Data-Tradeoff for “Free” Services, Is Whatsapp Abusing its Dominant Position

The author is Akash Gulati, third year student at Dr. Ram Manohar Lohiya National Law University.

Introduction

On 25th August 2022, a division bench of the Delhi High Court dismissed an appeal by WhatsApp LLC (“WhatsApp”) opposing the suo moto investigation initiated by the Competition Commission of India (“CCI”) on what seems to be a prima facie Abuse of Dominance by the tech behemoth in imposing a privacy policy as a prerequisite for the continuance of services of the users. The dismissal of the appeal invites a revisiting of what has happened so far with a bird’s eye view. Whether there is any Abuse of Dominance by WhatsApp or not, and the precedents that are existing in other jurisdictions.

Major Changes In Whatsapp’s 2021 Privacy Policy

On January 4, 2021, WhatsApp brought an update to its privacy policy incorporating several new changes including:

● sharing of data generated in form of interactions between private users and business accounts.

● leveraging of the Facebook ecosystem which envisages the sharing of data generated through WhatsApp to all the other Facebook-owned Platforms.

This can be seen in contrast with the updated privacy policy in 2016 which gave the users a 30-day window to opt-out of this cross-platform sharing of data, but as for the 2021 policy, there is no option to opt-out of the new policy while continuing with the services simultaneously.[1]

Grounds for Investigation by the CCI

Upon the release of the new privacy policy of 2021 by WhatsApp, the CCI took suo moto cognizance of the matter, ordering an investigation under Section 26(1)[2] of the Competition Act specifically concerning the potential abuse of dominance by WhatsApp in seemingly “imposing” the new policy as a “take it or leave it” deal.

● Vague Terms of Policy

The order is unequivocal about the right of the users to be informed of the changes in specificity and not in vague terms. The users being the owners of their personalized data are entitled to be informed of the extent, scope, and purpose of such sharing of data by WhatsApp with other companies including its own parent company. The use of words such as ‘includes’, ‘such as’, and ‘for example’ suggests that the scope of sharing may extend beyond the information categories that have been expressly mentioned in the policy.

● Purpose And the Scheme of Sharing

The purpose as it seems from the policy is to ‘customize’, ‘personalize’, and ‘market’ the offerings of other Facebook Companies. For that purpose, it provides for cross-product sharing and processing of data as a precondition for them to continue with the services. This scheme of not letting the users exercise their consent upon the sharing and processing of theirdata across Facebook owned platforms[3] [AG4] creates a condition detrimental to the market.

● Unfair And Unequal Balance of Negotiation Power

WhatsApp being in a position of dominance due to the position it enjoys in the market and its enormous userbase has imposed an unfair term (the privacy policy) to continue with the usage which prima facie violates Section (4)(2)(a)(i) of the Competition Act.[5]

Due to a lack of credible competitors in its relevant market, WhatsApp is indulging in practices that compromise the quality of user experience without erosion of its user base.

The CCI investigation order also explains the sunk cost that entails a user who decides to switch to any alternative.

● Trickling effect of the policy

Non-price parameters of services such as quality, customer service, innovation, etc. play a vital role in competition amongst players in the market. Tinkering with the quality of data protection in terms of ousting the control of the user itself can also be deemed to be a reduction in quality under the antitrust law.[6]

What follows is the exclusionary effect created by Facebook by way of reinforcing their position in the existing market and even in unrelated markets such as that of the display advertising market which results in “insurmountable entry barriers for the new entrants” which seemingly violates Section 4(2)(c) of the CCI Act.

In this regard, the CCI also points[7] out that “Data and data analytics have immense relevance for competitive performance of digital enterprises. Cross-linking and integration of user data can further strengthen data advantage besides safeguarding and reinforcing market power of dominant firms.”

Whatsapp’s Dominant Position and the Extent Of Abuse

● Ascertainment Of Dominant Position

Dominant position means that within a relevant market the said player occupies a large market share accompanied bythe existence of considerable market entry barriers. This large market share is to be seen in the comparison of the other competitors, and the extent of the exercise of market power that such market share provides the player with.

Another dominant factor in ascertaining the dominance of the player is the size of the other players involved in the relevant market and the vertical integration therein. If the competitors are numerous and of small scale, while the player being compared is of a large-scale operating nature and occupies a market share enough to harness the market power to influence the price or terms of service alone by itself, then it can be said to be in a dominant position.

When we look at the position of WhatsApp in the Indian OTT text messaging applications market, we can deduce the position of WhatsApp quite conveniently. It has a market penetration of around 97% in India and had a staggering 390.1 Million active user base as of 2020 which is far more than any of its peers.

● Sunk Cost in Porting from WhatsApp

WhatsApp has lent so much accessibility to its users owing to the long duration that it has been around, such common usage and reliance upon the platformentails a huge sunk costfor the users to port to any other such messaging application. It is hence safe to say that WhatsApp is the most dominant player in the relevant OTT market. The CCI took a similar view in Harshita Chawla Vs. WhatsApp Inc. and others wherein the court ascertained the dominant position that WhatsApp enjoys in its relevant market and how it has seeped deep into the daily lives of people.

● How the German Federal Cartel Office pulled up Facebook for a similar policy

In Germany, the introduction of a privacy policy by Facebookon similar lines to WhatsApp was suo moto investigated by the German Federal Cartel Office ("FCO", Bundeskartellamt, Germany's antitrust authority), and after three years of the initiation of that investigation, it passed an order prohibiting Facebook to use and implement terms of use that allow Facebook to collect and use user data and device-related data originating from the use of services other than Facebook, which effectively meant that data generated even through a variety of Facebook platforms of a user cannot be integrated unless explicit consent occurs in consonance with the provisions of General Data Protection Regulation (“GDPR”)[8] , and such consent cannot be a prerequisite for the continuance of services.

● Categorization as Non-Price Exploitation

Non-price exploitation occurs when the consumers are exploited not through the levying of high prices by the entity in a dominant position, but the such position is harnessed to introduce a deterioration in the quality of the service being provided.

In the aforementioned Facebook case, the German FCO differentiated between the legitimate business practice of Facebook where it generates data tracking the user only within the application with certain other parameters beyond the platform [9] including device location, access to contact list, linking with other applications to gather user data, inter alia, upon the user’s consent. Such consent can be termed meaningful since it does not force the user to lose total control of their data, specifically what they do outside of Facebook. However, when it proposes a policy to harvest the data[10] of a user outside the application and across other unspecified parameters through the device, it purports to bring into question the loosening of the control of a user’s data within the hands of the user itself.

Consequently, when such a situation exists where one contractual party is so powerful that it is practically able to dictate the terms of a contract and the other party concedes with a lack of meaningful consent, such would be an act of abuse of its dominant position. The FCO, in its order, imposed far-reaching restrictions upon Facebook where it was restricted from harvesting data through third-party platforms, including Facebook-owned services such as Instagram, WhatsApp, etc. without explicit consent of the users.

Appeal to the CCI’s order to investigate

WhatsApp challenged the suo moto investigation on the grounds that an adjudication with the subject matter of an identical and overlapping nature is already pending adjudication in several cases.

However, the single judge bench of the Delhi High Court[11] in WhatsApp LLC vs CCI & Anr. noted that the issues in the cases being referred by WhatsApp are not from the lens of Competition Law, but the overall validity of the policies (both 2016[12] & 2021) is being taken into question for purported violation of Article 21 of the Constitution.[13] To this order, WhatsApp made an appeal[14] [AG15] which was then heard by a division bench of the Delhi High Court.

In the appeal at the instance of the division bench, WhatsApp reiterated the contentions regarding the lack of jurisdiction of the CCI (as long as the pendency of the above-mentioned cases subsists), no prima facie case of abuse of dominant position, and the involvement of Facebook as a party being erroneous on the grounds that it only fits into the picture because the 2021 policy[16] envisages sharing data with it.

However, the division bench took the view that, firstly the sphere of operation of the investigation into the alleged abuse of dominant position and the pendency of the matter of the alleged violation of Article 21 by the 2021 policy are vastly different as the investigation under Section 26(1) of the CCI Act in the current process is of administrative nature and not of an adjudicatory function. Secondly, it is an established fact through adjudication in the case of Harshita Chawla v. WhatsApp Inc, where the dominant position of WhatsApp was ascertained by CCI in the relevant market, and the contention of no prima facie case could not be accepted as the order which launched the initial investigation provided sufficient reasoning for a prima facie case of violation of Section 4 of the Act. Therefore, the appeal was dismissed allowing the investigation to continue.

Conclusion

Big Tech garners immense power not only within specific relevant markets but also in numerous affiliated markets, this brings into the picture the apprehensions of misuse of their market power which they do tend to misuse at instances. Even in the current instance imposition of such policies should go through the scrutiny of CCI upon its prima facie nature of being abusive towards the users.

The investigations that are initiated within the set limits of Antitrust law cannot await the fate of adjudication upon different facets. Each violation is privy to its own proceedings, be it administrative or judicial, within the mandated cornerstones of their respective jurisdictions.