BIG DATA: MERGERS AND ACQUISITIONS

Introduction

“The world’s most valuable resource is not oil, but data” this was the title of an article published by the Economist in 2017.[1] This statement was made in the context of the explosive growth of the digital economy triggered by the advancement made in the realm of technology and internet. This has led to an exponential increase in the collection, analysis, and exploitation of data by large corporations. The term ‘big data’ refers to “large amounts of different types of data produced with high velocity from a high number of sources. Handling today’s highly variable and real-time datasets requires new tools and methods, such as powerful processors, software and algorithms” (“Big Data”).[2]

Big Data plays a significant role in the digital economy as corporations have been utilising tools to exploit data to improve their revenues with better market analysis through evaluation of customers.[3] The Supreme Court, in Justice K.S. Puttaswamy v. Union of India�_�,[4]  observed that “digital footprints and extensive data can be analysed computationally to reveal patterns, trends, and associations, especially relating to human behaviour and interactions and hence, is valuable information. This is the age of ‘big data’.” Traditionally, legal implications arising from the processing of data would be dealt by the laws relating to data protection, however, with the emergence of Big Data the issue may be required to be dealt under the domain of competition law especially in the context of mergers and acquisitions.

Big Data and Mergers and Acquisitions

‘Combination’, as per Section 5 Competition Act, 2002 (“Act”) is defined as “The acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises shall be a combination of such enterprises”[5] wherein certain requirements / thresholds relating to the value of the assets of the resulting enterprise have to be satisfied. As per Section 6 (2) of the Act, a mandatory notice of such an amalgamation or merger of all transactions amounting to a ‘Combination’ under Section 5 of the Act has to be provided to the Competition Commission of India (“CCI”) (subject to the exemptions provided by the Act, the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 and the de minimis exemption[6] introduced by the Ministry of Corporate Affairs).[7]

It is pertinent to note that as per the explanation provided in clause (c) of Section 5 of the Act, the term ‘value of assets’ means the book value of the assets as shown in the audited books of account of the enterprise, and includes “the brand value, value of goodwill, or value of copyright, patent, permitted use, collective mark…”. In this regard there is no indication to suggest that data held by enterprises can be accounted as an asset for the enterprise. This allows most transactions in the digital economy to by-pass the scanner of the CCI as these transactions are valued on the basis of the data held by the enterprises involved, which is usually not adequately reflected in their book values. Further, several B2C businesses in the digital sector follow long gestation periods before raising their prices to make profit, resulting in small turnover and asset size which helps in escaping the scrutiny of the CCI. This problem is further aggravated as per the de minimis exemption, the requirement for providing notice under Section 5 of the Act is not applicable in case the merger / acquisition is relating to a target enterprise / company whose assets are less than INR 350,00,00,000/- (Rupees Three Hundred Fifty Crores only) or turnover is less than INR 1,00,00,00,000/- (Rupees One Thousand Crores only).  An example of this problem is the acquisition of Whatsapp by Facebook which did not trigger the thresholds prescribed in Section 5 of the Act even though it was a deal between two of the largest social media networking companies.

Conclusion and the way forward

In 2018, the Competition Commission acknowledged that “the Proposed Combination would consolidate such access to data for the Combined Entity. Access to such data would be critical for any market participant for effectively competing with the Combined Entity. Therefore, the Proposed Combination is likely to result in enhanced entry barriers for existing market participants who may not have access to the required field data and accordingly, they are likely to find it difficult to replicate the position enjoyed by existing market participants”.[8] However, the reasoning in the judgement is not detailed in this aspect as it did not discuss the other relevant factors like network effect and feedback loops and the concerns of the CCI were mainly related to bundling and gatekeeping.

There is an urgent requirement to make requisite amendments to the Act so that the value held by enterprises owning Big Data is accounted for by the CCI which will ensure that Big Data driven mergers / acquisitions do not escape the purview of the CCI.

The views and opinions expressed in this article belong solely to the author and do not reflect the position of Tatva Legal, Hyderabad.

[1] https://www.economist.com/leaders/2017/05/06/the-worlds-most-valuable-resource-is-no-longer-oil-but-data

[2] European Commission, Towards a Thriving Data-Driven Economy, COM (2014) 442, July 2, 2014

[3] Federico Morando, Iemma Raimondo and Emilio Raiteri, “Privacy evaluation: What empirical research on users’ valuation of personal data tells us”, Internet Policy Review 3, no. 2 (2014), https:// policyreview.info/articles/analysis/privacy-evaluation-what-empirical-research-users-valuationpersonal-data-tells-uu.

[4] 2017 10 S.C.C. 1

[5] Section 5, Competition Act, 2002

[6] S.O. 675(E) MCA notification dated 4th March 2016, http://cci.gov.in/sites/default/files/notification/SO%20673%28E%29-674%28E%29-675%28E%29.pdf.

[7] Section 6 (2), Competition Act, 2002

[8] Combination Registration No. C-2017/08/523