The best answer to TikTok is a forced divestiture 

As consumer advocates, we pride ourselves as standing for policies that promote policies fit for growth, lifestyle freedom, and tech innovation. 

In usual regulatory circumstances, that means protecting consumers’ platform and tech choices  from the zealous hands of regulators and government officials who would otherwise seek to shred basic Internet protections and freedom of speech, as well as break up innovative tech companies. Think Section 230, government jawboning, and consequences of deplatforming.

As such, the antitrust crusades by select politicians and agency heads in the United States and Europe are of primary concern for consumer choice. We have written extensively about this, and better ways forward. Many of these platforms make mistakes and severe errors on content moderation, often in response to regulatory concerns. But that does not invite trust-busting politicians and regulators to meddle with companies that consumers value.

In the background of each of these legislative battles and proposals, however, there is a special example found in the Chinese-owned firm TikTok, today one of the most popular social apps on the planet. 

The Special Case of TikTok

Now owned by Bytedance, TikTok offers a similar user experience to Instagram Reels, Snapchat, or Twitter, but is supercharged by an algorithm that serves up short videos that entice users with constant content that autoloads and scrolls by. Many social phenomena, dances, and memes propagate via TikTok.

In terms of tech innovation and its proprietary algorithm, TikTok is a dime a dozen. There is a reason it is one of the most downloaded apps on mobile devices in virtually every market and language. 

Researchers have already revealed that China’s own domestic version of TikTok, Douyin, restricts content for younger users. Instead of dances and memes, Douyin features science experiments, educational material, and time limits for underage users. TikTok, on the other hand, seems to have a suped-up algorithm that has an ability to better attract, and hook, younger children.

What makes it special for consumer concern beyond the content, however, is its ownership, privacy policies, and  far-too-cozy relationship with the leadership of the Chinese Communist Party, the same party that oversees concentration camps of its Muslim minority and repeatedly quashes human rights across its territories.

It has already been revealed that European users of the TikTok can, and have, had their data accessed by company officials in Beijing. And the same goes for US users. Considering the ownership location and structure, there isn’t much that can be done about this.

Unlike tech companies in liberal democracies, Chinese firms require direct corporate oversight and governance by Chinese Communist Party officials – often military personnel. In the context of a construction company or domestic news publisher, this doesn’t seemingly put consumers in liberal democracies at risk. But a popular tech app downloaded on the phones of hundreds of millions of users? That is a different story.

How best to address TikTok in a way that upholds liberal democratic values

Among liberal democracies, there are a myriad of opinions about how to approach the TikTok beast.

US FCC Commissioner Brendan Carr wants a total ban, much in line with Sen. Josh Hawley’s proposed ban in the U.S. Senate and U.S. Rep. Ken Buck’s similar ban in the House. But there are other ways that would be more in line with liberal democratic values.

One solution we would propose, much in line with the last US administration’s stance, would be a forced divestiture to a U.S.-based entity on national security grounds. This would mean a sale of US assets (or assets in liberal democracies) to an entity based in those countries that would be completely independent of any CCP influence.

In 2019-2020, when President Donald Trump floated this idea, a proposed buyer of TikTok’s U.S. assets would have been Microsoft, and later Oracle. But the deal fell through.

But this solution is not unique.

We have already seen such actions play out with vital companies in the healthcare space, including PatientsLikeMe, which uses sensitive medical data and real-time data to connect patients about their conditions and proposed treatments. 

When the firm was flooded with investments from Chinese partners, the Treasury Department’s Committee on Foreign Investment in the United States (CFIUS) ruled that a forced divestiture would have to take place. The same has been applied to a Chinese ownership stake in Holu Hou Energy, a U.S.-subsidiary energy storage company.

In vital matters of energy and popular consumer technology controlled by elements of the Chinese Communist Party, a forced divestiture to a company regulated and overseen by regulators in liberal democratic nations seems to be the most prudent measure.

This has not yet been attempted for a wholly-owned foreign entity active in the US, but we can see why the same concerns apply.

An outright ban or restriction of an app would not pass constitutional muster in the US, and would have chilling effects for future innovation that would reverberate beyond consumer technology.

This is a controversial topic, and one that will require nuanced solutions. Whatever the outcome, we hope consumers will be better off, and that liberal democracies can agree on a common solution that continues to uphold our liberties and choices as consumers.

Yaël Ossowski is the deputy director of the Consumer Choice Center.

Time for the EU to Counter TikTok

The free world is growing increasingly suspicious about the popular Chinese social media platform TikTok. In only the latest example, Canadian authorities are warning its citizens about the dangers of using the app for both their privacy and security.

Although TikTok denies sharing sensitive information about users with the Chinese government, the head of the Communications Security Establishment (CSE) Canadian Centre for Cyber Security still cautions users about the security of personal and contact information they share with the app.

Canada might be following in the footsteps of the United States, where, due to national security concerns, the usage of the Chinese app has been banned by the federal government for their employees on work-related devices. Moreover, several US states and public universities have followed the same path.

These actions, which mirror nuanced policy measures that aim to hold the app accountable while ensuring no sensitive devices download the app, are a new reality for liberal democracies aiming to ensure the security and privacy of its citizens and state employees. 

The Consumer Choice Center has already voiced concerns about the app’s growing number of vulnerable users in the European Union, and the influence of the CCP. Looking at the involvement of the Chinese Communist Party in the tech giant and its record of mass surveillance and human rights violations, lawmakers in the European Union should also start considering how to deal with TikTok. Although the parent company of the app has denied the abuse of individual data, it is more than worrying to experience how users’ personal information is being harvested and can be used once in the wrong hands.

There are more reasons to be concerned than just the dance videos and contact information uploaded to the popular sharing app. The Chinese government has invested heavily in artificial intelligence with mass surveillance in the past decade, and TikTok is only the latest iteration. 

Companies like Huawei or the state-owned CCTV manufacturers Hikvision and Dahua have already reached the level of worry in the European Union and been seriously considered by communications agencies and parliaments. As a result, Hikvision fever cameras, used during COVID, have already been banned from the premises due to human rights concerns. The Chinese Communist Party uses these cameras in serious human rights abuses against its Uyghur population.

It is time for the EU to step up its measures regarding TikTok as well before it is too late. We must emphasize that in expanding differences between liberal democracies and illiberal ones, the free world must understand how to properly address the technologies built and controlled by totalitarian regimes, hoping we can avoid severe security issues that will harm us in the long run. 

Therefore, the EU must consider smart policies to counter or curb TikTok’s influence among our state and governmental institutions. It may be a small step, but in the end we must favor technologies that help empower consumers and citizens, rather than subjugate them to the malicious influence of a totalitarian regime.

Hey buddy, consumers don’t need protection from natural gas stoves

The degrowther cacophony of environmentalists, bureaucrats, and supposed consumer advocates has found a new enemy to protect you from: the gas stove in your kitchen.

As spelled out by U.S. Consumer Product Safety Commissioner Richard Trumka Jr. in a recent Bloomberg interview, a federal “ban on gas stoves is on the table amid rising concern about harmful indoor air pollutants.”

Trumka joins the chorus of enterprising journalists, academics, and green activists (and even the World Economic Forum) who have taken up the agency’s call to not only make a health case against kitchen stoves that heat food with natural gas, but also the environmental and moral one.

An article in New York Magazine asked, rather innocently, “are gas stoves the new cigarettes?” We all know what follows.

Humbly, Trumka later clarified the agency wouldn’t propose banning them, but would instead only apply strict regulations to “new products,” following cities like San Francisco and New York City, and entire states like New York (no surprise) that have already enacted bans on natural gas hook-ups for new construction. It should be noted that the majority of these proposed actions were based on environmental claims rather than health claims, and the most prominent advocates have been “environmental law” experts and the like.

Of course, they’ll say they don’t want to outlaw gas stoves in your home or dispatch agents to rip them from your kitchens and load them onto flatbeds. That’s silly. They just want to use the force of laws, guidance, and incentives to nudge consumers away from a natural gas standard. The federal government’s ineptly named Inflation Reduction Act will go a long way.

If you voluntarily swap your gas stove for an electric one, the IRA deems you eligible for a tax rebate of up to $840 — which would easily subsidize your lifestyle “choice”. This is similar to the law’s incentives for buying electric vehicles, installing solar panels, and fitting new construction with green-friendly tech.

While subsidies for your home kitchen may be all the rage, it’s understandable why this issue has become a cultural flashpoint.

For average consumers, the advantages of using a gas stove are plentiful. For one, they heat quickly and efficiently, reducing the time and energy used to cook a meal. They offer heat moderation that any meal would require. And because natural gas is a separate utility hook-up, it means that in the case of brownouts or power outages, you can still cook, boil water, and heat your food.

Restaurant chefs are slavishly reliant on natural gas to provide the best source of heat for lunchtimes and dinners for hungry patrons, as are Americans of more modest income who can more cheaply provide food at home using natural gas than increasing their electricity bill.

The disadvantages of natural gas stoves, according to the activists, are they could leak nitrogen oxides into your home, which, when wedded with improper ventilation, presents a risk for childhood asthma and other health concerns. In addition, that gas leakage could contribute to greenhouse emissions, which links it to climate change.

When Trumka first entertained a natural gas stove ban — on a December private Zoom meeting with the Public Interest Research Group Education Fund — the asthma risk was front and center. He went so far as to call it a “hazard,” which boggled our minds at Consumer Choice Center, considering the extent of our work clarifying the errors of legislating based on risks instead of hazards.

For a look into the studies, economist Emily Oster recently did this on her Substack, and her conclusion is that the risks claimed by researchers are actually so minimal that they aren’t worth taking seriously for anyone who has a properly vented kitchen and up-to-date appliances.

While indoor air pollution is indeed a serious hazard, it is not one that affects US households. Hood vents, air conditioning, and modern construction have avoided this issue for nearly all Americans, as the EPA admits. The effect on climate change is also negligent, considering that conversion to all-electric stoves does nothing to clean up the energy grid or move all electricity generation to carbon-neutral alternatives.

Why then is this issue gathering so much steam among consumer advocates like PIRG, which began a campaign against natural gas stoves early last year?

While they may be sincere in their aims, it amounts to yet another crusade against consumer choice. People know the risks of gas stoves and the cost-benefit analysis that comes with purchasing one. Having a gas stove with children running around isn’t ideal, and in most cases, an induction stove is likely even more efficient and desirable.

But the entire purpose of having a variety of stoves is to offer users — professional chefs and home cooks alike — the option that fits best with their lifestyle and budget. There are always risks when it comes to home appliances, energy applications, and what we bring into our homes.

But we would rather trust consumers to make this decision than a regulatory agency with its own agenda.

Is the FTC kneecapping VR before it even gets off the ground?

In a courtroom in San Joe, California today, the US government squared off against a social media company and grilled that company’s CEO about its investments in another technology company, and its general business strategy for the new field of wearable virtual reality.

The app in question, the fitness VR app Within, is poised to be acquired by social media giant Meta (formerly Facebook) for use on its virtual reality headsets and ecosystem.

The deal itself has not yet been finalized, but that hasn’t stopped the nation’s antitrust agency from flexing its muscles in Silicon Valley.

When Meta CEO Mark Zuckerberg took the stand today, lawyers from the Federal Trade Commission aimed to pepper him on the overall business strategy of Meta’s well-known pivot to the metaverse, or virtual reality space, and whether his plans were about…business success?

If the FTC succeeds, it will halt Meta’s purchase of the workout app Within, developed by Los Angeles developers beginning in 2014. While that may put smiles on the faces of some regulators and populist politicians in Washington, D.C., it will do nothing for consumers. And it may even harm the future development of this entire sector.

At last estimate, the entire “metaverse economy” is projected to one day be worth either $800 billion or even trillions by 2030. Meta itself has poured in an ungodly $10 billion in the last year alone, and its own products are still rather limited in terms of user adoption.

The fact that the FTC and other regulators are trying to kneecap virtual reality, before it really even begins, is more startling than anything else.

If the last two decades of economic growth and innovation from Silicon Valley have taught us anything, it is that capital, talent, and business acumen are crucial ingredients for success and user satisfaction, but it isn’t everything. A supportive infrastructure, an investment-friendly climate, and a high demand for developers and skilled employees are also necessary and bring with them exponential benefits.

The companies and firms that have spun off from talent formerly of giants like Google and PayPal — not to speak of Elon Musk, Peter Thiel, and the rest of the PayPay Mafia — have undoubtedly made consumers’ lives better, and helped our economy grow beyond leaps and bounds.

Among those successes, there have been thousands more failures, but those have been at the hands of consumers and users rather than government agencies and federal lawsuits by regulators. And if the media coverage surrounding this case gives any indication, it seems much of this action stems not from antitrust law or precedent, but rather as a kind of payback.

The Associated Press ran a bizarre “analysis” last week, framing the FTC v. Meta/Within case as some kind of retribution for Facebook’s acquisition of Instagram in 2012. Back then, that decision was largely panned by technology journalists and never received a peep from regulators. Since then, it is grown to become one of the most popular apps found in app stores.

Considering Instagram’s success in the last decade, thanks to investments and entrepreneurial prowess by Meta, as some kind of evidence to halt all future mergers and acquisitions of a company that over a billion global consumers is not only wrong, but it begs the question of why the FTC is even involved in the first place.

Consumers benefit when competitors compete, when innovators innovate, and when laws provide regulatory clarity and guidance to protect consumers and police bad actors.

But this case seems more like a hunt for ghosts of Christmas past rather than protecting us from any real harm. And it may do more damage than regulators estimate.

My colleague Satya Marar summed this up in RealClear last month:

Start-ups depend on millions in investment to develop and deploy their products. Investors value these firms based not only on the viability of their products, but on the firm’s potential resale value. Larger firms also often acquire smaller ones to apply their resources, existing expertise and economies of scale to further develop their ideas or to expand them to more users.

Making mergers and acquisitions more expensive, without strong evidence they’ll hurt consumers, makes it tougher for start-ups to attract the capital they need and will only deter innovators from striking out on their own or developing ideas that could improve our lives in an environment where 90% of start-ups eventually fail and 58% expect to be acquired.

The job of the FTC is not to protect consumers from innovations that have not yet happened. That should be the furthered thing for its mission. Rather, it should be focused on consumer welfare, punishing bad actors that take advantage of consumers, break laws, and promote real consumer harm.

Mergers and acquisitions provide value for consumers because they match great ideas and technology with the funding and support to scale them for public benefit. Especially considering the metaverse is so new, it is frankly bewildering that we would be wasting millions in taxpayer dollars to chase down an investment before it even bears fruit — just because a company was too successful last time.

When it comes to our regulatory agencies, we have to ask who they are looking out for when it comes to consumer wants and wishes: the consumers that wish to benefit from future innovations.? Or incumbent players who want to slay the largest dragon in the room.

In this case, it seems the FTC has stretched a bit too far, and consumers may be worse off for it.

Biden Administration’s abandonment of Section 230 undermines tech innovation that will harm and disadvantage consumers

Washington, D.C. – Yesterday, lawyers from the Biden Administration filed an amicus brief in a Supreme Court case that will undermine future American tech innovation and inevitably harm and disadvantage online consumers.

In Gonzalez v. Google, the Supreme Court is asked to decide whether YouTube can be held liable for content on its platform, and more specifically its algorithms. The argument brought by plaintiffs is that the algorithm that recommends content based on user preference is not covered by Section 230 of the Communications and Decency Act, and other legislation, and that Google (YouTube’s parent company) can be held liable.

Such a ruling would have a sweeping impact on Internet freedom of speech and tech innovation based here in the U.S.

Yaël Ossowski, deputy director of the consumer advocacy group Consumer Choice Center, responds:

“In a global race to defend freedom and innovation online, it’s beyond disappointing to see the Biden Administration take a position that undermines Section 230, American digital entrepreneurship, and freedom of speech online,” said Ossowski.

“China and the EU are promoting and subsidizing their tech companies and future start-ups massively while our own officials are trying to kneecap them, whether by antitrust litigation by the Federal Trade Commission, Senate bills to break up tech firms, or general hostility to the growth and innovation that Section 230 has afforded to the benefit of consumers,” he said.

“The Biden Administration’s abandonment of Section 230 is concerning and puts much at risk for consumers online.

“The ability of digital entrepreneurs to offer unique and tailored services to consumers who enjoy them would be severely constrained if a Supreme Court ruling upends our modern understanding of the legal system’s protection of platforms online. Added to that, it threatens free speech on the Internet if platforms have an undue obligation to perform content moderation so as to avoid any and all legal liabilities posed by user-generated content.

“For the sake of consumers and American innovation, we hope that an eventual ruling protects the core of our freedom of speech and association online, and protects citizens’ choices to use the services they want. Thus far, the Biden Administration’s views leave us concerned that this is in peril,” he concluded.

Learn more about the Consumer Choice Center’s campaigns for smart policies on tech innovation.

Our Well-Timed Warning on FTX, Bankman-Fried and Future Cryptocurrency Regulations

This letter was sent to Senators, Congressmen of relevant committees, and regulators in the Consumer Financial Protection Bureau, Securities and Exchange Commission, and Commodity Futures Trading Commission in the aftermath of the FTX collapse. The previous letter can be viewed here.

Referring to the previous letter we sent to lawmakers and regulators on October 26, 2022, warning of the influence and inherent financial risks posed by then FTX CEO Sam Bankman-Fried and his related companies, here we offer our thoughts on what you should consider for future regulation on digital assets, cryptocurrencies, and the platforms that use them.

As you will have read by now, the alleged criminal actions of Mr. Bankman-Fried and his affiliated companies (FTX International, FTX Europe, Alameda Research, etc.), have led to several bankruptcy filings, will likely lead to expensive lawsuits, and, without a doubt, will invite investigations and questions from your colleagues and committees in Congress. All of these are necessary and prudent.

The halting of withdrawals for billions of dollars of customer funds, the intermingling of company and customer assets, the collateralization of new crypto tokens backed by nothing, and the unsustainable leverage conspired to create one of the most calamitous events in recent financial history. It is a stain on the reputation of creative entrepreneurs and builders providing value in the cryptocurrency space. This is made all the more troubling by the influence of this company and its leaders in our nation’s capital.

The significant influence of Mr. Bankman-Fried and his companies among Congressional members and staff, donations to political campaigns, and the close relationship with regulators present a damning case of what happens when politically connected firms aim to control and shape legislation without input from consumers and citizens.

While decision-makers were eager to meet with Mr. Bankman-Fried and mirror his biased suggestions on cryptocurrency policy in legislation and enforcement actions, consumer groups like ours sounded the alarm about the conflicts of interest detrimental to sound and principled policy for the millions of Americans who use and invest in cryptocurrencies like Bitcoin.

The Consumer Choice Center began writing publicly about the conflicts of interest and risky financial dealings of these companies and Mr. Bankman-Fried in September 2022, and how they would pose a considerable risk both to the legitimate cryptocurrency industry and to the savings and investments of millions of consumers. We remain steadfast in our conviction.

That said, as consumer advocates, we remain optimistic about the promises of Bitcoin, its cryptocurrency offspring, and the innovative blockchains, decentralized technologies, and crypto services that have evolved around them.

Users of decentralized technologies, however, do not need an industry approach to regulation. Regulations exist to set the rules of the game, not to chart the leaders of the game. This previous approach gave cover to FTX and its affiliated companies and has led to the disaster we see today.

The main caution we invoke, therefore, is that many proposed regulations aim to cement existing industry players and lockout innovative upstarts, while at the same time requiring the same restrictive rules that caused many people to explore cryptocurrencies in the first place.

As we have stated, if rules on crypto and its customers help solidify the financial portfolios, positions, and stock prices of only a select few companies, this will drive innovation away from our shores.

The bad actions of this particular company, while shocking and injurious to many, reflect the mistakes and alleged crimes of those involved. They do not, in any certain terms, condemn the wonderful possibilities of a crypto future nor the millions of consumers who responsibly use these technologies.

The frauds allegedly perpetrated are not too far removed from those of regulated financial firms that have deservedly reaped the consequences of misbehavior, either by the market or law enforcement. That the end product was cryptocurrencies instead of credit default swaps or mortgages makes no difference.

Fraud is fraud and remains illegal no matter what product a company is selling.

This is a stark contrast to the system of fractional-reserve banking that now underlies much of the American financial system and creates the incentives of malfeasance aided by loose monetary policy.

We should not mistake the ills of the current system for those of cryptographically secure digital assets.

With that in mind, rather than the approaches of several self-interested industry leaders, consumers deserve regulation on cryptocurrencies and digital firms that enforce existing rules on fraud (known as “rug pulls”), remain technologically neutral, offer reasonable and minimal taxation, and provide legal transparency. Punishing fraud and abuse, insider trading, and self-dealing should remain the focus.

As consumer advocates, we promote the principle of “self-custody” for crypto consumers, holding private keys to digital assets. This is a cryptographically secure method of controlling cryptocurrencies as originally intended, and one that should be an industry standard. This is the strongest method by which exchanges, brokerages, and those who regulate them can protect consumers. 

The aim of cryptographic digital assets and decentralized digital cash, since the founding of Bitcoin in 2008 by Satoshi Nakamoto, has centered on creating permissionless, peer-to-peer transactions offering a final settlement in a decentralized manner. That should be the guiding principle rather than temporary self-interest.

The whims of a select few industry players, however successful they may be, cannot be the guiding light for the future of decentralized digital money, as the saga of FTX has proven.

The Consumer Choice Center created a policy primer on Principles for Smart Cryptocurrency Regulations in September 2021 to highlight these concerns and we hope you will apply them.

We remain at your disposal for any further exploration of how best to craft rules, guidance, and regulation on the future of cryptocurrencies in our country, so that all society may benefit.

Sincerely yours,

Yaël Ossowski

Deputy Director

Consumer Choice Center

Aleksandar Kokotovic

Crypto Fellow

Consumer Choice Center

An Overzealous FTC Isn’t Good for Consumers or Startups

Last month, Facebook’s parent Meta Platforms asked an American judge to dismiss the Federal Trade Commission (FTC)’s lawsuit attempting to block Meta’s proposed acquisition of virtual content producer Within Unlimited- maker of the Supernatural virtual reality fitness app. The lawsuit makes the tenuous, speculative claim that since VR platform Meta already owns many VR apps, including movement-based ones like Beat Saber that compete for users with Supernatural, a “monopoly” will “tend to be created” and competition and consumers will be worse-off if the deal proceeds. Never mind that Supernatural faces competition from more similar squarely fitness-focused VR apps that Meta doesn’t own, like Liteboxer and FitXR, as well as non-VR fitness apps like those offered by Apple and Peloton.

It’s the latest in the FTC’s many efforts, under current chairperson Lina Khan, to more aggressively contest tech acquisitions on the basis that tech giants have too much power and influence, even where harm to consumers is spurious or non-existent. Although large tech giants like Meta, Google and Amazon may indeed be guilty of wrongdoings that warrant legal sanction, the stifling of legitimate business deals by unelected bureaucrats will only harm consumers and the viability of start-ups by deterring competition and innovation in the cutthroat, investment-intensive tech world.

Since the 1970s, antitrust enforcement has focused on whether a business practice actually hurts consumers, rather than harming their competitors or some other stakeholder. After all, elected officials are capable of passing laws that target concrete harms corporations inflict on workers and the public. And private businesses shouldn’t expect protection from cutthroat competition since it’s a consequence of doing business. Consumers benefit from companies having to deliver new, better or cheaper products to attract and retain customers. So long as a firm doesn’t use its position to harm consumers by restricting output relative to prices, there’s no reason why antitrust regulators like the FTC should stifle its expansion. Especially when that expansion benefits consumers.

This is especially true for tech. Start-ups depend on millions in investment to develop and deploy their products. Investors value these firms based not only on the viability of their products, but on the firm’s potential resale value. Larger firms also often acquire smaller ones to apply their resources, existing expertise and economies of scale to further develop their ideas or to expand them to more users.

Making mergers and acquisitions more expensive, without strong evidence they’ll hurt consumers, makes it tougher for start-ups to attract the capital they need and will only deter innovators from striking out on their own or developing ideas that could improve our lives in an environment where 90% of start-ups eventually fail and 58% expect to be acquired.

It doesn’t matter that the FTC’s merger challenges may fail in court or even before their own internal administrative judges, including recently under chair Khan. The risk and cost of lawsuits themselves deter investment and beneficial deals. Especially given the uncertainty posed by incorporating vague, amorphous concepts like “fairness” into antitrust analysis that could lead to arbitrary decisions inconsistent with the rule of law. As noted by the late Supreme Court Justice Stewart, the only consistency in antitrust cases when there’s no clear guiding principle like the consumer welfare standard is that “the government always wins.”

Conversely, opponents of the “consumer welfare” standard, including Khan, argue that it fails prevent the concentration of economic and political power. However, this prioritizes speculative harm from a firm growing too big over real harm from giving governments and regulators ability to wield power for political ends or of those lobbying them.

Former presidents Johnson and Nixon both used threats of antitrust enforcement to coerce media outlets into favorably covering their governments. And it’s no secret or surprise that the FTC is frequently approached by firms urging it to deploy taxpayer resources towards antitrust suits against their competitors. More recently, Mark Zuckerberg, who has openly asked for politicians to tell him what content to censor, admitted that Facebook suppressed the Hunter Biden laptop story after government agency pressure. Conservatives should be especially conscious about encouraging agencies to target companies on vague or speculative grounds.

The FTC has the resources it needs to go after malicious actors that definitively harm consumers, as evinced by its multimillion-dollar settlement with extramarital affair website Ashley Madison over poor cybersecurity and data privacy practices and consumer deception, and other successful cases including chair Khan’s commendable pursuit of businesses that illegally collect and misuse children’s data. These are a far better use of the agency’s time and taxpayer funding than a zealous approach to blocking acquisitions and other legitimate business practices that could benefit consumers and that the innovative start-up ecosystem depends on.

Originally published here

Consumers Stand to Lose From Swipe Card Regulations

Politicians and a coalition of powerful retail giants are pushing bills intended to limit the fees that businesses pay when a customer buys things with a credit or debit card. 

Bipartisan Senate Amendment 6201 would require cards to allow businesses to route payments through networks unaffiliated with Visa or Mastercard — the nation’s two biggest card issuers and would force issuers to make all payment networks available to retailers for routing transactions, regardless of which one the customer wants.

The amendment’s proponents argue that it will undermine Visa and Mastercard’s hold on the card sector, where they collectively hold 80 percent of the market share while providing some inflation relief to consumers by lowering transaction costs that businesses typically pass on to them. 

But the reality is murkier. The amendment doesn’t mention consumers, and there’s no guarantee we’ll face lower prices at the store or online. Instead, consumers stand to lose from fewer choices, less credit access, less secure transactions, and the evaporation of reward programs and other benefits.

Card interchange fees typically account for just 1 percent to 3 percent of the final price, even when passed on to consumers. Previous restrictions, like the 2010 debit card interchange fee cap, didn’t even lead to cost savings for most businesses. Smaller businesses often saw their costs increase. Only a small number of large retailers experienced lower costs. And 22 percent of retailers increased prices charged to the consumers, while 1 percent lowered prices. 

A lack of significant perceived benefits for most retailers could partly explain why Australia, where financial institutions have allowed merchants to choose lowest cost payment networks for routing customer transactions since 2018, has seen low take-up rates for this functionality.

Moreover, interchange fees help pay for various services, including rewards programs, interest-free periods, and payment guarantees, so merchants don’t have to worry about a customer’s credit history, security protocols, and other banking services. Forcing card issuers to reduce the fees they can levy means cuts to these benefits and programs — reducing consumer choice while deterring fraud protection and cybersecurity innovation

It’s not just the wealthy who rely on these benefits. Eighty-six percent of credit cardholders have active rewards cards, including 77 percent with a household income lower than $50,000.

Australia’s 2003 interchange fee restrictions resulted in fewer services, fewer benefits and higher annual fees. Americans could soon feel similar pain.

Cardholders are also likely to bear at least some of the estimated $5 billion cost of the technical infrastructure needed for issuers to comply with the amendment. Banks have also responded to previous interchange fee restrictions by hiking the feesthat Americans are charged for opening and using checking accounts, with fewer banks offering no-fee accounts.

Lower-income Americans could be harshly affected by reduced access to credit. Credit unions that serve underbanked communities are already expressing concerns about the policy. Credit unions and community-owned banks also rely more on interchange fees to stay afloat than larger banks, which depend more on interest rates. Lower interchange fees could force these institutions to raise interest rates on credit cards, even though they serve a higher proportion of cardholders who don’t carry a balance or don’t pay penalty fees.

Congress can provide long-term inflation and cost-of-living relief by repealing costly, counterproductive regulations that benefit moneyed special interests at ordinary Americans’ expense. 

This makes more sense than a misguided payment system regulation that will lower choice, benefits and payment security for cardholders while putting pressure on banks and credit unions to hike interest rates and fees.

Originally published here

Where is the FTC’s privacy report?

Data privacy is a fundamental liberal democratic principle for citizens + consumers.

In December 2020, the Federal Trade Commission ordered security and privacy data from Big Tech firms to inform potential future rules that would impact all consumers.

It’s nearly November 2022 but we still have NO report. Why?

We know that our interactions with companies and government involve privacy trade-offs that we must weigh individually. That’s what informed consumer choice is all about, and why we fight for smart data and privacy rules

Enough with data leaks/hacks!

We need smart data and privacy rules that can:
💡Champion Innovation
🛡Defend Portability
📲Allow Interoperability
👨‍💻Embrace Technological Neutrality
👩‍⚖️Avoid patchwork legislation
🔒Promote strong encryption

Learn more! 👇

Originally tweeted by Consumer Choice Center (@ConsumerChoiceC) on April 21, 2021.

The FTC began its 2020 investigation into data practices from major tech companies to try to understand their algorithms, data collection, and monetization. Tech firms provided this within 45 days.

But still no FTC report.

In August 2022, FTC called for public comments on commercial data practices and surveillance by tech firms, presumably informed by the data they collected and analyzed in their report.

But still no FTC report.

Maybe that’s why the deadline was pushed from October 20 to November 21, the week of Thanksgiving…

By then, will American consumers and citizens have access to the FCC report?

The FTC is asking for citizen comments on the data practices of tech firms, we deserve to know what’s in the report they’ve been cooking up for nearly 2 years.

As Joel Thayer writes, it’s an absolute failure that a major agency has fallen behind on this task, especially considering their ream of lawsuits and actions against these same tech companies.

If the FTC wants to empower consumers and provide a framework that we can debate, it needs to prove it. While data and consumer privacy are vital for consumers and innovators, we know this FTC chair has an agenda that will have sweeping ramifications.

FTC Chair Lina Khan has aimed to stop mergers and acquisitions and issued record fines on tech companies against the advice of her own staff. If FTC wants to invoke consumer privacy as another regulatory hammer, consumers deserve a say.

In our view, consumer and data privacy rules must provide balance and protection:

  • Champion Innovation
  • Defend Portability
  • Allow Interoperability
  • Embrace Technological Neutrality
  • Avoid patchwork legislation
  • Promote and allow strong encryption

Anyone who wants to submit a comment to the FTC on their “Trade Regulation Rule on Commercial Surveillance and Data Security” — even without the report — should submit one here.

Every Industry Should be Concerned about the News Cartels Meant to Bully Big Tech

The Journalism Competition and Preservation Act (JCPA) was introduced in 2021 as a means of protecting local media outlets from becoming obsolete due to the competitive landscape shifting to the online realm. The JCPA claims that the playing field needs to be leveled for news outlets in need of viewers and compensation must be allotted for the content sharing occurring on digital platforms.

This bill, receiving serious consideration from the Senate, would grant broadcasters the ability to collectively collude on matters of revenue generation, sharing privileges, and link click-through access. Essentially, the JCPA will exempt select parties within the news industry from price fixing policies and antitrust penalties – all for the sake of socking it to Big Tech.

The passing of this legislation should be a primary concern for any business professional since it will not only create new forms of industry interference but also set a new precedent regarding antitrust application. And here is why: 

  • The JCPA is targeted since it only focuses on one sector with one bullseye – Big Tech. Historically antitrust policy has had a broad application, but if the JCPA passes, it opens the door for other firms to be specifically called out in the future on similar grounds.
  • The JCPA is preferential in that although antitrust cases are being brought forth against digital platforms, bands of broadcasters will be granted safe harbor from cases being brought against them. They would be absolved from adhering to existing antitrust laws.
  • The JCPA is ex post facto in that changes and charges are to be applied regarding content sharing and link clicking, which were previously free and freely accessible.

The basic premise is that it will “provide a temporary safe harbor for publishers of online content to collectively negotiate with dominant online platforms regarding the terms on which content may be distributed”.

So, first and foremost, we must ask what is meant by “temporary” given that nothing is ever short-lived when agencies and accolades are involved. According to the bill, news outlets with online content will not be held accountable for violations of antitrust law for a four-year term. But, even if those four years are truly locked in place, it is unlikely that any oversight committee, which will be required in this case, will easily disband when that timespan has lapsed – particularly once funding streams and authority status are established.

We must also ask why “safe harbor” should be granted to select firms. Protectionist measures via legislation are a waste of resources given that private actors have historically done a better job at curtailing or even catching bad behavior in a competitive market.

It was Sherron Watkins who exposed Enron, not the SEC, and it was Bernie Maddoff’s sons who turned him in, not federal agents. And just as Mark Zuckerberg’s Facebook unseated Tom Anderson’s Myspace as the social networking site of choice, someone else will come along and upend Meta’s dominance. That is how the market works over time. This leads to the third and final point: should “dominant online platforms” truly be a concern?

While some assert that cable TV simply can’t compete, and “newspapers are locked in a life-or-death struggle with tech giants” we must acknowledge that change is hard and you can’t stop progress. In 2010, the last full set of Encyclopaedia Britannica was printed, and it hasn’t been missed by consumers or even the company that produced them.

Microsoft’s Encarta made the purchase of printed text obsolete, and now Wikipedia makes Encarta CD-ROMs a thing of the past. And one could argue we have greater access and education at our fingertips for it. 

As conveyed by the deputy director of the Consumer Choice Center, “It is up to media firms to discover innovative and effective methods of capturing digital audiences, not lobby governments to siphon money for them.”

Platforms vary in terms of function and service, and Big Tech is not impervious to natural forms of competition given the dynamic nature of market mechanisms and consumer needs. Take, for example, Netflix, which launched in 2007 and skyrocketed to success in 2013 with the release of its first series, House of Cards – coincidentally a storyline based on power struggles and corrupt cronies in Congress. By 2016, Netflix was being touted as monopolizing the streaming service sector and for a few years, the press readily called attention to its success as something to question and even fear.

In 2013, the term FANG stocks came about to represent industry giants with a stronghold in certain lucrative sectors and who could serve as the whipping boy for Big Business on Capitol Hill.  FANG included companies that we love to use but also love to loathe: Facebook (social media), Amazon (e-commerce), Netflix (streaming entertainment), and Google (search engine). 

Although we see these companies being under great scrutiny in the halls of Congress for their supposed monopolization of power, we can see before our eyes how the market is moving despite lobbying efforts and party officials crying foul. Indeed, fast forward to today and the FANG acronym is less applicable not only given name changes (Facebook to Meta) but position changes, whereas success is now dwindling for Netflix.

Hulu, HBO Max, Disney+, Prime Video, Starz, Peacock, Paramount Plus, Apple TV Plus, and more have all emerged despite Netflix’s previous power position. And the same will be true for others in the Big Tech realm over time. Decentralized P2P platforms are increasing in users and Facebook is facing cannibalization from within.

Twitter is another great example of a Big Tech firm that bureaucrats love to bash. Presently, arguments over posting privileges are being raised by Congressional members but if to have a little patience, we can already see the market is making moves. Twitter’s power is waning in comparison to other platform providers in users and reach, and so much of the time spent debating Dorsey’s former firm could be better spent on other matters.

To be sure, Senators have a skewed view of how the market works, and even a limited understanding of where their concerns should lie in regard to the digital media realm – and yet the interest for interference is growing. 

In addition to the JCPA, the House and Senate Judiciary Committees are also aiming to further their control over the online realm through the proposed tech accountability package. This package is proposed as a means for curtailing the dominance of certain digital platforms, but in reality, it is a significant power grab – and the power they are after is truly alarming.

These proposals further embed politics in economics, whereas the government will not only serve as a referee but also determine who can or can’t play. Congress will be corralling competition for online content creation and distribution, and the JCPA will substantiate such a mandate.

While economic power is limited by the market (since purpose and profit are determined by the exchange of goods, services, investments, labor, etc.), political power is a tricky beast given the incentives present for incumbents and the power of the purse strings for those in prominent positions.

To be sure, the network effects of political dynasties in DC are a more troublesome matter than the network effects of social media and so we should be very wary of allowing the government to have a larger role in industry matters – even when it comes to Big Tech.

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