Google’s Fitbit deal tests merger cops eyeing data giants

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(Bloomberg) --Google’s plan to buy Fitbit is running into a wall of antitrust and privacy worries in the U.S., Europe and Australia, where competition officials are increasingly wary of how internet giants can exert control over data to cement their dominance.

Google’s $2.1 billion acquisition of the maker of smartwatches and fitness trackers, announced in November, would add wearable devices to the internet giant’s hardware business. It also advances the ambitions of Google parent Alphabet Inc. to expand in the health-care sector by adding data from Fitbit’s more than 28 million users. Google has struck cloud-service partnerships with hospital groups and signed a deal with Mayo Clinic to build new artificial intelligence tools.

In the past, the Fitbit deal probably wouldn’t have raised much concern for competition enforcers because the company doesn’t compete directly with Google. And even with Fitbit, Google would have a minuscule share of the hardware and fitness-tracker market.

Today, there’s heightened concern, particularly in the European Union, about how tech companies can leverage their control over data to become ever more powerful. Regulators also face criticism that they’ve been too permissive in allowing tech deals like Facebook’s $19 billion takeover of messaging service WhatsApp in 2014 and its $1 billion purchase of photo-sharing service Instagram in 2012.

“It would be a great test case,” said Maurice Stucke, an antitrust law professor at the University of Tennessee who calls companies like Google data-opolies because of the huge amounts of data they hold. “The concern is Google would use this data to help reinforce its dominance in other segments.”

The deal, which Google expects to close this year, is under investigation by the Justice Department’s antitrust division, according to a person familiar with the matter, and will likely undergo a review by the European Commission.

Australian authorities are also monitoring the proposed tie-up, but won’t review it until the companies file with the competition watchdog. “The concern people have is, well I might have given consent for Fitbit to have this information, but I didn’t give consent to Google,” and now Google could combine it with all its other data, said Justin Warren, a board member of Electronic Frontiers Australia.

Google declined to comment. Fitbit didn’t respond to a request for comment.

In each region, tech companies are coming under tougher oversight because of their size and their data collection and privacy practices, raising new hurdles for acquisitions of all kinds.

The Australian regulator, for example, is setting up a special unit to scrutinize technology giants following a government report that raised concerns about the use and storage of personal data and the erosion of the mainstream media.

Antitrust enforcers and lawmakers in the U.S. are weighing how privacy lapses can raise competition concerns.

In the EU, where companies are subject to the bloc’s sweeping privacy law, the General Data Protection Regulation, or GDPR, Competition Commissioner Margrethe Vestager has called for additional rules to rein in how tech companies collect and use data.

Google is already contending with broad antitrust probes around the world. In the U.S., the Justice Department along with state attorneys general are investigating potential antitrust violations in digital advertising.

For More: Justice Department Questions Publishers in Ongoing Google Probe

As the inquiries advance, there’s widespread recognition that the data vacuumed up by the tech giants has created nearly insurmountable barriers to competition. The more data the tech companies control, the better their products. Some have argued that consumer data is so valuable to tech platforms that the companies should actually pay users for it.

Google moved to tighten its hold on data this month by cutting off data-sharing with advertisers and marketers. That decision phased out the use of so-called third-party cookies, which let companies that use Google’s technology to buy ad space also track readers around the web and send them targeted ads. While Google said the change would increase users’ privacy, some critics say the company is using privacy as cover to maintain its data dominance.

Google’s businesses have received extensive scrutiny already in Europe, with three EU antitrust probes resulting in more than $9 billion in fines. New privacy investigations may lead to yet more fines. The company will go to court this week to try to overturn a 2.4 billion euro ($2.63 billion) fine imposed by the EU for thwarting competition in shopping-comparison searches.

Ioannis Kokkoris, a law and economics professor at Queen Mary University in London, said he expects the Fitbit purchase to get an extended investigation.

“The deal relates to complicated markets and market definition will be a major determinant to the outcome: what type of watch are we talking about” and what health information, he said in an email. “The potential wider benefits for Google of having access to such data will also need to be assessed in detail.”

U.S. antitrust enforcers could bring a strong case against the deal by arguing that acquiring Fitbit’s user data will complement Google’s existing data and enable the company to maintain its monopoly in internet search, said Stucke, the law professor. Antitrust enforcers could also contend that Google would degrade Fitbit’s privacy protections over time in order to gather more data, he said.

Google has said it would be transparent about the data it collects, and that it would never sell personal information. It also said it wouldn’t use Fitbit health and wellness data for Google ads and would let Fitbit users delete their data.

But tech companies have shown a pattern of going back on such promises after completing acquisitions, said Dina Srinivasan, an antitrust expert and former ad-technology executive who has advised news publishers that have raised antitrust complaints about Google’s dominance.

When Google agreed to buy ad technology company DoubleClick in 2007, it told lawmakers that protecting privacy was part of its culture. Although the Federal Trade Commission approved the merger, Commissioner Pamela Jones Harbour said Google’s promises shouldn’t be accepted at face value and suggested the agency mandate a firewall separating DoubleClick data from the rest of Google’s data.

Harbour’s dissent proved prescient. Google changed its privacy policy in 2016 to allow the combination of DoubleClick data with personally identifiable information it has on users, prompting a complaint from privacy advocates.

Google has an incentive to “to decrease user privacy as much as possible to increase the data to shove into their auctions to make more money,” Srinivasan said. “Regulators need to wake up.”

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