FTC Report highlights agency’s competition concerns related to data collection and usage

FTC 6(b) study on the privacy practices of social media and video streaming service providers

In December 2020, under its authority pursuant to 6(b) of the FTC Act, the FTC issued orders to various companies “requiring them to provide data on how they collect, use, and present personal information, their advertising and user engagement practices, and how their practices affect children and teens.”  In the FTC’s September 2024 Report,¹ the agency alleges that companies:

• Collect and “indefinitely retain troves of data from and about users and non-users” in ways that “consumers might not expect”;

• Use users’ personal information to sell advertising services to other businesses, posing significant privacy risks to consumers;

• Apply algorithms, data analytics, or artificial intelligence (AI) to users’ and non-users’ personal information without providing users any meaningful control over how this information was used; and

• Fail to adequately protect children and teens

FTC describes competition considerations stemming from alleged data practices

In addition to extensive discussion of the privacy and consumer protection implications of the data practices discussed in the Report, the FTC addresses the “competition implications” of the alleged conduct. 

The Report asserts that, in digital markets, acquiring and maintaining access to “significant user data” may provide companies with a “path to achieving market dominance and building competitive moats that lock out rivals and create barriers to market entry.”² The FTC is concerned that a resulting lack of competition can lead to reduced quality, innovation, customer service, and other factors that harm consumers.  The Report warns that “[a] lack of competition in the marketplace can mean that users lack a real choice among services and must surrender to the data practices of a dominant company . . . depriving consumers of additional choice and autonomy.”³

Specifically, the FTC is concerned that so-called “data harvesting” leads firms to prioritize data acquisition at the expense of user privacy, and warns that firms will pursue unfair advantages through “a host of anti-competitive behaviors” to leverage their data-collection advantages and prevent newcomers from entering the market.  These alleged behaviors include pressuring smaller websites to embed their tracking technologies, leveraging their large data collection efforts to identify and prevent newcomers who want to enter the market, and creating vast “walled gardens” that depress competition and do little to protect consumers’ data.⁴ This results in what the FTC calls the “unvirtuous cycle,” where “[d]ata abuse can raise entry barriers and fuel market dominance, and market dominance can, in turn, further enable data abuses and practices that harm consumers[.]”⁵

The Report warns that the reduced competition stemming from certain data practices “can exacerbate the consumer harm described throughout [the] report,”⁶ because reduced competition may result in potential rivals being disincentivized from attempting to distinguish themselves in the market by collecting less data or providing consumers with greater control over how their data is used. 

Takeaways

The Report concludes with recommendations for competition enforcers scrutinizing potential acquisitions.  The Report advises antitrust enforcers to consider the competitive implications of how the companies involved in the transaction treat consumers with respect to data, privacy, and AI.  Such considerations have already been top of mind for both the FTC and Department of Justice (DOJ) in recent merger investigations and challenges, with the agencies focusing specifically on how a transaction may impact consumers’ data privacy and security, and whether it will decrease competition by increasing data concentration and/or blocking rivals’ access to data.  The Report also advocates for requiring companies to increase transparency regarding data, privacy, and automated decision-making practices in order to “arm consumers with better information, allowing new or existing firms to compete with large incumbent[s] . . . by distinguishing themselves regarding these practices.”⁷

In a separate concurring and dissenting statement, FTC Commissioner Melissa Holyoak criticizes the Commission’s leadership for authorizing the inclusion of “unqualified recommendations” in the Report without considering how these recommendations would affect consumers and competition.⁸ Specifically, Commissioner Holyoak questions how the Report’s recommendation to reduce targeted advertising might affect smaller companies attempting to enter a market and disrupt dominant incumbents, since these companies often rely on targeted advertising because of its relative affordability.  Commissioner Holoyak also expresses concern that imposing new data- and privacy-related requirements would create significant barriers to entry and negatively impact smaller firms that do not have adequate resources to comply with new regulatory requirements.⁹