C&M E-Alert: NCLAT upholds penalty on WhatsApp and Meta; overturns finding on leveraging and corresponding ban on cross-sharing of data

WHAT HAS HAPPENED?

The National Company Law Appellate Tribunal (NCLAT) has substantially upheld the Competition Commission of India's (CCI) order dated 18 November 2024, finding WhatsApp Inc. (WhatsApp) and its parent company Meta Platforms Inc. (Meta) liable for abuse of dominant position in relation to WhatsApp’s 2021 privacy policy update (2021 Policy).

However, the NCLAT partially set aside the finding on leveraging and the remedy prohibiting sharing of WhatsApp user data with Meta for advertising purposes.

CCI’s jurisdiction over privacy-related competition issues reaffirmed:

• Competition and data-protection frameworks are complementary, address different concerns and can apply simultaneously.

Reliance on this primary reasoning strikes a discordant note, coming hot on the heels of another NCLAT decision from last week (Swapan Dey vs. Competition Commission of India, Competition Appeal (AT) No. 5 of 2023) which held that the CCI lacks power to investigate patents-related disputes, as the Patents Act, 1970 would prevail. The NCLAT’s decision here, along with other recent precedents, suggests that additional clarity from the Supreme Court may be required on jurisdictional conflicts.

Data privacy as an appropriate non-price parameter of competition:

• Data privacy is an appropriate non-price factor for competition assessment, given that reduced privacy degrades service quality, creates comparative disadvantage for competitors and “consumers pay via their data” in zero-priced or nominally priced markets.

• The CCI can examine abuse of dominance claims involving non-price factors, such as data privacy, to determine whether the conduct complained of raises an exclusionary concern (such as combining data across services to raise entry barriers and stifle competition) or exploitative concern (demanding excessive user data or reducing service quality).

The CCI can examine privacy-related abuse claims against dominant entities, creating an additional regulatory obligation for companies.

Findings on relevant market and dominance upheld:

• CCI’s relevant market definitions for “OTT messaging apps through smartphones in India” and “online display advertising in India” met the requisite legal standard.

• WhatsApp's dominance in the OTT messaging market in India was correctly established by the CCI based on its user base size, strong network effects that lock in users, high switching costs, and Meta's financial resources and ecosystem integration.

• CCI had failed to establish that Meta is dominant in the online display advertising market in India and only established that it is a leading player.

  
  

Imposition of unfair condition by WhatsApp confirmed:

• Users were mandatorily required to accept expanded data collection and sharing terms.

• It was an ‘imposition’ as users were compelled to accept expanded data-sharing terms without any opt-out. As a result, they had no genuine choice but to consent or stop using the service.

• It is unfair because it arbitrarily altered prior user expectations regarding data use,undermines user autonomy, and introduces one-sided terms. This led to degradation of privacy, thereby harming consumer welfare.

Requiring consumers to give consent for broad data sharing terms without an opt-out can be a competition law violation. The CCI can assess whether users have the right to decide what data is collected, for which purposes, and for how long.  Non-essential collection or cross-use (like advertising etc.) without the concerned user’s express and revocable consent can raise concerns under competition law. 

Denial of market access by WhatsApp confirmed: 

• Sharing of WhatsApp data with Meta resulted in enhancing Meta’s advantage in the displayadvertising market and created an entry barrier for rival firms in digital advertising that did not have equivalent access to WhatsApp data.

• Peculiarly, the NCLAT also finds Meta (which is not dominant in the market for online display advertising) also liable for denial of market access. The CCI’s finding however had pinned the abuse on WhatsApp on account of sharing data with Meta.

Cross utilisation of data between different business verticals or two group entities can raise competition concerns if: (i) data is shared from a dominant vertical or business; (ii) competitors in the vertical with which data is shared do not have access to equivalent data; and (iii) users have not given valid consent for such data sharing.

Leveraging not established due to separate legal entities, but reasoning unclear:

• The leveraging claim (WhatsApp leveraged its dominance to benefit Meta by sharing WhatsApp data with Meta) is not established as “Meta and WhatsApp are two distinct legal entities”. However, clear reasoning has not been provided as to why this would preclude a finding of leveraging, since the applicable provisions apply both to enterprises and a group consisting of legally distinct enterprises.

Assessment of anti-competitive effects was sufficient:

• The “extensive qualitative effects analysis” carried out by the CCI, combined with statements from competitors, was found to have sufficiently established likely anticompetitive effects.

• Quantitative user surveys are not necessary to demonstrate abuse or effects.

• The CCI is not required to demonstrate actual effects and can arrive at abuse of dominant position based on likely effects, especially in fast-moving digital markets.

The Supreme Court recently clarified that to establish an abuse of dominance, CCI must demonstrate that the conduct caused anticompetitive effects. The NCLAT, reiterating its view in a recent Google decision, held that such effects need not be actual effects that have taken place and assessment of likely effects will suffice.

Penalty and remedies undisturbed, except for cross-platform data sharing ban:

• Penalty of INR 213.14 crore imposed on Meta and WhatsApp by the CCI was upheld. The penalty was found to have been correctly calculated and would “work out to be the same” even with “slightly modified orders”.

• The remedies requiring transparency, user choice through opt-outs, and continued future compliance were upheld.

• A five-year restriction on cross-platform data-sharing imposed by the CCI was set aside, noting that: (i) this became redundant once users were given opt-outs; and (ii) rationale for the duration was missing in the CCI’s decision.

A detailed assessment was carried out to determine whether each remedy is proportionate and necessary to address the identified harm. The NCLAT applied the principles it propounded in the Google cases in 2023 and earlier this year and required that the CCI articulate its rationale for each remedy separately. 

The parties now have the option to appeal this decision to the Supreme Court.

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For specific guidance on any of the nuances in this decision, please contact our team: