accesses since Jun3 23, 2023
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link to the published version: IEEE Computer, July, 2023 ; archive copy accesses since Jun3 23, 2023
Attempting to prevent governments, businesses and criminals from surveilling the public has become one of the most futile challenges of the twenty-first century. In one recent court settlement, Google agreed to pay $391.5 million to settle with forty states over charges that Google obfuscated their policy on the collection of personal location data. [1] “For years Google has prioritized profit over their users' privacy,” reported Oregon Attorney General, Ellen Rosenblum. No news there. For decades, privacy-concerned computer professionals have been chanting the mantra, users of “free” Internet services aren't customers, they're products. Although belated, it's refreshing to see that some politicians are championing the cause of consumer privacy despite lack of public pressure. Politicians are placed squarely before Buridan's ass (in a nice way, I mean): an ill-informed public is largely apathetic on the matter, while the business community that benefits from the harvesting of personal information is hostile to any attempt at regulation. Many politicians have learned that they defend consumer and public privacy to their cost.
So what exactly did Google do this time? The suit was apparently an outgrowth of a 2018 expose by the Associated Press wherein it was reported that “ Google services on Android devices and iPhones store your location data even if you've used a privacy setting that says it will prevent Google from doing so.” [2] AP documented that Google's privacy policy falsely stated that “You can turn off Location History at any time. With Location History off, the places you go are no longer stored.” AP showed that even with Location History turned off, “some Google apps automatically store time-stamped location data without asking…. For example, when you merely open its Maps app.” After AP's report, Google responded predictably: “There are a number of different ways that Google may use location to improve people's experience, including: Location History, Web and App Activity, and through device-level Location Services…” Ahhh, the magic defense: “to improve people's experience.” Telling a user that they should look at corporate harvesting of their personal information as a benefit to their user-experience is like telling an accused that they should look at any possible incarceration as a character-building experience. This phrase should be taken for what it is: a lame defense for circumventing any reasonable semblance of privacy protection for the unsuspecting user. But in the case under consideration, the attorney's general successfully argued the narrower position that it is unlawful to tell users one thing and then do the opposite: “Google violated state consumer protection laws by misleading customers.” [1] The State of Oregon, for one, is considering legislation this year that would provide consumers more control over the use of their personal information. It is worth remembering that such legislation is necessary at the state level because there is no privacy protection for citizens specifically provided in the Constitution of the U.S. The closest we have come is in the majority opinion of the Supreme Court case Griswold v. Connecticut where Justice William O. Douglas claimed that any right to privacy that accrues to citizens is buried somehow in a “penumbra” of the constitution. [3] Needless to say, any attempt to protect individual rights to privacy with such ill-defined tactics as “penumbral reasoning” dooms privacy protection to the vicissitudes of partisan politics as has been recently evidenced in the Dobbs decision overturning Roe v. Wade. [4] The most direct way to avoid continuous constitutional tribalism would be to expand Section 1 of the Fourteenth Amendment to the Constitution to specifically include privacy. And, one might even throw in concepts like the right to happiness and the right to be left alone for good measure. This concept, of course, is not new. Alternative phrasings may be found in the works of Samuel Johnson, John Locke, and Lucretius that date back centuries, [5] although such talk would be considered seditious in some circles today.
So we have one count of misleading customers. The Department of Justice, and the states of Virginia, California, Colorado, Connecticut, New Jersey, New York, Rhode Island and Tennessee filed suit in federal court against Google in 2020 for anti-competitive practices regarding its online marketing practices. The petitioners alleged that Google maintains advertising dominance by preventing competition – either through mergers and acquisitions or pressuring advertisers to adopt Google products and services. [6] In 2023, the DoJ filed a second suit against Google, this time for anti-competitive practices in its online advertising business, that seeks to force Google to divest parts of its business. [7] In addition, at least three collections of states are suing Google for achieving market dominance by blocking competition – either by paying billions of dollars to manufacturers and browser developers to use their search engine exclusively, or using merger and acquisition tactics to eliminate competition and engage in exclusionary conduct, using their own “open bidding” tool to subvert ad exchange auctions to gain unfair revenue advantage, to name but a few. [8] According to CNN, the DoJ claims that in this way “ Google effectively owns or controls search distribution channels accounting for roughly 80 percent of the general search queries in the United States.” [9] On July, 2022, the House of Representatives Judiciary Committee formally published a 2020 majority report entitled “Investigation of Competition in Digital Markets” [10] that essentially reaffirms the claims in the DoJ litigation. So we must add several more charges: anti-competitive practices in online marketing, anti-competitive practices in online advertising, and achieving market dominance by blocking competition through their open bidding environment.
The House investigation is noteworthy for both its clarity. The report is unequivocal on two points: 1. online platforms enjoin monopolistic practices, and 2. current antitrust legislation and enforcement is inadequate to address the problem. Was this ever in doubt? In the case of Google, ICDM demonstrates that Google maintains a “[near]monopoly for general online search and search advertising.” The report states that
Documents show that Google used its search monopoly to misappropriate content from third parties and to boost Google's own inferior vertical offerings, while imposing search penalties to demote third-party vertical providers…. Google appears to be siphoning off traffic from the rest of the web, while entities seeking to reach users must pay Google steadily increasing sums for ads.
In addition,
A second way Google has maintained its monopoly over general search has been through a series of anticompetitive contracts…. Documents show that Google required smartphone manufacturers to pre-install and give default status to Google's own apps, impeding competitors in search as well as in other app markets…. Each of its services provides Google with a trove of user data, reinforcing its dominance cross markets and driving greater monetization through online ads. Through linking these services together, Google increasingly functions as an ecosystem of interlocking monopolies. [10]
No news there. We emphasize that ICDM did not single out Google. Similar problems were identified with Amazon, Apple, and Facebook. The report notes that these four platforms were collectively valued at $5 trillion – “more than a third of the value of the S&P 100.” There were three common problems attributed to the quartet of online platforms: 1. Platforms serve as gatekeepers over a key channel of distribution, 2. Platforms use this gatekeeper position to maintain market power, 3. Platforms abuse their role as intermediaries to enrich themselves and dominate markets. ICDM concludes that current antitrust laws need to be updated to deal with these problems and antitrust enforcement agencies are inadequate to the task. While high tech firms such as Google have historically been relatively immune to complaints from regulators within the U.S., they have fared even worse in Europe. In 2021 Google was been fined $2.7 billion by the General Court of the EU for anti-competitive practices. [11]
It must be restated that Google is not alone in facing these DoJ complaints. In January, 2023, Meta Platforms (F/K/A Facebook) settled a complaint that accused Meta of using “algorithms in determining which Facebook users receive housing ads and that those algorithms rely, in part, on characteristics protected under the FHA [Fair Housing Act]!” [12] This is not to mention the current Federal Trade Commission suit against Meta over monopolistic practices. [13] In any event, Google's antitrust issues associated with search engines, digital advertising, and mobile platform software are so significant, that they will linger on despite a business-sympathetic U.S. judicial climate. The Sherman and Clayton Antitrust Acts are anathema to Silicon Valley, generally, and not specifically limited to Google.
The diversity of litigation against Google are both variegated and global. On September 28, 2022 final approval was granted for a class action settlement [14] for $100 million in response to a suit that alleged Google violated consumer privacy rights with their Google Photos face recognition application. Google Photos is an image sharing service that enables users in stored digital photos to identify individuals by face geometry. The claim was that Google violated the Illinois Biometric Information Privacy Act (BIPA). [15] To items of note: (1) Google settled the claim without admitting wrongdoing, and (2) although the Congress has thus far failed to enact similar federal legislation, several states appear to be following Illinois' lead. [16]
But successful litigation goes beyond direct assaults on individual privacy. In 2017 the European Union fined Google for € 2.4 billion for abusing its position as a market leader by biasing search engine results [17], and € 1.49 billion for abusive practices in online advertising with its AdSense search environment in 2019. [18] Of course, the intensity of the EU litigation is greater than in the U.S. because of the former's stronger commitment to personal privacy.
What is it about Google and other high-tech online and social media companies that is behind all of this litigation? It's pretty easy to see when one investigates their business models. Google, in particular, has always been in the business of exploiting the personal Identifying Information (PII) ecosystem via (a) “free” online services such as search engines, Chrome browser, online advertising and shopping environments, Google Earth, Gmail, etc.; (b) subscription services like Fitbit, Nest, and premium media offerings; (c) platforms like Android mobile devices, Chromebooks, etc.; and d) smart home appliances such as cameras, doorbells, thermostats, speakers and monitors, WiFi, etc. This is not to mention litigation for copyright and patent infringement and micro transaction abuse. But a common theme behind this litigation, irrespective whether the revenue sources of the business model of the products and services, is that they all involve Google's exploitation of the personally identifiable information (PII) ecosystem. Since this is the driving force behind both business initiatives and litigation, it behooves us to understand the motivation behind it.
Since the creation of e_commerce, the operative mantra has been that if you can't identify the specific revenue stream of an online service you're not the user, you're the product. Put another way, when it comes to ‘free' online services: if you're not at the table, you're on the menu. These clichés serve as examples of essentially correct though unrefined memes. We need a deeper dive to get a better understanding of online business motives of Google and other online service providers of their ilk.
Here's our incomplete, brief tally of those Google gaffes that resulted in litigation:
In the abstract, does this sort of business behavior sound familiar?
To provide one possible answer, we re-visit Adam Smith's Wealth of Nations. “ People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. ” [19] Smith made it clear that anti-competitive behavior is baked into the capitalist model. This doesn't justify abandoning the model but, as Smith seems to suggest, it does warrant the use of a reliable regulatory framework in order to establish that businesses continue to operate in the public interest.
Adam Smith would no doubt be joyful that the House report mentioned above confirms that his 18 th century observation still applies in today's online, digital domain. Google's legal gaffes could be anticipated by Adam Smith's observations and should surprise no one. But why? I suggest that part of the answer lies in the fact that the business models of non-transparent-pricing (aka “free”) online services looks like a sketchy form of rent-seeking.
Let's try to parse this out. If, as Smith claims, it is the natural tendency for capitalists to place making money paramount among competing goals – not necessarily to the exclusion of public interest, but certainly not dominated by it - then a capitalist business model must be expected to develop a way to make profit even from giving away online products and services. So far, Google and Adam Smith are one. The twist that Adam Smith didn't anticipate was that profit could be made by selling the customer instead of the product. In Smith's model of 18 th century economic theory Google's business model would be analogous to deriving profit by renting out the tenant farmer, while letting him use the land for free to produce crops. Here's the Google business model in Adam Smith's terms: monetize the tenant farmer, demand the right to surveil the tenant's movements, post ads on the walls of his house, provide billboards in his yard to advertise other opportunities to extract wealth from the tenant, and so forth. And, of course, in order to consummate this arrangement, the landlord would demand that the prospective tenant farmer would implicitly consent to a pro-forma UTFA (Unrestricted Tenant-Farmer Agreement). All that Adam Smith needed for a successful e_commerce launch of this digital plow-share was the Internet.
Our hypothetical example of the potential tenant farmer is not only reminiscent of Smith's and David Ricardo's law of rents but also modern contracts of adhesion (e.g., EULAs). (We pass over in silence the question of whether our example is a closer approximation to sharecropping than tenant farming.) By framing our example in this way, we set the stage for an explanation of online service providers as rent seekers. That might make Google's motives easier to understand.
Our working definition of rent seeking will be similar to that used in modern economics with one caveat: we'll view rent as the ratio between a value contributed to an economic system and the value removed or repurposed from the system. That is, in our terms rent will be expressed as a difference rather than in absolute terms. For our purposes, this definition works nicely: “ Rent seeking is an economic concept that occurs when an entity seeks to gain wealth without any reciprocal contribution of productivity.” ( https://www.investopedia.com/terms/r/rentseeking.asp#citation-1 ) We emphasize that there are other definitions that rely on different exclusions. Let's see if our definition is consistent with our observations.
There is no question that users of non-subscription based (aka ‘free') online services are exchanging something of value in exchange for the use of services. In this case the commodity of value manifests in the form of monetized personal information of users. There is also no question who occupies the subservient position in the two estates of our hypothetical realm: service providers/landowners are the lords, and users/tenant farmers are the fiefs. Third, there is no doubt that online services would hold that their online service constitutes a “reciprocal contribution of productivity” in exchange for the harvesting of the user's personal information. The operative question is whether the nine Google business practices mentioned above are subsumable under a sketchy form of rent-seeking behavior.
Google seeks to treat its services (e.g., search, advertising) as a monopoly. [8][9] Indeed, once again the spirit seems to be consistent with Adam Smith's view of rent in Book 1, Chapter XI of Wealth of Nations:
The rent of the land, therefore, considered as the price paid for the use of the land, is naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take; but to what the farmer can afford to give. [19]
Note that Smith is explicitly de-coupling rent received (from tenants, or users) from the cost (land and improvements, or IT services). As Smith foretells, both Google and the landlord will seek to achieve monopolistic pricing (whatever the farmer/user can afford to give, whenever they can get away with it). How does one achieve maximum prices? By disfavoring competitive environments and removing options from the tenant farmer. If there is no other land available, the tenant farmer has no choice but to accept the terms of the landlord if he is to produce a crop for survival. In classical economic terms, monopolistic pricing is maximized when the margin of production is nil. There is a reason why this relationship appears to have all the appearances of feudalism. It is.
David Riccardo expands Smith's explanation of rent-seeking by tying it together with anti-competitiveness. Ricardo observes:
Corn is not high because a rent is paid, but a rent is paid because corn is high; and it has been justly observed, that no reduction would take place in the price of corn, although landlords should forego the whole of their rent. Such a measure would only enable some farmers to live like gentlemen, but would not diminish the quantity of labour necessary to raise raw produce on the least productive land in cultivation. [20]
The analogy is that the provider of monopolistic online services should determine its value, independent of demand. A neoclassical spin on Ricardo's theory of rent might go something like this: [monopoly rents] are the returns in excess of opportunity cost obtained due to positional advantage. The rentier (landowner or online service provider) exacts the same sort of rent. And both exhibit similar rent-seeking behavior.
Let's see if we can draw further parallels between rent seeking as it might apply in with non-transparent-pricing (aka ‘free') online service providers and land use.
Context: The participants are: provider (P), user(U), and intermediary (I); I pays ‘rent' to P for information about U which can produce revenue
Context: The participants are: Landowner (L), tenant (T), and grocer (G): G pays ‘rent’ directly to L for T’s produce.
Now, compare this discussion with the litigation cases discussed earlier for goodness-of-fit.
In modern political economics the term “rent seeking” is distinguished with “profit seeking” and our definition of rent seeking is admittedly not the received view. We ask the question whether our explanation clarifies the motivations behind the class of business models adopted by transparent-pricing (aka ‘free') online service providers.
Typically, political economists reserve “rent seeking” for contrived rents that carry with them social costs. Profit seeking, it is argued, even if unrestricted and a product of monopolies (as in escalating prices of pharmaceuticals) are just waste-free wealth transfers. Rent seeking, as in bribing public officials to get contracts, are examples of artificially contrived wealth transfers that carry with them a social cost in the form of waste (e.g., the value of the bribe, cost of lobbying). In economics, such costs, deadweight losses are measures of economic inefficiency. The received view seems to be that such losses from monopolies have negligible effect on the economy. For a general survey of these issues, see Tollison [21] and Krueger. [22]
We're suggesting that there is a post-modern view of rents that accords with the business practices of online service providers. Of course, this is a stretch which I can make without discomfort having avoided heavy yoke of the serious study of political economics. I can challenge the thesis that monopolistic rights must be understood in the context of perfect markets and are themselves subject to competition with relative impunity. I prefer to look at monopolistic practices in terms of value-raiding. I am free to view economic waste as created by both wealth transfers through bribes as well as unnecessary wealth transfer resulting from anti-competitive and monopolistic pricing.
What do the class of non-transparent-fee online services share with traditional rent seeking in my sense of the term?
• They maximize revenue by hampering competition, which is to say that revenue gains are achieved to the exclusion of efficiency gains that would result from a competitive environment.
• They derive revenue from wealth transfer rather than producing new goods and services in the following sense: online services like search engines do not provide new content, they provide access to content that already exists. It may certainly be said that they add value to the search experience, but it cannot be said that they add value to the content. (Including, AIChat.)
• The business model appears to be zero sum? Revenue extracted from service provider is exactly offset by value extracted from user/product. There is no additional value added - i.e., the economic pie remains the same after the user's PII is monetized and sold. It seems reasonable to assume that the value of the information about the online consumer is the same regardless of who sells it to the advertiser/marketer, so the wealth transfer is zero sum.
• The litigation costs to the online providers are so low compared to revenue gains, that it creates a moral hazard. In political economics this is called the Tullock Paradox, [23] although it arises in a different context where bribes would take the place of litigation expense. In both cases the expense is a capital outlay to achieve the desired effect – the cost of doing business, if you will.
• The business model emphasizes the transfer of wealth rather than the creation of new wealth in the sense that no new content is created. It's not too much of stretch to draw a comparison to financial derivatives, where in this case the commodity or underlying asset is the user's information on top of which a variety of 3 rd party contracts are negotiated.
Whether or not one accepts this somewhat tongue-in-cheek depiction of online business models as rent-seeking, the fact remains that the litigation described above depicts wealth and financial advantage generated through manipulation of customers in an environment where competitive advantage is achieved through monopolistic practices. In addition, the information inequilibrium that exists regarding the reporting of the nature of the profits (for the provider) from online services vs. the extent of the losses (to the user in terms of loss of care, custody and control over PII) ensures that the economic incentives, opportunities, and positional advantages will remain poorly understood. Add to that the disincentives to legislators to cause economic angst to the political donor class, it is easy to see why these problems are being addressed in the courts rather than in legislatures. In any case, the profits of ‘free' online services are so enormous that they will remain persistent threats to personal privacy for the foreseeable future. [24]
[1] Google: AG Rosenblum Announces Largest AG Consumer Privacy Settlement in U.S. History, Media Release, Consumer Protection, Oregon Department of Justice, November 14 2022. (available online: https://www.doj.state.or.us/media-home/news-media-releases/largest-ag-consumer-privacy-settlement-in-u-s-history/ )
[2] R. Nakashima, AP Exclusive: Google tracks your movements, like it or not, AP News, August 13, 2018. (available online: https://apnews.com/article/north-america-science-technology-business-ap-top-news-828aefab64d4411bac257a07c1af0ecb )
[3] Griswold v. Connecticut, 381 U.S. 479 (1965). (available online: https://supreme.justia.com/cases/federal/us/381/479/ )
[4] Dobbs v. Jackson Women's Health Organization, No. 19-1392 (2022). (available online: https://www.law.cornell.edu/supremecourt/text/19-1392 )
[5] C. Hamilton, Why did Jefferson change "property" to the "pursuit of happiness"?, History News Network ((online), Columbian College, The George Washington University, 1-27-08. (available online: https://historynewsnetwork.org/article/46460 )
[6] complaint: United States, et al, v. Google, Case 1:20-cv-03010, District Court for the District of Columbia, 10/20/20. (available online: https://www.pacermonitor.com/view/IAZ2QBY/UNITED_STATES_et_al_v_Google_LLC__vaedce-23-00108__0001.0.pdf?mcid=tGE3TEOA )
[7] complaint: United States, et al, v. Google, Case 1:23-cv-00108. District Court for the Eastern District of Virginia, 01/24/23. (available online: https://www.justice.gov/opa/press-release/file/1328941/download )
[8] L. Feiner, DOJ files second antitrust suit against Google, seeks to break up its ad business, CNBC online, Jan 25, 2023. (available online: https://www.cnbc.com/2023/01/24/doj-files-second-antitrust-lawsuit-against-google.html )
[9] B. Fung, The US government sues Google for alleged anticompetitive abuses in search, CNN Business, October 21, 2020. (available online: https://edition.cnn.com/2020/10/20/tech/doj-google-antitrust-case/index.html )
[10] Investigation of Competition in Digital Markets, Majority Staff Report and Recommendations, Subcommittee on Antitrust, Commercial, and Administrative Law of the Committee on the Judiciary of the house of Representatives, 117 Congress, 2d Session, CP 117-8. (available online: https://www.govinfo.gov/content/pkg/CPRT-117HPRT47832/pdf/CPRT-117HPRT47832.pdf )
[11] Press Release No 197/21, General Court of the European Union, Case T-612/17, 10 November 2021. (available online: https://curia.europa.eu/jcms/upload/docs/application/pdf/2021-11/cp210197en.pdf )
[12] Settlement Agreement, United States v. Meta Platforms, US District Court for the Southern District of New York, case 1:22-cv-05187-JGK, June 26, 2022. (available online: https://www.justice.gov/crt/case-document/settlement-agreement-final-judgment-united-states-v-meta-platforms-fka-facebook )
[13] Complaint, FTC v. Facebook, US District Court for the District of Columbia, Case 1:20-cv-03590-JEB, 11/17/21. (available online: https://www.ftc.gov/system/files/documents/cases/085_2021.11.17_ps_memo_in_opp_to_mtd.pdf )
[14] Rivera v. Google Inc., No. 1:16-cv-02714 Settlement Agreement, September 28, 2022. (available online: https://www.googlebipasettlement.com/wp-content/uploads/2022/05/Rivera-v.-Google-Settlement-Agreement.pdf )
[15] 2013 Illinois Compiled Statutes Chapter 740 - CIVIL LIABILITIES 740 ILCS 14/ - Biometric Information Privacy Act, eff. 10-3-08. (available online: https://law.justia.com/codes/illinois/2013/chapter-740/act-740-ilcs-14/ )
[16] K. Fath, K. Bryan and D. Oberly, New 2023 Legislative Proposals Could Reshape the Biometric Privacy Landscape, The National Law Review, XIII:96, April 6, 2023. (available online: https://www.natlawreview.com/article/new-2023-legislative-proposals-could-reshape-biometric-privacy-landscape )
[17] J. Vincent, Google fined a record €2.4 billion by the EU for manipulating search resultsm Tge Verge, Jun 27, 2017. (available online: https://www.theverge.com/2017/6/27/15872354/google-eu-fine-antitrust-shopping )
[18] Antitrust: Commission fines Google €1.49 billion for abusive practices in online advertising, European Commission Press Release, Brussels, 20 March 2019. (available online: https://ec.europa.eu/commission/presscorner/detail/en/IP_19_1770 )
[19] A. Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, book 1, ch. 2, part 2, p. 54, T. Nelson and Sons, Edinburgh, MDCCCLI [1851]. (available online: http://www.bibliomania.com/2/1/65/112/frameset.html )
[20] D. Ricardo, On the Principles of Political Economy and Taxation 3 rd ed., John Murray, London, 1821. (available online: https://www.econlib.org/library/Ricardo/ricP.html?chapter_num=3#book-reader )
[21] R. Tollison, Rent Seeking: A Survey, Kyklos, 35:4, pp. 575-602, 1982. (available online: https://onlinelibrary.wiley.com/doi/epdf/10.1111/j.1467-6435.1982.tb00174.x )
[22] A. Krueger, The Political Economy of the Rent-Seeking Society, The American Economic Review, 64:3, pp. 291-303, June, 1974. (available online: http://www.jstor.org/stable/1808883 )
[23] G. Tullock, Efficient rent-seeking. In J. Buchanan, R. Tollison and G. Tullock (eds.) Toward a theory of the rent-seeking society, Texas A&M Press, College Station, pp. 97-112, 1980.
[24] B. Cyphers, Google Says It Doesn't 'Sell' Your Data. Here's How the Company Shares, Monetizes, and Exploits It, Electronic Frontier Foundation (online), March 19. 2020. (available online: https://www.eff.org/deeplinks/2020/03/google-says-it-doesnt-sell-your-data-heres-how-company-shares-monetizes-and )