Contemporary Issues

[By Tawishi Beria]  The author is a student at the Jindal Global Law School.  Part I Introduction The rapid rise of digital activity across the globe, bringing with it a growth in the might of a select few companies in such digital markets, has raised several concerns, including antitrust and privacy-related issues. In light of the nature of digital markets, characterised by very strong network effects, use of big data, continuous innovation, the existence of barriers to expansion and entry and so on, regulation of any activity that seeks to augment the market power of these digital companies becomes necessary. Ex-ante regulation of digital markets has been suggested by some scholars as a way to face the challenges arising. Considering this, looking at how reviewing mergers and acquisitions (‘M&A’) warrants a change in terms of digital companies becomes pertinent, given that M&A is a tool that already entails ex-ante assessment on part of the competition authorities. BigTechs have been observed as being ‘remarkably active in M&As’ for various purposes. Even though M&A transactions are generally seen as entailing softer antitrust scrutiny, certain factors are analysed by competition authorities looking at the counterfactual. Deals involving digital companies, two factors that become important are innovation and data protection and privacy. Through this article, the author seeks to assess the interplay of conflict between these factors and understand the need for balance and where it lies. This is the first part of a two-part piece. In Part, I, the need for considering innovation and data privacy as factors during merger review in digital markets is assessed independently. This part further looks at the interplay and conflict between the two factors in terms of actual and hypothetical scenarios. Part II analyses two deals involving Facebook and concludes by highlighting the need for changes in enforcement. Considering the factors independently Competition authorities across the world use various determinants to assess the possible pro-competitive and anti-competitive effects of an M&A deal on consumers. Some factors can clearly be demarcated into these categories. However, the two factors that are the subject of this paper-innovation, and privacy, do not strictly classify as either inherently pro-competitive or anticompetitive and can take both forms on a case-to-case basis. In this part, the author briefly argues for considering these factors in merger review, given the debate. 1.     Innovation Although innovation has always been considered as a factor alongside traditional factors like price, quantity, consumer choice, and quality in merger assessment, it has recently gained more attention. Notably, evidence from digital markets on this front is still almost non-existent. However, killer acquisitions in digital markets are very common, requiring consideration of the innovation parameter. When entities with diverse products/services merge, the portfolio effect also comes into play, facilitating increased range, bundling, leveraging, and ultimately deterring innovation. In markets like digital markets, firms can safely be assumed to compete in ‘innovation spaces’ in addition to the relevant product market, mandating analysis. Even though not related to digital markets, the Dow/DuPont merger laid the ground for and provides valuable insights into the innovation theory of harm in M&A deals. In that case, the concern was that ongoing parallel innovation efforts would be disincentivised due to the merger of horizontal competitors. Likewise, the concern in digital markets is that of continued investment in innovation by merged entities. Further, in the case of digital companies, when data, especially in large amounts, comes into the equation, the focus shifts to an interest in data from one previously purely in innovation. Therefore, keeping a check to ensure innovation is necessary. 2.     Data Privacy The consideration of privacy concerns arising from an M&A deal has been debated, since it is argued by some that privacy is not a competition law-related factor, warranting no consideration. However, in digital markets where M&A activity is largely data-driven, the protection of this data and privacy is required. In terms of ensuring consumer welfare, the vulnerability of consumers has to especially be considered in countries like India where consumer protection laws are relatively insufficient and data protection laws are not in place yet. Even in other countries, data protection laws cannot block M&A deals and digital companies do attempt to comply with such laws; accordingly, the author believes that considering the privacy factor reflects the best approach. Given the merged entity’s larger user base, the potential competitive advantages that can be gained by accessing and using big data are relevant. Over the last few years in some data-driven markets, Big Techs have increased their market share, instead of being disrupted by new and innovative services. An increased market share (a direct consequence of any M&A activity) also means an increased volume of data rich in variety and value, along with an enhanced velocity of generation and processing of such data. Coupled with other characteristics of digital markets like network effects and barriers to entry and expansion, it becomes extremely essential to keep a check on the activities of entities that have such data at their disposal. Looking for the Balance Having set out the need to consider these factors, the author now seeks to assess the required balance. The possible interface between the two in certain approved deals and hypothetical situations is elaborated on, addressing questions like what if a particular deal adds to innovation but jeopardises privacy or what if a deal might result in excessive market power but increases innovation and enhances data protection, or how to determine the weight given to these factors. Looking at these factors in actual cases shows the non-consideration of privacy concerns in approving deals. In Microsoft/Yahoo Search! for instance, Yahoo’s continued incentive to innovate as well as Microsoft’s potential ability to make innovation for alternative intelligent solutions difficult was considered, but privacy was not. Google/DoubeClick is another deal that reflects complete disregard of data privacy (particularly in terms of targeted advertising) by the Commission. This is because, on assessment, the authorities found the data collected by DoubleClick to be relatively narrow in scope, whereas the

[By Ishu Gupta]  The author is a student at Symbiosis Law School, Noida.  Recently, the Karnataka High Court (‘HC’) pronounced its judgement in Amazon Seller Services Pvt. Ltd. & Anr. v. CCI and Ors. (‘Amazon/Flipkart v. CCI’), a writ petition filed under Articles 226 and 227 of the Constitution of India, 1950 seeking to set aside an order of the CCI under Section 26(1), Competition Act, 2002 (‘CA’02’) against Amazon and Flipkart. Amazon/Flipkart v. CCI involved the questions of 1) non-application of mind by the CCI for its prima facie satisfaction under Section 26(1); 2) the order of the CCI being ultra vires the objects and purposes of the CA’02; 3) bar on the CCI’s jurisdiction on account of a pending investigation by the Enforcement Directorate (‘ED’) under Foreign Exchange Management Act, 1993 (‘FEMA’). In this post, the author shall be discussing the judgement of the Karnataka HC in Amazon/Flipkart v. CCI while gazing at the requirement of prima facie satisfaction under Section 26(1) of the CA’02. Further, the challenge to the CCI’s jurisdiction to order an investigation under Section 26(1) of the CA’02 shall be discussed. Finally, the author maps out a three-fold test for satisfying the prima facie case requirement and the jurisdiction issue to edict an investigation under Section 26(1) of the CA’02. Factual Background- Delhi Vyapar Mahasangh (‘informant’) had filed an information with the CCI under Section 19(1) of the CA’02 alleging the violation of Section 3(4) read with Section 3(1) and Section 4 of the CA’02 by Amazon and Flipkart, owing to the existence of preferred sellers and preferential listing on the online market places of Amazon and Flipkart. Given the information supplied by the informant and having regard to the provisions of the CA’02, the CCI passed an order under Section 26(1), thereby instructing the DG to investigate the contravention of Section 3(4) read with Section 3(1) of the CA’02 and not under Section 4, since the CA’02 does not envisage an investigation in cases of collective dominance. The order of the CCI was thereafter challenged before the Karnataka HC in two writ petitions filed by Amazon and Flipkart, separately. The Karnataka HC, while disposing off the writ petitions of Amazon and Flipkart by a common judgement, refused to quash the order of the CCI. Decision- Based on the arguments of the petitioners, the Karnataka HC framed the following questions: What is the nature of the order of the CCI under Section 26 of the CA’02? Whether a prior notice and opportunity of hearing are mandatory at the stage of issuing direction to the DG to hold an inquiry under Section 26(1) of the CA’02? Whether the order of the CCI calls for interference? In respect of questions (a) and (b), the HC decided that an order under Section 26(1) of the CA’02 is an administrative order and is not a part of the adjudicatory process. Additionally, Section 26(1) of the CA’02 does not prescribe the CCI to issue any notice to any party at the time of forming prima facie opinion. Hence, there is no requirement of serving a notice on the opposite parties. While answering question (c), the Karnataka HC relied on Competition Commission of India v. Steel Authority of India Ltd. and Ors. (‘CCI v. SAIL’) and held that the order of the CCI does not call for interference and as such the requirement of giving a reasoned order has been fulfilled by the CCI. Analysis- Prima facie satisfaction of the CCI- In Amazon/Flipkart v. CCI, it was argued by the petitioners that there was no application of mind by the CCI as the CCI had not opined on appreciable adverse effect on competition (‘AAEC’) in its order. Accordingly, the prima facie case requirement under Section 26(1) was not satisfied. In various decisions of the SC and different HCs, it has been held that the CCI’s order under Section 26(1) of the CA’02 is an administrative direction to one of its own administrative wings. It is only a direction simpliciter to investigate and does not form part of the adjudicatory process. The said position is well cemented by the landmark judgements of the SCI in CCI V. SAIL and Excel Corp Care Ltd. v. CCI& Ors. Accordingly, there is no requirement to issue a notice to the opposite party or strict compliance with the principles of natural justice while ordering an investigation under Section 26(1). The sole prerequisite for an investigation order Section 26(1) is the application of mind by the CCI in determining where the facts at hand transmit any contraventions of the provisions under Sections 3 and 4 of the CA’02. Whilst it’s true that for a contravention of Section 3(4) there must be an AAEC, which has to be proven by a market analysis based on the factors given under Section 19(3), it is incorrect to surmise that the CCI has to supply detailed reasons for its decision under Section 26(1) owing to the fact that the same can only happen after an investigation by the DG. Hence, the Karnataka HC was correct in holding that the order of the CCI does not entail an interference as the CCI had looked into the information and applied its mind in deciding the existence of a prima facie case. Jurisdictional challenge against an order under Section 26(1)- The petitioners had argued that the jurisdiction of the CCI was barred because of a pending investigation by the ED under FEMA. It is to be noted that Section 60 of the CA’02 provides for an overriding effect of the CA’02 over any other law in India. Furthermore, the provisions of CA’02 are in addition to and not in derogation of the provisions of other laws, according to Section 62. The Supreme Court of India (‘SC’) has conclusively decided on the issue of the ouster of the CCI’s jurisdiction in presence of sectoral regulators in CCI v. Bharti Airtel Ltd. & Ors. The SC had held that whilst the jurisdiction of the

[By Pragya Jain & Akshita Singh]  Pragya is a student at Hidayatullah National Law University, Raipur and Akshita is a student at National Law University Odisha, Cuttack General Overview Facebook’s iconic Senate hearing in 2018, while the punchline of many jokes for years to come, brought a fact into vivid perspective. The CEO, Mr. Zuckerberg, when prompted to provide the most accurate description of Facebook’s business, quipped simply – “Senator, we run ads.” The rebuttal, though seemingly precise, is akin to Pandora’s box of essential legal questions – one of which, concerning dubious anti-competitive practices, is central to this article. This description of Facebook’s services cements a glaring fact: if the service being consumed is free, the consumer is but a misnomer. It can be fairly said that while availing a seemingly “free” service, it is the consumer’s attention that becomes the product. This is the guiding principle behind zero-price markets which are more relevant than ever in the rapidly digitising world. One of the waves brought in by digitization which seems to have patently hit the shores of BigTech is online advertising. Statistics reveal a significant share of 46% of Facebook’s income is on account of online advertising. In fact, a pointed look at the revenue models of BigTech reveals that online advertising is strategically employed by these companies, not only to generate soaring revenues but also to gain dominance in the relevant market. This inevitably puts competition regulators in a spot while demarcating the competitive boundaries for an enterprise in an arena as exponentially advancing and fragile as online advertising. Consequently, the growing dissatisfaction of competition regulators across the globe with BigTech can be evidenced by the onslaught of probes into their practices. Recently, the European Union and Britain commenced twin antitrust proceedings against Facebook. Both the proceedings have been initiated with the intention of deciphering Facebook’s conduct particularly in the online advertising segment. The Commission seeks to undertake a thorough examination of Facebook’s status in the online advertising and social networking markets and whether it’s behaviour has been antithetical to fair competitive practices.. This brings us to the primary objective of the blog which is to discuss the contested knots of the ongoing proceedings against Facebook by the EU and UK and understand the arguments put forth by the Competition regulators. The authors also intend to unravel the future course of action which may be taken by countries, especially India, as their competition regime matures. Facebook’s March to Trial A Peep into Facebook’s Ad-Revenue Model To understand the peculiar problems in the realm of online advertising services, we must first examine the stakeholders in such a scenario. As per the authors, the stakeholders are the advertisers and the consumers of such product offerings. Any platform that hosts such users acts as both the middleman and the agent tasked with enriching the user experience of the consumer. The platform thus, accumulates invaluable information and consumer attention that is further monetised. The advertisers, ranging from small firms to large conglomerates compete for  consumer attention; and as such, the value that they derive from such platforms is immeasurable; both in terms of their market presence as well as innovation. Towards the user, the platform customizes their experience by displaying personalised advertisements that allow them to peruse different product offerings and maximize the value obtained in consideration of their attention and money. The next key concept to understand in this regard is Facebook’s method of ad-auctions, a process wherein Facebook assumes the role of an agent of the user. Essentially, the auction is characterized by generation of a ‘total bid’ which denotes the approximate value that an ad being hypothetically displayed to a user can create. As the final determiner, the ads with the highest estimate of the total bid are displayed to the particular user. The key inputs taken from the advertisers in this process are their bid (the amount they are willing to pay for their desired outcome) and their target audience. These serve to create the relevant market for the advertisers where their ad relevance is determined on the basis of estimated action rates and quality. At this juncture it is key to remember that the relevance of an ad is of the utmost importance and consequently rewarded. Per Facebook’s policy, it may choose to subsidize relevant ads and reduce their costs while the advertisers get good results from the same. It is thus, practicable that in an auction, a relevant ad has a higher chance of winning against a higher bid. Rising Dissatisfaction  Facebook’s use of data over the past few years has raised eyebrows all over. Recently, its use of data collected from advertisers through its online advertising service has struck the eye of the competition regulators in the UK and EU. A probe has been launched to ascertain the potential abuse of data through its classifieds service- Facebook Marketplace. To explain briefly, Facebook Marketplace is an online platform which allows its users to sell and buy goods from one another. The potential breach in competition is in regard to Facebook’s use of commercially valuable data mined from its advertising service to get a leg up for its marketplace. In addition, the UK also geared up to put Facebook’s use of data from its single sign-on authentication service under the microscope, and its recently launched product – Facebook Dating, a service available only in select countries. Facebook Dating is being scrutinised for synthesizing data based on user preferences, groups and events attended as well as mutual friends to recommend potential matches. It also allows the use of other Facebook services such as Messenger and Instagram as add-ons to the Dating profile. Recently these dubious practices have come under fire with the European Commission (EC) and the Competition and Markets Authority (CMA) of the UK, for their alleged anti-competitive nature. A peep into the viewpoints of the two competition authorities can be traced on the following lines. To begin with, the investigation initiated by the EC

[By Tavashya Kumar] The author is a student at National Law University, Delhi. Introduction WhatsApp, one of the largest online messaging services in India and across the world, recently updated its privacy policy for users across the world which introduced changes to the manner in which a user’s data is stored and utilised when interacting with a business account on WhatsApp. It also seeks to enhance Whatsapp’s integration with Facebook, its parent company, by increasing the sharing of certain types of information such as account and transaction data. However, it has claimed that personal information such as private messages and videos will not be shared and that end-to-end encryption will prevail. The catch, however, lies in two facts- firstly, the privacy update is mandatory for users to accept. If they fail to agree to the terms within a stipulated deadline or refuse to do so, their accounts shall be deactivated. The second crucial factor is that WhatAapp has been discriminatory in the nature of its updates rolled out across the world. In fact, as pointed out by the Govt. of India in a letter to WhatAapp, it has rolled out a relatively less stringent update in Europe owing to the protections enshrined in the EU General Data Protection Regulations. The blog intends to examine this recent update in light of the provisions of the Competition Act, 2002 (Section 4 & Section 19) to ascertain whether this privacy update, and its mandatory and discriminatory nature, constitute an ‘abuse of dominant position’ on behalf of WhatsApp. Existence of Dominant Position According to Section 4 of the Act, abuse of dominance is established when an enterprise imposes unfair and discriminatory conditions on the purchase of goods and/or creates conditions that result in denial of market access. However, before determining whether the actions taken by a corporation amount to an abuse of its dominant position, it is first essential to establish that it enjoys a dominant position in the relevant market, failing which it cannot be scrutinised for abusive behaviour. This is because what may be commercially justified behaviour for non-dominant firms, may become exploitative or exclusionary in the case of dominant firms. There is a simple rationale for such a distinction- since non-dominant firms are bound by market forces, consumers can simply elect not to purchase their products and instead purchase from a competitor, which is not the case when the firm is in a dominant position. Accordingly, an enterprise is said to be dominant if it enjoys a position of strength in the market which enables it to operate independently of competitive forces in the market or affect its competitors or consumers in a manner which is beneficial for it. Section 19(4) of the Act provides an illustrative list of factors that must be considered by the CCI while establishing whether or not an enterprise is in a dominant position. This includes factors such as market share, size & resources of enterprise & its competitors, vertical integration & network effects, dependence of consumers on such enterprise etc. However, since dominant position refers to a position of strength enjoyed by an enterprise in the “relevant market”, assessment of dominance is to be preceded by delineation of the correct relevant market in which dominance is to be assessed. As laid down is subsections 6 & 7 of Section 19, this relevant market has two components- ‘relevant geographic market’ and ‘relevant product market’. In context of WhatsApp, the CCI has previously established that it is in a dominant position in the market in two noteworthy cases. In the case of Harshita Chawla v. Whatsapp & Facebook Inc., wherein the informant accused WhatsApp of violating Section 4 by using its dominance in the online messaging apps market to capture a different market (online payments), the CCI delineated the relevant market as ‘the market for over-the-top (OTT) messaging apps through smartphones in India’. Similarly, in Vinod Kumar Gupta (for ‘Fight for Transparency Society’) v.Whatsapp Inc., the CCI adopted a similar viewpoint, stating that its market is instant, internet based communication services through third-party communication apps on smartphones, which is different from text messaging services. Additionally, in both of the aforementioned cases, the CCI also held that WhatsApp was in a dominant position in this relevant market, on several grounds. Firstly, with regard to Market Share, the CCI observed that WhatsApp is the most downloaded and widely-used instant messaging app in India. It reached this conclusion by using publicly available information to ascertain that it had over 500 million active users, was installed on 96% of smartphones and was used by 64% of all Indian mobile users. It further observed that these figures were far ahead of its closest competitors such as Snapchat or, more recently, Telegram & Signal. Further, in both cases, it was held by the CCI that factors such as the network effect created by its vertical integration with Facebook and increased costs of switching from one platform to another create a dependence of consumers and constitute significant barriers to entry. Abuse of Dominance By WhatsApp Despite holding that WhatsApp is in a dominant position in both of the aforementioned cases, the CCI refused to hold it accountable for abuse of dominance in either scenario. Since the case of Harshita Chawla (supra) was in context of WhatsApp Pay, it did not raise privacy policies as an issue and hence is not relevant in the present context. However, the case of Vinod Kumar Gupta, which was filed subsequent to the takeover of Whatsapp by Facebook, is of immense relevance to the present situation. This is because it was filed in the context of a privacy update, akin to the present update, introduced by WhatsApp subsequent to the takeover. Through this update, users were forced to share certain personal information and account details with Facebook in order to continue availing services of Whatsapp. The informant alleged that these details were used by Facebook for purposes such as creating targeted advertisements. Further, it was alleged that the