Competition Act, 2002 and Recent Probe into WhatsApp

Introduction

Whats App, the messaging platform which needs no introduction updated its privacy policy on Jan 4, 2021. This update in privacy brought an uproar in the country. The famous messaging platform was accused by many of framing policy which violated the privacy of its users. Many articles were written across printed and electronic medium which reported the concerns which might arise out of the new privacy policy of Whats App. There were many PILs and Writ Petitions filed in Constitutional Courts across the country. In all of this, there came a surprise, when the Competition Commission of India took a suo moto cognizance of the matter. It attracted attention of masses as how the anti-competition watchdog, whose moto is “Fair Competition, For Greater Good” seized itself of a matter which concerned with privacy of the people. In light of this setup, the aim is to study the intriguing question of how Competition Commission is empowered under the Competition Act, 2002 to take cognizance of this issue and in the process the developments in this ongoing case will also be studied.

UPDATE OF PRIVACY POLICY

On Jan. 4, 2021, Whats App messenger updated its privacy policy.[1] This policy allows Whats App to share data of its users with Facebook. The approach of the new policy is “take-it-or-leave-it” which means that the users either can accept the new privacy policy or they can leave the same. But, if the user denies acceptance of the new privacy policy, he will not be able to use the App. This means that to continue using Whats App, the user has to accept the new privacy policy, failing which he will not be able to continue using Whats App. The last date to accept these terms and conditions is 15th May, 2021. This development started a debate in the public and various articles were published which casted concerns about this approach of Whats App and the way in which it is treating its customers.

SUO MOTO COGNIZANCE TAKEN BY COMPETITION COMMISSION OF INDIA

The Competition Commission of India (herein after referred as CCI) took suo moto cognizance of the matter (Suo Moto case No. 1 of 2021) in its ordinary meeting held on 19th Jan., 2021. Section 19(1) of the Competition Act, 2002 empowers CCI to initiate suo moto enquiry into alleged breach of section 4(1) of the Competition Act, 2002. The coram included Mr. Ashok Kumar Gupta, Chairman and Ms. Sangeeta Verma and Mr. Bhagwant Singh Bishnoi, members. The commission stated that this decision was taken pursuant to perusal of various media reports and potential impact of policy and terms on the users. In this case, both, Facebook and Whats App were arrayed as opposite party.

DOMINANT POSITION UNDER COMPETITION ACT, 2002

Now, the main question arises. What wrong, if any, has Whats App committed under the Competition Act, 2002 that CCI took cognizance of the matter? The answer to this question given by CCI is “abuse of dominant position”. Before the law is applied to the facts of the case, it is necessary to go through section 4 of the Competition Act, 2002 which governs the issue.

Explanation to section 4 of the Competition Act, 2002 defines “dominant position”. As per it, “dominant position” is a position of strength, enjoyed by a firm in the relevant market in India, and this position enables the firm to: (i) operate independently of the market forces; or (ii) affects its competitors or consumers or the relevant market in its favor.

Now, section 4(1) of Competition Act, 2002 prohibits the abuse of the dominant position by any enterprise or group.

Section 4(2) of the Competition Act, 2002 states the conditions which result in abuse of dominant position. These are:

  1. 4(2)(a), if directly or indirectly, unfair or discriminatory condition or price is imposed on the consumers.
  2. 4(2)(b), if it restricts the providing of goods and service or restricts technical and scientific development to the prejudice of the consumers.
  3. 4(2)(c), if the practice of the enterprise results in denial of market access
  4. 4(2)(d), making conclusion of contracts subject to acceptance by parties of supplementary obligation, which have no connection with subject of these contracts.
  5. 4(2)(e) using dominant position in one market to enter or protect other market.

Thus, if any enterprise or group has dominant position, and it commits any of the action stated in section 4(2) of the act, it commits abuse of dominant position. This is prohibited under the Competition Act, 2002 and in case any such incident is found, then CCI can proceed with matter.

In the present case, it is alleged that Whats App, by updating its privacy policy is forcing its consumers to accept the same and allow it to share their data with third parties. In case someone fails to do so he/she will not be able to use the services of Whats App. This “take-it-or-leave-it” approach by the messaging giant is misusing of dominant position by imposing unfair conditions on the consumers. 

RESPONSE SOUGHT FROM FACEBOOK AND WHATS APP

Pursuant to the suo moto case, CCI, sought replies from Facebook and Whats App.

In their respective replies, Facebook contended that despite the fact that Whats App is owned by it, still both the companies are distinct legal entities and Facebook has nothing to do with the update in the Privacy Policy of Whats App.

Whats App filed confidential reply which was not accepted by CCI for want of Regulation 11 and 35 of Competition Commission of India (General) Regulations, 2009 not being observed.

Subsequently, Whats App filed public version of its response which stated its preliminary objections. CCI objected to the non-observance of the regulation, but went through the submissions in interest of justice, so as not to delay the matter further, but directed that the regulations must be followed immediately.

In its preliminary objection, Whats App raised various concerns. These were, firstly, the matter falls within the purview of information technology framework and these matters are sub judice before various courts. Thus, the Competition Commission of India must not intervene in a sub judice matter. Secondly, reference was made to verdict of Hon’ble Supreme Court in Competition Commission of India v. Bharti Airtel and Others,[2] which emphasized the need to maintain comity between decisions of different authorities, and since this matter does not fall within CCI’s ambit, it must restrain from intervening into it. Thirdly, by referring to Vinod Kumar Gupta AND Whats App Inc.,[3] it was contended that in this case CCI had ruled that its privacy policy of 2016 falls under information technology legal framework. Fourthly, reliance was placed on CCI’s order in Harshita Chawla v. Whats App Inc.,[4] and XYZ v. Alphabet Inc.,[5] to contend that issues pertaining to data collection and data localization need not be looked under Competition Law. Fifthly, the new privacy policy has yet not been enforced as it will come into force on 15th May, 2021, thus, as held in Harshita Chawla Case that since the policy has not been implemented, the allegation of abuse of dominance will be premature.

REJECTION OF PRELIMINARY OBJECTIONS

CCI rejected the preliminary objections of Facebook as well as of Whats App.

CCI stated that as per the new privacy policy of Whats app, data will be shared by Whats App with Facebook. In this way, Facebook becomes the beneficiary of this data sharing and, thus, it becomes important to array Facebook in this case as an Opposing Party so as to reach the truth.

CCI contented in its order that the judgements relied upon by Whats App have no relevance to the present case. As per CCI, Bharti Airtel Case has no applicability as in that case there was a conflict between statutory bodies, namely Telecom Regulatory Authority of India (TRAI) and Competition Commission of India (CCI). Former is the telecom sector regulator, while latter is the market regulator. Since, Whats App has failed to state the other regulator which is seized of the matter, this case cannot be applied.

In lieu of the orders of CCI referred, CCI stated that in those orders CCI had only ruled that Information Technology does not fall within its sphere and this does not bar CCI to proceed with the matter in which excessive data is being collected with relation to dominant position and unfair play in market. Also, as per section 62 of Competition Act, 2002, this act is in addition, and not derogation of other laws.

In relation of the objection of premature case, CCI stated that by bringing the policy and asking the users either to take it or leave it, motion has been brought by Whats App in pursuance of its new privacy policy. CCI also referred to section 33 of Competition Act, 2002 and stated that its duty includes prevention of anti-competitive activities and it can take cognizance even if such acts are about to be committed.

ORDER OF INVESTIGATION INTO THE MATTER

Having rejected all the preliminary objections, CCI proceeded to examine the case on merits that whether Opposite Parties have prima facie violated the provisions of section 4 of the Competition Act, 2002.

In its main submissions, Whats App justified its new privacy policy by contending that this policy brings in more transparency in the functioning of Whats App. It also stated that it uses “end-to-end encryption” and even Whats App cannot see users’ personal conversations. Thereby, Whats App requested CCI to refrain from ordering and investigation in the matter as it has submitted that there is nothing anti-competitive in its functioning.

CCI started with its order in Harshita Chawla Case, where CCI had studied the angle of relevant market in which Whats App falls. In this case CCI accepted the fact that there are numerous applications which are distinct from each other in terms of the services they offer. While inter alia some offer messaging, some offer video calls or just calls, some offer voice note facility and some provide a combination of these services. Also, there is difference in availability of these Applications, like Whats App and Facebook are available on variety of mobile operating system like Android, iOS, windows phone etc., while apps such as FaceTime and iMessage are available only on iOS. Thus, it is difficult to compartmentalize all these apps in water tight compartments. Hence, what has to be seen is the primary or the most dominant feature(s) of the app so as to categorize it in a particular relevant market. Thus, CCI ruled that Whats App operated in the “market for Over-The-Top (OTT) messaging apps through smartphones in India”.

This case also dealt with the existence of dominant position of Whats App. CCI had noted in this case that Whats App is the second most used messaging platform followed by Facebook Messenger, both of them owned by same group. Whats App is way ahead of its competitors and since it has a broad consumer base, being on Whats App added to the value of the consumer or business being available on it as by means of it, they could approach all the other people who are already using the platform, and vice versa. This network effect worked for Whats App as a consumer cannot shift to some other messaging platform unless all his all other contacts also do the same and his all other contacts will shift only when their contacts shift to some other platform. Thus, the net effect of these factors gave a dominant position to Whats App in the relevant market.

CCI now highlighted the fact that Whats App is providing no option, rather it is imposing the condition to accept the sharing of data with third parties. CCI observed that in the privacy policy of 2016, as seen by it in Vinod Gupta Case, Whats App had given its users an option to opt out of sharing of data with Facebook.

CCI also highlighted that in the new privacy policy, Whats App is collecting excessive data which in opinion of the commission is unduly expansive and disproportionate. This included transaction and payments data, signal strength, data related to battery level, app version, ISP, mobile operator, device operation information, language and time zone and location information, even if the user does not use features requiring location, and above all sharing data with Facebook.

CCI was of the view that users being owners of their personal data are entitled to know the extent, scope and purpose of collection of such vast data and sharing of the same with Facebook. CCI noted that the wording used in the privacy policy was too broad, vague and unintelligible. For example, it has not been defined what Whats App means by “interact with others”, “service related information”, “payment of business feature”, “mobile device information” etc. In numerous places, phrase like “such as”, “for example”, “includes” etc. had been used. This shows that the list is not exhaustive. As per CCI it was opaque, vague, open-ended and incomplete so as to ascertain the actual cost of data being collected and shared by Whats App.

Thus, ex facie Whats App was imposing unfair conditions on users, making a condition that would deny market access to others and there existed the possibility that the collected data might be used to enter or protect any other market. This made a prima facie violation of sections 4(2)(a)(1), 4(2)(c), and 4(2)(e) of the Competition Act, 2002.

Based on these facts, CCI made a prima facie opinion that the matter required investigation in lieu of the fact that the privacy policy has far reaching implications, the “take-it-or-leave-it” approach added to the fact that Whats App already has a dominant position in the market. Also, as per CCI, the veracity of the claims made by Whats App could be studied only by means of investigation.

Hence, CCI in order dated 24.03.2021, has directed an investigation in the case by the Director General under section 26(1) of the Competition Act, 2002. It has also directed the investigation to be completed within span of 60 days.

The opportunity for oral submissions, sought by the Opposite Parties was denied by CCI by citing the judgement of Hon’ble Supreme Court in Competition Commission of India v. Steel Authority of India Ltd.,[6] where the court had held that there exists no statutory obligation on CCI, nor there is any right of the parties for oral submissions at this stage when CCI is merely forming an opinion for directing an investigation.

WRIT PETITION IN DELHI HIGH COURT

It must also be noted that, both Whats App and Facebook had filed Writ Petition in Delhi High Court, where Whats App justified its new privacy policy and it was also contended that the matter relating to new privacy policy is already pending in Supreme Court and Delhi High Court and, thus, CCI, being a comparatively inferior authority, cannot intervene in the matter. It was prayed that the order of CCI directing a probe into the matter be set aside.

In this petition, CCI submitted before the Hon’ble High Court that CCI has merely ordered investigation and its role will come into play only if the report of Director General finds an abuse of dominant position. CCI also justified its order on the ground that being the sectoral regulator, it is its statutory duty to save the interest of the consumers and prevent abuse of dominant position by any enterprise.

The Hon’ble High Court rejected the petition of Whats App and Facebook and refused to set aside the order of CCI directing investigation into the matter.

THE ROAD AHEAD

At this stage, what CCI has done is merely ordering a probe into the matter. If the report of Director General does not find any violation, the case will be closed. In case, the report of Director General finds violation of the dominant position, then CCI will share the report with Opposite Parties and their objections will be invited. After the objections will be filed by the Opposite Parties, CCI will conduct oral hearing to give an opportunity to the Opposite Parties to support their case. Once, this procedure is followed, then CCI will pass its order in the case.

CONCLUSION

The matter is sub judice and, thus, no one can be condemned for any action at present. But, in a country like India which does not have any data protection or privacy law, it will be a boon that any other statute can take the responsibility, though limited to its ambit, but yet something is better than nothing. Though, it is not for nothing, that in the modern era, driven by technology and data, it is essential for every country to have its laws which regulate data protection and preserve privacy of an individual. Now what happens in the present case, is of course a matter of time and outcome of proceedings, which will come out soon.

Author: Parth Mahjan.


[1] https://www.whatsapp.cpm/legal/updates/privacy-policy/?lang=en (last visited on 20th Apr., 2021).

[2] (2019) 2 SCC 521.

[3] Case No. 99 of 2016.

[4] Case No. 15 of 2020.

[5] Case No. 07 of 2020.

[6] (2010) 10 SCC 744.

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