Analysing the CCI Order on Whatsapp Pay: Does it Reign in Big Tech?

-Anchit Nayyar and Krimul Malhotra

The Competition Commission of India (“CCI”) vide its order dated 18th August 2020 dismissed the information filed under section 19(1) of the Competition Act, 2002 (“the Act”) against WhatsApp Inc. (“WhatsApp”) and Facebook Inc. (“Facebook”) alleging anti-competitive conduct by WhatsApp’s Unified Payment Interface (“UPI”) service WhatsApp Pay. This article seeks to critically analyse the key issues that arose for consideration before the CCI and the decision in the case.

Background

The allegations stem from WhatsApp’s expansion into the UPI ecosystem by launching its payment services under the name of ‘Whatsapp Pay’.

The informant claimed that WhatsApp is enabling an automatic installation of its payment app within the messaging app and by doing so, is taking advantage of its profound userbase to market WhatsApp Pay. Thereafter, it was alleged that WhatsApp is dominant in the internet-based messaging app market, and by using its dominance it is:

1. Bundling its messaging App with its new payment option;

2. Leveraging its dominance to penetrate into the UPI enabled Digital Payments App Market.

Determining the Relevant Market

The first step in inquiring into allegations of abuse of dominance is the determination of the relevant market. Given that Section 2(t) of the Act requires such determination to be on the basis of substitutability between the products, the CCI drew a distinction between proprietary apps available only on one operating system (eg: IMessage on IOS) and over-the-top (OTT) apps, like WhatsApp, which are available for download on multiple operating systems. It further segmented the consumer communication apps based on their availability on different devices, and defined the relevant market as the “Market for Over-The-Top (OTT) messaging apps through smartphones in India

Additionally, the CCI defined the “Market for UPI enabled digital payment applications in India” as the secondary market into which penetration by way of leveraging was alleged.

Establishing Dominance

The Informant relied upon WhatsApp’s 90% market share, its massive user base and resources and ‘direct network effects, wherein an increase in a platform’s usage leads to a direct increase in its value for other users, to argue that WhatsApp was dominant in the primary relevant market (Para 20 of the decision).WhatsApp on the contrary, argued that given the presence of multi-homing (ability of a user to quickly switch from one app to another) and the substantial fluctuations in market shares, especially in the markets for apps and digital services, it could not act independently of the competitive forces and was thus not dominant in the relevant market.

The CCI however, taking note of WhatsApp’s high market share and the favourable network effects held it to be dominant in the relevant market (Para 88 of the decision).

Settling the issue of locus standi

Both Facebook and WhatsApp raised objections to the informant’s locus standi to approach the CCI on the grounds that the informant:

1. Has not claimed any injury or suffered an invasion of her legal rights;

2. Has indulged in ‘forum shopping’.

Absence of Personal Legal Injury

While section 19(1)(a) of the Act allows ‘any person’ to file an information alleging anti-competitive conduct with the CCI, the National Company Law Appellate Tribunal (“NCLAT”) via its order dated May this year, in the case of Samir Agrawal v CCI restricted the scope of the provision and held that the informant approaching CCI must have suffered an invasion of his legal rights as a consumer. Relying upon NCLAT’s order, WhatsApp and Facebook rebutted the informant’s locus in the present case.

The CCI, however, taking note of the inquisitorial regime bestowed upon it by the Preamble, Section 19 and Section 3 and 4 of the Act, held that it is duty bound to address issues which involve larger concerns of competition in the market, irrespective of who brought the case before it (Para 50 of the decision).The NCLAT’s ruling failed to take note of Supreme Court’s 2010 judgment in CCI v. SAIL wherein it had highlighted the inquisitorial nature of CCI’s functions and its role as a market regulator. In furtherance of this principle, the erstwhile Competition Appellate Tribunal in its 2014 order in Surendra Prasad vs. CCI had held that irrespective of the the locus of the informant, the CCI is mandated to proceed with issues falling within the ambit of the Act. Therefore, the CCI rightly disagreed with the NCLAT’s controversial observations and held that the informant alleging anti-competitive conduct need not have claimed any invasion of her legal rights.

Forum Shopping

The second challenge to the informant’s locus arose from the fact that a PIL had already been filed in the Supreme Court questioning WhatsApp Pay’s data localization compliance requirements. WhatsApp and Facebook alleged that the petitioner in the PIL and the informant in the present case were closely associated (Para 58 of the decision) and therefore, the latter had indulged in forum shopping and approached the CCI with a mala fide intent in light of non-disclosure of the pending PIL.

The argument seems unfounded since the CCI in its 2018 ruling in Reliance Agency v. Chemists and Druggists Association of Baroda & Others had already held that the motive of the Informant is subservient to the objective the Act seeks to achieve. It further clarified that although a discouraged practice, multiple filings on the same cause of action do not bar a person from approaching the CCI to report an anti-competitive conduct.

The CCI, with respect to the allegation of non-disclosure of the pending petition, held that requirement of disclosure of details of litigation pending between the informant and parties as per Regulation 10 of the CCI (General) Regulations, 2009 is inapplicable since the informant in the present case and the petitioner in the PIL are not the same person. It further dismissed the attempts to draw linkages between the informant and the said petitioner as irrelevant to the facts of the case, and negated the non-disclosure to be a factum nullifying the locus standi of the informant.

Therefore, the CCI dismissed the preliminary objections raised against the locus standi of the informant.

Unfair Conditions, Tying and Leveraging: CCI’s Restrictive Approach

The informant argued that the mandatory pre-installation of WhatsApp Pay into the WhatsApp messaging app constituted an abuse of dominance. WhatsApp however submitted that since WhatsApp pay is still in the beta testing phase, the information filed against it is premature. The CCI accepted this argument , noting that since the full release version of the app hasn’t been launched, its actual conduct is yet to enter the market. It however deemed it necessary to delve into the merits of the allegations, an analysis of which is further dealt with.

The informant alleged that mandatory pre-installation of WhatsApp pay within the WhatsApp messenger app was an unfair condition imposed on the consumers in violation of Section 4(2)(a)(i) of the Act. The CCI, however, took note of the fact that despite such pre-installation, consumers weren’t coerced into using the WhatsApp Pay app, which would remain dormant unless the user registered himself with it. Since the term ‘unfair’ generally refers to conditions which cause loss or injury to the consumer, the CCI held that the pre-installation practice could not be termed as an unfair condition.

Further, the informant contended that WhatsApp is tying its UPI app with its popular messaging app in violation of Section 4(2)(d) of the Act, which prohibits a dominant enterprise from imposing irrelevant supplementary obligations for the conclusion of contracts. Further, she alleged that the integration would lead to an automatic installation of WhatsApp Pay in all smartphones with the WhatsApp messenger app, thereby garnering larger user attention towards it. This would amount to WhatsApp Messenger leveraging its dominance to benefit its UPI app in violation of Section 4(2)(e) of the Act.

The CCI, relying upon foreign precedents laid down the following elements to establish the practice of anti-competitive tying leading to transfer of market power(Para 93 of the Decision) :

  • The tied (WhatsApp Pay) and the tying products(WhatsApp messenger) are two distinct products;
  • The entity is dominant in the tying market;
  • The consumers’ lack of choice in obtaining the tying product without the tied product; and
  • Actual or potential foreclosure of competition.

While it held that the first two elements were present in the case, it concluded that the other two elements ie. consumers’ lack of choice and foreclosure of competition could not be established in the present case, given that the consumers were not coerced into using WhatsApp’s UPI service. The authors however are of the opinion that the CCI’s reasoning gives an unreasonably restrictive interpretation to the prohibitions on tying and leveraging under the Act, as discussed in the following sections.

Lack of Consumer Choice

To constitute anti-competitive tying, it must be shown that the consumers cannot obtain the tying product (WhatsApp) without the tied product (WhatsApp Pay). The informant had accordingly argued that a consumer had no choice to obtain WhatsApp’s messaging app without WhatsApp pay. However, while the CCI acknowledged that the condition required coercion to the extent of the consumers being unable to acquire the two products separately, it unreasonably narrowed down the scope of this condition while applying it to the facts of this case to mean that consumers must be coerced into actually using the app installed.

This interpretation of the element of coercion completely ignores the concept of technical tying, wherein two or more products are integrated in a manner that the consumers cannot obtain one product without the other. In the landmark case of Microsoft v. Commission, while addressing whether mandatory pre-installation of Windows Media Player into the Windows OS constituted anti-competitive tying, the European Commission (“EC”) held that the mere fact that the consumers were unable to acquire one without the other constituted tying . The fact that the consumers were not coerced into actually using the service or that they were not restricted from downloading other media players was immaterial in satisfying the element of coercion, so long as the same leads to foreclosure of competition in the market.

Thus, limiting the scope of tying would give monopolists a free hand in adopting policies to unfairly transfer market power by simply creating conditions giving an unfair competitive advantage to its product.

Foreclosure of Competition

In order to assert a transfer of market power arising out of tying, the CCI held that the tying must cause a consequent foreclosure of competition in the market. The informant accordingly argued that WhatsApp’s practice of tying its UPI feature into its popular messaging app enables it to attract large user attention towards it, for which other competitors spend considerable time and resources. It thus put its competitors at an unfair competitive disadvantage, thereby leading to foreclosure of competition. The CCI however took the view that the mere presence of WhatsApp Pay on smartphones would not guarantee it an increased market share. It further took note of the existence of established competitors in the market to signify that the market was not amenable to distortion merely by way of WhatsApp’s policy of tying.

The CCI’s reasoning is, however, riddled with various fallacies. Firstly, the CCI in its order has completely ignored the concept of ‘pre-installation bias, wherein users who find functioning apps on their devices are likely to stick to those apps to the exclusion of its competitors. In Umar Javed v. Google LLC, while dealing with Google’s practices of pre-installing its applications on the Android devices, the CCI itself held that the pre-installation bias prima facie led to the foreclosure of competition in the market. The presence of established competitors and the ease of multi-homing did not deter the CCI from initiating investigations against Google while holding that such factors would be analysed at the investigative stage.

Secondly, while in Matrimony.com v. Google LLC, the CCI had held that the standard of foreclosure required to be proved is the mere distortion of the level playing field, in this case, it seems to have applied a higher standard of absolute foreclosure of competition. WhatsApp argued that the the fact that the users have to take an affirmative action of registering themselves before they can use WhatsApp Pay does away with any status-quo bias present in consumer behaviour. However, this argument fails to take into consideration the substantial marketing and distribution advantage the pre-installed app has to the exclusion of its competitors. In the Microsoft/LinkedIn Merger case, the EC had concluded that irrespective of the weakening of the status quo bias because of the users having to register themselves before being able to use LinkedIn, the fact that LinkedIn was given prominent display and positioning on the Windows OS gave it an unfair marketing advantage to the detriment of its competitors.

While the CCI noted that there exists a strong status quo bias in favour of the incumbent UPI apps, it failed to consider that the UPI market in India is still at its nascent stage, making the marketing advantage given by pre-installation even more significant. Recent estimates suggest that the aggregate number of UPI users in India is around 100 Million whereas WhatsApp in itself has more than 400 Million active users. Thus, pertaining to the 300 Million or more users that are using WhatsApp but may not be using any UPI service, WhatsApp Pay would have an inherent competitive advantage by way of WhatsApp’s dominance in the relevant market. Similarly, unlike companies like Google and Amazon, competitors like PayTM, PhonePe, etc. do not have the backing of a dominant platform to leverage, and given the low margins in which UPI services operate, could thus be pushed out of the UPI market altogether. Condoning such practices would, therefore, create huge strategic barriers for new entrants.

Conclusion

The CCI’s order holds key significance for India’s antitrust regime for a multitude of reasons. By disagreeing with the NCLAT’s observations in the Samir Agrawal case, the order has set an important ensuring that the application of the Act isn’t bogged down by preliminary objections having no bearing on the merits of the case.

On the other hand, by bringing in the strict requirement of coercion on consumers and that of absolute foreclosure of competition in the market, the CCI has unreasonably restricted the scope of the prohibition of tying and leveraging of dominance under the Act. Though WhatsApp Pay is still in its beta testing phase, the CCI could have nonetheless undertaken a prospective investigation into WhatsApp’s practices and obtained binding commitments from it if the same were found to have a potentially anti-competitive effect in the market. The order could thus raise questions regarding CCI’s approach in reining in the Big Tech monopolists.

Anchit Nayyar and Krimul Malhotra are fourth year students at Symbiosis Law School, Pune.