[By Anam Chowdhary]
The author is a student at the National Law School of India University, Bangalore.
In today’s world of the digital economy, it would not be wrong to suggest that consumer data indeed holds a high position. We cannot ignore the fact that data indeed has gained much more important than ever before when it comes to online transactions with or on big firms like Facebook, Amazon, etc. Data accumulated by these companies helps them not only analyze consumer patterns but also create demands and enhances their business..
In such a scenario where data is becoming the ‘new currency’, it is inevitable that concerns regarding data protection will rise. While such concerns seem to be within the jurisdiction of data privacy regulations like only, time and again links have been identified between privacy concerns and antitrust laws. In simpler terms, unregulated flow and processing of consumer data by dominant data-driven firms are said to have huge implications on the competition in the digital economy, thus explaining the need for antitrust analysis of the same. The connection between these areas has been identified by various jurisdictions including India where the Competition Commission initiated a suo-moto proceeding against the change in the WhatsApp privacy policy of 2021 (WhatsApp case), based on the fact that in a data-driven economy, implications of data accumulation on thcompetition cannot be ignored. Exemplary fine levied by the Federal Trade Commission on tech-giant Facebook for violating consumers’ privacy, is another example of this connection. Thus, in today’s digital economy, data protection and privacy concerns cannot be left outside of the purview of competition analysis as that amounts to taking a very narrow approach towards the understanding of the implications that lack of data protection brings forth in the market.”
Connecting Data Protection to Competition Law
In most jurisdictions, competition law has some basic goals- enhancing consumer welfare, maintaining healthy competition in the market, and economic efficiency. Data protection can enter this realm if it impacts one or all of these aspects of antitrust law. It is argued that data protection impacts consumer welfare and has an adverse impact on non-dominant firms in the market.
Impact on Consumer Welfare
It would not be wrong to state that consumers are now concerned about how much of their data is accessible to companies and how this data is being processed The uproar after WhatsApp updated its privacy policy in 2021, the reaction to the Cambridge Analytica scandal can be examples of it. Thus, it can be stated that privacy is the new determinant of consumer welfare. In the Google-Doubleclick merger case before the FTC, a link was established between data protection and quality of service. Lowering of data protection was seen as lowering of the quality of service.
Thus, when a dominant firm like Google keeps acquiring data, in a scenario of no competition (which shall be explained below), it can lower privacy standards for this data which in turn can impact consumer welfare as this reduction in privacy can be construed as a reduction in quality of service even in the WhatsApp case, this degradation of quality was taken into account to initiate investigations in the aspect of data sharing between WhatsApp and Facebook.
Now, of course the question arises that if consumers are so concerned about their privacy, then why do they not shift to other competitors? This query can be answered by analysing the impact that excess data collection has on competition in the market, especially on non-dominant firms or new entrants.
Impact on Competition in the Market – Wiping out the Competition
Section 4 of the Competition Act, 2002 states that no firm shall abuse its dominant position. It has to be understood that the majority of the cases assessed by antitrust authorities with respect to privacy and competition have involved firms which are dominant in their relevant markets. Such domination in the market means that the particular firm has a large consumer base and thus a large data set at its disposal. These firms can process this data and create better services attracting more consumers and thus more data. Therefore, there is a cycle at play in the process where consumers give you data, and this data gives you more consumers. This basically helps in generating a network effect which keeps the consumers stuck with a particular service provider as there would be higher switching costs or even worse, no worthwhile competitors.
The dominant position of firms like Facebook gives them access to such data bases which help in targeted advertising and come across as good service providers. But, this also means that having set their foot in the market with huge data sets and the consequent network effects, they pose an obstruction to the entry of new comers in the market. Thus, competition is eventually wiped out. Network effect based on services provided by data accumulation, can lead to such a creation of domination in the market that dominant firms can put forth ‘take-it-or leave-it’ conditions on consumers where the consumers are compelled to compromise their data in return of the services provided. As an example, the terms and conditions in the Whatsapp privacy policy update of 2021 provided for a ‘take-it-or-leave-it’ mechanism which the Competition Commission of India construed as one of the grounds for initiation of ‘abuse of dominant position’ proceedings against the company.
It is worth mentioning here that privacy is now being put forth as a non-price competition. This was affirmed in the Facebook/WhatsApp merger decision and the Microsoft/LinkedIn merger decision by the EC. This position is also being accepted in India as is evident from the recent report of CCI on Telecom sector where reference has been made to privacy being a ‘non-price competition’. Thus, it can also be stated that dominance generated in the market on the basis of data accumulation can lead to a complete disregard of privacy as a non-price competition when there is no competition in the market (much like raising prices when there is no competition) and this again points to the involvement of competition analysis for privacy concerns.
Data-driven Mergers and Acquisitions (M&A)
Competition can also be harmed when data-driven M&As take place. Generally, M&As are viewed through the traditional lens of asset accumulation, etc., but nowadays mergers happen for the sake of accumulation of data-sets, like the merger of Facebook /Whatsapp, the proposed merger of Facebook/Jio, etc. As put forth by the assessing authority in the merger of Bazaarvoice/Power Review, data-driven mergers can be anti-competitive as they can lead to the creation of entry barriers. It can be stated that a merger between two data-rich companies like Facebook and WhatsApp, can lead to such concentration of consumers with these firms and such accumulation of data that new entrants may not ‘dare’ to come up as the data-sets present with the dominant merged entities would be too hard to replicate and the consumers would not even switch given the network effects. The same effects can be induced even when smaller firms with data are acquired by larger firms that are also data-centric. Thus, this scenario would deter any new entrants from coming into the market as they might never get access to such data sets as already present with the merged firms. Here, it becomes important to counter the argument that data-driven mergers can actually enhance competition, eg: approval of Microsoft/Yahoo merger for generating competition for Google. It has to be understood that such kind of a competition efficiency can be expected in such data-driven mergers but when the merging firms are not very small as compared to the dominant firm (like Microsoft/Yahoo as compared to Google) and already have access to some data-sets, it can very well pose threats to data protection and can impact consumer welfare on accounts of reduction in quality of service provided. Thus, this argument of competition efficiency brought about by data-driven mergers completely ignores the aspect of the potential reduction in consumer welfare.
Conclusion
The implications of huge data accumulation by dominant firms on the competition in digital economy give enough reasons for the interference of antitrust analysis in the issue of privacy. While some opponents of this idea argue that more data accumulation results in better services, it would amount to taking a narrow view of competition goals where only enhancement of consumer welfare (that too not completely, as privacy itself is a part of consumer welfare now) is considered and the overall impact on the competition in the market is left aside. This sort of narrow understanding of antitrust goals would lead to exclusion of concerns regarding the welfare of competitors and new entrants, which could, in turn, create harmful monopolies, generate network effects and reduce the mobility of consumers even when they might care a lot about privacy concerns.
With the evolution of the digital economy, our competition legislation must change as there is a need to encompass the aspect of data protection within the ambit of the Competition Act, 2002. As of now, it seems that the Act is not equipped with the tools to even identify the connection between privacy and competition – lack of inclusion of privacy as a non-price competition, assessing M&As solely through asset lens, are some of the problems.