2021 (3) TMI 1460 - CCI - Law of Competition

Abusing of dominant position in launching their payment app services - contravention of the provisions of Section 4 of Competition Act 2002 - HELD THAT - It is noted that Section 4 of the Act proscribes abuse of dominance by an entity commanding dominant position in relevant market. Thus delineation of relevant market is essential to define the boundaries of the market to ascertain dominance and for analysing the alleged abusive conduct. Recently the Commission had an occasion to examine the relevant market in the context of business practices of WhatsApp and Facebook in Harshita Chawla case wherein an Information was filed before the Commission alleging inter alia contravention of the provisions of Section 4 of the Act against WhatsApp and Facebook for abusing their dominant position in launching their payment app services. The Commission concluded that WhatsApp is dominant in the relevant market for OTT messaging apps through smartphones in India. As such in light of the said holding of the Commission in Harshita Chawla case there is no occasion to separately and independently examine the issue of relevant market and dominance of WhatsApp therein when there is no change in the market construct or structure since the passing of the said order in August 2020 and announcing of the new policy by WhatsApp on January 04 2021 which itself seems to emanate out of the entrenched dominant position of WhatsApp in the said relevant market as detailed in this order. In VINOD KUMAR GUPTA VERSUS WHATSAPP INC. 2017 (6) TMI 1399 - COMPETITION COMMISSION OF INDIA (LB) the fact that WhatsApp provided an option to its users to opt out of sharing user account information with Facebook within 30 days of agreeing to the updated terms of service and privacy policy was a critical consideration in deciding against the alleged contravention by WhatsApp. As against this the new privacy policy has removed the opt out option given to the users and the users have now to mandatorily agree to sharing of their personalised data by WhatsApp with Facebook Companies and further the policy envisages data collection which appears to be unduly expansive and disproportionate. The Commission is of prima facie opinion that the take-it-or-leave-it nature of privacy policy and terms of service of WhatsApp and the information sharing stipulations mentioned therein merit a detailed investigation in view of the market position and market power enjoyed by WhatsApp. The Commission has also taken note of the submission of WhatsApp that 2021 Update does not expand WhatsApp s ability to share data with Facebook and the said update intends to provide users with further transparency about how WhatsApp collects uses and shares data. The veracity of such claims would also be examined during the investigation by the DG. On a careful and thoughtful consideration of the matter the conduct of WhatsApp in sharing of users personalised data with other Facebook Companies in a manner that is neither fully transparent nor based on voluntary and specific user consent appears prima facie unfair to users. The purpose of such sharing appears to be beyond users reasonable and legitimate expectations regarding quality security and other relevant aspects of the service for which they register on WhatsApp - The impugned conduct of data-sharing by WhatsApp with Facebook apparently amounts to degradation of non-price parameters of competition viz. quality which result in objective detriment to consumers without any acceptable justification. Such conduct prima facie amounts to imposition of unfair terms and conditions upon the users of WhatsApp messaging app in violation of the provisions of Section 4(2)(a)(i) of the Act. The impugned data sharing provision may have exclusionary effects also in the display advertising market which has the potential to undermine the competitive process and creates further barriers to market entry besides leveraging in violation of the provisions of Section 4(2)(c) and (e) of the Act. As per the 2021 update to the privacy policy a business may give third-party service provider such as Facebook access to its communications to send store read manage or otherwise process them for the business. It may be possible that Facebook will condition provision of such services to businesses with a requirement for using the data collected by them. The DG may also investigate these aspects during its investigation. The Commission is of the considered opinion that WhatsApp has prima facie contravened the provisions of Section 4 of the Act through its exploitative and exclusionary conduct as detailed in this order in the garb of policy update. A thorough and detailed investigation is required to ascertain the full extent scope and impact of data sharing through involuntary consent of users - the Commission directs the Director General (DG) to cause an investigation to be made into the matter under the provisions of Section 26(1) of the Act. The Commission also directs the DG to complete the investigation and submit the investigation report within a period of 60 days from the receipt of this order.

Summary

Issues Involved:
1. WhatsApp's updated privacy policy and terms of service.
2. Mandatory data sharing with Facebook and its subsidiaries.
3. Compliance with Competition Commission of India (CCI) regulations.
4. Whether Facebook should be a party to the proceedings.
5. Jurisdiction of CCI in light of other ongoing legal proceedings.
6. Examination of WhatsApp's dominance in the relevant market.
7. Potential abuse of dominance by WhatsApp under Section 4 of the Competition Act, 2002.

Detailed Analysis:

1. WhatsApp's Updated Privacy Policy and Terms of Service:
The new privacy policy mandates users to accept the updated terms to continue using WhatsApp, effective from February 8, 2021. This policy includes sharing personalized user information with Facebook and its subsidiaries. Unlike previous policies from 2016 and 2019, which allowed users to opt-out of data sharing, the new policy does not provide such an option.

2. Mandatory Data Sharing with Facebook and its Subsidiaries:
The Commission observed that the new policy requires users to mandatorily accept data sharing terms, which include sharing transactional data, device information, and location data with Facebook. This data sharing is a precondition for using WhatsApp services, which the Commission found to be unduly expansive and disproportionate.

3. Compliance with Competition Commission of India (CCI) Regulations:
The Commission noted that WhatsApp's response to the CCI's queries was not in compliance with Regulation 35 and Regulation 11 of the Competition Commission of India (General) Regulations, 2009. WhatsApp's plea that requiring companies to sign every submission is a "cumbersome obligation" was found to be inconsistent with the General Regulations.

4. Whether Facebook Should Be a Party to the Proceedings:
Facebook argued that it should not be a party to the proceedings as WhatsApp operates independently. However, the Commission found this argument evasive and noted that Facebook is a direct beneficiary of the new updates. Therefore, Facebook's request to be removed from the array of parties was rejected.

5. Jurisdiction of CCI in Light of Other Ongoing Legal Proceedings:
WhatsApp contended that the issues are sub judice before various courts and fall under the purview of information technology law. The Commission, however, held that it is examining the policy update from a competition perspective to ascertain if there are any competition concerns under Section 4 of the Act. The Commission emphasized that its jurisdiction is complementary to other laws and not in derogation of them.

6. Examination of WhatsApp's Dominance in the Relevant Market:
The Commission reiterated its previous finding from the Harshita Chawla case that WhatsApp is dominant in the "market for Over-The-Top (OTT) messaging apps through smartphones in India." The Commission noted that WhatsApp's entrenched dominant position is reinforced by network effects, making it difficult for users to switch to other platforms.

7. Potential Abuse of Dominance by WhatsApp under Section 4 of the Competition Act, 2002:
The Commission found that the "take-it-or-leave-it" nature of the new privacy policy and the mandatory data sharing terms prima facie appear to be unfair and unreasonable. This conduct could amount to an imposition of unfair terms and conditions in violation of Section 4(2)(a)(i) of the Act. The Commission also noted that the data sharing provisions could have exclusionary effects in the display advertising market, potentially violating Sections 4(2)(c) and (e) of the Act.

Conclusion:
The Commission directed the Director General (DG) to conduct a thorough investigation into the matter under Section 26(1) of the Act, to be completed within 60 days. The DG is also to examine the confidentiality claims made by WhatsApp. The Commission clarified that this order does not constitute a final opinion on the merits of the case.