such as requiring firms to grant competitors access to personal data for antitrust purposes would create clear privacy concerns. On the other hand, actively limiting firms such as Facebook to sharing only certain types of data for privacy purposes may artificially (push) towards vertical integration, since a firm will have an artificial incentive to expand the size and scope of the firm so as to use the information fully.68 As described above, granting Facebook monopoly status and regulating it more heavily, as if it were a public utility, seems promising to some scholars; this option is also the most offensive to free-market advocates such as Adam Thierer.69

67

Federal Trade Commission. Statement to the House Committee on the Judiciary, Subcommittee on Courts and Competition Policy. Is There Life After Trinko and Credit Suisse? The Role of Antitrust in Regulated Industries, Hearing, June 15, 2010. <http://www.ftc.gov/os/testimony/100615antitrusttestimony.pdf>
68

Picker, supra note 58. Thierer, supra note 34.

69

20

Balancing these competing perspectives should be the forte of Congress, since it is more directly answerable to stakeholders than courts or regulatory agencies at least theory. However, as with the courts, it is questionable whether Congress has the technical understanding to craft a bill that addresses the current social networking firms and also anticipates what might come next. The challenge of balancing antitrust protection with consumer privacy protection, and protecting competition without stunting innovation of large firms, will be not be easy. At any rate, realizing there is a looming antitrust problem to be addressed in social networking is essential. As Tim Wu states regarding giant Internet firms, lets not pretend that we live in anything but an age of monopolies.70

70

Wu, supra note 1.

21