Amazon and Flipkart found violating Competition law in India-DG investigation report out
*** This blog has been co-authored by me with Aniket Panchal and Diya Vaishnav, two young students of 2nd Year B.B.A. LL.B. (Hons.) & B.A. LL.B. (Hons.) respectively, at Gujarat National Law University, Gandhinagar.
In April 2021, Apple has rolled out a new software update iOS 14.5 through which it seeks to implement a global App Tracking Transparency (“ATT”) Policy. The central feature of this new policy requires app developers to show users a prompt before they start retrieving the Identifier for Advertisements (“IDFA”). To contextualize the same, Apple assigns a random device identifier to a user’s device which, in turn, is known as the IDFA.
Primarily, Advertisers make use of this to track data in order to give personalised advertisements to the users. Although Apple claims privacy interest on behalf of end users, many application developers have opposed this policy including Facebook as it adversely affects their advertising opportunities. In fact, the above-stated concerns have already effectuated into two separate investigations by the French Autorité de la concurrence and the German Bundeskartellamt (Cartel Office).
While India has not had the opportunity to inquire into the conduct of Apple in this regard yet, the investigations under way in France and Germany are demonstrative of mounting concerns against this new privacy update at least in the European common market.
In this blog, we examine the impact of this new privacy update on end users’ data privacy and its effect on competition in India.
From the lens of Indian Competition Law
With the launch of iOS 14.5, Apple’s new privacy policy has been implemented in India and considering that it has triggered investigation in various other jurisdictions, it is likely that the Indian Competition watchdog, the Competition Commission of India (“CCI”), could be approached with an information. In such a scenario, the CCI may decide to investigate in the same manner, as it recently did in WhatsApp’s new privacy policy vide its order dated 24 March 2021.
Readers may like to note that “data privacy” as a non-price factor affecting competition in the digital markets has recently been recognized in India after the release of a Market Study on Telecom Sector[1] on 22 January 2021, in which, the CCI for the first time acknowledged the role of big data as a factor to assess “non-price competition” in the online medium.
Noticeably, the CCI’s order directing investigation against WhatsApp’s new privacy policy was a complete turnaround from its earlier order dated 01 June 2017 almost on similar facts (except that it related to a challenge to WhatsApp’s existing data privacy policy of 2016) in the Vinod Kumar Gupta Case[2] and that it had then decided not to inquire into data privacy policy of WhatsApp since it related mainly to the alleged violation of the Information Technology (IT) Act, 2000 and was held as not being a competition issue.
It is not as if this shift in the CCI’s thinking on privacy policy has gone unchallenged. Both WhatsApp and Facebook challenged the CCI Order dated 24 March 2021 in the Delhi High Court but the Court vide its judgment dated 22 April 2021 refused to intervene in the CCI order directing investigation, primarily, because of an earlier Judgment of the Indian Supreme Court in the SAIL Case,[3] which held that CCI’s orders directing investigation into an alleged anti-competitive conduct after finding prima facie case for doing so are in the nature of administrative directions which cannot be challenged under the scheme of the Competition Act, 2002 (“the Act”).[4]
Violation of Section 3, of the Act allows the CCI to inquire into any anti-competitive agreement, which causes or is likely to cause an appreciable adverse effect on the competition (“AAEC”) in India. Section 4 of the Act prohibits abuse of dominant position by proscribing certain unilateral conducts by dominant firms.
Under the Competition law, imposition of privacy policies upon the users can be assessed or regulated under the provisions relating to abuse of dominant position such as prohibition of imposition of unfair or discriminatory conditions for sale or purchase, including predatory pricing, limiting or restricting market for production of services and/or technical development, denying of market access to new players in any manner, leveraging dominance in one market to enter or capture another market or imposing unrelated supplementary obligations.
If at all Apple’s new policy i.e. ATT comes under scrutiny before the CCI, the following issues could be raised.
Whether Apple Is Dominant?
For invoking the provisions related to abuse of dominant position under Section 4 of the Act, the CCI will have to show that Apple is dominant in the “relevant market”, which will have to be first determined.
Hypothetically, assuming that the CCI determines the “Apple Smartphone sold in India” by itself as the relevant market, say, due to the unique features of an iPhone, which make it the most preferred choice of the majority of Smartphone buyers in India, then Apple will be held as dominant. In such a case, the following issues could be raised.
Imposition of Unfair/Discriminatory Condition
Section 4(2)(a)(i) of the Act proscribes an entity from imposing unfair or discriminatory condition in sale of goods or service. With regards to Apple’s conduct, some sources suggest that Apple is not applying the same privacy standard when it comes to its own applications.
Apple shows an additional prompt (apple designed) which seeks end-users’ permission to “track” their data. If a user gives express agreement within the app developer’s tools first, but subsequently refuses Apple’s tracking prompt, the second selection takes precedence over the first. This overriding effect is perplexing for the reason that the second prompt (by Apple) reduces the users’ decision to a “yes or no” choice while the app developers may have already employed detailed agreements. Thus, instead of a consent-based notification, this new permission appears to be a warning, discouraging consumers from allowing the app developers access to their data.
Further, Apple employs a totally different mechanism for consumers to opt out of its own data sharing— a complicated procedure wherein the users must navigate to a somewhat obscure option, to opt out of Apple’s “Personalized Advertisements”. While the prompt for other app developers uses a negatively connoted word “tracking”, Apple provides a detailed and very favourable information to users when they want to opt-out of its own applications.
Following such a self-preferential practice would entail a “status quo bias” which willnudge the users to exclusively use Apple application over other apps. It would mean that Apple imposes discriminatory and unfair conditions on its App developers (in terms of service) and this squarely falls under section 4(2)(i)(a) i.e., imposition of discriminatory or unfair conditions in sale of goods/services.
Leveraging of Apple’s Dominant position
Further, another question for deliberation is if Apple is using its App Store market dominance to penetrate other applications market. Such a conduct would fall within the bounds of section 4(2)(e) of the Act which prohibits an entity from abusing its dominant position in one relevant market to enter into another relevant market.
In this regard, in MCX Ltd. v. NSE[5], the CCI concretized the requirement for building a case under section 4(2)(e). It was held that identifying two distinct relevant markets and showing an “associational link” between them is a condition for establishing abuse of dominance under this provision.
In the case of Apple, these two relevant markets would be “the market for Apple’s own developed applications listed in the Apple’s App Store” and the “Market for other applications” (which are also listed on App Store). As for the second requirement of an associational link, these applications are intertwined for the reason that the former provides an input for the latter. Such a conduct could be attributed to Apple trying to leverage its dominant position in App Store market in order to achieve increased sales in the market for other apps, thereby extending its market power.
Implications of the allusive “prompt”
Apple’s new ATT policy, rather than being a step toward bolstering its consumers’ privacy, merely hampers competition without providing additional privacy protection to its consumers. There are many stumbling blocks for its competitors- loss of user data for targeted advertising, a marked decrease in revenue, and a transition to a paid-model, which affect consumers by forcing them to pay for the previously-free apps without any additional privacy enhancement.
As per assessments, revenue reductions of 50-65% will be experienced by the afflicted businesses, notably the small-sized developers, which rely heavily on the personalized advertising market. Even with Apple’s extensive privacy-protection measures, around 75% of end users accepted monitoring prior to the policy’s implementation.
The manifestation of this change could be witnessed from the allowance rate which dropped drastically- it fell to 4% within a week of its introduction in the United States. As a result, these app-developers will be forced to migrate from ad-supported to paid models to make up for the loss of revenue, in turn forcing the consumers to pay for the previously-free applications.
The Prompt: A Consumer Deception?
Without the scope for any personalized advertisements, these app-developers will be forced to monetize their applications by shifting to paid models, which will increase Apple’s earnings with a surcharge of up to 30% for every single transaction that takes place through the App Store. These applications migrating to the paid versions, will be made more expensive relative to Apple’s own applications, which are not subject to its own commission.
The higher the third-party applications charge to cover their costs, the more consumers would contemplate moving to Apple’s premium services. Resultantly, this would raise the cost of switching to another platform like Android for the user will lose out on the paid Apple content. Hence, Apple entrenches its dominances over the iOS ecosystem by possessing a greater share of the users’ data and the ability to monetize it.
Furthermore, Apple’s prompt creates the deceiving narrative that customers may choose between using a free application with tracking or a free application without tracking. This tactic hides the fact that disabling tracking by free applications with relevant advertisements will force these developers to move to a paid-model with irrelevant advertisements to meet their expenses.
An Obstacle or a Necessity?
Against the backdrop of Apple’s determination to enhance consumer privacy-protection, the necessity of this additional prompt appears to be questionable, since it adds nothing to Apple’s existing data privacy standards. This measure seems unnecessary even by the high standards of European Union’s General Data Protection Regulations (“GDPR”), for the reason that the app-developers are already required to obtain consent from the consumers prior to using their data. In addition, before permitting an application to be launched on the App Store, Apple anyway investigates whether it adheres to the privacy regulations. It rejected over 215 thousand entries in 2020 alone due to violations of its comprehensive privacy measures.
Fit case for abuse of dominance?
In light of the above-stated conspectus, the new global ATT seems to be an exclusionary conduct by Apple to promote its own applications on the App Store at the cost of competing applications on the same platform, which can be examined by the CCI, provided it finds Apple dominant in the relevant markets as demonstrated above.
Apple’s defence that the app developers can provide additional context before presenting Apple’s “allow apps to request to track” prompt and that it will give users an additional option to “help people make an informed decision about how their information is used,” will then be tested during a detailed investigation to see if the self-preferencing policy leads to loss of revenue for competing app developers leading to the exit of few, due to the additional costs imposed by Apple such as the surcharge of 30% and if yes to what extent?
Conclusion
While Apple could be a white-knight of privacy, this new tracking policy has sparked concerns about its potential to undermine the whole ad-supported ecosystem. This policy favours Apple by strengthening the dominance of Apple’s own apps and services on iOS while affecting businesses that rely on personalised advertising. It is quite unclear whether the tracking prompt is even required to safeguard end-user data, since the users do possess the free choice to disable the sharing of their data, already.
Apple’s measures appear to actually leave consumers with restricted choices and rob them of making an informed decision about how their data is used, while presenting these choices in misleading ways. Furthermore, displaying a “take it or leave it”, “yes or no” prompt to halt an app developer’s third-party tracking does not appear to promote the consumers’ free choice regarding their data, essentially when there can be several other alternatives. For instance, for each application, giving users the opportunity to configure their limits with regard to the purpose of data sharing or the selection of third parties that can access their data.
As a consequence, rather than enhancing the user data privacy, this update may result in greater costs for the consumers and the app-developers, restricted choices and stifling of competition, except for Apple itself. All in all, it’s a loss-loss situation for end users, advertisers and app developers, and not factoring in their interests is demonstrative of Apple’s market power.
Pitched against the
backdrop of Indian competition law, the CCI aims to safeguard consumers’
interests while also protecting the free trade of the competing market players.
The imposition of unfair conditions on other app developers through
self-preferencing, as well as the denial of free and informed customer choice, under
Apple’s new ATT policy might be sufficient grounds to trigger an
inquiry into the abuse of dominance by Apple. If initiated, such an inquiry
would be in line with CCI’s recent decision to investigate WhatsApp’s new
privacy policy and the inquiries ordered by other global antitrust regulators.
Key Words: #Apple #ATT #Dataprivacy #Abuseofdominance #Antitrust
@CCI_India
[1] Refer to https://www.cci.gov.in/sites/default/files/whats_newdocument/Market-Study-on-the-Telecom-Sector-In-India.pdf (para 70 &71).
[2] CCI Order dated 01 June 2017 in Case No. 99 of 2016 Order available at http://www.cci.gov.in/sites/default/files/26%282%29%20Order%20in%20Case%20No.%2099%20of%202016.pdf.
[3] Competition Commission of India vs. Steel Authority of India Ltd. & WP(C) Nos.4378/2021 & 4407/2021 Page 8 Anr., (2010) 10 SCC 744.
[4] Refers to Section 26(1) of the Act.
[5] Case No. 13/2009 decided on 23 June 2011.
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