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The HJC Report on the Future of the U.S. Competition System: Part 3 (Data Portability and Interoperability)

· January 13, 2021

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In this series on the recommendations of the House Judiciary Subcommittee’s Majority Report  on Competition in Digital Markets, DisCo has previously written a preliminary analysis of the report and highlighted experts’ reactions. This post addresses the report’s recommendation for promoting innovation through interoperability and open access. 

The Majority Report argues that network effects in digital markets raise switching costs for users seeking to move between competitors, contributing to user lock-in to dominant firms. In response, the Report recommends that Congress consider adopting new data interoperability and portability requirements. This appears to be an area of some bipartisan agreement in the House Judiciary Committee, as Representative Buck’s (R-CO) Minority Report endorses “very limited legislative changes to provide consumers with a data portability standard,” while noting “potentially disastrous” consequences if such legislation is not adequately tailored. 

Broadly speaking, “data portability” refers to the ability for a consumer to access and transfer personal information they have provided to a service for use by another business or organization and “interoperability” refers to the ability for computer programs and systems of different services to exchange and make use of information. Data portability and interoperability are appropriate concepts to discuss in the context of competition policy and the Majority Report correctly posits that users of data-enabled services can benefit from the balanced development of such transfer mechanisms by enjoying reduced switching costs to moving between services. However, there are notable gaps in the Committee’s analysis of these issues that warrant deeper review.

Most significantly, the Majority Report fails to recognize that data portability and interoperability directly implicate a broad range of policy interests beyond competition in complex and inevitably oppositional ways. These issues include innovation, privacy, security, and individual autonomy. Ensuring that data portability and interoperability proposals maximize benefits to consumers requires accounting for and balancing inherent trade-offs between values that often sit in tension with each other. Consequently, a prescriptive, government-mandated approach to data portability and interoperability designed to ameliorate competition concerns would seriously risk undermining other values and result in consumer harm.

Data Portability, Interoperability, and Competition

The Majority Report takes as a given that “open access” requirements such as data portability and interoperability will be inherently pro-competitive, but the reality is more complicated. The question of whether regulatory intervention to make consumer data available to other businesses benefits competition is context-dependent and varies based on factors such as the existing ease of switching services and the ability for receiving organizations to make use of transferred data. For example, while the Buck Report grounds its portability recommendations in the clear consumer benefits of FCC Rules enabling phone number portability between carriers, recent analysis from Professor Peter Swire demonstrates that phone number portability is not representative of other portability initiatives in other sectors, which often involve inherently more complex costs and tradeoffs.

Poorly tailored data portability and interoperability mandates could also negatively impact competition within a sector. For example, re-engineering systems to meet transfer requirements will necessarily introduce compliance costs that could advantage incumbents over smaller competitors and establish new barriers to market entry. Furthermore, if data transfer requirements were extended to analytic information and insights generated by an organization, portability of that data could allow some companies to free ride on the efforts of others, thereby chilling the incentive to develop new innovative services. Finally, interoperability proposals that require competitors to share information and develop their systems in tandem may introduce new risks of collusion and also limit the ability of businesses to compete by developing differentiating products.

Data Portability, Interoperability, and Other Policy Priorities

While the Majority Report raises privacy concerns in seeking to justify dramatic proposed changes to the U.S. competition regime, it is notably silent on challenges to privacy and security that would result from mandating open data transfers. Any transfer of personal information, either to a user or between services, presents inherent privacy and security risks resulting from both the potential for fraudulent transfer requests and introducing complexity that expands attack surfaces. Furthermore, personal information sought by a user for transfer may relate to multiple additional individuals, thereby implicating the privacy interests of third parties. Additionally, requirements to retain data in an identifiable format for the sole purpose of enabling future portability is contrary to the principle of data minimization and would raise security concerns. 

The Majority Report’s recommendations also implicate but do not resolve autonomy issues of both users and organizations. Requiring systems to interoperate may enable unscrupulous organizations to set defaults that nudge consumers towards sharing their personal data contrary to their preferences. Efforts to moderate and restrict abusive and objectionable content could also be undermined if interoperability rules require companies to host or display user content from third-party organizations. While none of the aforementioned issues are necessarily insurmountable, they point to the need for balanced, flexible approaches to implementing data portability and interoperability proposals.

A Better Path Forward

The HJC Majority Report appropriately identifies data portability and interoperability as concepts that carry promise for promoting competition and advancing consumer welfare. However, efforts to implement mechanisms to enable such transfers of information require a balanced, contextual approach to avoid serious potential downsides. At present, mutistakeholder collaboration is driving the successful development of data portability and interoperability standards through efforts such as the Data Transfer Project, which is creating a common, open-source technical framework capable of securely enabling user-directed transfers of data between services. As lawmakers examine data portability and interoperability in greater detail, they should avoid conceptually siloing these mechanisms as purely competition issues and instead prioritize setting conditions and ensuring legal certainty to allow the continued emergence of transfer standards that can holistically promote consumer welfare.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.