This article is written by Reuben Philip pursuing Certificate Course in Competition Law, Practice, and Enforcement from LawSikho.

Introduction

Recently, the Competition Commission of India (‘CCI’) made world headlines in the competition law and technology sector when it initiated an investigation against WhatsApp against its updated privacy policy and terms of service in January 2021. It was a very bold move and CCI has joined an elite list of competition law authorities that have proceeded to investigate against the privacy policy of a company for potential competition law violations.

Until now, CCI, like many other competition law regulators in the world, had taken the stance that data protection and competition law issues existed separately. This was clearly put down in CCI’s erstwhile order in the case of Vinod Kumar Gupta v. WhatsApp Inc., which specifically dealt with the issue of Facebook diluting the privacy policies of WhatsApp resulting in data aggregation between both services, the CCI stated that any breach of provisions of Information Technology Act, 2000 will not fall under the purview of the Competition Act, 2002.

Nevertheless, a shift in the perspective of CCI was evident in its recently published market study in the telecom sector that was released on 22nd January 2021. At the end of the report with respect to data privacy and competition, CCI acknowledged the growing contention around the world that privacy can be a form of non-price competition because of the commercial value of such data. It also stated that lowering of privacy standards of a product can be equated to its reduction of quality leading to lesser consumer welfare. Moreover, it concluded that lower data protection by a dominant entity can have exclusionary effects leading to abuse of dominance as per the Competition Act, 2002 (‘the Act’).

It is not a surprising coincidence that on 19.01.2021 itself, CCI decided to take suo moto cognizance of the updated Whatsapp privacy policy. Later on, 24.03.2021 CCI released the order directing an investigation against Whatsapp for alleged abuse of dominance due to data collection methods.

Preliminary issues

Firstly, CCI made it clear at the beginning itself that the judgment of Bharti Airtel v CCI is not applicable in the current case as there is no other sectoral regulator that is seized of the matter. Secondly, CCI clarified even if challenges to the privacy policy update is sub judice before other forums, as they are examining the policy update only with respect to the competition law ramifications, it does not restrict them from investigating the same.

Moreover, they also laid down that the previous analysis in the Vinod Kumar Gupta case cannot restrict investigation in the current scenario in a digital economy of excessive data collection. It stated that competition law needs to examine any unreasonable data collection by dominant players to check if there are any appreciable adverse effects on competition due to the exploitative or exclusionary nature of the same.

CCI refuted Whatsapp’s argument that the update has not been implemented stating that the users have already been notified of the update and the conduct has already occurred. Moreover, CCI also referred to the ‘ex-ante’ powers of CCI with respect to Section 33 of the act to prevent practices in contravention of Sections 3,4, and 6 of the act even ‘if such acts are to be committed’.

Competition law issues

With respect to delineating relevant market for the purposes of analysing the conduct under alleged abuse of dominance, CCI has relied on its previous judgment in the Harshita Chawla case wherein the relevant market for Whatsapp was determined to be ‘market for Over the top (OTT) messaging apps through smartphones in India’. CCI also reiterated the finding that Whatsapp is dominant in this relevant market as there is no change in market structure since the previous order.   

Now, CCI pointed to the gravity of the new policy update that they have removed the ‘opt-out’ option for users to opt-out from sharing their data with Facebook which was available to the users in the previous 2016 update. They had noted Whatsapp’s claim that they continue to honor the ‘opt-out’ option exercised by users in 2016 update but CCI refuted that claim stating that there has been no carve-out created for those who opted to not share their data with Facebook.

CCI took into consideration the strong lock-in effects on a user by Whatsapp and the heavy network effects in the advantage of Whatsapp which has been reflected even after the rise of few competitors such as Signal and Telegram. These are points that buttress the fact of market dominance by Whatsapp. 

• Prima-facie violation of Section 4(2)(a)(i) of the act

It is observed by the CCI that the privacy policy along with terms and conditions of Whatsapp are too broad and vague with respect to its scope and precise purpose of sharing data with other Facebook companies. It was stated that such an opaque, vague, open-ended privacy policy could mislead the users as to their expectations of their personal data being shared with third parties. CCI noted that the users are not provided with an appropriate granular/voluntary choice to object or rather opt-out of data sharing and therefore prima-facie it appears to be unfair and unreasonable for Whatsapp users. Hence CCI concluded that such imposition of unfair terms and conditions on the users are prima-facie in violation of Section 4(2)(a)(i) of the act. 

• Prima-facie violation of Section 4(2)(c) & (e) of the act

CCI observed that providing lower data protection to users leads to not only exploitative effects on the users but can also create exclusionary effects on other players in the market. It was stated that such data sharing will help Whatsapp strengthen its position and leverage itself in other markets leading to the creation of entry barriers for new entrants. 

CCI noted that through such data collection, Facebook will be able to safeguard and reinforce its market power in consumer profiling and display advertising thereby undermining the competition process and raising barriers to market entry, in violation of Section 4(2) (c) & (e) of the act. 

Potential jurisdictional overreach by CCI

Now when it comes to data protection and sharing there are some technical questions to be addressed. But as far as it is required for competition law analysis and alleged contravention under the act, the fact that there was no ‘opt-out’ clause or applying the ‘user choice test should prove satisfactory for the purposes of Section 4(2)(a)(i).

Nevertheless, CCI delving into the nitty-gritty of whether the privacy policy was fair could possibly amount to encroaching upon another jurisdiction. Firstly, the fact that CCI directed the Director General to investigate the claims of Whatsapp regarding the extent of application and impact of the privacy policy is uncalled for. This is because it sheds doubt on the fact that if such facts are disputed then how can there arise a prima-facie case of an alleged contravention of a subsequent competition law violation in the first place. Moreover, as per Section 26(1) of the act wherein, CCI has powers to direct Director General to an investigation should be directed towards investigating competition law violations and not the veracity of claims/facts which needs to be determined before a prima-facie decision is reached.

Later, in the order, CCI later delves into the structure and wording of the privacy policy and terms of service calling it opaque, vague, and open-ended. It is highly questionable whether it is CCI’s duty or if they are within their jurisdiction to comment on the privacy policy and the data protection expectations of a user. Nevertheless, CCI rightly pointed out that there is no justifiable reason for not providing users with voluntary consent and mandate such data sharing as a pre-condition for availing Whatsapp’s services, which is at the core of the argument to determine a prima-facie violation of Section 4(2)(a)(i) of the act.

Lack of choice for the user to ‘opt-out’

This case is very similar to the German Cartel Office’s investigation and order against Facebook for exploitative business terms with respect to data collection and lack of choice to users. In that case, also, the German Cartel Office’s main contention to hold Facebook liable was the fact that users were consenting to the terms and conditions of Facebook to essentially conclude the contract, which translates to the situation where a user is not provided with a choice to ‘opt-out’. Facebook was mandated to provide voluntary consent to users, which meant that the usage of their services should not subject to their consent to share data.

Even CCI’s past cases concerning Whatsapp and user choice have exhibited such decisional precedence. The previous 2016 change in Whatsapp privacy policy was challenged before CCI in the Vinod Kumar Gupta case. One of the important points which were considered by CCI for holding against abuse of dominance was the ‘opt-out’ clause or clear choice provided to the users to not share the data. Later, the integration of Whatsapp pay and alleged abuse of dominance was raised in the Harshit Chawla case. Again, the fact that the user must undertake a voluntary registration process to use the feature and that users had the discretion to utilise the service were important points considered by CCI to hold against abuse of dominant position. CCI concluded that unless there is an explicit or implicit imposition by Whatsapp taking away the discretion of users, Section 4(2)(a)(i) will not be contravened. 

The Hon’ble Supreme Court in Central Inland Water Transport Corporation Ltd. & Anr. vs Brojo Nath Ganguly & Anr emphasised the requirement of ‘reasonableness’ in the terms of the contract and discussed the doctrine of ‘unconscionability’ where unequal bargaining power is a major factor in the imposition of unfair terms in the contract. The Hon’ble Supreme Court had also observed that if such a weaker party has no meaningful choice but to give his assent to a contract (or to accept a set of rules as part of the contract), however unfair, unreasonable and unconscionable they may be, the courts will strike down such unfair and unreasonable contract. This reasoning by the Supreme Court essentially translates to the test of ‘user choice as applied by CCI in competition law cases to determine abuse of dominant cases. 

The test of ‘user choice as we can see from above has been clearly applied in the present case concerning the 2021 WhatsApp privacy policy update. In the latest update, there is absolutely no option provided by Whatsapp to choose not to update or disagree with the new terms. It has been shown that the updates must be accepted to continue using Whatsapp which is essentially a “take it or leave it” policy. And it has been rightly held by CCI to be an unfair condition as per Section 4(2)(a)(i) of the act amounting to prima-facie abuse of dominant position.

Delhi High Court judgment

CCI’s order directing the investigation into Whatsapp’s alleged abuse of dominance was quickly challenged at the Delhi High Court. Whatsapp and Facebook claimed that CCI did not have jurisdiction to try this matter as it deals with the privacy of an individual. The counsel representing CCI clearly stated that CCI is only concerned with the competition law aspects arising from the facts and not the privacy of an individual.

In the case of Karmanya Singh Sareen & Anr v UOI & Ors, some issues that were raised with respect to the 2016 Whatsapp privacy policy update are whether the right to privacy of millions of users will be violated, whether the manner of obtaining consent from users is deceptive and misleading or not. After the latest 2021 policy update, an Interim Application was filed seeking to obtain a stay on the same wherein Supreme Court issued notice to the parties to provide the reply to the concerns of privacy violation. The cases of Chaitanya Rohilla vs. Union of India & Ors and Dr. Seema Singh & Anr. vs. Union of India & Anr were also mentioned to be sub-judice before the Delhi High Court which are directly challenging the implementation of the new privacy policy update by Whatsapp.

It was contended that CCI should not have jumped the gun, since these cases directly dealing with various issues relating to the privacy policy update are already sub-judice before various forums such as the Supreme Court of India and the Delhi High Court. The counsels representing Whatsapp stated that investigation should not be initiated without determining the prima-facie issue of whether the privacy of an individual is violated or whether the data is being shared with Facebook or not in the first place. 

The administrative nature of Section 26(1) order by CCI was analysed by the High Court considering the ratio given in CCI v Steel Authority of India & Anr., that it does not determine any rights or obligation of parties as it is only a direct simpliciter to cause an investigation into the matter. Also, the Delhi High Court held that the reliance on the Bharti Airtel case is ill-founded. It was stated that there is no inviolable rule that CCI will be divested of its jurisdiction under the Act to proceed against anti-competitive conduct merely because an issue is pending before another forum or that it must await the outcome of these proceedings. The court held that as the matter is essentially a question of discretion, CCI has every right to proceed within its own jurisdiction as the scope of inquiry is much wider than the issues put forth before other forums.

Conclusion

Though the prima-facie order by CCI has been issued with the right intention to tackle the anti-competitive impact of the privacy policy, it does make some exceptions of overreaching its jurisdiction analysing the privacy aspect of it rather than restricting itself to the competition law issues.  The Hon’ble Delhi High Court has done a brave job in interpreting the Bharti Airtel case to hold that CCI cannot be deprived of its jurisdiction to initiate an investigation with respect to competition law issues. Nevertheless, CCI must vary its jurisdiction to refrain from analysing the intricacies of the privacy policy itself by commenting on the clauses, etc. A cursory look through Whatsapp’s privacy policy makes it clear that other than the actual messages of the users, Whatsapp collects a vast amount of data which is then shared with Facebook. This sharing is automatically enabled after the acceptance of the privacy policy, to which the user has no choice to ‘opt-out’. Hence, as discussed before, the ‘test of user choice provides sufficient basis for CCI to investigate the matter for alleged abuse of dominance due to unfair terms and conditions on users. 

The interface between competition law and data protection is only set to increase in the coming years and this CCI order against Whatsapp has only opened the floodgates. The exploitation of users through excessive collection of data is a major possibility big tech companies will resort to for immense profits. Dominant tech companies ought to be very careful in their data collection practices which will become more stringent after the passing of the Personal Data Protection Bill, 2019. 

References

• https://www.bundeskartellamt.de/SharedDocs/Publikation/EN/Pressemitteilungen/2019/07_02_2019_Facebook_FAQs.pdf;jsessionid=CC0D50F4B168D82C3DC3DFA21A724568.1_cid362?__blob=publicationFile&v=6
• https://timesofindia.indiatimes.com/business/india-business/supreme-court-issues-notice-to-facebook-whatsapp-over-new-privacy-policy/articleshow/80920037.cms

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