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BIG DATA, THE INTERNET OF THINGS, AND COMPETITION LAW KEES JAN KUILWIJK AKD JUNE 2016

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Page 1: Big Data, the internet of things, anD Competition Law … · Big Data, the internet of things, anD Competition Law 3 westLaw – June 2016 The Internet of Things The idea of the Internet

Big Data, the internet of things,

anD Competition Law

Kees Jan KuiLwiJKAKD J u n e 2 0 1 6

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2Big Data, the internet of things, anD Competition Law westLaw – June 2016

Big DataWe’re in the midst of something of a revolution. The science be-hind the gathering of information is rapidly changing the way we work, commute, and even relax at home. For something so instrumental to our lifestyle, few people really understand the concept clearly.

So, what exactly does ‘Big Data’ mean?

Big data is a term for data sets that are so large or complex that traditional data processing applications are inadequate. The term often refers simply to the use of predictive analytics to extract val-ue from data. Big personal data is manna from heaven for adver-tisers, since they strive to make ads as personalized as possible.

Since the advent of the Internet, tech companies have been col-lecting information about their users. By signing up for services from the likes of Facebook, Microsoft, Apple and Google, you give your consent for these companies to document your on-line preferences by proxy. I’m sure you didn’t just gloss over the terms of service, did you?

This information has enabled these companies to market more aggressively and, as such, customize the browsing habits of its us-ers. Our online experiences are now completely optimized and

tailored to our own preferences. More often, we’re seeing ads for the books we read, hotels we like to stay in, and the products we want to buy. We may well be more connected to the things that suit us than ever, but what price do we have to pay for the luxury?

Personal data has become a currency in itself. In fact, it’s how Google and Facebook have made their billions; by selling the personal data they collect to third party advertisers. More of-ten than not, consumers don’t mind, provided they’re presented something of value in return. It’s important, however, that a line is not crossed. Exchanging personal information with third par-ties can be a slippery slope. It is the duty of these companies to ensure that data collection is not abused.

How big is Big Data anyway?

Obviously exact calculations are difficult to make but in 2013 it was reported that an astonishing 90 percent of the world’s data was generated in the two preceding years. Today, the output of data is doubling every two years.

A few years ago a 25-year old Austrian law student requested his file from Facebook and discovered that the company had 1,222 pages of data relating to him.

Obviously exact calculations are difficult to make but in 2013 it was reported that an astonishing 90 percent of the world’s data was generated

in the two preceding years.

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The Internet of ThingsThe idea of the Internet being nothing more than a way to find stuff and communicate is outdated. Now, we’re able to use all of this vast data to directly interact with the very world around us. We’ve gained an entirely new perspective on our surround-ings, seemingly making even the most innocuous of things come alive before our very eyes. Indeed, we’re able to en-hance or even manipulate our environment.

The concept has become known as the Internet of Things, and it’s a fairly straightforward idea. Through harnessing the power of technology, we’re able to detect hazards, power our homes, and order food without ever having to speak with another human being. In essence, it’s about being able to connect or pair devices together with the touch of a single button. As a rule of thumb, the future of innovation will mean that anything that CAN be connected WILL be connected.

You might stop to wonder whether anyone has actually sat and thought this through for any great length of time. Why would you even need so many devices to communicate with each other? Well, there is potential value to this system, but it wouldn’t be possible without that Big Data.

Almost everything we buy as consumers today has been de-signed to be “smart.” Your television, your washing machine, and even your thermostat are all well equipped to handle the most profound of tasks, perhaps one day even being capable of self-improvement.

This transformation, while significant, will in many ways be in-conspicuous to the average person because the changes to the physical environment will be invisible or subtle. A smart bridge looks much the same as a dumb one as all of the intelligence is built into the infrastructure.

The Internet of Things offers unique opportunities to address is-sues such as clean water, air pollution, landfill waste, and defor-estation. Sensor-enabled devices now closely monitor the envi-ronmental impact of our cities, collecting details about sewers, air quality, and trash. Outside of the city sensor-enabled de-vices monitor our forests, rivers, lakes, and oceans. Many en-vironmental trends are so complex, that they are difficult to conceptualize, but collecting data is the first step towards un-derstanding, and ultimately reducing, the environmental im-pact of human activity.

While data collection will always be just about the data, the In-ternet of Things is finding new ways to make use of that data. The information that is being collected autonomously is con-tributing directly to this connected world we live in.

Take, for example, the Samsung Family Hub Refrigerator, which boasts an impressive built-in HD television screen and doubles as a home entertainment center. Remember the days of pinning your shopping list to the fridge using magnets? Gone. Now, you

can just access an app that will handle those reminders for you. The fridge knows when you’ve run out of milk and will send you a reminder alert to pick some up on your way home.

Or you can just check what’s in your refrigerator; at any time or anywhere just using your phone. Innerview cameras clearly show the shelves inside, so you can quickly take a look when you are out shopping. You don’t need any other devices to play music, watch videos, stream non-stop radio and watch TV, the Samsung Family Hub Refrigerator has it all.

It’s equal parts wonderful and terrifying. What happens when 50 billion machines connect?

As a rule of thumb, the future of innovation will mean that anything that CAN be connected WILL be connected.

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Technological SingularityWhile technological progress has been accelerating at a rapid pace, it has been limited by the basic intelligence of the human brain, which has not changed significantly since we started to walk upright. However, with the increasing power of computers and other technologies, it might eventually be possible to build a machine that is more intelligent than humans.

If intelligent computers and networks are capable of progres-sively redesigning themselves, or of autonomously building ever smarter and more powerful machines, at some point a runaway effect will yield an intelligence surpassing all current human control or understanding and events may become unfathomable to human intelligence and unpredictable.

Robin Hanson of George Mason University argues that it is plausible that such a breakthrough in artificial intelligence – an intelligence explosion - would lead to an extraordinary increase in productivity creating enormous wealth. Changes in technol-ogy could lead to world output doubling every two weeks rather than every 15 years, as it does currently.

Tech genius Raymond Kurzweil believes that we’re rapidly ap-proaching the moment when computers will become more in-telligent than humans. When that happens, humanity will be completely and irreversibly transformed, he says. According to his calculations, the end of human civilization as we know it is roughly 30 years away.

With the increasing power of computers and other technologies, it might eventually be possible to build a machine that is more intelligent than humans.

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Competition LawAdvocates of a higher degree of antitrust intervention in on-line markets agree that Big Data is increasingly controlled by only a handful of dominant players. Consequently, with little competition to worry about, they are likely to keep collecting more and more data; effectively creating a status quo or glass ceiling that cannot be breached.

Business models that rely on securing Big Data for a com-petitive edge may also devise strategies in order to prevent their rivals from gaining access to that same data. After all, a company whose fundamental business model is based on collecting data will need to ensure an advantage over their competitors. This must be approached with caution, as the temptation to prevent rivals from accessing the data may be deemed exclusionary under antitrust law.

There is an argument to be made that massive data col-lection would present an unfair and unrealistic entry barrier for smaller companies and startups, effectively enforcing an oligopoly amongst the already domi-nant providers of online services. As such, there have been calls for a higher degree of antitrust intervention in cases such as this in an attempt to once again level the playing field and divide market power as equally as possible.

With the birth of the Internet of Things, a great deal of focus is being put on renewing industry standards and adapting to the evolving nature of the connected world. The necessity of a proper set of regulations has become increas-ingly apparent in recent times, at least if we are to achieve consistency and interoperability in data output.

The technologies used at the heart of the Internet of Things are all likely to employ a huge sum of patents, copyrights, trademarks, and suchlike. Regulators will insist on FRAND licensing of standard essential IP rights as a matter of ur-gency to preserve competition amongst Internet of Things providers.

Some companies are looking at mergers, acquisitions or joint ventures as a way to acquire more data-advantage opportu-nities. So far regulators have gone easy on them. Although the European Commission was initially worried that Face-book’s acquisition of WhatsApp would harm competition in the messaging market, they ultimately found that there are enough mobile messaging apps, and that most people use more than one, so that the acquisition would not hamper competition in the market.

When in 2010 the Commission received notification of a proposed concentration by which Microsoft would acquire control of the Internet search and search advertising busi-nesses of Yahoo it took account of the parties’ combined market share of less than 10% and concluded that the trans-action would be pro-competitive as it would allow the parties to more effectively compete with dominant player Google.

The necessity of a proper set of regulations has become increasingly apparent in recent times, at least if we are to achieve consistency and interoperability in data output.

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EfficienciesThe basic objective of competition policy is to protect and pre-serve competition as the most appropriate means of ensuring the efficient allocation of resources and thus efficient market outcomes in free market economies. There is general consensus that the concept is manifested by lower consumer prices, higher quality products and better product choice.

Mergers, joint ventures, horizontal agreements among competi-tors all involve the integration of resources; hence, they have the ability to generate efficiencies. Any negative effects on competi-tion may be offset by positive welfare effects.

An efficiency defense entails a trade-off, but in this new econ-omy where products and services are not exchanged for euros and dollars, but where personal data is the standard currency, measuring such a trade-off is an incredibly difficult task. Every-body cares about his money, but not everybody cares about his personal data in the same way; millions of people have already accepted that we have zero privacy in the digital age and that we should better get used to it.

Yet others fear that companies know too much about them, may sell that information and who knows where it will surface and when. May be your employer will find out things about you that

you don’t want him to know; that you are a closet Rick Astley fan and the first thing you do when you get home at night is dance to “Never Gonna Give You Up” or that your favorite holiday desti-nation is Benidorm. Good luck getting that raise.

Of course, depending on the available data, more sensitive der-ivations may be made, such as likely credit score, most proba-ble religion, race or sexual preference. These derivations could then in turn lead to discrimination. Profiling could lead to re-fusal of insurance or a credit card, or could be abused by or-ganizations that have discrimination of particular groups on their political agenda.

It’s for regulators to decide when lines are crossed.

Privacy has been recognized as a non-price dimension of com-petition in the sense that firms can compete to offer greater or lesser degrees of privacy protection. But like other aspects of non-price competition, such as quality, variety, and innovation, privacy protection cannot be measured the same way as price. The issue is vastly compounded by the fact that different con-sumers have different privacy preferences.

And then there is a practical problem.

Privacy has been recognized as a non-price dimension of competition in the sense that firms can compete to offer greater or lesser degrees of privacy protection.

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The Land of OzIn March, Germany’s Federal Cartel Office and competition reg-ulator opened proceedings against Facebook because it believes the company’s use of unlawful terms and conditions could rep-resent an abusive imposition of unfair conditions on users. The Bundeskartellamt will examine the extent to which a connection exists between the clauses and the company’s possible dominant position in the market for social networks. The suspicion is that Facebook’s own terms of service are both unfair and unlawful, designed solely to benefit the company.

“It needs to be clarified if consumers are being sufficiently in-formed about the nature and scale of data collection” by Face-book, Cartel Office President Andreas Mundt said.

True, in the Land of Oz users actually read privacy policies, un-derstand their legal implications, consult their attorneys where necessary, and negotiate with other providers of similar services to get better privacy treatment, and only then click to indicate their consent. In this world, however, it’s different.

A study has calculated that it would take on average each Inter-net user 244 hours per year to read the privacy policy belonging to each website they view, which is more than 50% of the time that average user spends on the Internet.

You can’t blame the Facebooks of this world for what is so ob-viously a market failure that cannot be fixed. Intervention will only lead to government failure.

To automatically assume that most of Facebook’s 1.65 billion monthly active users actually care what the company’s privacy policy says would be a huge mistake.

ConclusionTech companies that embrace Big Data should have no trouble adhering to minimal antitrust regulation. This can be easily achieved through things like reasonable terms on front end licensing commitments, disclosure of standard essential IP rights (mostly patents), and being prepared to identify genu-ine, competitive grounds for excluding rivals from their data collection.

Calls for antitrust intervention related to data collection by on-line platforms are often misguided. However, that isn’t to say that the worlds of Big Data and the Internet of Things don’t need to be more aggressively policed. It’s likely that, with time, anti-trust intervention will tighten up, especially in relation to those that demonstrate exclusionary tactics consistently.

A study has calculated that it would take on average each Internet user 244 hours per year to read the privacy policy belonging to each website they view, which is more than 50% of the time that average user spends on the Internet.

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