How the American Innovation and Choice Online Act Would Impact Business Use of Data on Online Platforms
The Senate Judiciary Committee has placed Senator Klobuchar’s (D-MN) antitrust legislation, the American Innovation and Choice Online Act (S. 2992), on its next business meeting agenda, which means it may mark up and pass the bill out of committee without a public hearing by the end of the month. The legislation would prohibit large online platforms from many forms of so-called “self-preferencing” practices, without consideration as to whether those practices benefit consumers. There are many aspects of this legislation that critics have rightly found fault with, but less attention has been paid to how the legislation would impact the use of data on covered platforms.
Included in the legislation are two provisions that would directly impact how covered platforms can use and manage data on their platforms. First, the legislation would make it unlawful for covered platforms to “use non-public data” generated by the platform to offer its “own products or services.” This restriction is intended to prevent online marketplaces like Amazon from using data about popular products sold on its platform to offer its own competing products. This practice is widely used in retail—grocery stores and pharmacies, for example, routinely use data and analytics to decide not only which private labels goods to offer, but also where to place items on store shelves and how much to charge.
Sen. Klobuchar has argued that Amazon’s practices are different than those of supermarkets because they are hurting “small innovators” not just other big brands. As an example of the alleged unfairness, she points to Amazon using data from its platform to introduce its own car trunk organizer that competes with those sold by a small U.S. company. But small businesses have to face the realities of market competition just like big ones which means earning profits when they succeed and losing market share when they fail. It is certainly true that search and buying patterns on online platforms can yield important insights about what products consumers are interested in. For example, data from an online marketplace might show that there is high consumer demand for a certain product, but consumers are unhappy with the price or quality. If these insights lead a new seller to enter the market and offer consumers cheaper or better products, consumers benefit from this type of competition. If this legislation were to prevent this type of competition from occurring, consumers would clearly be worse off. The goal of economic policy should not be to protect small businesses, it should be to expand consumer welfare.
Second, the legislation would make it unlawful for covered platforms to restrict business users from “accessing data generated on the covered platform by the activities of the business user, or through an interaction of a covered platform user with the business user’s products or services.” At first glance, this proposal might seem reasonable. As the Center’s recent report on data portability explains, allowing users (including business users) the ability to access their data can have a pro-competitive effect. Indeed, if this provision only limited online platforms from imposing contractual or technical restrictions on data generated exclusively by business users that the platform provided access to, there would be little to critique.
But this provision would go much further, making it unlawful for covered platforms to restrict business users from taking data about their customers to other systems. This distinction is important because online platforms often require communication between their business users and their customers to occur on their platforms to prevent fraud, abuse, harassment, and other problematic activity. Similarly, online platforms, including app stores and online marketplaces, often impose contractual restrictions on how long business users can retain personally identifiable information about consumers and limit their use of that data to operational purposes, such as fulfilling and shipping orders. Therefore, if this legislation makes it unlawful for covered platforms to impose limits on how business users can access data from their customers, there will be negative unintended consequences for consumer privacy.
The premise of the legislation seems to be that large online platforms act as unreasonable gatekeepers to key data that businesses need to compete. But there are many more sources of data than just online platforms. Businesses can also use data they collect on their own or from other sources—including from social media, customer service agents, customer feedback surveys, trade shows, and more—to improve their existing products and design new ones. And much of the information, such as popular products, is readily available simply by browsing online platforms (a “trunk organizer” is among the top 20 best-selling items on Amazon in its “automotive” category).
The two data provisions in the American Innovation and Choice Online Act would have negative implications for consumers by reducing available data for consumer-friendly competition in one case and removing safeguards that protect the privacy of consumer data in the other. Given the significant implications for large online platforms and the many consumers and businesses that use them, lawmakers should go back to the drawing board on this legislation.
Image credit: Flickr user Gage Skidmore