Eleven Lousy Tech Legislation from the 117th Congress: Competition and Transparency in Digital Advertising Act

There is a late entry to the 117^th Congress’ list of worst tech legislation, requiring a new title for the blog series. There were already too many terrible tech bills to choose from, but the latest introduction is too lousy not to include.

Digital advertising is not a new issue for Congress, having had its eye on the largest tech platforms for some time. Last week, this blog series covered the Banning Surveillance Advertising Act (H.R. 6416, S. 3520), which would transform online advertising into a shadow of its current self.

The very next day, a new bill targeting digital advertising was introduced in the Senate. Both bills would change online advertising for the worse. The latest bill, however, takes a stronger antitrust approach by breaking up the largest digital ad platforms. 

10. Competition and Transparency in Digital Advertising Act

The Competition and Transparency in Digital Advertising Act (S. 4258, H.R. 7838)—sponsored by Sens. Mike Lee (R-UT), Amy Klobuchar (D-MN), Richard Blumenthal (D-CT), and Ted Cruz (R-TX) and Rep. Ken Buck (R-CO)—would have the most notable impact on Google and Facebook, by potentially breaking up their digital advertising businesses.

The bill would prohibit companies with over $20 billion in annual digital ad revenue from owning and engaging in more than one part of the digital ad business, with small exceptions. The owner of a digital advertising exchange is not prohibited from buying digital advertising space, if it does not owns either a sell-side or buy-side brokerage. And companies over the threshold are allowed to both buy and sell digital advertising space, as long as they don’t own an ad exchange or brokerage. 

Sen. Lee, the lead sponsor of the legislation, said the measure is needed to free the Internet “from the grip of Big Tech monopolists.” He points to Google and Facebook directly, emphasizing the platforms’ collection of user data to fuel their digital ad business. He said,

This lack of competition in digital advertising means that monopoly rents are being imposed upon every website that is ad-supported and every company—small, medium, or large—that relies on internet advertising to grow its business. It is essentially a tax on thousands of American businesses, and thus a tax on millions of American consumers.

There are a couple problems with that claim. First, neither Google nor Facebook have a monopoly in digital advertising. Estimates show that Google brings in about 34 percent of digital ad revenue, with Facebook at 27 percent and Amazon at 24 percent. Many businesses utilize more than one platform in their digital marketing strategies, and nearly 40 percent of all ad spending still takes place offline.

Second, the cost of advertising is not a tax. That is a strange assertion, coming from a government official. Companies are not forced to purchase advertising space from Google, Facebook, Amazon, Microsoft, or the outdoor billboard company Lamar Advertising. Unlike taxes, failing to purchase ads from these companies won’t result in fines or jail time.  

While most reporting has focused on the Competition and Transparency in Digital Advertising Act’s divesture requirements for the largest digital advertisers, the radical concepts underpinning the legislation should also be highlighted. University of Chicago Law Professor M. Todd Henderson writes in The Wall Street Journal that the bill “is based on the faulty premise that advertising markets are analogous to securities markets.”

Google facilitates digital advertisements between publishers and advertisers using an auction marketplace, and customers can set bids for the maximum amount they’re willing to pay for each click on an ad. Some have compared this ad auction to the New York Stock Exchange, but Henderson explains why that comparison is folly:

Google may be similar to the New York Stock Exchange in that both use servers to handle trades, but there is a key difference. An auction for an ad takes place within a discrete time period and a winner is determined at the end. In the stock market, the fastest to trade has an edge. In ad markets, everyone who submits a bid has the same chance.

The bill would establish certain fiduciary duties that are ordinarily applied to the securities market. Buy-side or sell-side brokers with over $5 billion in annual digital ad revenue would be subject to the “best interest duty” and the “best execution duty,” but it’s unclear what aspects of fiduciary responsibility under securities law would apply to the digital ads business.

It would also create several transparency requirements. Customers could request production of information regarding bids received, the winning price, and other identifying data. Some have raised privacy concerns associated with the legislation, suggesting that breaking up digital advertising tools would inhibit companies’ ability to fortify user security. And the transparency requirements pose similar problems. While the bill’s language attempts to protect user privacy, astute legislation requires more statutory assurance than “be good.”  

The bill’s most puzzling component might be the creation of a private right of action for digital ad customers. It would apply to a “brokerage customer harmed by a knowing violation of subsection (c) by a person with more than $20,000,000,000 … in digital advertising revenue during the previous calendar year.” Subsection (c) pertains to the fiduciary duties applied to ad brokers making more than $5 billion in annual digital ad revenue. Furthermore, the timing for private civil actions refers to subsection (b), which addresses ownership prohibition.

As written, it would appear that private actions are limited to companies violating the $20 billion revenue threshold. Companies with $5 billion to $19,999,999,999.99 billion in annual digital ad revenue would still be subject to the fiduciary requirements under subsection (c), but those violations would not fall under the legislation’s private right of action. It seems clear that the bill is meant to punish bigness rather than to protect consumers.

The Competition and Transparency in Digital Advertising Act would fundamentally alter online advertising, in a bad way. The leaders in digital advertising, Google and Facebook, have added value to the digital economy by connecting consumers with providers of goods and services. As Henderson notes, “Google has every incentive to create an advertising experience that delivers value for buyers, sellers, and users of the Internet.” This bill would ultimately lead to advertising that is less efficient and more expensive.