The Need to Revisit Merger Control Thresholds in a Data Driven Economy

[Priyadarsini T P is a 4th year B.A LL.B (Hons) student at the National University of Advanced Legal Studies, Kochi]

Implications of data on competition are manifold. One of the ways in which these manifest is when a horizontal merger takes place between two undertakings in a market where data are the input for delivery of a certain service. The adverse effects may be more serious when the market is concentrated and there are no substitutes for the data owned by the merging entities.

The OECD has reported that the number of ‘big data related’ mergers and acquisitions more than doubled between 2008 and 2012-15. Both the European Commission and the Department of Justice (DOJ) have had chances to review mergers between firms providing data or data-related services.[1] The DOJ, in the context of the merger of Bazaarvoice and Power-Reviews observed that access, quality and volume of data from the consumer’s base had the potential to serve as a significant entry barrier. Competition in ‘rating and review platforms’ would be greatly reduced and there was potential for creation of a monopoly by this merger.

In the Thomson/Reuters merger, both DOJ and the EC found that the combination raised competition concerns because they were the leading providers of certain types of data. The merger may create significant entry barriers because of the difficulties in arranging for collection of data of tens of thousands of companies on a global basis, constructing a historical database and the need to develop local expertise in each country’s accounting norms, among others. The data held by the merging entities was so unique that it just was not available for anyone else at any price. For this reason, the merger was cleared upon the condition that the merging entities have to disclose certain databases required to allow their purchasers to establish themselves as competitors in the market.

A merger between two companies that hold strong positions in different markets can also lead to foreclosure. An example of a data driven vertical merger is when Google proposed to acquire ITA, a supplier of airline schedule database to online travel intermediaries. The DOJ observed that the merger involved Google purchasing a significant input supplier and hence remedies were provided to ensure supply of inputs to Google’s competitors.

Similarly, the EC conducted an inquiry into the Facebook/ WhatsApp Merger as to whether the merger between a social networking platform and consumer communication application may affect competition by virtue of Facebook having access to additional data. The EC concluded that even if Facebook were to use the data from WhatsApp users for advertising, there still existed a large amount of data outside Facebook’s control. Hence, substitutes were available.

This decision raises concerns because it proceeds on the assumption that data, because it is ubiquitous, does not pose a threat to competition. However, this is not entirely true as competitive advantage is often gained by the uniqueness of the data owned, which is not easy to find elsewhere.  This is why, in its Telefónica UK/Vodafone UK/Everything Everywhere merger decision, the EC inquired whether the joint venture would result in a unique database which no other competitor could replicate and thus decrease competition in data analytics and targeted advertising services market.

Are the existing thresholds accommodative of data driven mergers?

Presently, a combination which meets certain asset and turnover based thresholds are required to be notified to the Competition Commission of India (CCI) before it can take effect.[2]  Recently, the EC has stated that a ‘purely turnover-based jurisdictional threshold’ may create a ‘legal gap [that] may not only concern the digital industry, but also other industry sectors, such as pharmaceutical. Such thresholds may not capture all transactions which can potentially have an impact in the internal market such as data driven mergers, mergers involving transfer of important intellectual property, and the like. Such combinations may escape the scrutiny of the CCI because the assets and turnover of the acquirer and the target enterprise may be less than the prescribed threshold. In some cases, therefore, the value of the deal could be a useful guide to its importance.

Some competition authorities such as in Germany and Austria have taken cognizance of this insufficiency and have introduced an additional ’value of transaction’ threshold. An acquisition of value exceeding a prescribed limit can be reviewed even if the assets and turnover thresholds are not met. Such a threshold already exists under the Hart-Scott Rodino Act of the United States.

Presently, the CCI cannot look into mergers and acquisitions which are not combinations under the Act. Interestingly, while the Chinese Competition Authority has powers to enquire into a merger perceived to have the potential to restrict competition otherwise not covered under the thresholds,[3] the CCI has no such powers. Therefore, there is a need to revisit the current thresholds in light of the increase in value of data as an asset.

Priyadarsini T P

[1] Case COMP/M.4726—Thomson Corp./Reuters Grp., Comm’n Decision (Feb. 19, 2008), 2 Case COMP/M.5529—Oracle/Sun Microsystems, Comm’n Decision (Jan. 21, 2010).

[2] Sections 5 and Section 6 of the Competition Act, 2002.

[3] Article 4, Provisions of the State Council on Notification Thresholds of Concentrations of Undertakings (Aug. 3, 2008).

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