Failure to Divulge Potential Privacy Violation Cited in Attack on 3.2B Acquisition

National Security vs. Investment: Are we striking the right balance?


"Let’s face it: getting out the door can be hectic sometimes."

That's one of the problems Google Assistant is supposed to address. But when announcing that "The Google Assistant is Coming to Nest Secure" earlier this month, Google may have pushed the enhancement out the door a little too quickly. According to a consumer privacy group, the tech giant should first have mentioned the device’s “hidden microphone” to regulators at the time of a major acquisition designed to catapult Google’s offerings in the smart home space.

In a letter dated Feb. 20, the Electronic Privacy Information Center (EPIC) encouraged regulators take drastic measures and force Google to divest the Nest security business. “While the requested remedy is unlikely, the scandal highlights the importance of privacy diligence in mergers and acquisitions,” said MoginRubin counsel Jennifer M. Oliver. “This is an example of where privacy meets – and could impact -- future antitrust and M&A."

Google purchased Nest Labs in 2014 for $3.2 billion, beefing up its smart home technology services with the maker of popular products like the Learning Thermostat and the Protect smoke and carbon monoxide detector. Prior to this transaction Google had an approximately 12% ownership interest in Nest. In its SEC filing, Google said it expected the acquisition would "enhance Google's suite of products and services and allow Nest to continue to innovate upon devices in the home.”

'Significant Privacy Concerns'

EPIC complained about the acquisition in 2014 saying the Federal Trade Commission failed to address the "significant privacy concerns" the deal raised. Specifically, EPIC expressed concern about the microphone it says was “hidden” in the Google / Nest Secure home security system. The microphone is something that became very public with Google's Feb. 4 announcement that customers could ask Nest Guard -- the brains of the Nest Secure operation -- to tell them about traffic and weather, or add reminders to their calendars, or turn on the lights.

In making the announcement Google added: "The Google Assistant on Nest Guard is an opt-in feature, and as the feature becomes available to our users, they’ll receive an email with instructions on how to enable the feature and turn on the microphone in the Nest app. Nest Guard does have one on-device microphone that is not enabled by default."

A Google spokesperson told Business Insider that the company made an "error," but that the microphone was "never intended to be a secret" and that it should have been listed in the product specifications. "That was an error on our part."

Despite Google's position that failing to reveal the microphone feature to the SEC was an oversight, EPIC said the FTC should now require Google to divest Nest and "disgorge the data it wrongfully obtained from Nest customers." Whether anyone’s privacy was violated is an open question. EPIC itself said it’s unclear whether anyone – be it Google or a hacker – activated the microphones.

Privacy Meets Antitrust

"The intersection of privacy and antitrust should not be surprising; some of the most ubiquitous companies in the world give away their services for 'free' in return for their consumer’s data," MoginRubin's Oliver says. "Consumers pay for content with personal information rather than money, and access to data is an invaluable resource that allows behemoth companies to protect dominant market share and increase barriers to entry. So why shouldn’t antitrust limit companies’ ability to collect and analyze consumer data?"

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