The Case for Data under the Indian Competition Law Framework
The business model of the digital economy defies application of the traditional methods of evaluation of anti-competitive effects and dominance, as prescribed under the Competition Act, 2002 (“Act”). Further the financial thresholds prescribed for combinations present challenges, in terms of its application to data – driven mergers and acquisitions.
This article presents the case for incorporating access to data as a source of market power and explores the potential anti-competitive uses of such data.
Business Model of Digital Markets
- Network Effects
The degree of competition in Internet markets is, often though not always determined by direct and indirect network effects and switching costs[1] Network effects essentially means the larger the user access a platform has, the more appealing the platform becomes to other users on the platform due to the utility they derive from it. For example, WhatsApp would provide greater value to an individual user, as its user base increases, since it would enable facilitation of communication between more contacts for that user. Similar would be the case for making payments through Google Pay.
In the Ola Case[2], Competition Commission of India (“CCI or Commission”) took note of the role of network effects in a two-sided market in determining dominance. While the Commission accepted the argument that network effects are an important aspect dictating competition dynamics in the radio taxi market, it ultimately came to the conclusion that despite OLA having the largest network, the network was not strong enough to adversely affect entry of new participants in the market.
The Draft E-Commerce Policy, 2019[3] also recognized the significance of network effects and recommended that due consideration be given to network effects in analyzing mergers and acquisitions (under the framework of combinations), given the competitive impact of network effects, in creating barriers of entry for smaller players in the digital market.
- Multi-sided markets
Multi-sided markets are characterized by matching of demands of one set of consumers / users through another set of consumers / users that are part of different sides of the market. In such a set-up, the market acts as a platform that enables such matching of demands, usually through a process of price discovery. The CCI in Matrimony.com vs. Google[4], elaborated upon the multi-sided character of search engine service (as provided by Google Search) in its analysis of the allegations of unfair and discriminatory conduct of business against Google. The CCI observed that multi-sided markets leave scope for entities and platforms in such markets to subsidize the services they provide to one set of consumers / users, by over charging the other set of consumers / users.[5]
Existing Framework for Combinations under Competition Law
Section 5 of the Act sets out the thresholds for (i) acquisitions; (ii) acquisitions of control; and (iii) merger/ amalgamations that would constitute combinations under the Act. The financial threshold laid down by Section 5 of the Act is based on asset and turnover limits of the enterprise in question. All the transactions contemplated under Section 5 of the Act have to be compulsorily notified to the CCI as per Section 6, unless they are covered under any of the statutory exemptions provided under the Act or the Combination Regulations. It is clearly spelled out in Section 6 of the Act that a combination leading to appreciable adverse effect (“AAEC”) in the relevant market would be regarded as void.
It is pertinent to note that, CCI’s suo moto power under the extant law, is limited to only those acquisitions, mergers and acquisitions of control that satisfy the assets and / or turnover threshold of combinations under Section 5 of the Act and are consequently notifiable under Section 6 of the Act. It does not extend to the transactions that fall below the applicable threshold or are covered under the statutory exemptions.
Equating data with price
A justification often employed by participants in the tech industry such as social media platforms, search engines, etc., is that, since they provide such services free of charge (absence of price consideration for provision of services), they cannot be liable for dominance. In Google Search (Shopping Case)[6] the Commission while rejecting Google’s argument that because search engine services are provided to users for free, therefore, it would be precluded from the finding of dominance, held that “although users do not upfront pay monetary consideration for use of search engine, the data they provide contributes to the monetization of the service being provided….”
The CCI in the case of Matrimony.com[7] took a similar stance, in its inquiry of allegations of abuse of dominance by Google Search, by explaining that revenue in a digital economy is indirectly generated through the growth of users, who provide data each time they use the services of the search engine, contributing to the revenue of search engines by enabling them to attract advertisers and businesses.
The Competition Law Review Committee[8] (“Committee”) recommended including data under the ambit of price[9], which is one of the elements to determine the relevant market (more specifically, the relevant product market) and includes every valuable consideration, whether direct or indirect. This approach is in line with the decisions taken in other anti-trust jurisdictions with regard to the nature and business model of digital businesses. Assessing the value of data is a highly subjective and complex process. Some elements that could be factored-in, in evaluating the competitive value of data include:[10]
- Parties’ control of the relevant data;
- Commercial value of data in terms of its application, either as a direct product/service offering or as a raw material / input;
- Competitive importance of the data in the relevant market; and
- Whether access to similar data is available or is the data in question completely unique.
In 2020, the CCI had an opportunity to delve into the question of combined data as a market power, in the proposed acquisition of Jaadhu Holdings LLC of equity share capital in Jio Platforms Limited. The two significant takeaways from CCI’s ruling were:[11]
The CCI for the first time highlighted that in case of combination between players having access to huge volumes of user data, the relevant factors to be examined would be the (a) consolidated data-backed market power and; (b) the incentives that exist for the entities to share or pool their data and the possible ways for monetizing the same.
The CCI further took note of the complementary nature of data, given that the sectors the entities were operating in were themselves closely related and complementary to one other.
However, CCI in its order, left such a determination arising from dangers of consolidation of such magnitude of data, as a question to be decided in the future based on the use case of the data. This is a significant step, as it lays the foundation for elements to be analyzed in combinations between data rich entities operating in the digital space.
It is in recognition of this gap, that the Committee concluded that ‘control over data’ or specialized assets,’ need not be specifically mentioned as a factor to determine dominance since the head of ‘size and resources of an enterprise’ under Section 19 (4) (b) of the Act is wide enough to include such a factor.
Way Forward
The complex nature of data accumulated and generated by data-rich entities in the digital markets needs to be carefully examined, from the perspective of dominance, in light of the unique business model of digital markets. A case-to-case basis of evaluation would be best suited in this regard, given the technical competence that would be required and drawing from the treatment of evaluation of data driven dominance in other jurisdictions. It is also imperative to broaden the scope of inquiry of combinations and vest the CCI with requisite powers to inquire into such combinations pertaining to the digital markets, that would need to be assessed using different parameters than those prescribed under the law at present, such as deal value of the proposed transaction. Further, the CCI’s analysis in Facebook’s acquisition of stake in Reliance Jio has laid the ground work for relevant factors to be taken into consideration for combinations between data rich businesses.
The views and opinions expressed in this article belong solely to the author and do not reflect the position of Tatva Legal, Hyderabad.
[1] Justus Haucap a Torben Stühmeier, Competition and Anti-trust in Internet Markets, October 2015, available at https://www.econstor.eu/bitstream/10419/121420/1/837896487.pdf
[2] https://www.cci.gov.in/sites/default/files/6%20%26%2074%20of%202015.pdf
[3] https://dipp.gov.in/sites/default/files/DraftNational_e-commerce_Policy_23February2019.pdf
[4] https://www.cci.gov.in/sites/default/files/07%20%26%20%2030%20of%202012.pdf
[5] https://www.cci.gov.in/sites/default/files/07%20%26%20%2030%20of%202012.pdf
[6] COMP Case AT 39740 [Google Search (Shopping) decision] dated 27 June 2017.
[7] https://www.cci.gov.in/sites/default/files/07%20%26%20%2030%20of%202012.pdf
[8] Report of the Competition Law Review Committee, July 2019 https://ies.gov.in/pdfs/Report-Competition-CLRC.pdf
[9] Price under Section 2 (o) of the Act.
[10] Greg Sivinski, Alex Okuliar & Lars Kjolbye, Is Big Data A Big Deal? , Vol. 13, Nos. 2–3,European Competition Journal, Page No. 201, 202 (2017), available at https://www.tandfonline.com/doi/pdf/10.1080/17441056.2017.1362866?needAccess=true, pg. 201-202
[11] https://www.cci.gov.in/sites/default/files/Notice_order_document/order-747.pdf