[Vanshika Katiyar and Rajat Maloo are 4th year B.A., LL.B. (Hons.) students at the National Law School of India University, Bangalore.]
On 29 July 2020, the heads of America’s largest tech giants, namely, Alphabet, Amazon, Apple and Facebook testified before the United States’ Congress. The members of the antitrust committee of the Judiciary Committee of the House of Representatives ‘grilled the tech bosses’ on several aspects of their businesses which entailed antitrust implications. For instance, Alphabet was questioned on Google’s potential leveraging of its dominance in the online search market into other digital markets. Similarly, Facebook was questioned as to why its takeover of Instagram and WhatsApp did not amount to neutralising potential rivals. The data interlinked services provided by these ‘big-tech’ giants on a large and transnational scale make them ‘too powerful’ for the purpose of antitrust regulation.
It is noteworthy that regulation of big-tech giants came about as a huge challenge before antitrust regulators in the US, who took almost a year to collect hundreds of hours of interviews and waded through 1.3 million documents. The antitrust problems became obvious only when these tech giants have already grown vastly and hold significant dominance in their respective digital markets. At this juncture, when the Indian digital sector is witnessing major mergers and acquisitions from these giants, it is imperative for the competition authority and lawmakers to device and use methods to deal with potential antitrust issues in the early stages of their growth without waiting for them to grow beyond expectations. This post discusses, first, the distinct antitrust challenges posed by big-tech companies; second, the extant Indian approach to deal with them;and lastly, potential learnings for the Indian competition regime in light of the recent developments. The post focusses on merger review and dominance aspects of competition regulation and suggest ways in which India can avoid the problems which have arisen in the US.
Distinct Antitrust Issues with Big-Tech Companies
Competition regulation of big-tech companies poses unique challenges for the antitrust regulators across the world. More often than not, big-tech companies such as Google and Facebook function on the basis of data collection, analysis of the data collected and then using the data to generate revenue. Albeit the business models of Amazon and Apple may be slightly different, they heavily rely on users’ data to provide targeted services/recommendations and thereby generate revenue. These data-driven network effects characterise the dominance of big-tech companies. Using this data dominance, these companies also expand into other related businesses with the objective of accessing more data. For instance, Facebook acquired WhatsApp and Instagram to increase its data collection base, and Alphabet provides its Android operating services free of charge to collect more data from its users.
In a way, big-tech companies realise their dominance in the market through the data they are able to collect and put to use. This presents a challenge before the antitrust regulators to assess dominance of these companies (for cases pertaining to abuse of dominance) and potential dominance and anti-competitive effects of mergers and acquisitions within big-tech companies (for cases pertaining to merger review).
Another challenge before the antitrust regulators is to apply the consumer welfare standard effectively while analysing anti-competitive aspects of big-tech companies. Although consumers might enjoy free services offered by companies such as Facebook and Google for a significant period of time, the antitrust regulators need to assess the overall welfare for the market participants as well as the consumers from a holistic perspective.
Extant Indian Approach
The existing Indian approach to regulate big-tech companies’ mergers is identical to the ex-ante merger review of any other company. Essentially, there is no distinction in the way technology companies are assessed. The merging entities, who meet the requisite threshold, are required to notify the Competition Commission of India (‘CCI’) under sections 5 and 6 of the Competition Act 2002 (‘the Act’). Upon such notification, the CCI analyses the combination based on the factors laid down in section 20(4) of the Act. The existing parameters to assess dominance and potential anti-competitive effects are not enough for the antitrust regulators to be able to effectively regulate big-tech companies. These parameters are defined in light of traditional businesses which do not make them suitable to regulate big-tech companies relying on data dominance.
These traditional factors of merger review do not consider the peculiarity of anti-competitive effects which might be a result of data implications of big-tech companies. Hence, it is evident that the current competition law regime in India does not have a robust mechanism in place to assess potential anti-competitive effects of mergers in the digital market through crystal-ball gazing, i.e., assessing future anti-competitive implications of the merger at hand. It becomes difficult to assess the potential data dominance of big-tech companies in the future as mergers are mostly approved in the initial stages of a company when it is not dominant in its relevant market. Essentially, the competition law regime lacks specific provisions to regulate big-tech companies.
Recent Developments in India and Potential Learnings from the US’ Issues
In India, there have been several large scale investments by US’ big-tech companies recently. The CCI recently approved Facebook’s 9.99% stake in Reliance Industries’ digital subsidiary Jio Platforms. The deal was executed through Facebook’s subsidiary Jaadhu’s Holdings, which the merging entities argued to not have any existing business in the world, to avoid potential antitrust complications.
Later on 15 July, Reliance’s chairman Mukesh Ambani announced that Google would also be investing USD 4.5 billion in Jio Platforms. On 23 July, it was reported that Amazon was in talks with Reliance to buy a 9.9% stake in its retail arm. Inevitably, these deals raise pertinent questions regarding the potential anti-competitive effects which might manifest over time as a consequence of these mergers. The CCI has mostly ignored the future implications of data dominance when entities such as Facebook and Jio Platforms, which hugely rely on data, are merging in the Indian markets. Both of these companies are ‘data elephants’ and hence, anti-competitiveness should not be judged on the basis of market share alone but must be viewed from the perspective of data as well. Further mergers with Alphabet and Amazon can lead to Reliance becoming a digital behemoth in the times to come.
It is notable that the statistics from CCI’s merger review jurisdiction show the CCI’s general inclination towards approving combinations. The CCI has approved 97.4% of the cases of combination it reviewed between 2011 and 2018. Further the CCI has made no rejection orders, but has only approved combinations with modifications.
It is also noteworthy that the CCI in the past, has failed to analyse data dominance implication of tech companies. In 2017, Bharti Airtel Limited had alleged that Reliance Jio was engaging in predatory pricing by providing certain services for free, however, the CCI closed the matter by stating that providing free services cannot by itself raise competition concerns. It stated that it was merely incentivizing customers by giving attractive offers and schemes. However, the CCI did not consider the nature of services which relied on large scale data collection. Subsequently, in the absence of data protection laws in India, businesses use data collected through one business to gain leverage in another. Although Indian legislators recently proposed a data protection law, the CCI will still have to ensure that data collection and usage by big-tech companies does not lead to anti-competitive effects in the relevant market.
The aforementioned instances demonstrate the earnest need for the lawmakers and the CCI to reconsider its approach on regulating digital markets and big-tech mergers. Discussions on anti-competitiveness, abuse of dominance and antitrust cannot be completed without analysing how combinations between data rich companies affect accumulation and use of data in digital markets. The Competition Law Review Committee (‘CLRC’) Report stated that the Committee deliberated on the interplay of the Competition Act with the developments in the digital market. It acknowledged that the businesses’ ability to process large amounts of data and further use it to develop and innovate is critical to the discussion on the role of competition in digital markets.
While stating that access to data can represent a form of competitive advantage, the Committee, however, observed that there was no need to explicitly mention ‘control over data’ or ‘specialized assets’ in section 19(4) of the Act (to assess dominance) as the section was inclusive in nature and broad enough to include ‘control over data’. The Committee, hence, expected that the CCI would consider data as a determining factor while examining abuse of dominance. Similarly, section 20, which provides parameters to assess and approve combinations, does not provide a specific parameter for data-driven big-tech companies’ mergers. In accordance with the CLRC Report, the Competition (Amendment) Act, 2020 did not have additional provisions to regulate big-tech companies with respect to dominance and merger review.
In the absence of an explicit law with respect to data dominance, businesses could abuse their position and dictate terms in the digital market over time. It has been estimated that Google and Facebook together take up 68% of the ad market revenue in India. All the above companies provide more than one or two services to their customers and several of them being free of charge. The recent deals between big-tech companies such as Google and Facebook with Reliance would enable Reliance to acquire a dominant position by restricting user data and its competitors would have to struggle to stay viable in the Indian digital market.
In light of the recent events in the US, it is a good time for the Indian lawmakers and the antitrust watchdog to consider the peculiar issues and challenges involved in regulating big-tech companies seriously. Indian competition regime must keep up with the fast technological progress so as to achieve the welfare goals it is set up for. In this regard, the law must provide explicit factors and parameters which the CCI should consider while assessing big-tech mergers and acquisitions to avoid the US issues from arising in India in the future. This would also empower the CCI to review mergers in the digital market more intrusively and rigorously.
– Vanshika Katiyar & Rajat Maloo
Well researched and articulated. Good job!