Business LawOP. ED.

Facebook is investing $5.7 billion or INR 43,574 crore to get close to 10% equity in Jio Platforms Limited.  In its press release[1], the social media giant expressed its intention to connect Jio’s e-commerce platform, JioMart, to small businesses and shops via “the power of WhatsApp” in order to make online shopping a seamless mobile experience. The Jio-Facebook deal announced last week promises to push India’s digital transformation to new heights. However, out of a number of regulatory approvals, Competition Commission of India’s (CCI) approval is the most crucial one. To consummate a deal that crosses the thresholds mentioned under Section 5 of the Competition Act, 2002, CCI’s approval is mandatory. Section 6 sub-section (2) read with Regulation 5 of the Combination Regulations[2] evidences a suspensory regime i.e. the approval must be obtained prior to closing of the deal in the country.

 The deal, as ambitious as it sounds, can run into anti-trust issues. Firstly, the multi-billion-dollar investment into Jio will have to be notified to and approved by India’s competition regulator. For that to happen, CCI will have to take a forward-looking approach and check that the proposed combination does not have potential to cause appreciable adverse effect on the competition in the market. To safeguard the investment from the protectionist approaches of Indian regulators is a crucial factor in consummating the deal and, subsequently, carrying it forward smoothly. Despite the criticism to protectionist regulatory regime, CCI tends to adopt a liberal approach[3]. In the approved RIL-Brookfield tower infrastructure deal, the two were found to be vertical participants and CCI went ahead to analyse if there were any vertical overlap. With RIL’s acquisition of stake in Saudi AramCo at hold, it needs to be more careful with the investment and regulatory concerns with the activities of its digital arm, Jio.

 The strategic investment for acquiring the minority stake is not simply a passive investment. The filing of notice as per Regulation 4 of the Combination Regulations in itself is indicative of the fact that the transaction is not in the ordinary course of business and is backed with an intent of strategic investment to bring in change in control. Thus, the responsibility of CCI is to peruse not only the potential adverse effects on competition but also the potential concerns it may give rise to. It would be interesting to see whether the acquisition of minority stake in India’s leading telecom arm would grant any control to Facebook. Let us look at the possible anti-trust issues that the deal poses:

Dominance: Boon or a bane?

Both Jio and Facebook seem to be dominant players in their respective markets. The  Telecom Regulatory Authority of India’s data points to the fact that Jio has the highest market share in terms of user base and revenue sharing in the telecom market as it holds 32% share in the 1.15-billion-user Indian mobile services market, taking its total user base to 369.93 million, surpassing its competitors Bharti Airtel and Vodafone-Idea. It must also be noted that, unlike others, all Jio connections are 4G based, thus, having a strong base of smartphone users.

Now, Facebook primarily operates via three platforms: facebook.com, Instagram and WhatsApp. All of them seem to be dominant players in the market they operate in. We are only concerned with WhatsApp. Its relevant market seems to be smartphone-based social media messaging platform. WhatsApp has more than 400 million[4] confirmed users in India, while around 600 million[5] people have access to internet[6] in the country. Other competitors to WhatsApp in India are hike, WeChat, Telegram, which only have a fraction of the users as WhatsApp.

Jio plans to revolutionise JioMart by combining it with WhatsApp to integrate small and medium scale ‘kirana’ businesses to cater to the demand. This would firstly strengthen the position of mom-pop shops in the local market by sewing them into the digital framework and secondly would attempt to penetrate into another market by using the dominance of WhatsApp.

More so, WhatsApp could possibly allow JioMart to operate on its messaging platform. If done so, and in the manner that WhatsApp comes with pre-embedded JioMart platform, it could lead to abuse of dominance under Section 4(2)(d) as installing WhatsApp would be the main contract and pre-embedded JioMart would be the unconnected supplementary obligation. This would also mean that the users would not be allowed to embed any other e-commerce portal on WhatsApp messenger, which would again seem to be causing disruption in the competition in the market and unfair to consumers as it would leave no choice to them but accept the imposed deal.

Another advantage post the deal would be of control over consumer data. As of now, RIL Chief has said that there is no agreement for transferring of consumer data between the parties; however, this does not erode the possibility of entering into such agreements in the near future. While control over data has been used by Competition Regulators in examining the e-commerce and digital platforms’ anti-competitive conduct (viz. Amazon-Flipkart case[7], Sonam Sharma v. Apple Inc. USA[8]), this factor in the present case must be dealt with utmost seriousness and conviction to ensure survival of healthy competition in the e-commerce market, especially at a time when Facebook has been imposed with $5 billion fine over data privacy violation[9].

Appreciable Adverse Effect on Competition: Is it too soon?

Where the strategic investment is with the intent to enter into a different segment using the control in respective markets to enter into an entirely different product market, the parameters to check the potential adverse effect on the competition must be comprehensive. In re, Google LLC[10], CCI observed that there is a need to not only delineate primary relevant market but also associated markets to relevant markets that have been affected by the conduct of the parties involved. Section 20 sub-section (4) lists the factors that CCI must consider to conclude if there is any appreciable adverse effect on the competition because of the proposed combination.

The essence of this checklist is to look for horizontal or vertical overlap in the activities post acquisition. While there seems to be no horizontal overlap, there definitely could be a case of vertical integration. Jio provides internet to smartphone, smartphones use internet to operate WhatsApp and now WhatsApp would integrate JioMart. It is not only vertical integration but use of dominant position in one market to enter into a new market, and thus would be likely to effect adversely the natural competition in the ‘phygital’ commerce market (as has been recently termed).

The analysis must be based not only on the market share of the deal participants both pre and post-acquisition but must also mindfully address the data sharing aspect of the deal, considering these data mammoths’ conduct in the recent past. The US Court imposing record $5 billion fine on Facebook for privacy violations is in itself a warning for the Indian regulators to intervene in this far reaching deal especially, to protect the Indian start-up movement that is also an important wing of the Digital India flight. The deal no doubt has potential of creating business and commercial barriers for local tech start-ups. The primary purpose of the merger control regime is to foresee adverse effects and to live up to this objective, CCI must take cognizance of the interrelatedness of this deal.

One can at the same not ignore the importance of balance between the commercial interest and the consumer welfare interests. Though the weighing scale can never be equal for both, what is important for CCI as a regulator of omnipotent economic concerns is that it shouldn’t step on the commercial prospects deal participants like such to ensure distributive justice.

The deal will undoubtedly push the CCI’s merger control jurisprudence into a comprehensive one and shall be significant in laying down a vigilant yet compendious framework for future deals. While we are still speculating about the nature of the deal, JioMart has started testing WhatsApp for grocery orders in pursuance of the proposed deal. “The customer initiates the interaction on WhatsApp, checks out the grocery order on JioMart webpage, gets connected with a retail store on WhatsApp and then customer picks up the order from Kirana and pays in cash,” said the news report[11].


*Prateek and Samanvi are pursuing Master of Laws (LL.M.) in Corporate and Commercial Law from Nalsar University of Law, Hyderabad

[1] Press release by Facebook (21.02.2020), https://about.fb.com/news/2020/04/facebook-invests-in-jio/

[2] Competition Commission of India (Procedure in regard to the transactions of business relating to combinations) Regulations, 2011 

[3] CCI has cleared over 600 combinations, and has not blocked even a single one. Only eight were subject to detailed Phase II enquiry, India: Merger Control (4th Edn.), AZB Partners, https://www.azbpartners.com/bank/india-merger-control-4th-edition/,

[4] Manish Singh, WhatsApp reaches 400 million users in India, Tech Crunch, (26.07.2020), https://techcrunch.com/2019/07/26/whatsapp-india-users-400-million/

[5] Sanika Diwanji, Number of internet users in India from 2015 to 2018 with a forecast until 2023, Statista, (31.03.2020), https://www.statista.com/statistics/255146/number-of-internet-users-in-india/

[6] PTI, Internet users in India to reach 627 million in 2019, Economic Times, (06.03.2019)

[7] Delhi Vyapar Mahasangh v. Flipkart Internet Private Limited

[8] 2013 SCC OnLine CCI 25

[9] AFP, Cambridge Analytica: US Court Approves Record $5 Billion Fine of Facebook Over Privacy, NDTV (25.04.2020)

[10] Umar Javeed v. Google LLC, Case No. 39 of 2018, dated 16-4-2019

[11] Reliance Begins Using Whatsapp for Grocery Deliveries Through JioMart, Business Standard, (27.04.2020)

Case BriefsHigh Courts

Delhi High Court: Pratibha M. Singh, J. while addressing a petition concerning the protection of the trademark ‘DA MILANO’, issued certain guidelines for the online intermediaries involved and held as follows:

“Role of Facebook and Instagram, insofar as posts put up by concerned third parties is governed by the Information Technology (Intermediaries Guidelines) Rules, 2011. Considering the provisions of the stated guidelines, online platforms which claim to be intermediaries not performing any active role in the posting of such information by 3rd party alleged infringers, have a duty only to take down the posts which are brought to their notice by plaintiff in terms of Section 79(3).

The above-mentioned guidelines along with Section 79(3) of the IT Act have been interpreted by a very significant Supreme Court case of Shreya Singhal v. Union of India, (2015) 5 SCC 1, “to mean that “any information received by the platforms would be by means of a Court order”.

In Shreya Singhal case, pertaining to Section 79 (3)(b), following was held which is relevant in respect to the present matter:

“Section 79(3)(b) has to be read down to mean that the intermediary upon receiving actual knowledge that a court order has been passed asking it to expeditiously remove or disable access to certain material must then fail to expeditiously remove or disable access to that material. This is for the reason that otherwise it would be very difficult for intermediaries like Google, Facebook, etc. to act when millions of requests are made and the intermediary is then to judge as to which of such requests are legitimate and which are not.”

The facts in the present case are that the plaintiff who claims to be the owner of ‘DA MILANO’ filed a suit against the Defendants 1 to 4 in respect to seek permanent injunction, restraining infringement of trademark and passing off and under Section 74 of IT Act, 2000 seeking protection of the trademark ‘DA MILANO’.

It has been further stated that, Defendants 1 to 4 are alleged infringers who have posted on “Facebook” and “Instagram” advertising and offering to sell products bearing the mark ‘DA MILANO’. Plaintiff while seeking a permanent injunction against infringers impleaded the stated online platforms to ensure that posts comprising the infringing marks are taken down.

Trial Court, had sought the personal appearance of Facebook and Instagram in the present matter. Therefore, the grievance was the direction of personal appearance of the representatives of Facebook and Instagram.

Senior Counsel, Parag Tripathi, submitted that his clients are willing to comply with interim order which has already been passed and since the said defendants are not contesting the matter on merits against the plaintiff and are merely intermediaries; their personal presence is not required.

High Court on perusal of the facts and the guidelines mentioned above along with relying on the Supreme Court case of Shreya Singhal v. Union of India, (2015) 5 SCC 1, agreed on the fact that the stated platforms are mere intermediaries and have no active role in the matter, which therefore demands no personal appearance. Further, the following directions were issued:

  • Plaintiff shall inform Instagram and Facebook whenever they came across use of the mark ‘DA MILANO’ either in word form, logo or in any other form on their platforms.
  • Once such information is received, as per Rule 3(4) of the 2011 Guidelines, the said posts shall be taken down, within the timelines prescribed.
  • If platforms have any doubt as to the violative or offending nature of posts, they shall intimate the plaintiff.
  • Upon any order being passed by a Court of competent jurisdiction, the same shall be intimidated to the platform, which shall abide by the said order.

Thus, the suit is decreed against Facebook and Instagram in the above terms. [Facebook Inc. v. Surinder Malik, 2019 SCC OnLine Del 9887, decided on 28-08-2019]

Hot Off The PressNews

Supreme Court: While hearing Facebook Inc’s petition asking Supreme Court to hear all cases related to demands for linking Aadhaar to social media accounts and tracing the source of WhatsApp messages, the Court said that there has to be a balance between privacy and how to govern. The court, hence, issued notice to Facebook, Twitter, Google, YouTube, the centre and Tamil Nadu asking for their response by September 13 on whether the petitions should be transferred from high courts across India to the Supreme Court. Various cases are being heard by the high courts of Madras, Bombay and Madhya Pradesh and Orissa.

The Court said,

“There is a conflict between privacy and how the government should run the country when crimes are committed. There has to be a balance… under what condition information can be given and to whom,”

Facebook and WhatsApp, asking that all petitions be transferred to the top court, said it was a matter of high magnitude and affected the privacy of the entire nation.

On Monday, the Tamil Nadu government had told the Supreme Court that social media profiles of users need to be linked with Aadhaar numbers to check the circulation of fake, defamatory and pornographic content as also anti-national and terror material. However, Facebook Inc resisted the state’s suggestion on grounds that the sharing of the 12-digit Aadhaar number, the biometric unique identity, would violate privacy policy of users.

Facebook Inc said it cannot share the Aadhaar number with a third party as the content on its instant messaging WhatsApp was end-to-end encrypted and no one can access it.

The Tamil Nadu government, which is deep into a case related to the deadly Blue Whale game, argued that the centre was struggling to find out who the creator of the game was and who gives directions. Attorney General KK Venugopal, representing Tamil Nadu, said,

“Someone says he is a young person from Russia. A number of people have died in India playing the Blue Whale. Let the Madras High Court continue with its hearing,”

The Supreme Court said,

“We are aware of Blue Whale. What is happening in dark web is worse than Blue Whale. The idea of the Madras High court expanding the issue was that if need be, shouldn’t the intermediary inform the police about details of person for crime detection? We are not examining the merits of the case, only dealing with the transfer of the cases to the Supreme Court.”

(Source: NDTV)

Hot Off The PressNews

Under the Code, Participants have voluntarily undertaken to establish a high priority communication channel with the nodal officers designated by ECI. Participants including BIGO, ByteDance, Facebook, Google, Sharechat and Twitter have also agreed to take action on content reported by the nodal officer, expeditiously, in accordance with the law.

The Chief Election Commissioner in his remarks appreciated the proactive steps taken by the Association and its members [participants] to ensure transparency in regards to paid political advertisement by maintaining a repository of political advertisement with information such as the sponsor, expenditure and targeted reach of such content in an aggregated manner. Participants have built the technology to upload MCMC certification. Participants have also committed to taking action on paid advertisements violating MCMC certification requirement under notification by the ECI.

IAMAI will act as the liaison between the Participants and the ECI. Collectively, IAMAI and the member Participants of the Code of Ethics remain committed to ensuring free, fair, and ethical electoral process.

Case BriefsHigh Courts

Delhi High Court: A Single Judge Bench comprising of J.R. Midha, J., in an order directed Facebook Inc., Google LLC, YouTube LLC to remove the content as mentioned by the plaintiffs (Patanjali Ayurved Ltd.) to defame them from their respective portals.

The plaintiffs stated that videos containing slanderous, defamatory and absolutely false statements about the plaintiffs were uploaded and shared on the portals of Defendants 2 to 4 and in order to get rid of that the plaintiffs had sent a notice for the removal of such videos to the Defendants. The Defendants denied doing so as they sought for a Court order from the plaintiffs for the said act.

Further, plaintiffs submitted that the whole mechanism of approaching the Court in itself is an unreasonable and unfair procedure as it puts the citizens to a heavy cost of litigation.

Therefore, on approaching the High Court, the list of URLs published and shared on the portals of the defendants pertaining to the videos which contained slanderous and defamatory content were asked to be removed or blocked/restricted to access. Also, Defendant 1 was restrained from giving any interview in print, electronic, social media till the next date of hearing. Further, the Court asked the defendants to comply with the provisions of Order XXXIX Rule 3 of CPC. [Patanjali Ayurved Ltd. v. Meera Singh,2018 SCC OnLine Del 10543, Order dated 10-08-2018]

 

 

Case BriefsInternational Courts

European Court of Justice: The ECJ recently held that the data protection authority of the Member State in which the administrator has its seat may, under Directive 95/46/EC of the European Parliament and of the Council of 24-10-1995 on data protection (OJ 1995 L 281, p. 31), act both against the administrator and against the Facebook subsidiary established in that Member State.

In this case, a German company operated in the field of education and offered educational services inter alia by means of a fan page hosted on Facebook. Administrators of fan pages could obtain anonymous statistical data on visitors to the fan pages via a function called ‘Facebook Insights’ which Facebook made available to them free of charge under non-negotiable conditions of use.

By decision of 3-11-2011, the Independent Data Protection Centre for the Land of Schleswig-Holstein, Germany as supervisory authority (the authority) within the meaning of Directive 95/46 on data protection, ordered one of the administrators to deactivate its fan page. According to the authority, neither administrator nor Facebook informed visitors to the fan page that Facebook, by means of cookies, collected and processed personal data concerning them. Administrator brought an action against that decision before the Federal Administrative Court, Germany which asked ECJ to interpret Directive 95/46. Administrator argued that the processing of personal data by Facebook could not be attributed to it and it had not commissioned Facebook for that purpose.

ECJ started by observing that it was not disputed that the American company Facebook and, for the EU, Facebook Ireland must be regarded as ‘controllers’ responsible for processing the personal data of Facebook users and persons visiting the fan pages. Next, the Court found that an administrator must be regarded as a controller jointly responsible with Facebook Ireland for the processing of that data. Court observed that administrator takes part, by its definition of parameters (depending in particular on its target audience and the objectives of managing or promoting its own activities), in the determination of the purposes and means of processing the personal data of the visitors to its fan page. Administrator of the fan page can ask for demographic data and request its processing including in terms of age, sex, relationships and occupations, information on the lifestyles and centres of interests of the target audience telling the fan page administrator where to make special offers and organise events and more generally enabling it to target best the information it offers. So, an administrator who makes use and benefits from the associated services of Facebook cannot be exempted from compliance with its obligations concerning the protection of personal data.

In addition, the Court found that the authority was competent, for the purpose of ensuring compliance in German territory with the rules on the protection of personal data, to exercise with respect not only to administrators but also to Facebook Ireland all the powers conferred on it under the national provision transposing Article 28(3) of Directive 95/46. The same provision further entitles it to exercise those powers with respect to Facebook Germany even though it was not responsible for collecting and processing personal data due to division of work. [Unabhängiges Landeszentrum für Datenschutz Schleswig-Holstein v. Wirtschaftsakademie Schleswig-Holstein GmbH, Case C-210/16, order dated 05.06.2018]

Hot Off The PressNews

The Brussels Court of First Instance on Friday, cautioned popular social networking site Facebook to stop collecting data on users or face fines up to 100 million euros ($125 million). In a suit brought by the Belgian Privacy Commission, the Court observed that Facebook had broken privacy laws by tracking people on third-party sites and by informing the users insufficiently about gathering information about the users,
The Court also ruled that Facebook must delete all data it had gathered illegally on Belgian citizens, including people who were not Facebook users themselves.
[Source Reuters]

Case BriefsSupreme Court

Supreme Court: In the light of the data privacy concerns raised before the Court in the matter relating to Whatsapp data sharing with it’s parent company Facebook, the 5-judge bench of Dipak Misra, CJ and Dr. AK Sikri, Amitava Roy, AM Khanwilkar and MM Shantanagoudar, JJ asked Senior Advocates Kapil Sibal and Arvind Datar, appearing for Whatsapp and Facebook, to file affidavits with regard to the assertions made by the petitioners within 4 weeks.

Additional Solicitor General Tushar Mehta brought to the Court’s notice that a committee headed by Former Supreme Court judge, Justice B N Srikrishna, was being formed to deliberate on a data protection framework for India keeping in mind the need to ensure growth of the digital economy while keeping personal data of citizens secure and protected. He further submitted there was a possibility that the law shall be passed regulating the data protection once the committee submits it’s report. Arvind Datar also submitted that the 9-judge bench, in Justice KS Puttaswamy v. Union of India, 2017 SCC OnLine SC 996, had expressed the view that there should be a law with regard to data protection.

Refusing to pass any interim order restraining the respondent from sharing the data with the third party, the Court said that it will consider passing interim order after the affidavits are filed and if the assertions made in the affidavit would not require any kind of intervention by this Court, this Court may not pass any interim order. The matter will next be taken up on 20.11.2017. [Karmanya Singh Sareen v. Union of India, 2017 SCC OnLine SC 1051, order dated 06.09.2017]

Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI): Competition watchdog ordered to close a case filed against Facebook, Google and some online portals (“opposite parties”) for alleged abuse of dominant position and anti-competitive conducts. The informant in this case was aggrieved by complaints filed on online electronic public fora by persons with whom the informant has ongoing disputes. Informant alleged that these persons had also published defamatory material against the Informant on online platforms such as Google and Facebook. The Informant has also claimed that because of the wide outreach of these websites publication of false/ defamatory statements/ adverse remarks have tarnished its reputation and it has suffered reputational and monetary damage. Informant contended that Facebook and Google enjoy dominant position on the internet as the information contained in these websites can be viewed worldwide and hence they have violated the provisions of section 4 of the Competition Act, 2002.

The CCI observed that the Informant failed to make out a case against Facebook and Google for abuse of dominance under the provisions of section 4 of the Act. CCI closed the case with the view that the general averments made by the Informant against the opposite parties including publication of defamatory materials on certain websites allegedly maligning the Informant’s reputation, do not raise any competition concern. [In Re: Taj Pharmaceuticals Ltd and Facebook , [2015] CCI 158, decided on 07.10.2015]