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