Data and Anti-Competition: Critical Analysis through Law and Economic Perspective
This blog is the second in a series of two posts. The first post can be found here.
Digital platforms such as Whatsapp do not charge users directly. These platforms compete on service and there is empirical evidence to suggest that lack of competition results in poor service. It is seen that these digital markets are prone to becoming ‘winners take all kinds of markets.’ However, being dominant in a market itself should not be of concern because dominance might lead to innovation and hence increase the overall surplus in the market. The concern should be the abuse of that dominant position. In 2018, the CCI in two cases, All India Online Vendors Association v. Flipkart & Anr (CCI Order Case No 18 of 2018) and Matrimony.com Limited V Google LLC and Ors (CCI Order Case No. 07 and 30 of 2012) highlighted the importance of regulatory interference in digital platforms. Stress was laid on a limited intervention based on evidence rather than perception because excessive regulation might stifle the innovation. This blog will attempt to be objective and neutral, and not prefer any particular set of policy conclusions.
This becomes relevant because such investigations take a huge financial toll on the limited resources of the CCI. There must be a cost-benefit analysis of such investigation because the Competition act (the act), 2002 is an economic law and the resources must be allocated efficiently. In a mere timeline of 10 years i.e. from 2009 to 2019, the CCI had registered 750 cases of violation of S. 4. In order to achieve the aim of the Act, an optimum efficiency approach ought to be considered while the interpretation of ‘prima facie’ in S.26 (1).
Bearing Of This Decision On Future Cases
The preamble of the Act suggests that it promotes consumer as well as producer surplus. However, the letters of the law were clear, and achieving any end by inadequate reasoning and disregarding the implications of the decision would go against the principles of exclusive legal positivism (ELP). Exclusive legal positivism is a legal theory that asserts that the validity of a law is based solely on its source and not on its morality. Simply put, what law is should be understood from legal texts and from the authority’s (which promulgated such law) understanding.
S. 26 is a liability rule model which mandates that a prima facie case is firstly made out and by wrongly defining the relevant market, the whole analysis is jeopardised because even dominance cannot be asserted adequately. The ignorance of precedence will incur transaction costs on the litigating parties as well as the CCI in future cases. It has the potential to muddy already established principles.
The next time any anti-competitive conduct will arise in the case of business accounts, it is probable that the market will again be taken as ‘Over the top (OTT) messaging apps through smartphones in India’ and would be extremely difficult for the CCI to assert an abuse of dominant position.
In ELP, the sources thesis asserts that the validity of a law is based solely on its source, such as its origin from a recognized authority or its adherence to certain legal procedures. Deviating from this thesis means that a law’s validity would be based on factors beyond its source, such as its moral content or practical consequences. Such deviation from the sources thesis could result in many transaction costs, meaning additional expenses or difficulties in carrying out legal transactions or complying with laws. This could lead to neglecting the policy goals of the Act contemplated by the legislators.
In the case of Excel Corp Care v The CCI (Civil Appeal No. 2480 of 2014), the Hon’ble SC while citing ASEAN report, has stressed upon economic efficiency and development as a goal of the Act. Economic efficiency would mean that innovations would keep on happening and the consumers will get ample choices at lower costs. Economic development provides for newer and better goods and services available to the consumers. There will be a possibility that while a company is innovating, it would be wrong termed as abuse of dominant position. There have been precedents where the CCI has held that ‘disruptive innovation’ or ‘innovation in general’ is beneficial for the competitive environment. If that is the case, the market for business accounts should be left to thrive so that more and more players would bring in this ‘disruptive innovation’ and there would be a consumer surplus in the future.
Furthermore, the CCI in its precedents has acknowledged the importance of unambiguous clear evidence to interfere in the market. There has been a call to march towards an economic-based appreciation of evidence and need for a hands-off approach.
The network effect indeed has the potential of tipping the scale towards the player but in the initial phases, there are fewer or no players. The network effect refers to the phenomenon in which a product or service becomes more valuable as more people use it. This effect occurs because as more users adopt a product or service, the benefits of using it increase for all users, creating a positive feedback loop. For example, social media platforms like Facebook or Instagram become more valuable as more people join them, as users can connect with a larger network of friends and share more content.
The market leadership is in a precarious situation and the market is evolving. In the case of Satyen Narendra Bajaj v. PayU Payments Private Limited & Anr (CCI-Case No. 23 of 2019), the CCI had held that mere dominance is not abuse and there should be evidence to show that anti-competitive conduct. The CCI in this case seems to confuse dominance with the abuse and failed to respect this hands off approach.
These were the crucial analysis laps done by the CCI. But apart from this, although out of the scope of this paper, I would like to highlight three more concerns.
The first one is that S. 4, on a bare reading of the act seems like an ex-post analysis. For invoking S. 4 (2) (a) (1), the principle of dominance has to be given due consideration. According to it, there should be independence of the dominating enterprise that allows it to manipulate the market in its favor and to the economic detriment of the competitors. Until now, the consumers had not even accepted the update, and no abuse per se had taken place. There was no evidence on record to show that there was any economic detriment to any competitors (if there were any in the business account market).
Secondly, even after the express recognition of the data as a non-price indicator by the Committee’s report, excessive data collection should be under the jurisdiction of data protection laws. This case is similar to the German Federal Cartel Office v Facebook (GCO) case in Germany where excessive data collection by Facebook was adjudged on the threshold of the General Data Protection Regulation, 2016 (GDPR). Once the Digital Personal Data Protection Bill (PDP) becomes an act, data privacy issues will conflict with the PDP authority. In that scenario, the sector regulator will get first right over these cases instead of a market regulator such as the CCI.
Thirdly, while defining relevant product market, the CCI ought to have noted that IOS based devices still have an option to restrict sharing of data with third parties. Hence, these IOS consumers would still have an option to either allow or disallow the data being shared. The relevant market becomes narrower in this sense because only Android consumers would not have an option to opt out.
In the absence of data protection legislations, it becomes essential for the CCI to check for and curb excessive data mining and usage by OTT platforms such as Whatsapp. The GOC case of EU and the Hon’ble Supreme Court in the case of in Central Inland Water Transport Corporation Ltd. & Anr. vs Brojo Nath Ganguly & Anr (1986 AIR SC 1571) itself had highlighted the harms of take it or leave it kind of uniltaeral contracts.
Whatsapp is well aware that it has a strong network effect world wide and such prime focus by CCI in digital market is warranted because it caters the need of achieving short-term ends by curbing monopoly power. This might bring imbalance in the level-playing field because any new entrant would face a high entry barrier. But if the enforcing authorities are laxed in capacity, it will further aggravate plight of the consumers.
The regulatory gaps allow GAFAM type entities to gain dominance and there is ramification of continued violations. All in all, this case was a welcome move by the CCI as a handful of anti-competitior regulators in the globe regulate the digital market actively. The GAFAM had a significant advantage in the digital market and in the absence of data regulatory framework, the CCI has to take up the role.