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Senate Judiciary Holds Hearing on Digital Advertising, Privacy, and Competition

· May 22, 2019

On May 21, 2019, the Senate Judiciary Committee held a hearing titled Understanding the Digital Advertising Ecosystem and the Impact of Data Privacy and Competition Policy. The hearing aimed to address the intersecting issues between online advertising, privacy, and competition in the digital economy. The witnesses included Professor Avi Goldfarb, Elison Professor of Marketing at the University of Toronto; Dr. Fiona M. Scott Morton, Professor of Economics at the Yale School of Management; Brian O’Kelley, Founder and Former CEO of AppNexus; Dr. Johnny Ryan, Chief Policy & Industry Relations Officer at Brave; and Jan M. Rybnicek, Counsel at Freshfields Bruckhaus Deringer.

Professor Goldfarb first discussed the significant trade-offs in balancing privacy with innovation. On one hand, consumers would have more privacy if data was not collected about them. However, companies collect data to innovate, resulting in the creation of better products for both end users and advertisers. Another trade-off Goldfarb considered was the balance between privacy and competition. He pointed out that despite the push for increased privacy regulation, this type of regulation has the potential to disproportionately burden new and small companies. Large companies generally have more resources to comply with regulation and often have access to large and valuable sets of data, while smaller firms typically do not. Goldfarb noted that regulations that restrict the flow of data across companies would therefore constrain smaller firms’ ability to compete. Senator Blackburn echoed that sentiment later in the hearing, and mentioned how a Tennessee company had to close operations in Europe due to the stringent standards of the GDPR.

Two solutions were proposed by Professor Goldfarb to mitigate regulatory costs to innovation and competition associated with privacy regulation. First, he proposed to ensure an efficient form of data portability, as this would allow smaller firms to access the variety of consumer data needed for innovation. Second, he advocated for regulatory consistency across not only the United States but internationally as well. Professor Goldfarb ended his testimony by calling for a balance between privacy and innovation:

“Privacy is valuable, but so are innovation and competition. It is important to view any new privacy regulations through the lens of their impact on innovation and competition in the technology industry.”

Dr. Ryan focused most of his remarks on his analysis of the GDPR, which he argued could allow young, innovative companies to flourish if appropriately enforced. He highlighted two provisions of the GDPR as positive: Article 5(1)(b), the “purpose limitation” principle, and Article 7(3), the requirement that opt-in is as easy as opt-out. Like the other panelists, he also advocated for a strong federal privacy regime.

Brian O’Kelley discussed the online advertising sector and its role in the digital economy. For the cost of viewing ads, O’Kelley explained, consumers get to enjoy the internet for free. Thus, advertising is “the economic network that enables the internet as we know it.” O’Kelley also agreed with Professor Goldfarb that a provision on data portability in a privacy bill would allow companies to maintain competitiveness, as smaller companies would be able to access the datasets of the larger companies. Lastly, he suggested multiple provisions he felt are of importance in a privacy bill, such as the ability to correct or amend data, and mandating explicit permission from consumers before data is shared with another service. DisCo previously compared sample privacy legislative bills which addressed some of these key themes.

Basing her remarks off a recent report conducted on digital platforms and the current market structure, Dr. Scott Morton contended that antitrust laws are currently underenforced. She also considered the possibility that new legislation on antitrust may be necessary.

Discussing the issues from an antitrust practitioner’s perspective, Jan Rybnicek’s views contrasted with those of Dr. Scott Morton’s. He argued that antitrust laws have over time developed into a coherent and predictable body of jurisprudence, one in which the consumer welfare standard is adaptable to the modern digital age, and continues to contribute positively to American society. He therefore cautioned against developing new standards besides the consumer welfare standard without robust consideration and debate:

“[M]any of these new proposals now seek to abandon well-developed, bipartisan principles in order to create shortcuts that allow for enforcement actions even in the absence of evidence showing harm to competition. In doing so, these reforms would increase the risk of erroneous prosecutions, which will have a chilling effect on procompetitive conduct.”

He also argued that despite the size of large technology companies, these companies in actuality face vigorous competition for user attention, and in turn, advertising dollars. The key metric, Rybnicek stated, is not “perfectly substitutable products” but rather user attention, as user attention is the metric that drives advertising revenue.

To clarify the role of advertising and data, Senator Hawley asked the panelists to elaborate on the benefits of companies collecting consumer data. Professor Goldfarb explained that data allows more accurate ad targeting. Access to data allows companies to target the right audience, which decreases the amount of money spent on ads. Companies could divert funds to product development instead, and since ads are more targeted, consumers benefit from seeing ads that are more relevant to them.

This hearing on the intersection between advertising, privacy and competition provided insight into ongoing conversations about topics facing the digital economy. DisCo has been covering the federal privacy debate in a series of posts, including a hearing on consumer perspectives on privacy and a hearing on privacy in the era of big data.

Privacy

Trust in the integrity and security of the Internet and associated products and services is essential to its success as a platform for digital communication and commerce. For this reason we’re committed to upholding and advocating for policymaking that empowers consumers to make informed choices in the marketplace while not impeding new business models.