INTERVIEW: MR. SAHIL KHANNA ON ANTI-TRUST REGULATORS
The November edition of Au courant features an interview with Mr. Sahil Khanna, Senior Associate at Economic Laws Practice, wherein he discusses the Tussle between Anti-Trust Regulators and Big Tech Companies.
Sahil Khanna is a Senior Associate, Competition Law at Economic Laws Practice (ELP), a leading full-service Indian law firm established in the year 2001 by eminent lawyers from diverse fields. He primarily specializes in competition law and has also authored multiple articles on Competition Law and Anti-Trust law. He regularly advises clients in a diverse range of sectors concerning competition law and policy including merger control, anti-competitive agreements abuse of dominance, competition advisory, competition audit, compliance, etc.
1. In the modern world, with the ever-increasing presence of many big tech companies working in multifarious sectors, the issue of these companies collecting massive volumes of personal information, acquiring fledgling competitors, and holding a competitive advantage against small businesses and corporate consolidation has become a glaring issue. Can there be an intersection and interplay of data privacy laws and competition laws to ensure consumer welfare, data privacy, and the resolution of the above-stated issue? Further, where such intersectionality of laws is observed, how can a company ensure that it is protected from penalties by the competition agencies?
Response: The answer to the first part of your question would be yes. There can be an intersection and interplay of data privacy and competition law and the same can be seen from the decision of the Competition Commission of India (CCI) to investigate the allegations in the WhatsApp privacy case. The case shows the consideration, by the CCI, of data being a non-price competition parameter. Though in my personal opinion it would be too early to state that this case could be a torch-bearer for actions concerning data privacy and consumer welfare. Once the privacy law is implemented in India, the enterprises/platforms would have to comply with the same, however, the CCI or the Act cannot be considered as a substitute for the regulator or the statutory provisions for privacy-related issues until such implementation.
A few years ago, it was coined by some experts that data is the new oil. This coincides with the understanding of most people, as there is a huge potential in the analysis and use of data. A simple example of the use of data would be the census undertaken by the government to determine the zone-wise population, literacy rate, sex- ratio, etc. This then helps the government to formulate its policies and undertake initiatives accordingly. A business enterprise through the collection and use of data can undertake a similar exercise. Simply put, one of the uses of data can be to help a business understand whether a lawn mower will sell in a desert or not. Therefore, the collection and usage of data/information to assess performance or introduce products/services may be a legitimate business practice. However, a grave issue can surface if the data is used for purposes beyond such basic business requirements from the collected data, as the usage of data/ information in such cases can cause a violation of the privacy of a consumer.
Parking this thought for a minute, the preamble to the Competition Act, 2002 (Act) states that the Act has been introduced to establish a body “to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade”. The Act in its framework broadly deals with three categories of matters, that is, anticompetitive agreements, abuse of dominant position, and mergers/acquisitions. While a violation of privacy may not directly fall under any of the three categories of the matter dealt under the Act, allegation relating to concerns of privacy intertwined with either of the three categories above, may attract scrutiny by the CCI under the provisions of the Act. The CCI in this regard is empowered to (i) direct parties to cease and desist from indulging in anti-competitive conduct while also imposing a penalty on such enterprises under Section 27; (ii) direct division of a dominant enterprise under Section 28; or (iii) completely block, or approve a merger amalgamation with modifications following Section 20 and 31.
Therefore, under the Act, sufficient tools have been provided to tackle the points raised by you in your query, provided the points also raise a competition concern and it has first been proven based on which a presumption, that the alleged practice or merger/amalgamation has caused or is likely to cause an appreciable adverse effect on competition in India, and this has been established by the CCI. The only issue which the industry or the CCI would face is that over-intervention by a regulator such as the CCI in developing markets could be harmful. It is suggested that the market intervention if any by the CCI should be backed by adequate research, understanding of the market realities, and having sufficient domain knowledge, etc. Anything short of this could have a serious impact on the development and industry in the long run.
Coming to the last part of the query, we will have to understand that being big or having huge resources in itself is not bad. Neither is having a huge market share or sources for the collection/processing of data. The antitrust laws in most countries would agree that enterprises can have consolidations or a huge pool of resources and yet may not walk off the line for their actions to be considered as anticompetitive, while activities of even smaller enterprises may fall foul of the provisions of the Act. The balancing of what is essential for the business to operate or what is foul of fair competition in the country would be clearly visible in most circumstances, but in some instances, the distinction might be very faint. For instance, if an enterprise acquires another failing enterprise or under an agreement supports an enterprise to expand it might attract the scrutiny of the CCI but may not be considered as a violation of the provisions of the Act. It is hence always advisable to seek assistance from a legal counsel before an action is undertaken.
2. The recent case of WhatsApp changing its data privacy laws and the CCI take on this issue can be considered as a paradigm shift that conforms with global practices. In your opinion, can we consider this as an instance where the interplay between Competition Law and Data Privacy law has been acknowledged and whether this stance would have a considerable impact on competition and data privacy in today’s digital world?
Response: Unfortunately, in India, we currently do not have any law on data privacy and hence several enterprises collect, process and utilize the information of their consumers/users, with or without the consent of the user/consumer. While data/information is used to improve the services of the business/enterprise itself, and it may not digress the boundaries of competition law, sharing of such data amongst businesses/enterprises can potentially raise concerns under the provisions of the Act. Does sharing of data grant an unfair advantage to the enterprise? Does it aid an enterprise in protecting or entering into another relevant market? There can be several plausible theories of harm that can be framed in the context of data collection and sharing – the key challenge would be to comprehensively analyze the facts, understand the peculiarities of the market in question, locate the conditions of competition in such a market and then test the theory of harm against applicable legal standards.
Clearly, though, this decision undoubtedly accepts that there can be an interplay between competition law and data privacy under certain circumstances. As indicated above, the usage of information can be considered as a non-price parameter for competition - the basic question being whether using/utilizing the data and information collected led to the enterprise securing an unfair advantage over competitors.
3. Do you think the arrangement of results on online platforms/search engines can be considered an antitrust concern? For instance, should a dominant platform be regulated with regards to its placement of domestic and third-party results and the bias therein? Further, do you think there should be any specific responsibility that dominant incumbents should hold while designing their products so that there be no unfair advantage?
Response: Enterprise requires capital for its operations including costs of materials, R&D, innovation, salaries, taxes, etc. In such a scenario even if an enterprise is super dominant, a government or a regulator asking them to run their operations for free or not have many avenues to earn would be quite unfair in a lay businessman’s terms.
We hear the radio, read a newspaper, a magazine or watch the free / partially paid television channels, and are always bothered by the advertisements in them. So, we pay for the monthly subscriptions of these or similar platforms so that there is lesser or no advertisement. Ever considered why a channel subscription with a cable operator costs cheaper than a subscription of an OTT platform? There are no free lunches in the world, somebody pays for what you get at lower rates or for free. These persons/enterprises who pay, are basically paying for the advertisements, sponsorship, or branding, and this allows the platform to provide the services to you at lower rates.
Advertisers/sponsors will also not pay unless they get them some value from the advertisement/sponsorship, and would want their products/name, as the case may be, to be highlighted. Hence, a platform may have to highlight the product on the front page as in the case of a newspaper or during prime time news for a news channel. A similar rule applies in cases of online platforms too. A question of whether an antitrust concern can arise from the arrangement of search results on a platform is an issue that has arguments on both sides of the line. Recently, the Italian competition law regulator has found Amazon in violation of the competition law as it promoted its own logistics services over other third-party vendors, and has directed Amazon to ensure visibility of the other third-party logistics services vendors on its platform.
It might be a thin line to walk on and prejudging, without visibility on the entire facts and circumstances is something that should always be avoided. A platform might in its search result give preference to a certain category of or identified vendors/service providers due to their past performance, quality, or service assurance, over other vendors. We could consider the decision of the Hon’ble Supreme Court in the Fastway Transmission case where the Hon’ble Court recognized that a business has to at times take certain actions which can fall foul of competition law but are an operational / business necessity or propriety. Similarly, the CCI in its various judgments has accepted similar arguments. Therefore, I would like to avoid making a blanket statement on whether it can be an antitrust concern or not. I believe that a regulator should avoid interfering in the operations of a business unless it can be established with reliable evidence that there is a serious antitrust concern.
However, for platforms, what can be suggested is that a safer way would be to keep the sponsored / advertisements at prominent locations on the platform but labeled as sponsored / advertisement, accordingly. In any other scenario, to my understanding, a sponsor /advertiser would not be willing to pay for our share of the otherwise chargeable fee for the services availed. I would reiterate that the CCI should investigate alleged practices of the enterprises only in cases, where based on evidence it can be shown that the practices have caused or have the potential to cause harm to competition.
4. In the world of globalization, when the big techs are working in perhaps every part of the world, what are the challenges faced by such companies due to the differences between the competition laws among countries?
Response: The businesses don’t operate at the same level and with the same conditions in all the countries. In some countries, the businesses have to have stricter policies and in some countries, the businesses can make do with even lenient ones. Further, there are country-specific products and services also offered by the bigger companies. Whereas, in most countries, the basic regulations or provisions might be the same, their applications, based on their own experiences, can differ vastly. In certain jurisdictions, even a cartel-like arrangement may be required to be proved as causing harm to competition whereas, in a jurisdiction like India, a cartel-like arrangement would, under the provisions of the Act, be presumed to have an appreciable adverse effect on competition. Similarly, an agreement between a producer and a re-seller i.e. a vertical agreement, in India requires to be proved to have an anticompetitive effect, whereas, in the EU, a vertical agreement for resale price maintenance or territorial restrictions are hardcore restriction and are presumed to harm competition.
Based on the jurisdiction, the competition law regulator of the country will further have to consider whether the enterprise or the market in which the relevant enterprise operates, has adequate competition. In sectors where an enterprise has a monopoly or holds a sizeable market share, any action which can be considered against the interest of the consumers may be held as a violation of the provisions of the competition law of the respective jurisdiction. Therefore, the big tech companies will need to increasingly navigate local antitrust nuances in the jurisdictions where they operate to assess and identify whether any competition concerns could be raised on account of its present or proposed policies or actions in such jurisdiction.
5. A common problem that arises when companies face anti-trust law allegations is the delineation of the market. This problem especially arises in big-tech companies primarily because of the multiple roles played by different players and the complex relations which interconnect said roles. For instance, Apple builds its software, operates cloud computing services, has its own web-browsing platform, etc. So, the technology market sectors within which Big Tech operate are not homogenous monoliths since there are numerous relevant markets within the said sectors. How do law enforcement agencies deal with this issue?
Response: I do not feel it would be difficult for the CCI to delineate the relevant market as such considering their varied experiences in this regard since inception, and the helpful provisions under the Act being Section 2(r), 2(s), 2(t), 19(5), 19(6) and 19(7). The provisions provide the factors which are required to be kept in mind by the CCI while delineating the relevant market, both product market and geographical market. These factors include regulatory barriers, consumer preferences, transportation costs, physical characteristics and uses of the product, price of the product, etc. For instance, in the celebrated case of Belaire Owners’ Association case, the CCI weighing in all these factors excluded several other types of services and accommodations in Gurgaon and concluded that the relevant market was the ‘market for services of developer/builder in respect of high-end residential accommodation in Gurgaon’. This indicates that the CCI may, if required, define the relevant market as narrow as in the case of Belaire Owners’ Association or as broad as the ‘market for supply of VSF to spinners in India’ as defined in the case of Grasim Industries. The CCI, if the circumstances require may delineate a broader or a narrower relevant market.
The CCI recently in the case of Harshita Chawla was required to delineate the relevant market in the case of WhatsApp and it observed that for identification of the relevant market, it was important to identify the most dominant or primary feature of the app to categorize it into a relevant market. The regulator has to identify the fact as to what feature, characteristic, use or any similar factors likens or differentiates a product. For instance, in the case of Coal India (Case No. 03 of 2012), the non-coking coal was differentiated from the other coal due to its physical characteristics and its use in power plants.
It would further help the CCI that, for allegations under Section 3 & 4 of the Act, the delineation of the market is ex-post i.e., after an alleged action/inactions has taken place, and hence it would be easier to associate the alleged conduct with a possible relevant market. For instance, if a platform has indulged in imposing restrictive conditions on a product supplier listed on the platform, the CCI can easily delineate the market as the provision of or availing of the relevant services from the supplier as the relevant product market. However, determining the relevant geographic market in cases of the enterprises which operate completely on the web, is difficult unless the services provided are specific to an area/zone/state or country/continent. Further, while the Act provides extraterritorial jurisdiction also, the impact or the possible impact of the alleged conduct/merger should be in India.
However, in cases of mergers/acquisitions, the delineation of the market and the assessment is ex-ante i.e., before any action/inaction has taken place. It may, however, in cases of enterprises having a multisided market may pose a difficulty for the CCI in delineating the relevant markets ex-ante. This may pose a difficulty for the CCI unless its determination of relevant market is backed by adequate research, understanding of the market realities, and having sufficient domain knowledge.
The difficulty for the CCI in determining the relevant market in cases of alleged conduct under Section 3 & 4 and for mergers/acquisitions, compounds in cases of technology companies where the markets and products/services are constantly evolving. It can only be advised that the CCI does not adopt a simplistic view in defining a relevant market rather it should appreciate the various facets of the technology/platform itself. The CCI for this should seek the assistance of industry experts for the determination and assessment of the constantly evolving digital markets.
6. The US Antitrust Agency, The Federal Trade Commission recently issued a report wherein it noted that many large technology companies have devoted tremendous resources to devise acquisition strategies enabling them to acquire start-ups, patent portfolios, and technology teams. Such acquisitions often lie outside the purview of anti-trust agencies where while each merger independently does not have a significant impact, but the collective impact of smaller acquisitions leads to a monopolistic behemoth. Do you think a change in anti-trust policies is required in India to enable a holistic view and inquiry into acquisitions by big tech firms? Further, if such a policy is developed do you think it may have a negative impact on the Mergers and Acquisitions trends in the country?
Response: Assuming that the CCI would turn a blind eye to the collective impact of smaller acquisitions by an enterprise, it would be naïve on our part. While some might intend to criticize some of the decisions of the CCI in such acquisitions, as a regulator the CCI does undertake an impact study of each of the proposed mergers notified before it. If we read the information required to be disclosed under Form-I and Form-II, the two formats under which a proposed acquisition/merger is to be notified to CCI, it mandates the parties to the acquisition/merger to declare the horizontal or vertical overlaps which amongst the scope of operations of the two enterprises. The formats also require the parties to the acquisition/merger to declare the objective and economic rationale for entering into the said transaction. Further, under the provisions of Section 20(4), the CCI is required to also consider if the proposed acquisition/merger would impact the competitive landscape of the market by reducing competition or competitors.
While the above holds correct for the acquisitions/mergers which are required to be notified in accordance with the provisions of the Act, it cannot be denied that there would be various acquisitions/mergers that might fall under exemptions and are hence not notifiable before the CCI. This may be due to the fact that in India the thresholds are considerably higher and even the target exemption introduced fairly recently are quite high at INR 350 crores for assets and INR 1,000 crores for turnover in India. It must be considered that most enterprises operating in the tech space are not profitable in their initial years of operation and may also not have enough revenue or assets to breach the notification thresholds under the provisions of the Act, and hence may be assessed as non-notifiable transactions. Further, the CCI under the provisions of the Act does not have the power to assess a non-notifiable merger/acquisition unless there are allegations that such merger/acquisition is leading to or can lead to violation of the provisions of the Act.
It might therefore be more helpful for the correct assessment by the CCI to consider the expected or estimated valuation of the business/assets/stake being acquired in the target, as a parameter for determining the requirement for notification of a proposed merger/acquisition before the CCI. A similar recommendation has been made by the Competition Law Review Committee which had submitted its report in 2019. It was recommended that the government should introduce necessary thresholds including deal-value thresholds for merger notification specifically for tech companies. It was further recommended that thresholds determined should be clear and objectively quantifiable.
Though, the above proposal may bring a lot of mergers/acquisitions within the scope of the provisions of the Act, it can delay the process of approvals for the parties to the proposed merger/acquisition and make the same cumbersome. This may further impact the industry as a whole in sectors such as technology where the dynamics are constantly evolving and processes renewing. The CCI will hence have to be very cautious in considering to interfere in any merger based on such criteria.