#3 Updates on Law, Economics, Policy

CCI order on WhatsApp Privacy Policy; Cartography of Supply Shocks.

Nov 28, 2024

Law Updates

In Re: Updated Terms of Service and Privacy Policy for WhatsApp users

The Competition Commission order on WhatsApp and Meta is out. I briefly summarised it here. It is well-reasoned except on some issues and lays down elaborate legal justification and data for its findings. Following are some important findings:

Jurisdiction co-extensive:

Reliance was placed on Excel Crop Care Limited v. Competition Commission of India and Anr. (2017) 8 SCC 47 and on the Delhi HC order in this matter against which a SLP was dismissed by the SC, restated the accepted position that the jurisdiction of CCI was independent and could be concurrent with other authorities deciding other issues of law. It was emphasized that anti-competitive practices in digital markets encompass user-data that is wider than ‘personal data’ and includes anonymised data.

Market I — Market for OTT messaging services through Smartphones
1. Relevant Market u/s 2(s) and 2(t):

The CCI upheld the DG findings that the relevant market in case of WhatsApp privacy policy update be the market for OTT messaging through Smartphones. Facebook was dropped as not a related party, while Meta and WhatsApp were retained. WhatsApp contended that the relevant market should be the “market to gain and retain user attention.” The narrowest possible definition according to WhatsApp was “consumer messaging services”. WhatsApp was not found to be dominant in either of these markets by the DG. Their submission further was that the relevant market definition should not be distinguished based either on the kind of service (Don’t exclude Netflix, Koo, X, Emails, Slack, Zoom, etc.), modality( Don’t exclude SMS, MMS, RCS; or proprietary services such as FaceTime) or device(Don’t exclude Laptops, Tablets) through which it operates. The OPs also contended that they were competing with the global market. The share of WhatsApp and Messenger in an older judgment was decided to be 45-50%. (See para 18 here)

The CCI, in my opinion correctly held that conceding those definitions of a product market and geographical market was too wide to stand the test of 19(6) or 19(7). The CCI has held similarly for WhatsApp before. The CCI held that multi-purpose integration of WhatsApp and ease in accessing it distinguishes it from other mono-purpose services. They clearly demarcated and distinguished the use-purpose, type of service, device compatibility provided by the related apps. In what is likely to be critical going forward, the geographical limits were construed to be that of India and not global as contended by WhatsApp because the regulatory conditions are homogenous within India.

b. Dominant Position (S. 19(4))

Meta in addition to WhatsApp also controls facebook, facebook messenger and instagram messenger. The following criteria were considered by the CCI for investigating dominant position:

Direct network effects, the strong lock-in effects, absence of countervailing buying power, and control over huge data acting as barriers to market entry.

Reliance was placed on Daily Average Users, Monthly Average users(Number of users engaging with the service at least once in a month), Statista Consumer Survey to demonstrate that Meta in general and WhatsApp in particular have a very high share of the OTT messaging market. The growth in user base has also been substantial. The 2021 update did not affect the usual growth of MAU or DAUs and people continued to sign up involuntarily. What proportion of people signed up was voluntarily can’t be known.

Scale of users, lock-in and the network effect prevents users and advertisers from switching, thus leading to great dependence and minimising countervailing buying power of consumers (S. 19(4)(i)). The OPs contested that Indians were multi-homing and WhatsApp users had no dependence as in 19(4)(f). Commission contradicted the claim of extensive multi-homing using the MAU data of other apps which was much lesser compared to WhatsApp. It is trite to state this, but there also was no rival in assets and RnD spending to Meta.

The CCI also held that indirect and direct positive network effects, multi-sided market ecosystem akin to a vertical integration has led to an ongoing and reinforced dominance in the OTT Messaging through Smartphones Market. The CCI held network effect and status quo bias to be the most critical barrier for entry in this market. The CCI further underscored the dynamism required in market assesment in distinguishing its earlier judgment in a combination matter where it observed that consumer messaging markets do not have entry barriers. The CCI observed that while data sharing may be allowed for smaller companies, the bigger companies have an additional responsibility to beware of the anti-competitive effects of such practices.

The OPs contended that the zero-priced markets where competitors can grow fast must be studied in a appropriate economic paradigm different from traditional markets. Looking at data-use is crucial for zero-priced digital markets, and the CCI did appreciate the volume and use of data by the OP very well.

c. Abuse of Dominant Position (s. 4(2)(i) — Direct or indirect imposition of an unfair or discriminatory condition in Purchase of a Service)

i. “Imposition”: Meta’s take-it-or-leave-it privacy policy update which forced users to either accept their policy or delete the account [Condition] was a unilateral dictation of terms. The 2016 policy had optional data sharing but this was made mandatory in the 2021 update and was coercion to accept terms by Meta through WhatsApp.

ii. “Unfairness”: Lack of Bargaining Power, Unfair dictation of terms made possible by dominance as illustrated above. In an important observation, the CCI held that Privacy reduction is a reduction of consumer welfare in non-price parameter markets. Between 05.01.2021 and 07.05.2021 a sense of urgent fear was induced.

Market II — Online display advertising Market

Relevant Market:

Online and Offline Advertisement Markets are different and non-substitutable but complementary markets because of audience, cost, purpose, RoI, tracking and monitoring, reach. Reliance was placed for this on European Commission Orders in Google Search (AdSense) case (Case No. AT. 40411). Further, it held that Search Advertising and Display Advertising are different markets because search advertising is “intent driven” while display advertising is “audience driven” and based on the distinction between their zone of operation on the marketing funnel (could be an excellent conceptual device elsewhere too). Even here the market were deemed restricted to India.

Dominant Position — Puzzling that no dominance found u/s 19(4), reasons unknown, less understood

Meta was not found to be a dominant firm in this market. Meta argued that impressions are an inappropriate metric to assess market share or market position and other players’ has increased, the commission disagreed and showed that both revenue from digital advertising and impressions were disproportionately lorded over by Meta. Meta further argued that the online and the offline markets were substitutes as far as it was concerned, which was summarily rejected by the CCI. But, Google and Amazon both closest competitors were not close to either the impressions, revenue or revenue-growth generated by Meta. CCI also contended that the “potential benefit to users”(20(4)(n)// 19(3)(d)) argument had a very high threshold under the act, the burden was on the OPs and it had not been met by OPs. Having held this, it is unclear to me why the DG did not give a finding that Meta dominated this market.

Google and Meta have comprehensive data and are dominant entitites, and in the display advertisement market. Meta’s acquisition of data would be further detrimental to competition as no other data including any other third party data has even remotely similar strategic value. Sharing of data from WhatsApp to Meta can enable an even higher entry barrier for new firms. In presence of such personalised and localised data, switching costs remain high for advertisers too. The CCI reiterated that data integration by dominant firms is on a separate footing as against non-dominant firms. Google had been found dominant in the search advertising Market before. It appears that Meta was not found dominant in this market because other competitors like Google, Amazon exist.

Order — Abuse of Dominant Position — Denial of access in “any manner”, Use of dominant position in one market to protect position in another market, imposition of unfair condition on purchase

The commission found Meta through WhatsApp contravened 4(2)(a)(i) by forcing users to accept a compulsory transfer of their data to Meta. Further it held that, sharing of data by WhatsApp contravened 4(2)(c) by creating an entry barrier in digital advertising market, And, that as per 4(2)(e) Meta abused its dominant position in Market I to secure its position in Market II. The privacy policy was forced in Market I to tunnel the data to Market II, which would create unfair advantage for Meta in Market II. A cease and desist order for five years was issued. The CCI clarified that for imposing fines the relevant limit turnover for computation of such penalty, was the global turnover for the market relevant to the assailed action; but the CCI applied penalty only based on the Indian Turnover of WhatsApp and the Indian turnover of Meta in digital display advertising. Data sharing for non-advertisement purposes is allowed only where such purpose is explicitly communicated to the user. The public order expunged data and other details.