May 8, 2012

Pity Peter Schaar, member of the Article 29 Working Party. When it transpired Google had swept 600 gigabytes of personal data off the streets, this trusting soul took its declarations for gospel truth and declared "everything was a simple oversight, a software error. [...] The data was collected and stored against the will of the project's managers and other managers at Google" (1).

His boss, Jacob Kohnstamm, now recalls how "Peter Fleischer, [Google's global privacy counsel], made it pretty clear in his oral statement and in writing that it was the mistake of one single guy working at Google" (*). "After revelations that [...] others at the company had been told about it", this seems to have been a slight stretch, does it not. Eric Schmidt, it's time for some manager to take the fall, please call Rupert Murdoch for advice.

Kevin O'Brien's contrasting reports drive home two lessons.

Even competent, well intentioned people can be terribly naive. For in keeping with his Orwellian title, Peter Fleischer had already shown his role was to defend Google, not care about consumer privacy. In 2007 he won an appeasement from the Working Party worthy of Munich, justifying his company search data retention policy with a warning I summed up in my own words as "if you don't stand the side effect, don't use the drug" (2).

The problem with eprivacy is that those with the will to protect and those with the power to act hardly overlap. So far it has been the case inside the European Commission, the will coming from the directorate in charge of privacy protection, the power from the competition directorate. Even if Brussels resolves this paralyzing dichotomy, the same issue will be kept alive across the Atlantic. When Europe takes privacy seriously, it is fed fibs by Google while in America the Federal Trade Commission sees through the fibs only to find the facts to be "not illegal in the United States".

The difference between what is legal and what is depends of course on the judge. See what happened to the two Norwegian day traders found guilty of market manipulation in 2010. Michael Stothard tells us they have now "been cleared of all wrongdoing by the country's highest court" (**).

If the only victim of their cleverness was Interactive Brokers whose flawed algorithm they exploited, "the big US broker" should indeed concede what soccer calls an own goal. But when "the defendants also argued they were making the market more efficient", one should see through this ideological prop according to which losers should only blame themselves for their losses.

Read David Brooks' column on Peter Thiel's advice to capitalists (***). They "should seek to be really good monopolists". Having no competitor does allow one to extract large economic rents. Lest we be misled, David Brooks is quick to add that "good monopolists" do not rely on illegal means to eliminate competition, rather they "establish a distinct market, niche and identity", finding and filling "the blank spots on the maps".

How then can one distinguish bad from good monopolies, if not according to a body of agreed upon rules? And how convenient for today's technology titans that the dawn of the Information Age invalidates most old rules while, if you read their propaganda, it is too early to set new ones.

The e-reader market is a case in point. One can hardly fail to recognize here the creation of a new space, largely opened by Amazon and its Kindle. Neither can one deny vigorous competitors have been quick to follow, foremost among them, Barnes and Noble now backed by Microsoft.

True, backroom deals between major book publishers under Apple's blessing is a strange way to compete. True, control of content can subsidize the emergence of new distribution platforms. True, however well intentioned, new rules may pick a winner without a proper trial by market fire. On the other hand how can the invisible hand of the market work its magic when all decisions are made by a few feuding would-be monopolists?

Without genuinely decentralized content distribution channels, taste becomes censorship, price robots manipulate markets, authors are squeezed.

As an author, Buzz Bissinger has no right to claim shelf space at every bookstore. But shouldn't he be a little sore to know that, if some bookstore decides to give away an e-book of his against a coupon, the most influential bookstore of all will automatically reset its price to zero? As he declared to David Carr, "Amazon is a crucial outlet for any author, and when you lose them, it's terrifying" (****).

Without genuine content portability, too trusting readers surrender their freedom even more insidiously. David Pogue warns them, "when you buy an e-reader, you're committing to that one company's catalog of books for ever, because their book formats are mutually incompatible" (*****).

Four years ago I proposed to outlaw role bundling, like the Volcker rule (3), forbidding banks to trade both for their clients and for themselves. Google should not be a search service and a personal data aggregator and a smartphone designer. Apple should not be a device manufacturer and a digital content store and a personal data aggregator. Amazon should not be an e-reader provider and a book distributor and a book publisher.

True, competitive pressures lead to such role conflation. E-books threaten all physical book distributors with redundancy. Who can blame Amazon or Barnes and Noble for selling their own e-readers? User convenience favors tightly integrating the device and the store. Who can blame Apple for becoming a content distributor? Device dominance enables Apple to threaten Google. Who can blame the latter for designing its own devices?

Yet competitive pressures can never justify conflicts of interest. Consumer services of any kind should remain incompatible with personal data aggregation. Had it been the case it would have removed the sting from Google's going rogue. As for other cases, why not impose interoperability before allowing vertical integration to proceed above a certain market size? Under such rules, users' e-books would become portable, users' e-readers could access all e-stores and authors' disputes with an e-store could not prevent them from reaching all e-readers through other stores.

Without the market distortions of unbridled bullies, brick and mortar booksellers could even find a way to survive and prosper, as pick-up points, assuming online merchants had to charge for taxes and delivery, and as sources for recommendations, linking customers directly to the landing page specific to each item recommended, assuming again online merchants had to charge for their own recommendations.

Capitalism cannot exist without the rule of the law. The stronger the opposition to fair market rules, the more fragile, the more inefficient capitalism.

Beware of the way the new Vandals write history. They tend to adopt the powerful Wyrinwyg interface, What you read is not what you get.

Philippe Coueignoux

• (*) ......... Rethinking An Inquiry Of Google, by Kevin O'Brien (New York Times) - May 3, 2012
• (**) ....... Court clears Norwegian day-trade duo who outwitted big US broker, by Michael Stothard (Financial Times) - May 3, 2012
• (***) ..... The Creative Monopoly, by David Brooks (New York Times) - Apr 24, 2012
• (****) ... Navigating a tight rope with Amazon, by David Carr (New York Times) - April 30, 2012
• (*****) . An E-Book That Glows In the Dark, by David Pogue (New York Times) - Apr 26, 2012
• (1) Anger in Europe Over Google and Privacy, by Kevin J. O'Brien (New York Times) - May 17, 2010
• (2) Google's search policy puts the user in charge, by Peter Fleischer (Financial Times) - May 25, 2007
• (3) for more details, see the Volcker Rule in the wikipedia