Kick it into fifth gear

'Ready to kick it into fifth gear': Democratic regulators lay out a nightmare future for tech

Dissents in two Federal Trade Commission cases provide a road map for tougher penalties and stricter liability for executives at companies like Facebook and Google.

By NANCY SCOLA

Tech companies think Washington is hard on them now, but they may face even worse the next time a Democrat takes the White House.

To see why, just read the blueprints laid out by the two Democrats on the Federal Trade Commission.

In a pair of unusually blunt dissents in recent cases involving Facebook and Google, Rohit Chopra and Rebecca Kelly Slaughter argued for much tougher financial penalties for companies that break their promises and abuse their users’ privacy. They also urged the commission to demand fundamental changes to the companies’ advertising-driven business model and hold CEOs like Facebook's Mark Zuckerberg personally liable for violations — even if it means taking the firms to court, a tactic the FTC’s Republican majority has avoided.

The dissents come from a series of 3-2 party-line votes that mark a break with tradition for the FTC, a once-sleepy agency whose institutional culture has long emphasized consensus. But more than that, the dissents lay the groundwork for a profound shift in how the commission approaches the giants of the tech industry, should it eventually go back to Democratic control.

“What Slaughter and Chopra are doing is exceptional,” said David Balto, who was an FTC policy director during the Clinton administration. "It's not just a question of voting 'no,' but of articulating sound antitrust policy that would, hopefully, strengthen enforcement in the future."

“If the election flips, you’ve got two people who are really ready to kick it into fifth gear," he added.

Chopra and Slaughter issued loud dissents in two recent, headline-making tech cases: the $5 billion settlement in July with Facebook over privacy violations and this month’s $170 million fine for Google's YouTube over its handling of children's data. In both cases, Chopra and Slaughter sought to dismantle the Republican majority's arguments, concluding that the penalties fall far short of fixing what they see as the companies' dangerous practices.

And plenty of opportunities remain for the commissioners to keep pressing for a more aggressive posture: The FTC has begun an antitrust probe of Facebook, and it is making inquiries related to Amazon. The commission's 15-person technology task force, launched in February to gather information about the industry, has shifted to investigating potential anti-competitive behavior among Silicon Valley's leading firms.

The Democratic presidential field, meanwhile, is also auguring a much more hostile future for the tech industry than the easy relations it enjoyed under the Obama administration. Massachusetts Sen. Elizabeth Warren has pledged that her administration would break up Amazon, Google and Facebook, calling them "monopolies." Sen. Bernie Sanders (I-Vt.) has staked out a similar position, while former Vice President Joe Biden has said dismantling Facebook is "something we should take a really hard look at."

Republicans at the FTC reject the notion that they're soft on tech, pointing out that the fines in the Facebook and Google cases are record-breaking — the $5 billion Facebook penalty, for instance, was more than 200 times greater than any comparable fine in a privacy case. They also argue that the concessions extracted from the companies, such as Facebook's promise to create a privacy oversight board, will serve as a check on future misbehavior.

Negotiating such settlements is a better deal for the public than taking the cases into a lengthy and uncertain legal battle, FTC Chairman Joe Simons has argued.

“The only real world choice here was to take a historic settlement that provides immediate and important protection to American consumers or wait for years to get far less relief," said Simons, a Republican who was a veteran FTC lawyer before President Donald Trump nominated him for the panel, in announcing the Facebook decision.

He and fellow Republican Commissioner Christine Wilson said after the YouTube deal that the fine and required changes in Google’s conduct were "almost certainly better" than what the agency could have gotten through litigation. "We choose not to gamble the protection of children now in hopes of hitting a jackpot in the future," they wrote.

The agency’s Democrats, however, have called not only for harsher penalties against the Silicon Valley giants but also fundamental changes to their core business model, particularly the targeted online advertising that Chopra refers to as "mass surveillance."

“The behavioral advertising business model is broken, and we cannot let it continue to tear us apart,” he wrote in his dissent of the agency’s settlement with Facebook.

Both Democrats have also argued that to deter companies from behaving badly, it's sometimes necessary to hold high-profile executives liable for privacy breaches and other corporate failings. That's a particular threat to major tech companies where CEOs are often the companies' founders and hold enormous sway over how they're run.

In the case against Facebook, Chopra wrote, the lack of legal liability for Zuckerberg and his fellow executives amounted to a "giveaway" by the FTC.

"Rather than accepting this settlement, I believe we should have initiated litigation against Facebook and its CEO Mark Zuckerberg," Slaughter wrote, adding that she backed that strategy even if there was a chance of losing in court.

At a recent Media Institute lunch in Washington, Slaughter said that where "views diverge" at the FTC, the Democrats will "stick with what we believe is the right outcome and try to articulate that respectfully and clearly — rather than agreeing to do something we don’t think is the right thing to do for the sake of consensus."

Chopra's office declined to comment.

Some FTC watchers say the Democratic commissioners’ approach has been a long time coming. They contend that the agency fell down in policing the rapidly rising tech industry during the Obama era, and that it ignored issues ranging from Google’s amassing of consumer data to Facebook’s acquisitions of Instagram and WhatsApp.

The Obama FTC also drew criticism for declining to bring an antitrust case against Google in 2013, following a nearly two-year investigation of the company's business practices. The Wall Street Journal later reported that an internal FTC staff report had recommended suing the company.

“The FTC’s track record in the tech sector is unbelievably weak, and this administration has inherited that and needs to move much more aggressively to shift course,” said Gene Kimmelman, a senior adviser at the consumer advocacy group Public Knowledge and a former chief counsel in the Justice Department’s antitrust division. "The strength of the dissents should be a wake-up call."

But others, including some fellow Democrats, say Chopra and Slaughter are overindulging in their objections, knowing they’re not going to be casting deciding votes.

“The partisanship is pretty striking, and the string of partisan dissents is a pretty big departure from tradition at the FTC,” said one Obama administration official who worked on competition issues and spoke anonymously to discuss intra-party differences.

The former official warned the sharp splits seen at the FTC on tech cases risk turning the agency into something akin to the highly politicized FCC, whose more than decade-long regulatory ping-pong match over net neutrality has produced head-spinning policy changes and years of litigation.

While individual FTC commissioners are said to be personally close, as a whole the group has had little chance to bond, according to people close to the agency. Federal transparency laws limit their ability to meet in private, and even on major cases they don’t vote in person but through electronic forms completed by staff. Because the five sitting commissioners arrived at the agency at about the same time, it did not have a bevy of veteran members on hand to welcome newcomers.

Chopra, a long-time consumer advocate, was meant to be the pick of the Democratic left and a concession to Warren. He had spent five years working at the Consumer Financial Protection Bureau set up by the now-Massachusetts senator.

Slaughter, a former aide to Senate Democratic leader Chuck Schumer, was Schumer's choice for the FTC and seen as a more moderate pick.

Chopra was always expected to be an outspoken agitator, but a memo he issued in his early days on the job, setting out what he saw as the commission's past mishandling of ill-behaved companies, rattled many inside and outside the agency. "FTC orders are not suggestions," he wrote, criticizing what he viewed as the agency's history of lax enforcement.

Slaughter’s forceful dissents in tech cases have also surprised some FTC observers given her previous role as a behind-the-scenes congressional staffer. But anyone shocked at her statements hasn't been paying close enough attention, according to another Obama administration official who dealt with competition issues in government.

“She’s not a bomb thrower because she’s a smart tactician, and some people on the extremes read that as ‘Oh, she’s going to be moderate. She’s not going to rock the boat.’ But that’s misunderstanding her, frankly,” said the official who requested anonymity to discuss internal FTC dynamics.

The Democratic dissents may be particularly vexing for Simons, who has shown signs of being even more interested than past chairmen in winning unanimous decisions in major cases. During his Senate confirmation process, he pointed with pride to the "high degree of bipartisanship" that characterized his previous stint as director of the FTC's competition bureau. Simons was not available for comment.

Balto, the former FTC policy director, said even if Trump wins reelection, Chopra and Slaughter will wield influence at the agency given that Simons is eager for 5-0 votes.

“Even on the margins, it’s going to make a difference,” said Balto, pointing to the FTC’s Republican majority. “They will behave differently because they want to have unanimous decisions.”