Should the FTC Make Innovation a Bigger Priority?

By / 8.22.2012

The FTC’s recent settlements with Google and Facebook raise an interesting question about how such regulatory run-ins can affect future innovation.

The FTC fined Google $22.5 million for misrepresenting privacy assurances to users of Apple’s internet browser. And the FTC is requiring that Facebook obtain consumers’ express consent before sharing their information, maintain a comprehensive privacy program, and get independent biennial privacy audits after Facebook allegedly shared consumer information when they claimed it was being kept private.

My purpose is not to say whether these settlements were justified or not. The problem I’m referring to is not just one or two regulatory actions, but the fear that the government is going to keep regulating until these companies are scared into becoming more cautious. The analogy is yelling at a child every time he or she colors outside the line. Eventually the child will stop coloring.

In effect the FTC is drawing the lines within which these companies must operate and expand. The Googles and Facebooks of the world will have to watch their every move, and anticipate in advance how potential innovations may be scrutinized.

Some may say forcing companies to color within the lines is responsible. But it could also slow these companies’ ability and incentive to invest and innovate.

That’s because the lines for these highly innovative companies are constantly moving, as if the picture on the page keeps changing. Lines will be crossed when we are innovating on the edge – it’s how quickly companies respond to valid complaints that matters.

Such on the edge innovation should not be discouraged, especially when we are in an economy that needs it, and especially when previous innovations from these companies have experienced such success. That’s why the FTC should carefully consider the long-run impacts of its policies on innovation.