This article has been written by Eesha Bisht & Ahana Sarin, 4th year B.A. L.L.B (Hons.) students at Symbiosis Law School Pune
Introduction
The authors in this present study analyze the Indian and International Jurisprudence on the antitrust-privacy implications of Facebook acquiring WhatsApp. In the first segment, the researchers briefly delve into the decision of the Federal Trade Commission (FTC) and the European Commission (EC) on privacy and antitrust issues. The aim is to highlight the gaps in the merger regulations and lay down a blueprint of a regulatory framework which should be adopted by the Competition Commission in India while examining similar combinations. The second section of the paper critically examines the decision rendered by CCI when WhatsApp’s altered its original privacy policy as a result of this acquisition and which was contested under Section 4 of the Competition Act. The final segment deduces the findings of our research and offers suggestions to be adopted in the Indian Regime.
ACQUISITION RATIONALE
WhatsApp can easily be downloaded and accessed across all interfaces. There is no payment that has to be made to avail its messaging or calling services, it is hassle-free and has an easy-to-use interface. WhatsApp is also accessible in remote locations because it manages to run on a basic 2G network. This acquisition deal is therefore highly beneficial for Facebook considering the huge consumer base WhatsApp had already garnered before the deal and which now also, continues to increase. The fallacies of this acquisition however, are the associated privacy risks. Consumers want to share their private information with companies they trust. The Internet and its capability to provide entertainment and communication means are also increasing day by day. However, concerns again arise over the data that companies collect. It can not be denied that Facebook has a habit of tracking user location and their search history. After this acquisition deal, users are once again concerned over the manner with which Facebook will try to collect users’ personal information on WhatsApp. More negative effects can be faced by consumers in 2021, considering how Facebook has now once again decided to alter WhatsApp’s privacy policy.
CONTROVERSIES ENCOMPASSING THE ACQUISITION
Facebook has structured a business model which monetizes consumer data. The prima facie “free of cost” social media platform installs cookies on the web browser which enables “mining” consumer preferences based on consumers’ searches, likes, etc. This refined information is crucial for advertisers since they utilize this data for customizing user-specific targeted advertisements. Facebook’s decision to acquire WhatsApp has been raising anti-trust and privacy concerns since a long time. The Electronic Privacy Information Center argued that the execution of this deal would endanger the privacy of WhatsApp users who would inevitably fall under the ambit of intrusive tracking practiced by Facebook. Additionally, it was believed that the integration of these “data rich” companies would consolidate Facebook’s already dominant position in the online advertising market and in the long run lead to foreclosure of competition.
The FTC and EC in the approving order stated that Facebook and WhatsApp essentially cater to different sets of consumers since Facebook depends upon user-profile to initiate one-to-many communication and WhatsApp depends upon phonebook contacts for one-to-one communication. Another noteworthy observation made by both the Commissions was that Facebook is not controlling any “unique data” which would cause any harm to competition. This reasoning flows from the fact that access to huge amounts of data is not per se illegal, it is only if the data is essential for the other firms, and is exclusively available with the dominant firm, can the practice be deemed anti-competitive. Further, the US Supreme Court quantifies dominance by stating that it is the monopolist’s ability to raise the price of a product/service greater than the prevalent market price [1]. Facebook offers its services free of cost and thereby even though it has a prominent market share, authorities cannot compartmentalize it as a monopolist. The survey undertaken by the authors with competition law experts however deduced that 100% of the respondents perceive Facebook to be a “datapolist”.
The European Commission took the aid of the SSNIP test which is used to identify the relevant market, by examining whether consumers would “substitute” the products of the competitors. In other words, this relates to the transferability of demand or degree of transferability within closely related products amongst which substitutability exists. In the realm of online-advertisements, EC held that the relevant product market was to be delineated from the perspective of the advertisers i.e., whether they would substitute offering advertisements from Facebook to WhatsApp. Since WhatsApp is advertisement-free, the answer was negative, paving the way for this approval.
PRIVACY RISKS
In respect of the privacy issues, FTC had granted a “conditional approval” to the merger on the grounds that WhatsApp shall respect its pre-merger policy. That is, WhatsApp’s promise to not utilize consumer data would remain unchanged upon Facebooks’ acquisition. However, in 2016 WhatsApp announced the merging of its data with Facebook. Heavy penalties was therefore imposed on Facebook by both the jurisdictions under Section 5 of the FTC Act and Article 14 of the EU merger regulations on grounds of consumer deception. The researchers however hold that the gigantic amount of profit earned by Facebook outweighs the fines imposed on it and thereby would not prove effective in the long run, the same observation was also affirmed by a majority opinion.
Additionally, the Cambridge Analytica Scandal wherein Facebook shared customer data with a third party leading to psychological warfare on consumers, portrays the privacy risks associated with the merger of data-rich companies. The constant collection of data accompanied by the strict “accept” or “leave” our platform leaves no room for negotiations, coercing consumers into accepting privacy policies. Thereby, by threatening “consumer privacy”, consumer welfare is compromised. It can be deduced that data privacy in the contemporary era forms a non-price attribute of competition giving an innovative edge to these firms. It states that even by offering free of cost services and not engaging in low price strategies, access to data is enough to make a venture profitable since marketing products and services to consumers with this information becomes a cake-walk for firms, garnering huge revenue.
The researchers believe that both the jurisdictions have relied upon the Google Double-click precedent for stating that “privacy issues flowing from mergers are outside the purview of our jurisdiction”. Google and Double-click were pioneers in the field of consumer information obtained through search history and browsing data. The merger sought approval from the authorities despite raising data concentration issues [2]. The researchers however deem the above approaches as very narrow and theoretical, and thus staunchly advocate that the merger of two giants having an enormous volume of data inevitably leads to foreclosure of competition for firms that do not have access to such refined data.
Empirical studies have found that a greater volume of data improves a search algorithm which in turn improves the “accuracy” of analyzing consumer needs. Even though the EC recognizes the potential entry barriers created by such mergers, it fails to appraise them while approving acquisitions. These data cartels are endangering new and small entrants by utilizing superior technological infrastructure accompanied with data that permits them to monitor consumers to an extent which enables them to control both the demand and supply chain of products. Facebook, along with other technology giants is also being subjected to a rigorous investigation by the US Congress for privacy violations and consumer deception. However, the antitrust risks of its acquisitions as well as predatory copying features have still not been contested.
The only exception to the blanket exclusion of privacy from the competition law regime has been portrayed by Germany’s national competition regulator, Bundeskartellamt. This Authority has stated that by virtue of having a huge consumer base, Facebook is in a dominant position which it abused by imposing unfair terms of use upon consumers, which forced them to share their data, and rendered them clueless about the methods and purpose of data collection. The ratio rendered in this landmark ruling paves way for rectifying the existing competition regime in India wherein the appreciable adverse effect flowing from this acquisition was overlooked by the CCI in the case of Vinod Kumar Gupta, Chartered Accountant vs. WhatsApp Inc [3]. The petitioner Mr. Gupta, contended that WhatsApp had violated Section 4(1) of the Competition Act and abused its dominant position. It was alleged that since Facebook under WhatsApp’s new privacy policy was collecting the personal data of users, it should be held liable for abusing its dominant position. The Competition Commission of India agreed that WhatsApp has a dominant position but stated that since its calls/messages facilities are protected by being end-to-end encrypted, there was no threat to user privacy. Additionally, a user also had the freedom to delete his account as noted by the Delhi HC in Karmanya Singh Sareen and Others vs. Union of India [4]. Secondly, the commission cited alternatives in the market such as Hike messenger and Viber which were offering free communication services like WhatsApp and thereby deduced that there was no predatory pricing or entry barrier by WhatsApp.
According to the authors, the CCI herein could have taken a more active stand which could have ensured that no company misuses data of consumers in India. Any acquisition deal for that matter needs to respect the data privacy of users because, at the end of the day, the Competition Act, 2002 does cater to consumer welfare while also promoting healthy competition under Section 18. Without adequate checks and balances, privacy as a right will remain unfulfilled especially when the potential to intrude upon privacy is much more than what it was in the earlier decade. In the absence of any concrete regulation, consumer’s privacy can be exploited.This calls for the CCI to keep a stricter check over such companies, especially with regard to their privacy and data sharing policies. Thus, not holding Facebook liable under Section 4 exemplifies CCI’s lack of assessment which is also seen in the approval rendered by CCI to Flipkart’s acquisition by Walmart (2018) due to absence of any appreciable adverse effect on competition which restricts and limits the healthy market competition. The Commission by noting that the unemployment issues which might accrue to the small and medium enterprises were not anti-trust issues. The authors hold that the present acquisition of WhatsApp by Facebook has not been assessed appropriately. This acquisition would lead to a merger of consumer data on both the platforms which would enable sellers to tap consumer preferences and increase their sales, a luxury facility not available to the offline sellers. In the case Mr Ashish Ahuja vs. Snapdeal [5], the CCI acknowledged the nexus amongst online and offline markets for a product. It was stated that the consumers compare prices of the same product in the online and offline market and decrease in price in either of the platforms would attract them towards that market. Thus, it was stated that e-commerce and traditional markets are different distribution channels for the same products and not different relevant markets. It appears that Walmart’s acquisition in Flipkart would enable Flipkart to exert its dominance as a prominent e-commerce platform which would drive out small enterprises. This approval again raises data-privacy issues, which have been overlooked by CCI.
Herein European privacy laws serve as an example as they focus on providing adequate privacy measures to safeguard privacy. For instance, Article 4 of GDPR defines consent, and companies can proceed with collecting consumer data only if they obtain informed consent for the same. In India too, under the Competition Act, such a framework can be adopted.
Furthermore, under New Zealand’s Privacy Act 2020, companies can only collect information which is required for business, and they then have to dispose it later. Non-compliance herein can result in a heavy fine and even certain criminal penalties. Adopting the New Zealand model of ensuring data privacy in India under the Competition Law regime can do wonders, and help secure the personal information of consumers in the best possible manner.
CONCLUSION
This acquisition has enhanced Facebook’s potential to store, manipulate, and unethically share massive quantities of data as is evident from the doctrinal research. Therefore, it is required that Facebook follows an adequate code of conduct. To subvert the threats and convert them into an opportunity, Facebook should follow the FTC order and EU GDPR guidelines to abide by principles of transparency, user choice, and control, openness, and minimum retention of data. Additionally, the researchers have successfully established the importance of data which enables these big giants to constantly innovate services and thereby, it is deduced that data is a source of market power. Furthermore, privacy degradation is deemed as a “non-price” element of competition and is not utilized as a tool to measure abuse of dominance by FTC and EC so far. However, the Competition Commission can go one step ahead and perceive data as any other commodity, and adopt the approach which is in tandem with the German antitrust authorities. CCI should use its antitrust authority to regulate the merger of companies that consolidate user data and thereby threaten consumer privacy and welfare which it did not adopt in the Vinod Kumar Gupta case. To tackle the issue of foreclosure of competition, the CCI can also order firms having a substantial market share to mandatorily license data to new entrants, as was followed when the Thomas Reuters Acquisition was approved. Data in the 21st century can be deemed to be a “crown jewel” intangible asset for companies. The same can be protected by way of intellectual property, such as Microsoft has done. Microsoft Corp. vs. Commission [6], reflects how IPR can become roadblocks in access to essential facilities. Microsoft herein denied access to essential information to its rivals required for developing an operating system for Windows PC. The European Commission held that Microsoft’s Intellectual property would protect only the “software” which it has created but not the “information” since there is no substitute for the latter.
Microsoft was alleged to have abused its dominance under Article 82 of the TEFU by stating that:
a) Refusal to license an IPR indispensable for an activity in a related market
b) Intention to exclude competition by refusal
c) Refusal prohibiting the development of a product having consumer demand amounts to abuse of dominance.
The authors draw an analogy with the Microsoft case to state that “data” is an essential facility for firms and it has no “substitute”. The big tech companies like Google, Facebook, and Amazon etc. have utilized this data and tapped into consumer preferences compromising privacy and deterring competition. It is hoped that the US Department of Justice’s findings against these giants would alter the international anti-trust regime in a manner which prevents such abuse of dominance.
ENDNOTES
[1] NCAA vs. Board of Regents of the University of Oklahoma, 468 U.S. 85 (1984).
[2] Case No COMP/M.4731 – Google/ DoubleClick, https://ec.europa.eu/competition/mergers/cases/decisions/m4731_20080311_20682_en.pdf.
[3] Vinod Kumar Gupta, Chartered Accountant vs. WhatsApp Inc., https://www.cci.gov.in/node/3189.
[4] Karmanya Singh Sareen and Others vs. Union of India, 233 (2016) DLT 436.
[5] Mr Ashish Ahuja vs. Snapdeal, https://www.cci.gov.in/sites/default/files/172014.pdf.
[6] Microsoft Corp. vs. Commission, 2007 WL 2693858.