I have an op-ed up at Main Justice on FTC Chairman Leibowitz’ recent comment in response the a question about the FTC’s investigation of Google that the FTC is looking for a “pure Section Five case.”  With Main Justice’s permission, the op-ed is re-printed here:

There’s been a lot of chatter around Washington about federal antitrust regulators’ interest in investigating Google, including stories about an apparent tug of war between agencies. But this interest may be motivated by expanding the agencies’ authority, rather than by any legitimate concern about Google’s behavior.

Last month in an interview with Global Competition Review, FTC Chairman  Jon Leibowitz was asked whether the agency was “investigating the online search market” and he made this startling revelation:

“What I can say is that one of the commission’s priorities is to find a pure Section Five case under unfair methods of competition. Everyone acknowledges that Congress gave us much more jurisdiction than just antitrust. And I go back to this because at some point if and when, say, a large technology company acknowledges an investigation by the FTC, we can use both our unfair or deceptive acts or practice authority and our unfair methods of competition authority to investigate the same or similar unfair competitive behavior . . . . ”

“Section Five” refers to Section Five of the Federal Trade Commission Act. Exercising its antitrust authority, the FTC can directly enforce the Clayton Act but can enforce the Sherman Act only via the FTC Act, challenging as “unfair methods of competition” conduct that would otherwise violate the Sherman Act. Following Sherman Act jurisprudence, traditionally the FTC has interpreted Section Five to require demonstrable consumer harm to apply.

But more recently the commission—and especially Commissioners Rosch and Leibowitz—has been pursuing an interpretation of Section Five that would give the agency unprecedented and largely-unchecked authority. In particular, the definition of “unfair” competition wouldn’t be confined to the traditional measures–reduction in output or increase in price–but could expand to, well, just about whatever the agency deems improper.

Commissioner Rosch has claimed that Section Five could address conduct that has the effect of “reducing consumer choice”—an effect that a very few commentators support without requiring any evidence that the conduct actually reduces consumer welfare. Troublingly, “reducing consumer choice” seems to be a euphemism for “harm to competitors, not competition,” where the reduction in choice is the reduction of choice of competitors who may be put out of business by competitive behavior.

The U.S. has a long tradition of resisting enforcement based on harm to competitors without requiring a commensurate, strong showing of harm to consumers–an economically-sensible tradition aimed squarely at minimizing the likelihood of erroneous enforcement. The FTC’s invigorated interest in Section Five contemplates just such wrong-headed enforcement, however, to the inevitable detriment of the very consumers the agency is tasked with protecting.

In fact, the theoretical case against Google depends entirely on the ways it may have harmed certain competitors rather than on any evidence of actual harm to consumers (and in the face of ample evidence of significant consumer benefits).

Google has faced these claims at a number of levels. Many of the complaints against Google originate from Microsoft (Bing), Google’s largest competitor. Other sites have argued that that Google impairs the placement in its search results of certain competing websites, thereby reducing these sites’ ability easily to access Google’s users to advertise their competing products. Other sites that offer content like maps and videos complain that Google’s integration of these products into its search results has impaired their attractiveness to users.

In each of these cases, the problem is that the claimed harm to competitors does not demonstrably translate into harm to consumers.

For example, Google’s integration of maps into its search results unquestionably offers users an extremely helpful presentation of these results, particularly for users of mobile phones. That this integration might be harmful to MapQuest’s bottom line is not surprising—but nor is it a cause for concern if the harm flows from a strong consumer preference for Google’s improved, innovative product. The same is true of the other claims; harm to competitors is at least as consistent with pro-competitive as with anti-competitive conduct, and simply counting the number of firms offering competing choices to consumers is no way to infer actual consumer harm.

In the absence of evidence of Google’s harm to consumers, then, Leibowitz appears more interested in using Google as a tool in his and Rosch’s efforts to expand the FTC’s footprint. Advancing the commission’s “priority” to “find a pure Section Five case” seems to be more important than the question of whether Google is actually doing anything harmful.

When economic sense takes a back seat to political aggrandizement, we should worry about the effect on markets, innovation and the overall health of the economy.

The Federal Trade Commission (FTC) today announced the release of an 18-page Request for Public Comment (embedded below) on its implementation of the Children’s Online Privacy Protection Act or 1998 (COPPA), which governs online sharing by, and collection of information from, children under age 13. The FTC had previously announced that it would accelerate the review, which had been planned for 2015, particularly because of concerns about the mobile marketplace, as noted in the FTC’s report on that topic released in February.

COPPA has undoubtedly succeeded in its primary goal of enhancing parental involvement in their child’s online activities in order to protect the privacy and safety of children online.  Yet these benefits have come at a price, as COPPA’s considerable compliance costs (estimated at $45/child, which can be crushing in the era of “free”) have likely reduced the digital media choices available for children.  So I’m glad to see the Commission recognize these trade-offs by asking about the costs and benefits of COPPA and any proposed changes right off the bat (Questions 1-5). Such trade-offs are an inevitable part of life and policymakers can’t simply ignore them, even when it’s “for the children.”

The Potential for COPPA Expansion

I look forward to seeing comments on the important questions raised by the Commission about precisely how best to implement the framework enacted by Congress.  But I do worry that the Commission has explicitly invited proposals for legislative changes to the statute itself. In particular:

6. Do the definitions set forth in Part 312.2 of the Rule accomplish COPPA’s goal of protecting children’s online privacy and safety? … 28. Does the commenter propose any modifications to the Rule that may conflict with the statutory provisions of the COPPA Act? For any such proposed modification, does the commenter propose seeking legislative changes to the Act?

Note that question #6 does not include the critical limitation “consistent with the Act’s requirements,” which appears no less than 17 times in subsequent questions about specific aspects of the current rules. Whatever the FTC intended, this will omission, combined with question #28, will be taken as an open invitation by many to propose not just changes in how the COPPA rules are implemented, but wholesale revisions to the COPPA statute itself.

(In this sense, this inquiry is somewhat reminiscent of the FCC’s far more open-ended inquiry in its related “Empowering Parents” proceeding, where the FCC all but asked commenters to draw up new statutory authority for the agency and go lobby Congress to enact it. Check out the joint comments PFF filed with EFF in that important proceeding.)

Most troubling would be any proposal to extend COPPA to cover adolescents age 13-17—which Congress considered, but rejected, back in 1998 in recognition of the free speech rights at stake. As Adam Thierer & I explained in our June 2009 PFF paper, COPPA 2.0: The New Battle over Privacy, Age Verification, Online Safety & Free Speech, at least four states have considered such “COPPA 2.0” laws in recent years. Maine actually passed such a law last summer but decided not to enforce it and gave up on trying to amend it, as Braden recently explained. (See my testimony on that new Maine law here.)

In practice, such COPPA 2.0 laws would require age verification of all visitors to general audience websites, and would likely therefore be struck down by the courts on First Amendment grounds for much the same reasons the courts have struck down efforts to require age verification for access to pornography. In essence, a “scaled-up” COPPA would converge with COPA as a broad age verification mandate, as we explained in our COPPA 2.0 paper. Furthermore, such broad age verification mandates could, ironically, reduce online privacy by requiring more information to be collected from both adolescents and adults for age verification purposes, while doing little to make adolescents safer.

Even if COPPA’s age bracket is not expanded, I worry that broad revision of key terms like “collection” (Question #10) and “personal information” (#12-13) could have serious unintended consequences for online advertising and data use, which are the lifeblood of the online ecosystem.

COPPA Under the “FTC On Steroids”

Both these concerns will grow significantly if the FTC succeeds in obtaining sweeping new powers in pending legislation related to financial reform. Although Rep. Barney Frank’s “Wall Street Reform and Consumer Protection Act of 2009” (H.R. 4173) is mostly famous for creating a Consumer Financial Protection Agency, it would also “put the FTC on steroids,” in the words of Jim Miller, FTC Chairman from 1981 to 1985.

In particular, the bill would give the FTC broad APA rulemaking authority. Today, the FTC can issue rules only subject to certain important procedural safeguards, but Congress has given it specific mandates to issue narrow rules under the APA in particular areas—like COPPA and CAN-SPAM. If such legislation were ultimately enacted (which now depends on the Senate), the FTC could conceivably supplement COPPA’s rules for kids under 13 with its own APA rules for older kids—and Congress would never have to revisit the issue at all. Indeed, it’s not clear how the COPPA statute would continue constrain the agency in reshaping the COPPA rules.

But even if the FTC doesn’t take such a drastic step to expand COPPA, the new enforcement powers the FTC would gain under HR 4173 could transform how COPPA is implemented. For the first time, the FTC would be able to impose civil penalties for any violation of Section V of the FTC Act, including violations of COPPA; bring suit on its own rather than going through the DOJ; and go after parties that merely provided “substantial assistance” to those that violated COPPA. In such an enforcement environment, the potential cost of violating COPPA could become astronomical, as every separate violation (even on a per user or per day basis) could be subject to a fine of up to $16,000.

FTC Chairman Jon Leibowitz has pushed for all this authority, including at Senate testimony back in February, but promised to use these powers only wisely. However, when pressed to enumerate areas in which APA rulemaking authority would be helpful, Leibowtiz could only respond that, “…we’d really want to […] think for a while if we got this authority about what we wanted to do and what we wouldn’t want to do…” So… does that include COPPA, Mr. Chairman?

Chairman Leibowitz may not intend to use these powers to expand COPPA or radically change COPPA enforcement, but as I’ve said, I fear these soothing promises of regulatory restraint will ultimately prove hollow, if not under this FTC Chairman, then under his successors. And any discussion of re-writing COPPA has to take into consideration such radical changes in the FTC’s rulemaking and enforcement powers.

What about Education?

Finally, I’m surprised to see that the word “education” is used nowhere in the FTC’s Request for Comments. Just about everyone involved in debates about online child safety and privacy would agree that the solution begins with education—even if it doesn’t end there. One might have thought the FTC would ask about whether effective implementation of COPPA’s goals required more education efforts rather than (or perhaps in combination with) stricter regulations—especially since the FTC has done such a terrific job with its own education efforts, such as:

• OnGuard Online, the inter-agency website intended to educate all Internet users about online safety
• NetCetera, the FTC’s excellent child safety effort
• The “You Are Here” virtual mall launched by the FTC last year to educate kids in 5th-8th grade (age 10-14) about marketing both online and offline.

What’s Next

Comments on the COPPA review are due June 30, 2010. Adam Thierer and I will definitely be filing comments on behalf of PFF. If you’re planning to file, too, and would like to compare notes, we’d be happy to hear from you.

FTC COPPA Review Request for Comments – March 24 2010 http://d1.scribdassets.com/ScribdViewer.swf

FTC Chairman Jon Leibowitz warned yesterday that companies involved in Web advertising face their “last chance” to “voluntarily” adopt stricter policies governing the use and collection of consumer information, Reuters reports. This isn’t the first time the FTC has threatened the advertising industry with regulation, but it signals a sense of immediacy that may pressure industry leaders to change their practices in coming weeks.

Leibowitz presumably wants to quell widespread concern that Internet companies like Google and AT&T have “excessive control” over consumer information. But what’s excessive about using information that individuals have voluntarily handed over for marketing purposes, subject to legally enforceable rules laid out from the get-go?

Users ultimately control their data, not firms. After all, only data that users transmit can be collected. When a user visits a website, their IP address may be recorded, and when a user submits a query to a search engine, the search term can be logged. This is how the Internet has always worked.

Not all consumers understand what information is gathered about them as they browse online. The best way to protect such users is not through regulation, but by educating — and, therefore, empowering — users. Volumes have been written on privacy and data security, and the ongoing TLF series “Privacy Solutions” offers a growing body of tips on how consumers can achieve the level of privacy that suits them.

Understandably, some people are uncomfortable with their queries being logged, and would prefer that websites simply not track any data. Some sites are willing to do just that — Cuil, a search engine launched in 2008, promises to never log IP addresses or even use cookies (as Jim has noted). Other anonymity solutions rely on secure virtual tunnels that can mask users’ actual IP addresses.

Still, no matter what the FTC does, transmitting data in plaintext over the Internet will never be truly “safe.” Robust end-to-end encryption is the only surefire method of ensuring information cannot be seen by anybody except the sender and the recipient. Even then, information is only as safe to the extent that the party at the other end of the line can be trusted.

Any new FTC mandates on data collection would almost certainly impose a privacy ceiling that would offer some, if not most, people too much privacy. This may sound impossible at first, but think of people who document their every move on Twitter, open for the world to see. Different people have wildly different privacy preferences, and there is no way a single set of rules-however well-conceived-could satisfy everyone.

Privacy mandates will place shackles on the still-young Internet advertising industry, stifling promising opportunities for making money from online content. Strict rules governing data collection will deprive publishers — especially small ones — of ad revenue at a time when it is sorely needed. Rigid mandates will also prolong “dumb” Web ads by delaying the evolution of targeting technologies capable of making advertisements more relevant and, therefore, more interesting to users.

Online advertising is the lifeblood of Web content, as Berin, Adam, and others have explained time and time again. The alternative to advertiser subsidies — charging consumers for access to content — has proven relatively unpopular with consumers. Who wants to take out their credit card when all content creators pine for is a pair of eyeballs?

Advertising will fuel the growth of online content, but only if regulators let the market work.