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December 19, 2007, Alert No. 1,691.
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FTC Will Not Block Google DoubleClick Merger

12/20. The Federal Trade Commission (FTC) announced that it will not seek to block the proposed merger of Google and DoubleClick, or impose any conditions upon the merger.

The FTC wrote in a brief letter [1 page in PDF] to Google that "Upon further review of this matter, it now appears that no further action is warranted by the Commission at this time. Accordingly, the investigation has been closed. This action is not to be construed as a determination that a violation may not have occurred, just as the pendency of an investigation should not be construed as a determination that a violation has occurred. The Commission reserves the right to take such further action as the public interest may require."

The Commission's vote was 4-1, with Commissioner Pamela Harbour dissenting. Chairman Deborah Majoras, and Commissioners William Kovacic, Thomas Rosch and Jonathan Liebowitz voted to close the investigation. The Commission released a statement [13 pages in PDF], and two Commissioners released individual statements.

The transaction has yet to receive the approval of the European Commission.

Impact of Merger Upon Competition. Section 7 of the Clayton Act, which is codified at 15 U.S.C. § 18, prohibits acquisitions or mergers, the effect of which "may be substantially to lessen competition, or to tend to create a monopoly."

The FTC concluded that "Google's proposed acquisition of DoubleClick is unlikely to substantially lessen competition".

First, it concluded that the merger does not threaten to eliminate direct and substantial competition between Google and DoubleClick. It reasoned that the two companies provide products in different markets.

It wrote that "Google sells advertising on its search engine and through its ad intermediation product, AdSense. It had been developing a third party ad serving solution prior to its agreement to purchase DoubleClick, but it had not released a commercially viable product."

In contrast, "DoubleClick sells two third party ad serving products -- DART for Advertisers (``DFA´´) and DART for Publishers (``DFP´´). It does not buy or sell advertisements or advertising inventory."

Second, it concluded that the merger does not threaten to eliminate potential competition in any relevant market. It concedes that "Google had been attempting to develop a third party ad serving solution at the time of the transaction, and therefore is a potential future competitor of DoubleClick and other third party ad serving firms."

However, it continued that "For the elimination of this potential competition to be a competitive concern, Google must be uniquely positioned to have a substantial competition-enhancing effect on the third party ad serving markets."

It concluded that it does not. It explained that "Google's entry is unlikely to have a significant procompetitive effect because the evidence shows that the third party ad serving markets are competitive despite relatively high levels of concentration in both markets. Although DoubleClick enjoys a significant share of today's third party ad serving markets, it does not appear that DoubleClick has market power in these markets."

Finally, the FTC concluded that the evidence in the record does not support any theory of non-horizontal harm "such as the possibility that Google could leverage DoubleClick’s leading position in third party ad serving to its advantage in the ad intermediation market."

Commissioner Liebowitz wrote in his statement [PDF] that while he concurred in the decision, there are "serious vertical competition issues".

Commissioner Harbour wrote in her dissenting statement [13 pages in PDF] that Section 7 is "inherently forward-looking", and that she makes "alternate predictions about where this market is heading, and the transformative role the combined Google/DoubleClick will play if the proposed acquisition is consummated."

Harbour elaborated that "But for Google's acquisition of DoubleClick, the parties likely would have competed head-to-head in the market for third party ad serving tools. Prior to the announcement of the deal, Google was developing and beta-testing its own third party ad serving solution, Google for Publishers and Google for Advertisers, which would have competed against DoubleClick’s DART for Publishers and DART for Advertisers. Development efforts ceased once the proposed acquisition of DoubleClick was announced."

She argued that "It is difficult to believe that Google -- with a market capitalization of nearly $207 billion, a top-notch engineering team, and a wealth of connections among publishers and advertisers -- would have been unable to refine its beta product and release a highly competitive third party ad serving solution of its own. Third party ad serving customers likely would have benefitted from both price and innovation competition as a result of Google’s entry efforts."

Impact of Merger Upon Privacy. The FTC statement notes that "some have urged the Commission to oppose Google's proposed acquisition of DoubleClick based on the theory that the combination of their respective data sets of consumer information could be exploited in a way that threatens consumers’ privacy."

The FTC wrote that it "has been asked before to intervene in transactions for reasons unrelated to antitrust concerns, such as concerns about environmental quality or impact on employees. Although such issues may present important policy questions for the Nation, the sole purpose of federal antitrust review of mergers and acquisitions is to identify and remedy transactions that harm competition."

It "concluded that privacy considerations, as such, do not provide a basis to challenge this transaction."

Commissioner Harbour did not dissent from this conclusion, but nevertheless wrote in her statement that "The parties claim to place a high value on protecting consumer privacy. In various fora, both public and private, senior corporate officials have offered assurances that the combined firm will not use consumer data inappropriately. But charged as I am with protecting the interests of consumers, I am uncomfortable accepting the merging parties' nonbinding representations at face value. The truth is, we really do not know what Google/DoubleClick can or will do with its trove of information about consumers' Internet habits. The merger creates a firm with vast knowledge of consumer preferences, subject to very little accountability."

Commissioner Leibowitz wrote in his statement that "we still need to address the fundamental issues of consumer privacy and data security raised by online behavioral advertising, which go well beyond the two companies involved in this acquisition. As the Internet has evolved, online tracking and ad targeting have become more sophisticated, more pervasive, and more granular."

The Electronic Privacy Information Center (EPIC) released a statement [3 pages in PDF] in which it asserted that the FTC legally could, and should, have blocked or imposed conditions upon this merger because of its impact upon consumers' privacy.

The EPIC offered the explanation that "unlike typical merger reviews where the Commission may assume that the market analysis of suppliers and consumers captures all of the relevant parties, the market for Internet-based advertising is different. These companies target individual consumers based on their interests, their activities, even their personal behaviors. The ``consumers´´ for Internet advertisers are web-based publishers. Assuming there is healthy competition, they make choices among competitors for advertising services. But for the consumer whose data is gathered, there is no choice. The market relationship exists between the advertiser and the publisher. It does not include the consumer."

Hence, it concluded that there is a "market failure", and that the FTC "has a responsibility to address the problem".

Jones Day and Mr. and Mrs. Majoras. The EPIC previously requested that FTC Chairman Majoras be recused. See, story titled "EPIC Seeks Recusal of Majoras in Google Doubleclick Merger Review" in TLJ Daily E-Mail Alert No. 1,688, December 13, 2007.

She participated in this decision.

The EPIC wrote in a December 12 filing [PDF] with the FTC that DoubleClick "has retained the Washington law firm of Jones Day to represent the company before the Federal Trade Commission in the pending merger review." It added that Deborah Majoras "is a former equity partner of the law firm Jones Day" and that her husband, John Majoras, "is currently an equity partner with the law firm Jones Day".

The EPIC's just released statement adds that "We remain troubled by the role of the Jones Day law firm in this proceeding. The ties between the Federal Trade Commission and the Washington office of Jones Day are everywhere apparent, even leading up to the recent hiring by Jones Day of key Commission staff while the merger review was taking place. This should be investigated."

More Reaction. Ed Black, head of the Computer & Communications Industry Association (CCIA), stated in a release that "This merger will likely spur innovation and enhance competition in the online advertising arena. The recent high-profile acquisitions involving Doubleclick competitors and other innovative Internet companies demonstrate that the online advertising space is a highly competitive, rapidly changing segment of the advertisement marketplace, with many options for customers."

The Competitive Enterprise Institute (CEI) stated in a release that "The political controversy surrounding the merger highlights the inadequacies of antitrust law in a 21st century economy. Smoke-stack era laws do not foster entrepreneurship or protect consumers -- they stifle competition and drive away innovators.

Leslie Harris, head of the Center for Democracy and Technology (CDT), stated in a release that "It is now important for Google to step up and make a clear, public statement about its plans for proactively protecting consumer privacy. Such a move on Google's part would send a strong message to consumers and an industry that continues to struggle with privacy issues as online advertising evolves."

FTC Proposes and Seeks Comments on Voluntary Principles for Online Behavioral Advertising

12/20. The Federal Trade Commission (FTC) released a staff document [7 pages in PDF] titled "Online Behavioral Advertising: Moving the Discussion Forward to Possible Self-Regulatory Principles".

This is not a notice of proposed rule making within the meaning of the Administrative Procedure Act (APA). Nevertheless, this document proposes "some governing principles for behavioral advertising" and seeks comments on them.

The document states it uses the term "behavioral advertising" to mean "the tracking of a consumer’s activities online including the searches the consumer has conducted, the web pages visited, and the content viewed in order to deliver advertising targeted to the individual consumer’s interests."

The proposed principles are as follows:

1. "Every website where data is collected for behavioral advertising should provide a clear, concise, consumer-friendly, and prominent statement that (1) data about consumers’ activities online is being collected at the site for use in providing advertising about products and services tailored to individual consumers’ interests, and (2) consumers can choose whether or not to have their information collected for such purpose. The website should also provide consumers with a clear, easy-to-use, and accessible method for exercising this option."

2. "Any company that collects and/or stores consumer data for behavioral advertising should provide reasonable security for that data. Consistent with the data security laws and the FTC’s data security enforcement actions, such protections should be based on the sensitivity of the data, the nature of a company's business operations, the types of risks a company faces, and the reasonable protections available to a company."

3. "Companies should retain data only as long as is necessary to fulfill a legitimate business or law enforcement need. FTC staff commends recent efforts by some industry members to reduce the time period for which they are retaining data. However, FTC staff seeks comment on whether companies can and should reduce their retention periods further."

4. "As the FTC has made clear in its enforcement and outreach efforts, a company must keep any promises that it makes with respect to how it will handle or protect consumer data, even if it decides to change its policies at a later date. Therefore, before a company can use data in a manner materially different from promises the company made when it collected the data, it should obtain affirmative express consent from affected consumers. This principle would apply in a corporate merger situation to the extent that the merger creates material changes in the way the companies collect, use, and share data."

5. "Companies should only collect sensitive data for behavioral advertising if they obtain affirmative express consent from the consumer to receive such advertising. FTC staff seeks specific input on (1) what classes of information should be considered sensitive, and (2) whether using sensitive data for behavioral targeting should not be permitted, rather than subject to consumer choice."

The deadline to submit comments is Friday, February 22, 2008.

Ari Schwartz, Deputy Director of the Center for Democracy and Technology (CDT), stated in a release that "The release of these new principles is a clear sign that the Commission does not believe that the industry's current self-regulation framework is sufficient to protect consumers today".

The CDT's Leslie Harris added that "Self-regulation is part of the solution for protecting consumer privacy, but clearly self-regulation hasn't lived up to its promises. At the end of the day, we'll need a rigorous mix of self-regulation backed by regulatory enforcement."

Bush Condemns Senate Delay on FISA Amendments Bill

12/20. President Bush held a news conference in which he discussed numerous topics, including the Senate's delay of further consideration of S 2248 [LOC | WW], the "Foreign Intelligence Surveillance Act of 1978 Amendments Act of 2007", until after the holiday recess. See, transcript.

He said that "I'm also disappointed that Congress failed to pass legislation to ensure that our intelligence professionals can continue to effectively monitor terrorist communications. Those of us in public office have no greater responsibility than stopping new attacks on our country."

He continued that "this summer, Congress passed a bill that -- called the ``Protect America Act,´´ which strengthened our ability to collect foreign intelligence on terrorists overseas. The bill closed dangerous gaps in our intelligence; it was a good piece of legislation. It wasn't perfect, but it was good. Unfortunately, Congress made this law effective until February 1st of 2008, as if the terrorist threat is going to go away on February the 1st, 2008."

That House bill is S 1927 [LOC | WW].

President Bush said that "The first priority of Congress when it returns in the new year must be to pass a good bill and get it to my desk promptly."

He also addressed pending litigation against telecommunications companies for having providing surveillance assistance that the plaintiffs allege was illegal. Bush said that "The bill should include liability protection for companies that are facing multi-billion-dollar lawsuits, only because they are believed to have assisted in the efforts to defend or nation following the 9/11 attacks."

S 2248 is a bipartisan bill approved by the Senate Intelligence Committee (SIC) in October. The Senate Judiciary Committee (SJC) then approved a different version of S 2248 on November 15, 2007. The full Senate began, but then postponed, consideration of S 2248 on Monday, December 17, 2007.

The House passed its version of FISA reform legislation, HR 3773 [LOC | WW], the "Responsible Electronic Surveillance That is Overseen, Reviewed, and Effective Act of 2007", or "RESTORE Act", on November 15, 2007.

In addition, Sen. Arlen Specter (R-PA), the ranking Republican on the SJC, has introduced a stand alone bill, S 2402 [LOC | WW], the "FISA Intelligence Surveillance Substitution Act of 2007", that would provide for substitution of the federal government for telecommunications carriers as defendants. The SJC approved a substitute version supported by the Bush administration, and then rejected the bill as amended, at its business meeting on December 13, 2007. Sen. Specter has said on several occasions that he will seek to advance his substitution proposal as an amendment during full Senate consideration of S 2248.

The White House press office issued a summary of various bills, and proposed amendments, on December 17, 2007. The Center for Democracy and Technology (CDT), a group that advocates Constitutional and privacy rights in the context of information and communications technologies, published its comparison [3 pages in PDF] of various bills on December 4, 2007.

DOJ Announces $1.1 HSR Act Fine

12/20. The Department of Justice (DOJ) filed a complaint in U.S. District Court (DC) against ValueAct Capital Partners L.P. alleging violation of the premerger notification and waiting period requirements of the Hart Scott Rodino Act (HSRA) of 1976 in connection with several recent transactions, including its acquisition in 2005 of more than ten percent of the stock of Acxiom Corporation, a data aggregator.

The DOJ simultaneously announced that it has reached a settlement with ValueAct, under which it will pay $1.1 Million. The DOJ also stated that it has filed a proposed consent decree with the District Court. See, DOJ release.

The HSRA's premerger notification and waiting period requirements are codified at 15 U.S.C. § 18a.

People and Appointments

12/20. Bret Swanson joined the Progress & Freedom Foundation as a Senior Fellow and Director of PFF's new Center for Global Innovation. The PFF is a free market oriented think tank that focuses on many issues that involve information and communications technologies. The PFF stated in a release that Swanson will work on issues that "address the global nature of the digital economy and will advocate openness and innovation through free trade, stable monetary policy and limited international regulation". Swanson previously worked for the Discovery Institute's Technology and Democracy Project. He has also been Executive Editor of the Gilder Technology Report, and an aide to Sen. Richard Lugar (R-IN).

12/18. Daniel Hesse was named P/CEO of Sprint Nextel. See, release. He previously was Ch/P/CEO of Embarq Corporation.

Washington Tech Calendar
New items are highlighted in red.
Friday, December 21

The Senate will meet in pro forma session.

12:00 NOON. Deadline to submit initial comments to the Office of the US Trade Representative (OUSTR) regarding compliance with telecommunications trade agreements. See, notice in the Federal Register, November 19, 2007, Vol. 72, No. 222, at Pages 65109-65111.

Deadline to submit initial comments to the Federal Communications Commission (FCC) in response to its Notice of Proposed Rulemaking (NPRM) regarding hearing aids and wireless handsets. This item is FCC 07-192 in WT Docket No. 07-250. See, notice in the Federal Register, November 21, 2007, Vol. 72, No. 224, at Pages 65494-65508. See also, story titled "FCC Releases 2nd Report and Order and NPRM on Hearing Aids and Wireless Handsets" in TLJ Daily E-Mail Alert No. 1,672, November 8, 2007.

Deadline to submit comments to the Office of the US Trade Representative (OUSTR) regarding the US complaint to the World Trade Organization (WTO) regarding the People's Republic of China's (PRC) trade barriers and market access restrictions affecting movies and audio recordings. See, notice in the Federal Register, November 8, 2007, Vol. 72, No. 216, at Pages 63211-63213.

Deadline to submit to the National Cable and Telecommunications Association (NCTA) proposals for 2008 NCTA Technical Papers. See, notice.

Sunday, December 23

The Senate will meet in pro forma session.

Monday, December 24

There will be no issue of the TLJ Daily E-Mail Alert.

All federal executive branch departments and agencies will be closed. See, Executive Order of December 6, 2007.

Deadline to submit comments to the U.S. Patent and Trademark Office (USPTO) regarding its proposal to amend the Rules of Practice in Trademark Cases to require a description of the mark in all applications to register a mark not in standard characters. See, notice in the Federal Register, October 25, 2007, Vol. 72, No. 206, at Pages 60609-60611.

Effective date of the Federal Communications Commission's (FCC) Second Report and Order regarding video franchising. This item is FCC 07-190 in MB Docket No. 05-311. See, notice in the Federal Register, November 23, 2007, Vol. 72, No. 225, at Pages 65670-65677. See also, story titled "FCC Adopts 2nd Report and Order on Video Franchising" in TLJ Daily E-Mail Alert No. 1,668, November 2, 2007.

Tuesday, December 25


There will be no issue of the TLJ Daily E-Mail Alert.

The Federal Communications Commission (FCC) and other federal offices will be closed. See, Office of Personnel Management's (OPM) list of federal holidays and 5 U.S.C. § 6103.

Wednesday, December 26

There will be no issue of the TLJ Daily E-Mail Alert.

Friday, December 28

2:00 PM. Deadline for petitioner (Quanta Computer) to file its reply brief with the Supreme Court of the US (SCUS) in Quanta Computer v. LG Electronics, a patent infringement case. See, story titled "Supreme Court Grants Certiorari in Patent Exhaustion Case" in TLJ Daily E-Mail Alert No. 1,647, September 27, 2007.

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