I. INTRODUCTION:

The Competition Commission of India (the “Commission”) has recently rejected[1] an Information[2] submitted seeking investigation into the alleged contravention of the provisions of Section 4 of the Competition Act, 2002 (the “Act“) by WhatsApp Inc. and Facebook Inc., by the alleged use of their market dominance to penetrate into the UPI enabled Digital Payments App Market through the App offering, WhatsApp Pay. The Information, amongst other contentions, alleged that by enabling automatic installation of WhatsApp Payments App in the WhatsApp Messaging App, WhatsApp was taking advantage of its vast userbase to popularise its newly launched WhatsApp Pay App to the unfair disadvantage of the competing entities. This Note attempts to examine the key issues considered by the Commission to arrive at its conclusion that the Information failed make out a prima facie case of contravention.

II. CONTENTIONS:

The key contentions of the Informant, WhatsApp Inc. (“WhatsApp”), and Facebook Inc. (“Facebook”), are summarised in the following:

Informant:

1. By acquiring its competitors, the Informant avers, Facebook has made available a product portfolio made of Instagram, Messenger, WhatsApp, and Oculus, which are called the five pillars of its revenue-generating model thereby driving out healthy competitors from the market. The Informant further avers that a vast amount of personal data from Facebook’s billions of active users are regularly used for targeted advertisement
2. According to the Informant, WhatsApp runs on a model where there is no service charge collected from user, however; as per the Informant, WhatsApp shares user information with Facebook thereby aiding targeted advertisement and huge revenue therefrom.
3. Providing a brief note on the United Payments Interface (UPI) and the existing market players therein, the Informant identifies the availability of banking and non-banking (Third Party App services; “TPA”) providing UPI services. Explaining the TPA services and the existing market players, the Informant proceeds to state that there is a significant business cost of sustaining a TPA business and since UPI is a low-margin game, the availability of consumer base is a tilting factor.
4. For the purposes of the Information, the Informant identifies two relevant product markets, viz.:
   • Market for internet-based messaging application through smartphones in India; and
   • Market for UPI enabled digital payment applications in India.
5. The Informant claims that services provided by the internet-based messaging Apps through smartphones form a separate and distinct market and cannot be substituted or interchanged with the traditional electronic communication services such as text messaging, voice calls, etc. that are provided by telecom service providers for reason of their prices, functionality and basic characteristics
6. The Informant contends that WhatsApp is dominant in the market for internet-based instant messaging app through smartphones in India. The Informant, to this end, has primarily relied upon the factors[3] as enshrined under Section 19(4) of the Act.
7. Asserting the dominant position of WhatsApp on the basis of aforementioned factors, the Informant submits her allegations as regards abuse of dominant position by pointing out specific violation of various provisions of Section 4 of the Act.
   • Section 4(2)(a)(i) of the Act – that the users of WhatsApp automatically get the payment app owned by WhatsApp i.e. ‘WhatsApp Pay’ installed on their smartphones. This automatic installation of the Payment option into the Messenger App is nothing short of ‘pre-installation’ which is forced upon a user of the dominant product, WhatsApp messenger;
   • Section 4(2)(d) of the Act – that there exist two separate markets for Internet based Messaging Apps on smartphones and for UPI enabled Digital Payments Apps and that there exists a sufficient consumer demand for use of these apps separately and independently. Thus, the conduct of WhatsApp amounts to ‘bundling’ since the two products are offered as a package and are not available independent of each other;
   • Section 4(2)(e) of the Act – that the automatic installation ‘WhatsApp Pay’ along with ‘WhatsApp’ demonstrates the abuse of the dominance of WhatsApp in Internet based instant messaging App market and such abuse favours and protects it in the UPI enabled Digital Payments Applications Market;
   • Although the Informant has not pointed out any specific conduct in alleging violation of Section 4(2)(b)(ii) and Section 4(2)(c) of the Act, the Informant has made some miscellaneous allegations e.g. serious non-compliance of critical and mandatory procedural norms pertaining to data localisation and storage by the OPs, data privacy issues etc.

Facebook:

1. Facebook has contended that it is not a necessary party to these proceedings and that the App service in WhatsApp is being provided and managed by WhatsApp Inc., a separate legal entity.
2. Facebook has in its response, questioned the locus standi of the Informant to maintain the instant case.
3. Facebook has denied charges of market dominance and abuse of market dominance.

WhatsApp:

1. WhatsApp, similar to Facebook, has raised the issue of lack of locus standi for the Informant.
2. WhatsApp, disagreeing with the market delineation made by the Informant, proposes that it cannot be restricted to fit into a ‘market for internet based instant messaging apps in India’ and that WhatsApp operates in a much broader market under ‘market for user attention’.
3. WhatsApp has stated that the full-release version of WhatsApp Pay, which would enable all users in India to access the WhatsApp Pay feature, has not been launched and that WhatsApp Pay is currently in beta version and limited to serving less than 1% of users of the WhatsApp application in India.
4. WhatsApp maintains that it is not dominant in either the narrow market (according to WhatsApp) defined by the Informant nor in the market claimed by WhatsApp. To this end, WhatsApp points out the Informant has failed to produce any relevant comparative statistics to show WhatsApp’s dominant position.
5. Further, WhatsApp asserts that there is no imposition or coercion to use ‘WhatsApp Pay’ and that there is separate registration processes/terms of service and privacy policy for the use of ‘WhatsApp Pay’ distinct from those for WhatsApp. That the mere fact that WhatsApp offers multiple features on its application does not make them separate products and therefore, the Informant – according to WhatsApp, fails to satisfy the requirement that there be two separate products.
6. On these counts, WhatsApp denies the charge of market dominance and abuse of the alleged market dominance.

III. DISCUSSION AND OUTCOME:

Locus Standi:

1. On the issue of locus standi of the Informant (of the lack thereof), the Commission approaches the contention of the Opposite Parties, as a twin argument, viz.,
   • that the Informant is allegedly not aggrieved in any manner; and
   • the Informant is allegedly guilty of forum shopping inasmuch that a Public Interest Litigation[4] on the same set of issues, is pending before the Hon’ble Supreme Court of India, filed by persons allegedly closely associated with the Informant. The non-disclosure of this information by the Informant (according to the Opposite Parties) shows mala fide.

Citing an array of decisions from the Appellate Authority under the Act and the Supreme Court of India, the Commission holds that the Scheme of the Act renders the first argument ‘on being aggrieved’ as being “misconceived”. In support of the same, the Commission makes reference to a crucial amendment to the Act in 2007, which inter alia amended the usage receive a “complaint” to receive any “information”.

The Commission has further clarified that the proceedings before the Commission are inquisitorial and not adversarial, by making reference to the amendment in Section 35 of the Act, in addition to the reliance of the decision of the Supreme Court of India dated 09.09.2010 in CCI v. SAIL.

As regards forum shopping, the Commission has held that there is no material that the Opposite Parties have been able to produce in support of this allegation and as such the same is found to be factually incorrect and legally untenable. Further, the Commission has also noted that the restriction under Regulation 10 of the Competition Commission of India (General) Regulations, 2009 [as amended by Competition Commission of India (General) Amendment Regulations, 2019 dated 20.11.2019] applies only in circumstances where the parties are the same and in the instant case, the Opposite Parties have been unable to show a case of commonality of parties.

Relevant market:

• Prior to addressing the core allegation regarding abuse of dominant position, the Commission has attempted to delineate the ‘relevant market’ for the purposes of the instant Information, given two different delineations provided by the Informant and WhatsApp. While holding that the Commission does not find the broad market, i.e. ‘market for user attention’, proposed by WhatsApp to be the relevant product market for the purposes of assessment in the present case, upon discussing the product substitutability and considering[5] other economic tools for assessment of relevant market, the Commission has determined the relevant product market in which WhatsApp operates as the ‘market for Over-The-Top (OTT) messaging apps through smartphones in India’.

Facebook and WhatsApp enjoy benefits of the strength of affiliation:

• It is necessary to point out that the Commission has opined[6] that WhatsApp has proposed a broader relevant market, in an attempt to automatically lead to dilution of WhatsApp’s market power. Further, the Commission taking cognizance of the submissions made by Facebook that it is a distinct entity and while assessing WhatsApp’s dominance, any alleged strengths of Facebook cannot be attributed to WhatsApp, has observed that Facebook and WhatsApp are group entities and though they may operate in separate relevant markets, their strengths can be attributed to each-others’ positioning in the respective markets in which they operate. Thus, referring to the scheme of Section 4 of the Act, the Commission records[7] that WhatsApp’s market position has been assessed keeping in consideration its affiliation to Facebook and several other group entities (e.g. Instagram) which are part of the same group.

Dominant Position of WhatsApp:

• In assessing if WhatsApp enjoys a dominant position in the relevant market, viz., ‘market for Over-The-Top (OTT) messaging apps through smartphones in India’, the Commission categorically holds[8] that WhatsApp messenger is the most widely used app for social messaging, followed by Facebook Messenger in the relevant market; and given that WhatsApp messenger and Facebook Messenger are owned by the same group, they do not seem to be constrained by each other, rather adding on to their combined strength as a group. The Commission further notes that WhatsApp Messenger works on direct network effects where an increase in usage of a particular platform leads to a direct increase in the value for other users—and the value of a platform to a new user will depend on the number of existing users on that platform. Thus, given its popularity and wide usage, for one-to-one as well as group communications and its distinct and unique features, the Commission holds WhatsApp to be dominant in the ‘market for OTT messaging apps through smartphones in India’. The Commission has also held[9] that with respect to the dependence of consumers on the enterprise and countervailing buyer power, WhatsApp undeniably has the advantage of reaping the benefits of network effect.

Abuse of dominant position:

• Dealing with the allegations of abuse of dominant position, the Commission addresses each of the charge juxtaposing the same with the relevant provision under Section 4 of the Act.
  • As regards the alleged violation of Section 4(2)(a)(i) of the Act, the Commission has held[10] that it does not find much merit in the allegation made by the Informant and that mere existence of an App on the smartphone does not necessarily convert into transaction/usage.
  • Dealing with the alleged violation of Section 4(2)(d) of the Act, the Commission discusses the issue of ‘Tying of products’ following the reference by the Informant to ‘bundling’ of products. 
    • The Commission, at the outset, lays out[11] the basis for testing the ‘tying of products’ on the basis of established authorities, i.e., the conditions to be met to demonstrate tying of products. The conditions are as follows: (i) the tying and tied products are two separate products; (ii) the entity concerned is dominant in the market for the tying product; (iii) the customers or consumer does not have a choice to only obtain the tying product without the tied product; and (iv) the tying is capable of restricting / foreclosing competition in the market.
    • While holding the first two of the four conditions mentioned above, against WhatsApp, the Commission, holds that the installation of the WhatsApp messenger does not appear to explicitly mandate/coerce the user to use WhatsApp Pay exclusively or to influence the consumer choice implicitly in any other manner, at present and thus, the third condition does not seem to have been established. As regards the fourth condition, the Commission holds that the actual conduct in this regard is yet to manifest in the market and therefore, agrees with WhatsApp that the allegation herein would be premature. In view of the foregoing, the Commission holds that the allegation under Section 4(2)(d) of the Act is not made out.
  • As regards the allegation of violation of Section 4(2)(e) of the Act, the Commission has held that the allegation is not made out since according to the Commission, the apprehension that WhatsApp Pay will automatically garner a market share merely on account of its pre-installation is implausible and more so, given the fact that WhatsApp ecosystem does not involve paid services as such for normal users. Thus, to the Commission it seems unlikely that the consumer traffic will be diverted by WhatsApp using its strength in the messenger market.
• On the allegations of data misuse etc., the Commission has observed[12] that Facebook and WhatsApp undeniably deal with customer sensitive data which is amenable to misuse and may raise potential antitrust concerns among other data protection issues. However, in the present case, since the Informant has only alleged that WhatsApp/Facebook have access to data which they are using for doing targeted advertising, and that there is neither any concrete allegation, nor any specific information to support the competition concern of the Informant, the Commission has recorded that there is nothing on record which the Commission can examine.

IV. OUR COMMENT:

It would not be incorrect to say that the instant Information has been rejected by the Commission, largely on counts of being premature, because the relevant subject, i.e., WhatsApp Pay is still at beta testing stage and has not gone into full-fledged usage by the relevant market. Suffice it to say that in the background of the finding that WhatsApp enjoys dominant position in the relevant market for Over-The-Top (OTT) messaging apps through smartphones in India, critical dimensions of the alleged abuse of dominance and the dynamics of the alleged ‘tying of product’, can only be tested once the market usage for WhatsApp Pay has crossed the beta testing stage. The findings of the Commission in regard to the allegations of violation of Section 4(2)(d) of the Act (tying of products)- and specifically, the conditions that the user does not have a choice to only obtain the tying product without the tied product; and that the tying is capable of restricting/foreclosing competition in the market in particular; in our humble view, would require reconsideration given the unique and peculiar nature of the App offerings which are more dynamic  and distinct and incomparable to physical/product offerings. 

Importantly, the findings of the Commission as regards the dominant position of WhatsApp in the relevant market, could certainly be used in a subsequent/later challenge that may be brought about to examine WhatsApp Pay, once the same has seen a wider and a longer usage in the market. Given that the Commission has, in its order, found the challenge to WhatsApp Pay to be premature, it would be interesting to see how the questions of abuse of market dominance is dealt with, where a fresh challenge is brought about when WhatsApp Pay has successfully crossed the beta stage and has been opened up to larger public use.  

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[1] See Order dated August 18, 2020 in Case No. 15 of 2020, available at: https://www.cci.gov.in/sites/default/files/15-of-2020.pdf.

[2] Information (Case No. 15 of 2020 | Ms. Harshita Chawla v WhatsApp Inc. & Facebook Inc.) filed by lawyer Ms. Harshita Chawla; Informant, under Section 19(1)(a) of the Competition Act, 2002.

[3] Market share; Size and resources of enterprise; Size and importance of competitors; Dependence of consumers on the enterprise and countervailing buying power; Vertical integration of the enterprises or sales and service network; and Barriers to entry.

[4] W.P. (C) No.427 of 2020 – Good Governance Chambers v. National Payments Corporation of India & Others [Supreme Court of India].

[5] SSNIP (Small but Significant Non-transitory Increase in Price) Test.

[6] Paragraph 79 of the Order dated August 18, 2020.

[7] Paragraph 80 of the Order dated August 18, 2020.

[8] Paragraph 84 of the Order dated August 18, 2020.

[9] Paragraph 86 of the Order dated August 18, 2020.

[10] Paragraph 91 of the Order dated August 18, 2020.

[11] Paragraph 93 of the Order dated August 18, 2020.

[12] Paragraph 101 of the Order dated August 18, 2020.