Cookies & Competition: Flavour of the Month?

11 March 2021

Companies involved in digital advertising will be closely monitoring Google’s proposals to phase out support for third-party cookies (TPCs) on its Chrome browser by January 2022 and to develop privacy-preserving alternatives to TPCs. These proposals, which are known as the ‘Privacy Sandbox’ proposals were first announced on 14 January 2020. The digital advertising market’s response has reportedly been dramatic, with the Financial Times reporting on 26 February 2020 that shares in Criteo, a French adtech group, fell by almost a quarter after the announcement, and that its market capitalisation fell from a high of $3.5bn in 2017 to less than $1bn. Given the markets’ reactions to Google’s proposals, it is interesting to consider the legal issues that are at play.

Privacy is clearly at the heart of the matter. Personalised advertising is currently carried out by tracking an internet user’s activities and building a profile of that user to push targeted ads to that user more effectively. A key method of tracking is by using TPCs, small files placed on a website by someone other than the website owner that collect user data for the third party. While TPCs play a fundamental role in digital advertising, there have also been concerns about their use from a privacy perspective, given that they allow consumers’ behaviour to be tracked across the web. Somewhat unsurprisingly therefore, the UK’s data protection authority, the Information Commissioner’s Office (ICO) initially responded positively to the ‘Privacy Sandbox’ proposals, noting in an ICO blog dated 17 January 2020: “We are encouraged by this, and will continue to look at the changes Google has proposed.”

However, competition considerations are also relevant. On 7 January 2021, following complaints received alleging that through the ‘Privacy Sandbox’ proposals Google is abusing its dominant position, the UK Competition and Markets Authority (CMA) launched a competition law investigation. In a press release announcing the investigation, the CMA noted that it had already been considering the proposals in conjunction with the ICO and Google and would continue to do so as it progressed the investigation.

What are the competition issues caused by phasing out support for TPCs?

The CMA has not yet reached any conclusions as to whether or not competition law has been infringed. However, a market study it published in July 2020 on ‘Online Platforms and Digital Advertising’ provides further details on some of the relevant issues.

In its final report to that market study, the CMA noted that the phasing out of support for TPC’s in Chrome (which had a browser market share of approximately 50% in the UK in October 2019) may have significant implications on the availability of data and the targeting ability of Google’s competitors. To the extent that targeted advertising on ‘open display inventory’ is less feasible or effective without TPCs, advertisers may substitute spending away from open display advertising and towards advertising on platforms’ owned-and-operated inventory.

Furthermore, publishers’ revenue may be impacted. Using data from a Google experiment, the CMA estimated that UK publishers earned around 70% less revenue overall when they were unable to use TPCs to sell personalised advertising but competed against others who could. The CMA also noted concerns around the potential for Google’s Privacy Sandbox proposals to turn Chrome into the “key bottleneck” for ad tech and that it was likely that Google’s position at the centre of the ad tech ecosystem will remain. It further noted that market participants may be concerned that, under the Privacy Sandbox proposals “Chrome would have the ability to use its position to favour Google’s own ad tech intermediation services and raise barriers to entry”. (See paragraphs 5.321-328 of the CMA’s final report)

What is the EU’s approach to proposals to phase out support for TPCs?

The EU is also addressing these developments, via a proposed regulation on contestable and fair markets in the digital sector (known as the “Digital Markets Act”) which was published by the European Commission on 15 December 2020.

Recital 42 to the Digital Markets Act notes that the online advertising sector is considered to have become more non-transparent after the introduction of new privacy legislation and is expected to become even more opaque with the announced removal of TPCs. As a consequence, advertisers’ ability to switch to alternative providers of online advertising services may be undermined, costs of online advertising are likely to be higher than they would be in a fairer, more transparent and contestable platform environment and these higher costs are likely to be reflected in the prices that end users pay for many daily products and services relying on the use of online advertising.

The solution proposed by the Digital Markets Act is to impose transparency obligations on ‘gatekeeper’ providers of advertising services: It states: “Transparency obligations should therefore require gatekeepers to provide advertisers and publishers to whom they supply online advertising services, when requested and to the extent possible, with information that allows both sides to understand the price paid for each of the different advertising services provided as part of the relevant advertising value chain.”

Comment

Companies involved in digital advertising as well as privacy and competition law practitioners will be following these developments with interest.

Measures which enhance an aspect of consumer privacy in the near term, may have dynamic effects which risk a negative impact on consumer welfare in the longer term. One example of such an effect is the concentration of personal data amongst fewer providers, thereby impacting consumer choices and control.

Therefore, what seems key is that the proposed privacy-preserving alternatives to TPCs are scrutinised to determine whether they can ensure a level playing field on the digital advertising market, in particular with respect to access to data and with respect to the targeting ability of market participants.

For further information please contact Eoghan Ó hArgáin, Head of EU, Competition & Regulated Markets or David Hackett, Head of IP, IT & Data Protection at Eugene F Collins.

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