Privacy Key to Yahoo Merger; Microsoft Bid Must Ensure Safeguards

Privacy issues will be central to the forthcoming antitrust merger review of today's $44.6 billion bid by Microsoft Corp. for Yahoo Inc. U.S. antitrust authorities have already studied these privacy issues in connection with the proposed merger of Google Inc. and DoubleClick, which is still under review in Europe. U.S. and European authorities will almost certainly investigate the privacy aspects of today's proposed merger more fully than any other merger in history.

The Warm-up Act: Google/DoubleClick

When it comes to the intersection of privacy and antitrust, the Google/DoubleClick merger will now look like a warm-up act for Microsoft/Yahoo. In the Google case, all five commissioners agreed with the central point of my testimony to the FTC this past October, in which I detailed why privacy can be an important non-price aspect of competition.

Commissioner Pamela Harbour cited my testimony in voting to block the merger. She recognized that antitrust law should ensure competition "based on privacy protections or related non-price dimensions." The majority, while voting to approve the merger, agreed with the key point that privacy can be relevant to a merger, saying "we investigated the possibility that this transaction could adversely affect non-price attributes of competition, such as consumer privacy."

The first message from the Google/DoubleClick merger review is that the FTC understands competition is not only about price. Competition has always included non-price aspects, such as the quality of goods. In the information age, a merger can shift practices from low-surveillance to high-surveillance.

Case in point: Where this reduction in the quality of surfing occurs, consumers lose the choice to surf with less tracking. The merger can then violate the Clayton Act because it "substantially affects competition." In short, loss of competition on privacy can be the basis for blocking a merger.

The second message from the Google/DoubleClick case is that the FTC will ask probing questions about privacy for upcoming mergers. Commissioner Harbour specifically emphasized that companies seeking a merger in data-rich industries should receive detailed questions about data practices in "second requests," which are the questions that the FTC sends companies when it is investigating major mergers.

The Curtain Rises on Microsoft/Yahoo

Although more issues may emerge over time, the market for search looks like it will be the focus of privacy issues of the proposed Microsoft/Yahoo merger. The two companies are probably No. 2 and No. 3, respectively, in the enormous global market for search. The companies will likely argue that their merger will make them a more effective competitor against market leader Google.

The privacy concern is that the merger could reduce competition for privacy in search. We have seen major privacy initiatives in search engines in the past year. Microsoft announced new privacy protections last fall. Google did the same during the merger discussions. And the fifth-largest search company, Ask.com, recently rolled out its "AskEraser" anonymized search.

Antitrust authorities thus need to investigate the effects on competition for search privacy from the proposed Microsoft/Yahoo merger. Based on the Commissioners' statements in the Google decision, it seems highly likely that the FTC would conduct that investigation if it reviews this merger.

It is also possible that the Department of Justice will investigate the proposed merger instead, especially considering DOJ's role in the earlier Microsoft antitrust litigation. Either way, though, this proposed merger will likely raise other important privacy-related issues beyond search, among them:

• Will Yahoo's and Microsoft's existing databases of personal information be merged?
• How will the pre-merger privacy policies apply after the merger?
• What privacy guarantees arising out of the merger might be incorporated into the post-merger privacy policies?

As with the Google/DoubleClick merger, I am not taking any position on the ultimate decision of whether the FTC and other antitrust authorities should block the merger. In merger reviews, government agencies receive detailed factual information that is not available to the public. The important point, however, is that the merger raises serious privacy issues.

Under standard antitrust law, these privacy issues affect non-price aspects of competition. Privacy will be an important part of the debates about this merger.

Comments

[gulopartisan]

To expect Microsoft to "respect" "privacy" is to ignore twenty years of corporate history. I am closing my Yahoo account, as I did my Facebook account when MS bought a controlling interest.

Microsoft Windows, from Win98 on, has been designed to be hacked and insecure. It is as if someone built you a house and only you -- and he -- could open the windows. And he can change the locks, but you can't. By another generation, MS will be the shadow government, and its alliances with other corporate giants the only treaties that matter.

[WIDESTANCE]

peter,

do you really think that anybody should have any real expectation of privacy any more, given the bush administration's dismantling of everybody's right to privacy?

i think the Bush/NSA wiretapping machine has opened a pandora's box of eavesdropping and privacy invasion, leaving that once sacrosanct american principle as nothing more than an illusion