CCI Orders Meta to Revamp WhatsApp's Data Sharing Policy, Imposes ₹213 Crore Fine
In Re: Updated Terms of Service and Privacy Policy for WhatsApp users
Court: Competition Commission of India
Judge Names: Chairperson Ravneet Kaur, Member Anil Agrawal, Member Deepak Anurag
Date: November 18, 2024
Read the judgment here
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I. Introduction
The Competition Commission of India’s (CCI) judgment in Case No. 01 of 2021 and Case Nos. 05 & 30 of 2021 examines WhatsApp’s updated privacy policy and terms of service announced in January 2021. The case involves WhatsApp LLC and Meta Platforms, Inc. (formerly Facebook) as Opposite Parties, with complaints filed by Prachi Kohli and the Internet Freedom Foundation (IFF) as Informants. The Commission investigated whether WhatsApp’s 2021 privacy policy update constituted an abuse of dominant position under Section 4 of the Competition Act, 2002, particularly regarding the mandatory sharing of user data with Facebook (now Meta) and its implications for market competition.
II. Facts and Background of the case
The case originated in January 2021 when WhatsApp announced updates to its privacy policy and terms of service. The Commission took suo motu cognizance of media reports stating that WhatsApp’s new policy made it mandatory for users to accept the terms and conditions to retain their account information and outlined how user information would be shared with Facebook (now Meta) and its subsidiaries. Users began receiving notifications about these changes in early January 2021, with an initial deadline of February 8, 2021, to accept the new terms.
The policy update marked a significant shift from WhatsApp’s previous privacy policies dated August 25, 2016, and December 19, 2019, which had given existing users an option to choose whether they wanted to share their WhatsApp data with Facebook. However, the 2021 update removed this opt-out option, making data sharing with Facebook mandatory for all users.
During this period, two additional cases were filed - Case No. 05 of 2021 by Prachi Kohli and Case No. 30 of 2021 by the Internet Freedom Foundation - alleging similar violations. The Commission clubbed these cases with the suo motu case due to the substantial similarity in allegations. The Commission, through its order dated March 24, 2021, formed a prima facie view that WhatsApp had contravened Section 4 of the Act and directed the Director General (DG) to investigate the matter.
The Opposite Parties challenged this investigation order through various legal proceedings, including writ petitions before the Delhi High Court and Special Leave Petitions before the Supreme Court. However, all these challenges were ultimately dismissed, with the Supreme Court observing on October 14, 2022, that the Commission should not be restrained from proceeding with its investigation.
The DG submitted its Investigation Report on January 12, 2023, finding Meta (through WhatsApp) to be dominant in the market for Over-The-Top (OTT) messaging apps through smartphones in India. The investigation revealed that WhatsApp’s 2021 policy update constituted a ‘take-it-or-leave-it’ proposition for users, with implications for data sharing within the Meta ecosystem and potential anti-competitive effects in the online display advertising market. The case thus centers on the intersection of data privacy, user choice, and competition law in digital markets.
III. Arguments
A. Petitioners’ Arguments
1. Challenge to Market Definition and Dominance Assessment: The OPs contested the market delineation by arguing that WhatsApp operates in a broader “market for user attention” rather than the narrow market of OTT messaging apps. They claimed that users can switch between various digital services that compete for attention, including social networking, messaging, gaming, and content viewing. WhatsApp emphasized high multi-homing rates among users and cited the October 2021 outage as evidence of substitutability between different digital services.
2. Dispute Over Data Collection and Sharing: WhatsApp strongly argued that the 2021 Update did not expand its data collection or sharing capabilities compared to the 2016 Policy. They maintained that the update merely aimed to enhance transparency by providing clearer information about existing practices. The OPs contended that data sharing between group companies is standard industry practice and that the Investigation Report failed to consider the benefits to consumers and advertisers from such data integration.
3. Challenge to Procedural Aspects: The OPs raised several procedural objections, including that the Investigation Report failed to conduct proper economic analysis suitable for zero-priced products and did not include an adequate effects analysis. They argued that the DG’s reliance on decisions of foreign competition authorities was inappropriate and that the investigation ignored submissions from major competitors like Google and Amazon regarding market substitutability.
4. Arguments Against Market Access Denial: Meta contested the finding of denial of market access under Section 4(2)(c), arguing that establishing such violation requires dominance in the relevant market where denial is alleged. They claimed the Investigation Report did not establish Meta’s dominance in the online display advertising market, making the finding legally unsustainable.
5. Defense Against Unfair Conditions: WhatsApp argued that the 2021 Update was not a “take-it-or-leave-it” proposition as claimed. They emphasized that users were given more than four months to review the update and that accepting it was not mandatory for continuing to use basic WhatsApp services. They also pointed to low switching costs and the availability of alternative messaging platforms.
6. Arguments on Penalty Computation: The OPs contended that any penalty should be based on relevant turnover from India rather than global turnover. They argued that the penalty should only consider WhatsApp’s turnover, not Meta’s, and emphasized various mitigating factors including cooperation with authorities and first-time contravention. They also claimed that the Amendment Act 2023’s provisions regarding global turnover should not apply retrospectively.
7. Geographic Market Definition: The OPs challenged the limitation of the geographic market to India, arguing that digital services markets are global in nature. They contended that players typically operate globally with similar functionalities across countries, and that Meta’s product decisions are made on a global basis to offer consistent user experiences worldwide.
8. Arguments on Data Protection and Privacy: WhatsApp argued that the Investigation Report improperly arrived at findings on matters of data protection and privacy law unrelated to competition law. They contended that these aspects were already being adjudicated by other courts and that the Commission should limit itself to competition aspects as per its own submissions before the Delhi High Court.
B. Respondent’s Arguments
1. Market Definition and Competition: WhatsApp and Meta strongly contested the narrow market definition proposed by the DG. They argued that WhatsApp operates in a broad and highly competitive market for user attention, competing with all digital products and services that seek to capture user attention through different functionalities. They emphasized that services like social networking, messaging, gaming, content viewing and sharing are substitutable from the user’s perspective and should be considered part of the same relevant market.
2. Multi-homing and User Choice: The respondents argued that Indian users exhibit a high degree of multi-homing by installing and switching between numerous applications. They cited research showing that 86% of Indian users engage in multi-homing for messaging services. This, according to them, demonstrates that users are not dependent on WhatsApp and have meaningful choices in communication services. They contended that the easy portability and interoperability between consumer communication applications mitigates against network effects.
3. Data Collection and Privacy Policy: WhatsApp strongly maintained that the 2021 Update does not expand its ability to collect or share data with Meta. They argued that the primary aim of the update was to provide users with additional transparency about how WhatsApp collects, uses, and shares data, and to provide information about optional business messaging features. They emphasized that the 2016 Update had already disclosed WhatsApp’s data sharing practices with Meta, and the 2021 Update merely sought users’ acknowledgment of these existing terms.
4. Business Services and Data Sharing: The respondents argued that their business services are optional, and users are not required or incentivized to opt for them. WhatsApp maintained that while using its business messaging features, users remain in control of what they choose to share. They emphasized that messaging businesses using WhatsApp Service continues to be optional, and users can contact businesses through other means.
5. Entry Barriers and Market Competition: The respondents contended that there are very low entry barriers for new players to enter the market since operating costs are low and no significant capital investment, infrastructure, or large staff numbers are required. They cited Telegram’s submission to support their claim that rivals do not face any barriers to entry or expansion in India.
6. Geographic Market Definition: The respondents challenged the limitation of the geographic market to India, arguing that markets for digital services are global as players typically operate globally, and functionalities rarely differ from country to country. They maintained that WhatsApp’s product decisions are typically made on a global basis to offer a consistent user experience across the globe.
7. Effects Analysis: WhatsApp argued that the Investigation Report should be rejected for failing to include an effects analysis. They contended that the DG failed to demonstrate concrete anti-competitive effects or analyze the exclusion of any as-efficient competitors.
8. Penalty Considerations: The respondents argued that even if found in violation of the Act, no penalty should be imposed due to various mitigating factors including their cooperation throughout the investigation, first-time contravention of the Act, and the benefits provided to consumers and advertisers. They also contended that any penalty should be based on relevant turnover in India rather than global turnover, and should only be imposed on WhatsApp’s turnover, not Meta’s.
9. Consumer Benefits: The respondents emphasized that their practices result in improvements to their advertising products and services, benefiting both advertisers and users through more relevant and quality ads, which enhance the overall user experience. They argued that these benefits should be considered when assessing any potential anti-competitive effects.
IV. Court’s Reasonings
1. Relevant Market Delineation and Dominance Assessment: The Commission delineated two relevant markets: (1) Market for OTT messaging apps through smartphones in India, and (2) Market for online display advertising in India. The Commission found Meta (through WhatsApp) to be dominant in the first market based on factors like network effects, high switching costs, lack of countervailing buyer power, and control over vast user data creating entry barriers. The Commission noted that WhatsApp’s DAUs and MAUs were significantly higher than competitors, demonstrating its strong market position.
2. Analysis of WhatsApp’s 2021 Privacy Policy Update: The Commission found that WhatsApp’s 2021 privacy policy update constituted a “take-it-or-leave-it” proposition for users. Unlike previous policies from 2016 and 2019, the 2021 update removed users’ ability to opt-out of data sharing with Meta companies. The Commission determined this was an unfair condition imposed on users, as they had no real choice but to accept the terms to continue using WhatsApp’s services, given its dominant position and the network effects in the messaging market.
3. Data Collection and Sharing Practices: The Commission examined WhatsApp’s data collection practices and found them to be excessive compared to the core messaging services provided. The investigation revealed that WhatsApp collects various categories of data, including usage information, device data, location data, and business interaction data. The Commission found the scope of data collection to be broad and often vaguely defined, making it difficult for users to understand the extent of data being collected and shared within the Meta ecosystem.
4. Competitive Impact in Display Advertising Market: The Commission found that Meta’s integration of WhatsApp user data with its advertising services created significant competitive advantages in the display advertising market. Third-party advertisers confirmed that access to comprehensive user data allows for more effective targeted advertising. The Commission noted that Meta’s ability to combine data from multiple platforms (WhatsApp, Facebook, Instagram) created entry barriers for competitors who couldn’t match this level of data integration and targeting capabilities.
5. Denial of Market Access and Leveraging: The Commission concluded that Meta’s practices resulted in denial of market access to competitors in the display advertising market and constituted leveraging of its dominant position in the OTT messaging market. The Commission found that Meta’s ability to collect and combine vast amounts of user data across its platforms created insurmountable advantages that smaller competitors couldn’t replicate, effectively foreclosing competition in the advertising market.
6. Remedial Measures and Penalties: The Commission ordered several remedial measures, including prohibiting WhatsApp from sharing user data with Meta companies for advertising purposes for five years. It mandated that WhatsApp provide users with clear opt-out options for data sharing and make its data collection policies more transparent. The Commission imposed a penalty of Rs. 213.14 crore on Meta, considering factors like the gravity of the violation, the number of affected users, and the competitive impact in the market.
7. Rejection of Preliminary Objections: The Commission rejected Meta’s preliminary objections regarding jurisdiction and the need for effects analysis. It clarified that competition law can address data-related practices alongside data protection laws, as they serve different purposes. The Commission emphasized that its role includes preventing anti-competitive practices before they cause irreparable harm to market competition.
8. Assessment of Multi-homing and Network Effects: The Commission analyzed the impact of multi-homing (users using multiple apps) and found that it did not effectively constrain WhatsApp’s market power. Despite users potentially using multiple messaging apps, WhatsApp’s network effects and large user base made it an essential platform for communication, limiting the competitive constraint from alternative apps.
9. Evaluation of Business Services and Data Integration: The Commission examined WhatsApp’s business services and found that the requirement for businesses to have Meta accounts for certain services further reinforced data integration within the Meta ecosystem. This integration enhanced Meta’s ability to offer superior advertising services, strengthening its market position in the display advertising market.
10. Consideration of Global Context: The Commission considered international precedents and practices while maintaining focus on the Indian market context. It noted that while privacy policies might differ across jurisdictions, the competitive concerns arising from data integration and leveraging in digital markets were relevant to the Indian competition landscape.
V. Conclusion
Based on a comprehensive examination of the evidence and legal arguments presented, the Competition Commission of India concluded that Meta (through WhatsApp) has violated multiple provisions of the Competition Act, 2002. The Commission delineated two relevant markets: the market for OTT messaging apps through smartphones in India and the market for online display advertising in India, finding Meta dominant in the first market. The Commission determined that Meta violated Section 4(2)(a)(i) of the Act through its ‘take-it-or-leave-it’ 2021 Privacy Policy Update, Section 4(2)(c) by creating entry barriers through data sharing between Meta companies, and Section 4(2)(e) by leveraging its dominant position in the OTT messaging market to protect its position in online display advertising. As remedies, the Commission directed WhatsApp not to share user data with Meta companies for advertising purposes for five years, mandated transparent data sharing policies with opt-out options for users, and imposed a penalty of Rs. 213.14 crore on Meta. The Commission also ordered implementation of these remedies within three months and granted confidentiality to certain documents for three years, subject to Section 57 of the Act. This landmark decision addresses critical competition concerns in digital markets, particularly regarding data sharing practices and their impact on market competition.