Soujanya Boxy
Introduction
The accelerating pace of technological advancements raises growing concerns over user autonomy and data privacy, particularly with the increasing power of tech giants to collect and use user data. Tech giants recognise user data as the fuel for their revenue growth. However, in their pursuit of being data monopolies, a critical question arises-what will be the cost of this data control, and who will bear the cost: competitors, the market, or consumers? Given the manifest negative implications, there is a growing need to deliberate on an effective regulatory approach. This requires a careful and balanced approach, catering to the need to foster innovation while addressing competition concerns.
The Competition Commission of India’s (‘CCI’) recent ruling in the WhatsApp 2021 Privacy Policy case addresses multifaceted issues surrounding data collection and sharing. This ruling sets a precedent in the digital domain, with significant ramifications anticipated for all the digital market players. Tech giants are now expected to prioritise cautious growth, as compliance with laws and innovation must go hand-in-hand. In this article, the author explores various important aspects of the ruling and analyses how data dominance is viewed as a competition abuse and can fall under competition law scrutiny.
Dissecting the WhatsApp Case
The core dispute in the CCI ruling centres on WhatsApp’s privacy policy update of 2021. On January 4, 2021, WhatsApp updated its privacy policy and terms of service. Users were notified of this update within the app on January 5, 2021. To continue using WhatsApp beyond January 8, 2021, users were required to accept the updated terms. The deadline for acceptance was later extended to May 15, 2021.
In its order, the CCI delineated two relevant markets: the market for OTT messaging apps via smartphones in India, and the market for online display advertising in India. It found WhatsApp to be a dominant player in the former market. WhatsApp’s dominance is attributed to its preeminent market share, large user base, vertical integration with Meta’s ecosystem, and network effects, which enhance user experience and create user lock-in.
The CCI concluded that while WhatsApp abused its dominant position by imposing unfair terms through its mandatory privacy policy, Meta leveraged its dominance in the OTT messaging apps market (via WhatsApp) to strengthen its position in the online display advertising market. Regarding WhatsApp’s abuse of dominance, the CCI noted that the data collected by WhatsApp was excessive and unnecessary for delivering messaging services. This exceeded common data collection practices and violated user legitimate privacy expectations. In contrast to the 2016 privacy policy update, this update imposed exploitative terms by denying users the option to opt-out. Unlike EU users, Indian users lacked several rights, including the right to access, rectification, portability, and erasure of their data, further exacerbating the exploitative nature of the policy update. In relation to this, the CCI dismissed WhatsApp’s defence that such practices represented industry standards for dominant market players.
Another facet of the ruling addresses the denial of market access and Meta’s leveraging practices. The privacy policy update offers Meta a competitive advantage, potentially creating lock-in effects and denying market access to competitors. According to the CCI, the aggregation of data provided Meta an opportunity to maintain its control over the online display advertising ecosystem, exploiting WhatsApp’s dominance in the OTT messaging market.
In view of the above observations, the CCI decided to impose a penalty of Rs. 213.14 crores on Meta for violation of Section 4(2)(a)(i), 4(2)(c) and 4(2)(e) of the Competition Act, 2002 (Act). It directed Meta to cease and desist from such practices. Furthermore, it mandated the implementation of certain behavioural remedies, such as the prohibition of making access to WhatsApp services conditional on users agreeing to share their data.
The CCI’s ruling sets the stage for a more comprehensive discussion on data dominance in the digital market: how do we effectively regulate such dominance without stifling innovation?
Data Dominance: A Competitive Perspective
Beyond the WhatsApp Case, this issue of data dominance takes on broader significance as the digital landscape continues to evolve. Data has increasingly become a valuable resource, akin to “oil”, driving innovation, business growth, and revenue. The data economy is vast. India boasts a thriving digital landscape, with over 650 million smartphone users, and more than 950 million internet subscribers as of mid-2024. The data economy is driven by the proliferation of digital services, technological transformations, and enhanced digital infrastructure. In fact, the data economy is anticipated to account for 20% of India’s GDP by 2026.
For businesses, user data primarily ensures two things: sustainability and exponential profit margins. While users might appreciate that digital services are often free, these services thrive on user data as a source of revenue. The tech giants leverage user data for creating personalised and targeted ads, making it lucrative for advertisers to pay higher prices. Moreover, platforms like Netflix, Amazon, and Spotify utilise algorithms to analyse users’ past interactions to recommend products, services, and content. Thus, profit is earned by harvesting and monetising user data, which sometimes results in privacy concerns and breaches. While some firms, such as Datacoup, recognise the enormous value of user data and compensate users for it, this practice is currently niche and not widely adopted.
Widespread alarms regarding user privacy and autonomy have led to calls for greater regulation and the recognition of data as a “liability”. The latest CCI ruling reflects a growing regulatory interest in curbing data control by tech giants to protect privacy and autonomy. In its order, the CCI emphasised the special responsibility of dominant firms to conduct themselves in a manner that does not stifle competition by their conduct and recognised privacy as a non-price parameter of competition. The CCI also observed that the data shared in the specific instance triggered a self-reinforcing cycle of data aggregation and commercial profitability. By bundling user data across different services, firms establish insurmountable entry barriers, restricting access for non-dominant firms. These non-dominant firms could possibly integrate user data to enhance competition and innovation, without causing any competition harm.
This ruling is a significant development within a broader global context of increasing regulatory scrutiny over tech giants’ data dominance. Notably, this aligns with the 2019 German Federal Cartel Office (FCO) decision on Facebook/Meta. The FCO found that Meta’s data collection violated the General Data Protection Regulation (GDPR) and constituted an abuse of dominance in the German social network market. The FCO decision, coupled with the Court of Justice of the European Union (CJEU)’s decision on appeal, highlighted the interconnectedness of competition and data privacy concerns in data collection practices. Additionally, the CJEU acknowledged the power of competition authorities to examine GDPR compliance while investigating abuses of dominance. Similarly, the European Commission (EC) concluded that Google’s acquisition of Fitbit could harm competition in online advertising. The EC explored a novel theory of harm: integration of datasets, even if not individually unique, could create anti-competitive concerns, by restricting access to data, as demonstrated by the limitation on access to Fitbit API.
Nonetheless, WhatsApp presented an interesting argument before the CCI that the Investigation report lacked any analysis of “exclusion” or “potential exclusion” of “as-efficient competitors”. The CCI responded that even under an effect-based approach, the materialisation of anti-competitive effects is not required for conduct to be considered abusive. While this indicates an overly forward-thinking or experimental regulatory approach, the core issue lies in the effectiveness of such an approach in the fast-evolving digital sector. It is important to acknowledge the potential regulatory pitfalls, as evidenced by the negative impact of the European Union’s Digital Markets Act (DMA) on consumers and businesses, specifically regarding the costs associated with its compliance.
New approach to Section 4(2)(e) by CCI
The global push to regulate data dominance translates into concrete legal measures, such as the application of Section 4(2)(e) of the Act. In this context, the CCI’s recent interpretation of this provision offers a new framework for assessing anti-competitive conduct. Meta argued that market dominance is a prerequisite for establishing denial of market access under Section 4(2)(e) of the Act. On the contrary, the CCI held that demonstrating market dominance is not always necessary for proving anti-competitive conduct, especially in multi-product ecosystems. Per the CCI, such ecosystems have services that are deeply integrated, and a dominant firm’s conduct in one market has the potential to harm competition in another. Therefore, despite Meta not being dominant in the online display advertising market, the CCI ruled against Meta, believing that Meta’s dominance in the OTT messaging market could have spillover effects and adversely impact the online display advertising market. The idea that dominant firms in one market should not be allowed to compete in neighbouring or other markets is flawed. This idea rests on the presumption that other players will be denied market access and that entry barriers will be created if dominant firms are allowed to compete. However, this contradicts real-life instances. Zoom succeeded as a prominent video communication service provider despite intense competition from giants like Google and Microsoft. Netflix retains a robust presence while competing against major traditional media companies and tech giants like Disney+, Amazon Prime video, and Apple TV+.
Conclusion
The CCI’s ruling is based on the potential for harm, an approach that is speculative and may lead to arbitrary decisions based on assumptions rather than concrete evidence. In digital markets, where innovation is paramount, empirical evidence should be the cornerstone for regulatory decisions. The CCI ruling, without any concrete evidence, results in regulatory uncertainty. This uncertainty negatively impacts both businesses and consumers, creating significant barriers to investments.
Furthermore, with the restriction imposed on data-sharing practices, the CCI ruling could reduce the effectiveness of personalised and targeted ads, a crucial tool for MSMEs to compete with major market players. This requires the CCI to be cautious with its rulings, as they can have far-reaching implications in broader markets, like dynamic digital markets, where the competition landscape is rapidly evolving.
Soujanya Boxy is a final-year B.A. LL.B. (Hons.) student at National Law University Odisha.
NUALS Law Journal 