Privacy And Digital Practices – A Competition Lens

Introduction

The National Company Law Appellate Tribunal ('NCLAT') recently delivered its judgment in WhatsApp v. Competition Commission of India, in an appeal that arose from the CCI's order, holding that WhatsApp's 2021 Privacy Policy Update ('2021 Policy'), amounted to an abuse of dominant position under Section 4 of the Competition Act, 2002 ('Act').

At its core, the dispute concerned whether a dominant messaging platform could mandate expansive data sharing with its parent company, i.e., Meta in the present case, and whether such mandate affected competition in the digital advertising market.

The CCI had delineated two relevant markets: (i) the market for Over-the-Top ('OTT') messaging apps through smartphones in India; and (ii) the market for online display advertising in India.

First, WhatsApp (as part of Meta), was found to be dominant in the market for OTT messaging apps through smartphones in India. This finding was based on its overwhelming market presence measures through Daily Active Users (DAUs) and Monthly Active Users (MAUs), strong direct network effects, high switching costs, absence of countervailing buyer power, and control over vast volumes of user data. Consumer surveys placed WhatsApp, as the most widely used messaging platform in India, significantly ahead of competitors such as Telegram and Signal.

Second, the CCI held that WhatsApp abused its dominant position by imposing the 2021 Privacy Policy update on a "take-it-or-leave-it" basis. The removal of the opt-out option and mandatory cross-platform data sharing within the Meta group were found to constitute an unfair condition under Section 4(2)(a)(i) of the Act. The CCI reasoned that privacy constitutes a non-price parameter of competition.

Third, in relation to the online display advertising market in India, the CCI did not record a finding that Meta was independently dominant in that market. While Meta was recognised as a leading player with significant advertisement revenues and scale advantages, the dominance finding was confined to OTT messaging market.

Fourth, despite the absence of a 'dominance' finding in the online display advertising market, the CCI held that the cross-platform sharing of WhatsApp user data created entry barriers for competitors in the display advertising market. By combining messaging data with advertising infrastructure, Meta was found to have gained a competitively decisive data advantage. This was held to amount to denial of market access under Section 4(2)(c) of the Act, on the reasoning that dominance in one market (OTT messaging) can produce exclusionary effects in a related market within a digital ecosystem.

Fifth, the CCI also held that Meta had engaged in 'leveraging' under Section 4(2)(e) of the Act. It found that WhatsApp's dominance in the OTT messaging market, was used to protect and consolidate Meta's position in the online display advertising market, by enabling superior data-driven targeting and reinforcing ecosystem lock-in.

It was against these findings that the appeal was preferred. The NCLAT substantially upheld the CCI's findings under Sections 4(2)(a)(i) and 4(2)(c) of the Act but rejected the finding of leveraging under Section 4(2)(e) of the Act.

This case is significant for at least three reasons. First, it squarely addresses whether mandatory data sharing can constitute competition harm in zero-price digital markets. Second, it addresses whether an effects-based analysis approach is indispensable to determine anti-competitive effects in the market. Third, the decision possibly reveals an inconsistency on the interpretation of Section 4 and the understanding of dominance, eventually leading to abuse. While the NCLAT accepted that WhatsApp's data sharing practices could disadvantage rivals in the digital advertising market, it refused to treat this conduct as leveraging of dominance by Meta.

In this article, we analyse core competition issues of the NCLAT's findings and attempt to trace the impact of such findings on the competition jurisprudence in India.

Market power

One of the most significant findings of NCLAT is that market power and competitiveness, are inherently related to the quantity and quality of data possessed by a digital market enterprise. While the finding is significant from the perspective of data-competition in digital markets, what is notable is the assertion that Section 4(2)(a)(i) and 4(2)(a)(ii) of the Act - which relate to unfair or discriminatory abuse of dominant position through pricing or imposing conditions in purchase or sale of goods/services - is deliberately broad, and covers all forms of abuse of dominance, including non-price factors like data or privacy violations.

Effects analysis

An equally pertinent observation of the NCLAT is that an effects-based analysis under Section 4 of the Act can succeed through a qualitative analysis of anti-competitive harm weighed against pro-competitive benefits.

The opposite parties strongly objected to the CCI's approach on this front. They argued that the CCI had failed to demonstrate actual foreclosure or measurable harm in the online display advertising market. It was contended that there was no empirical evidence showing loss of users, exit of competitors, reduction in output, or increase in advertising prices attributable to the 2021 Policy. The absence of user surveys, or statistically demonstrable harm was emphasised to argue that the finding of abuse was speculative.

The CCI however, took the position that in digital markets, particularly those characterised by network effects and data concentration, harm often manifests structurally rather than immediately. It argued that the removal of the opt-out option and mandatory cross-platform data sharing, strengthened Meta's data advantage in a manner capable of distorting competitive conditions in the advertising market. The Commission maintained that the Act permits intervention against conduct that is likely to cause appreciable harm, and that waiting for irreversible market foreclosure would defeat the preventive purpose of competition law.

The NCLAT endorsed this broader understanding of effects analysis. It observed that effects can be demonstrated from market structure, conduct of parties, and qualitative evidence, without exhaustive quantitative evidence like user surveys, especially in digital dominance cases where network effects and market power mute consumer resistance. It recognised that in zero-price digital markets, deterioration in privacy or forced data integration may not immediately reflect in pricing metrics, yet may still distort competition by reinforcing entry barriers and strengthening ecosystem control. Importantly, the NCLAT reiterated that the CCI need not prove actual foreclosure; it is sufficient to demonstrate that the conduct is capable of producing anti-competitive effects.

It must be noted that the Act permits intervention on likely harm and the CCI need not wait until the damage cannot be undone or until an enterprise solidifies its dominance. This discourse first arose in Alphabet Inc. v. CCI, Competition Appeal (AT) No. 04 of 2023, where the NCLAT upheld the CCI's argument that an effects analysis cannot be restricted to an actual harm, but must cover conduct that can cause or is capable of causing such harm. The caveat put forth by the NCLAT, however, was that the conduct itself must have occurred. Contravention cannot be proved without a likely conduct i.e., contravention cannot rest on hypothetical or anticipated behaviour. This finding reiterates NCLAT's earlier holding and further solidifies the burden that the CCI is required to prove harm.

Relevant markets

The relevant markets identified by the CCI and upheld by the NCLAT, reflect an intention to consider evolution of traditional factors which are better adapted to digital markets. Factors such as multi-homing (demand-side substitutability - which is the tendency of users to switch between multiple service providers); network effects (consumer dependence and entry barriers - consumer hesitation to switch due to factors such as an existing large userbase) and switching costs (lock-in and market power), were considered in finding WhatsApp dominant in the OTT messaging market.

What is significant about this reasoning is that competition analysis in digital markets is made broadly. Traditional industries often rely on pricing power and output restriction to establish dominance. In contrast, digital platforms get power from user scale, data concentration and ecosystem integration. The NCLAT's approach indicates that industries such as social media, app marketplaces, e-commerce platforms, digital payments, ride-hailing services and maybe even emerging AI-based services, could come under scrutiny if similar structural features exist in them.

The CCI's delineation of the market for online display advertising in India for Meta is also in line with current jurisprudence, despite the finding that Meta was not dominant in such a market and was instead only a "leading player". Competition jurisprudence has, in recent years, acknowledged the layered structure of digital ecosystems. The recognition that digital advertising markets operate through data aggregation and user tracking, aligns with earlier decisions where data access and platform control were treated as competitive advantages¹. More importantly, the judgment seems to have borrowed and applied the principles discussed in Justice K.S. Puttaswamy v. Union of India², to protect informational privacy. The jurisprudential relevance lies in the fact that the CCI recognised competitive asymmetry without mechanically equating scale with dominance.

Abuse of dominance

The NCLAT's finding of abuse of dominance under Section 4(2)(c) of the Act by Meta, is also a noteworthy interpretation of Section 4. Essentially, the NCLAT found that despite Meta not being dominant in the online display advertising market in India, cross-platform data sharing with WhatsApp created an entry barrier for competitors in the display advertising market that did not have access to equivalent volume of data. The finding that this conduct constitutes a violation of Section 4(2)(c) of the Act is unique, as the dominance requirement under Section 4 is being satisfied by the "group" explanation i.e., WhatsApp and Meta. However, the finding is that Meta has indulged in a practice (data sharing), that resulted in denial of market access in the online display advertising market, without there being an individual finding on Meta, on dominance.

In contrast, the NCLAT does not find a violation of Section 4(2)(e) on Meta, on the limited ground that Meta is not dominant in the market for online display advertising market in India, despite it using its position to protect other relevant markets. While the NCLAT observes that WhatsApp and Meta belong to the same group, the allegations specifically pertain to data sharing by WhatsApp. However, the NCLAT also notes that Meta has 100% control over WhatsApp, which acts more like an agent of the parent company, and that activities of WhatsApp are controlled by common executives.

Leveraging dominance

For the violation under Section 4(2)(c), the NCLAT observed that the "power" flows from WhatsApp to enable Meta to have an enhanced advantage in the display advertising market, creating barrier entries. It creates an uneven playing field because Meta receives an input that arises not from competition in the advertising market, but from WhatsApp's dominance in an unrelated market. However, since Meta is not dominant in the display advertising market, it could not be held liable for leveraging its dominance in the OTT messaging market under Section 4(2)(e). The NCLAT remains silent on why, as a group, a conclusion could not be drawn that WhatsApp and Meta have infact, used their dominant position in the OTT messaging market, to protect their position in the display advertising market, especially when the group was collectively considered to invoke Section 4(2)(c).

The analysis in the judgment relating to violation of Section 4(2)(c) and 4(2)(e), as it stands, is internally contradictory. If one entity's conduct results in denial of market access because the other entity receives a competitively decisive input (within the same group), then it necessarily follows that the first entity's dominance is being used to strengthen the second entity's position. Either the NCLAT could not have found a violation of either Sections, or it should have found a violation of both.

Conclusion

While the NCLAT's decision contributes significantly to evolving jurisprudence of competition in the realm of digital markets, certain aspects highlighted herein, specifically, the analysis of abuse of dominance in the context of group entities, requires further interpretation. While digital markets require courts to bend the traditional norms of competition analysis, such an exercise must be undertaken with care to avoid contradictions and lapses in uniform application of legal principles so that fairness and certainty prevail in the digital competition enforcement era.

Footnotes

1.Facebook v. Bundeskartellamt, Case VI-Kart 1/19 (V).

2.Justice K.S. Puttaswamy v. Union of India, 2019 (1) SCC 1.

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