Antitrust as a short-term vehicle to combat the Big Data Conundrum?

-- By BalajiVenkatakrishnan - 07 Oct 2019

The advent of digitalization and data analytics has transcended the traditional understanding of markets and their regulation. Data-driven business models have become crucial to gain competitive advantages, such that 79.4% of participants in a survey feared displacement by competitors with ‘data cultures’. Such concerns have prompted regulators to contemplate data’s impact on competition. However, regulators in India remain unresponsive to this emerging challenge. In this essay, I aim to identify global experiences in the competition and data intersection that may provide meaningful lessons for India.

Global Experiences

Data analytics helps companies achieve economic efficiencies and create consumer benefits. Conversely, companies strive to acquire data to gain market power, which could foreclose competition, or lead to collusive and exclusionary practices. Thus, regulators struggle balancing pro-competitive effects and anti-competitive conduct, as they are traditionally price-centric in evaluating markets while data is difficult to value.

However, increasing number of data-related transactions have made regulators deviate from conventional methods to evaluate and ensure data’s minimal impact on competition. For instance, in 2014, the European Commission (EC) analysed whether Facebook could use WhatsApp? as a data source to augment its position in advertising (post-acquisition) and noted an absence of competition concerns, as Google dominated data collection. This significantly contributed to the development of the competition and data intersection, as the possibility of defining markets solely based on data was recognised. Nevertheless, the analysis was limited and ignored privacy-concerns consumers could experience as a potential competition issue.

This position was later clarified when the EC evaluated the Microsoft/LinkedIn transaction. The EC recognised that, Microsoft’s intention to integrate LinkedIn? into its products (post-acquisition) could result in severe data-related network effects, which could foreclose competition and create entry barriers in the professional social networking market. In this scenario, the EC acknowledged the reduced privacy-protection that consumers could experience as a competition issue, and approved the transaction only after Microsoft offered behavioural commitments addressing these concerns.

In 2017, privacy-related concerns in competition received renewed attention from Germany’s Federal Cartel Office (FCO), as the FCO preliminary assessed Facebook’s practice of merging data generated through Facebook users’ use of third-party applications (Facebook’s subsidiary companies like Instagram, WhatsApp? etc., and embedded applications on Facebook) with their respective Facebook user accounts to be an abuse of dominance. It stated that users could not have effectively consented to this practice, given Facebook’s dominance, and even viewed this as a data protection violation. In February 2019, the FCO, in line with its preliminary assessment, issued a prohibition order against Facebook for abusing its dominant position vide its data policy. More importantly, the FCO also assessed the ...

Further, Germany and Austria also amended their merger law to detect acquisitions of companies (with low turnovers) in the digital sector, by requiring notification of transactions based on value. A similar amendment is being considered across the European Union (EU).

Compared to such experiences in the EU, U.S.A. has generally refrained from commenting on data-related transactions with multisided markets (Facebook/WhatsApp). However, in 2014, the Department of Justice successfully challenged a consummated merger between two online ratings and reviews platforms, on grounds that it could result in severe data-related network effects, creating unscalable entry barriers and increased switching costs. Consequently, the acquirer was made to divest the target’s assets to restore competition.

Lessons for India

Compared to global experiences, India’s unbridled focus on digitalizing its economy has outpaced its legal regime, where a comprehensive law on data protection was proposed only in 2018, the right to privacy was not recognized as fundamental until 2017, and India’s merger control regime was given effect only in 2011. In this scenario, companies have unsurprisingly looked to seize data-related opportunities and exploit the legal vacuum to gain competitive advantages. Illustratively, in 2014, a competitor acquisition by India’s leading cab aggregator aimed at gaining an advantage over Uber was not notified to the regulator, as the transaction did not exceed merger thresholds. Additionally, an abuse of dominance complaint against WhatsApp? for revising its terms to permit sharing of its user data with Facebook was dismissed. In contrast, and as discussed above, the FCO has held Facebook to have abused its dominant position, and contravened provisions of the GDPR in relation to a similar complaint.

Thus, there is abundant scope for India to learn from global experiences and develop a sophisticated legal framework responding to the discussed challenges. Firstly, India must amend its merger thresholds to account for transaction value to be able to detect digital transactions (like Germany). Additionally, despite the lack of data protection laws, the regulator could consider consumers’ privacy-concerns under the garb of quality competition while evaluating transactions that could create network effects or entry barriers. Lastly, India must consider establishing a committee of competition, data and privacy experts with comparative knowledge, to help educate and aid the regulator on issues involving an intersection of these concepts.