Amazon and Flipkart found violating Competition law in India-DG investigation report out
The National Company Law Appellate Tribunal (‘NCLAT’), vide its order dated 2nd August 2022, has upheld the earlier order dated 1st June 2017 of the Competition Commission of India (‘CCI’) where it found that the change in terms of service including the privacy policy of WhatsApp particularly concerning sharing of user data with Facebook (now Meta), was not an abuse of dominant position in terms of Section 4 of the Competition Act, 2002 (‘Act’).
While upholding the said CCI earlier order NCLAT reiterated the settled jurisprudence on abuse of dominance in India that merely holding a dominant position is not prohibited under the Act, only when the entity abuses its dominant position then Section 4 of the Act is attracted. The NCLAT in the present case though, agreed with the finding of the CCI that WhatsApp is in a dominant position in the relevant market for “instant messaging services using consumer communication apps through smartphones in India” but held that there was nothing to establish that there was an abuse of the dominant position.
[ But this recent order by the appellate tribunal provides only a temporary relief to WhatsApp since CCI it its subsequent order dated 24th March 2021 has directed investigation against both WhatsApp and Facebook (Meta) precisely on the same issues . What brought a 360-degree turnaround in the Commission’s view so much so that it took a suo motu cognizance of the change of terms of service including the new data privacy policy to hold it both exploitative and exclusionary will be interesting. Readers may please recall that in my article “WhatsApp new data privacy policy -How it affects competition? Published in this blog on 12th February ,2021 , much earlier than the CCI’s above stated order , I had observed that:
“Such an unregulated and unending extraction of personal data may offer a “data advantage” to the dominant player against its potential competitors as it creates a barrier to their entry. In the long term this reduces the contestability of the market and due to the market gets “tipped off “in favour of the dominant player it may be eventually foreclosed. This, in view of experts, constitutes a peculiar form of non-price predatory behaviour, which, in terms of Indian competition law, may lead to a “denial of market access” to other platforms besides being an “unfair” term for users and hence may constitute a violation of the relevant provision of the Competition Act, 2002. In the context of fairness and maintenance of an effective competitive markets, such unregulated extraction of personal data from hapless and “locked in” consumers produces both exploitative and exclusionary effects.
Noticeably again, precedents exist. The German Federal Cartel Office held in 2018 (against Facebook) that if a dominant company makes the use of its service conditional upon the user granting the company extensive permission to use his or her personal data, this can be considered a case of “exploitative business terms” and hence constitute abuse of dominant position. Japan has finalised guidelines, which state that any use of personal information, including users’ purchase history and location, without their consent would constitute an “abuse of a superior bargaining position,” a violation specified under Japan’s Anti-Monopoly Act. So India may become the next battleground against the data monopolies of the Silicon Valley! Watch this space!”
Noticeably, the turn around in the CCI’s view on the new data privacy policy likely to constitute an abuse of dominant position by WhatsApp had its origin in its market study on Telecom sector published on 5th February 2021 has rightly recognized that data privacy can take the form of non-price competition and abuse of dominance can lower privacy protection…and that an aspect of data in the context of competition in digital communications market is the conflict between allowing access and protecting consumer privacy.
The above subsequent order dated 24th March 2021 was challenged by both WhatsApp and Meta in Delhi High Court but the writ petition was dismissed by the Delhi High Court vide judgment dated 22nd April 2021. You may read a detailed analysis on the said judgment of Delhi High Court in my previous blog dated 2nd May 2021. The said judgment of the Single Bench of Delhi High Court has also been challenged by both WhatsApp and Facebook by LPA No. 163 of 2021 in which the Hon’ble DB of Delhi High Court vide order dated 21st June 2021 did not stay the operation of the judgment dated 22nd April 2021 of the Single Bench or the DG Notice dated 4th June 2021 asking detailed informations for commencing investigation but vide its subsequent order dated 30th June 2021 and interlocutory orders passed thereafter merely extended the time for filing reply to the DG notice dated 4th June 2021. However, on 25th July 2022 the arguments have been concluded from the both the sides and the judgment is reserved.]
Background of the present NCLAT Order:
Facebook acquired WhatsApp in 2014. Post this acquisition there have been substantial changes in the terms of service of WhatsApp. Some of this change allowed Facebook, the parent company access to the user data of WhatsApp. The same was brought before the CCI by an individual Vinod Kumar Gupta on behalf of an NGO “Fight for Transparency Society”. It was contended that the unilateral change of privacy policy of WhatsApp amounted to abuse of dominant position vis-à-vis Section 4 of the Act.
The CCI by its earlier order dated 1st June 2017 under Section 26(2) of the Act , though held that WhatsApp enjoyed a dominant position in the relevant market (as mentioned supra) but dismissed the contentions of the complainant that this amounted to abuse of dominant position. This was primarily held because CCI found that the change in the privacy policy is not ‘imposed’ on the users since the users have the option to opt-out within 30 days of the updated terms. You may read an analysis of the said earlier order of CCI in my blog CCI closes allegation of abuse of dominance against WhatsApp dated 5th June 2017
Grounds of Appeal before the NCLAT
The complainant appealed the said earlier decision of the CCI before NCLAT taking almost the same contentions as taken before the CCI. The submissions of the appellant before the NCLAT can be summarised under the following broad heads:
- Unfair imposition of terms of service: All the changes in the privacy policy resulted into the social network join to keep enjoying the services of WhatsApp. Such changes in privacy policy is an abuse of dominant position enjoyed by the group in the matter and such changes are thus in violation of Section 4(2) of the Act.
- No real consent: the consent is not real as the consent is given under pressure. It was also alleged that the Facebook manipulates the public opinion to achieve consent.
- Predatory Pricing: The WhatsApp group has been able to enlarge the user base substantially with removal of subscription fees after acquisition by Facebook, now using the data base of user for advertising can easily fetch the group huge chunk of fortune as has been predicted by Barron’s than 20 percent climb in Facebook Inc share is expected owing to its increase in advertisement revenue among its platforms. Thus, recoupment of profits after suffering loss for small period is evident from the acts and methodology employed by the group, thus the said practice can be said to be Predatory Pricing. Therefore, the new privacy policy as employed by WhatsApp is ‘Contrary to Public Interest’ as well as “predatory Pricing” methods are also employed this could be seen as ‘Abuse of Dominant Position’ by the group. And such abuses are contrary to Section 4(2) of the Act.
- Violation of the Information Technology Act, 2002 and Right to Privacy.
Besides the above mentioned issues the Appellant also raised the following contentions:
- Unfair ability to terminate services from users without giving any reasons: It was submitted that WhatsApp reserves the right to terminate services at any point of time without any intimation. Creating a possibility wherein the entire country can be brought to a standstill.
- Jurisdiction and Governing Law of California: Despite having the largest user base of 20 crores in India, the jurisdiction for disputes is only California. Practically, not feasible for any user from India to approach for any legal grievance redressal.
- No policy laid down for minimum standard for protection of data
- Information collected from users by the WhatsApp Inc.: It was submitted that even while being the owner of data, the user is having no control or knowledge as regards to how his/her data is being used.
- No duty upon WhatsApp Inc. to even inform the users in case of data breach: The whole data, whether known and unknown to a user, is in possession of WhatsApp. If this data is breached in the hands of WhatsApp, the user may not even be aware of this breach. On the one hand, the user is supposed to inform the WhatsApp of any possible data breach, while WhatsApp disowns the duty to inform the user/owner of the data in case of data breach by WhatsApp.
- They have empowered themselves to transfer the information to anyone. Apprehension was raised that the data stored by the WhatsApp might be used to the detriment of the security of India.
- Terms and Condition in English language alone: Even after having the largest user base of more than 20 core in India, it has not made efforts to provide translated version in vernacular language.
WhatsApp response:
Countering the contentions made the appellant, WhatsApp made the following submissions:
- Confidentiality in transmission of messages – It was submitted by the WhatsApp that all types of WhatsApp messages (including chats, group chats, images, videos, voice messages and files) are protected by end-to-end encryption. WhatsApp’s end to end encryption system ensures that messages exchanged between WhatsApp users cannot be decrypted and viewed by anyone, not even by WhatsApp, other than the sender and recipient of the message through their WhatsApp applications. Since WhatsApp does not have access to the messages (including videos, photos etc.) shared between its users, the question of sharing such messages with third parties does not arise.
- No imposition: Where acts have been voluntarily conducted, there can be no ‘imposition’ as ‘imposition’ has an element of compulsion. Therefore, before arriving at a finding of an abuse under Section 4(2)(a) of the Act, it is required to established that (a) the Update was ‘imposed’ on users, and (b) the Update was ‘unfair’. There is no basis for concluding that either conditions are satisfied and thus there is no violation of Section 4(2)(a) of the Act. All users received clear and prominent notice of the Update, including the revised Privacy Policy, and an opportunity to consent to the Update, if they so choose, by affirmatively accepting the Update. Existing users were given thirty days to decide whether to consent voluntarily to the Update by clicking “Agree”, and new users similarly had to click “Agree & Continue.” Therefore, the Update cannot be said to have been “imposed” on users, there can be no violation of Section 4(2)(a) of the Competition Act, Furthermore, the supposed lack of choice must lead to a competitive harm to be cognizable under the Act – i.e., there must be foreclosure of competition shown; there also needs to be a demonstration of such a harm. If the mere lack of an option to reject or reserve any portion of the terms of use is considered to be abusive, as is alleged by the Appellant, then any and all such terms of an allegedly dominant enterprise would be in contravention of Section 4 of the Competition Act. It is an enterprise’s rights to enter into contractual relationships under terms it considers reasonable. Therefore, the allegation of the Appellant that the Update was unfair is baseless and against competition law principles, and ought to be dismissed.
- Competitive Pricing: The proposed business model of charging users a fee was never implemented in India except for a short duration to iPhone users. In any event, proposed revenue generation model can be either charging a fee or generating revenue through advertisements. The 2012 Privacy Policy and Update are wholly consistent with standard industry practice with respect to the collection and use of information to provide and improve the services. There are myriad examples across online markets, where intellectual property and data, including personal information, is shared by a company with its acquirer in order to help the combined company build upon the assets and capabilities of the acquired company.
Apart from the above, WhatsApp also contended that it is not dominant in any relevant market. It argued that the Explanation (a) to Section 4 of the Act sets out the test for dominance and states that for an enterprise to enjoy a dominant position, it must be in a position of strength that enables it to act independently of competitive forces prevailing in the market or affect competitors, consumers or the relevant market in its favour. Dominance cannot be based solely on an assertion that WhatsApp has high market shares. In a technology driven market that is dynamic and constantly evolving, market shares tend to fluctuate drastically and are not sufficient to show dominance. The Consumer Communications Applications space is characterized by significant entry and expansion, negating any alleged dominance. WhatsApp submitted that the dynamic nature of this space and the increasing reach of the internet and mobile telephony across the world has also led to significant entry and expansion by other consumer communications applications. Thus, it cannot be said to be dominant in any relevant market.
NCLAT Decision
The NCLAT primarily reiterating the decision of CCI held, that the Appellant was unsuccessful in showing abuse of the dominant position by WhatsApp. Even though, the NCLAT dismissed WhatsApp’s argument that it was not dominant in any relevant market. It propounded that merely holding a dominant position in a relevant market is not enough for it be contravention of the Act. It has to be established that there is abuse of the said dominance. NCLAT was also persuaded by WhatsApp’s argument that there is no imposition as it is not compulsorily put on the users to accept their terms and conditions under the pressure. Users were free to come out of their site if they are having a doubt or any other reasons.
Further, with regards to predatory pricing the NCLAT held that there are no significant costs preventing the users to switch from one consumer communication Apps to another as also almost all consumer communication Apps are offered free of costs and available normally by simple user interfaces.
The Tribunal did not delve into the merits of the other allegations with regards to the Information Technology Act, 2002 and the violation of Right to Privacy opining that both are beyond the scope of competition appeal.
Comments: As stated above, the present NCLAT decision provides only a temporary yet infructuous relief to WhatsApp, which may be used by it in arguments in the pending litigations in the Delhi High Court or the Supreme Court , since the CCI, based on its market study in telecom sector and media reports has since completely changed its view about the innocuous nature of the change in terms of service including the privacy policy of WhatsApp particularly concerning sharing of user data with Facebook (now Meta) and has directed investigation for possible abuse of dominant position by WhatsApp, which seems imminent to me .WhatsApp has already lost the first round of litigation in Delhi High Court and the judgement on its Appeal against the Single Bench order of 24th April 2021 is pending. Let’s keep our fingers crossed till the decision in the Appeal by the DB of the Delhi High Court. So India has now become the next battleground against the data monopolies of the Silicon Valley!
#WhatsApp #Facebook #Abuseoofdominance #dataprivacy #bigdata #antitrust
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