Author: Govind Hari Lath,
Faculty of Law, Delhi University
Recently, the social media heavyweight Facebook invested around Rs. 43,574 crore ($5.7 billion) to acquire nearly 10% minority stake in Jio Platforms Limited, which is a subsidiary of Reliance Industries Limited. This marks the largest Foreign Direct Investment [FDI], India ever received in its technology sector.
Jio, which became India’s largest telecom and internet service provider since its launch with its lucrative offers of unlimited data and voice calls, has a vast consumer base of over 370 million users and Facebook, which as of July, 2020 has over a 290 million users only in India, with its owned-messaging application, Whatsapp having an active user base of 400 million in India.
The collaboration also attempts to fully utilize and further expand its magnificent user base in India, whereby as per its press release, the new retail venture of Reliance retail, JioMart will be promoted through the use of Whatsapp, which will enable the customers to connect with their nearby grocery merchants, operating in partnership with JioMart.
Although the deal concerns itself with numerous issues, it received the approval of India’s competition regulatory body, the Competition Commission of India [CCI]. The piece elaborates upon the possible concerns of competition law and privacy laws involved in the deal.
CCI’S E-COMMERCE REPORT
The Competition Commission of India in its recently released report of market study on e-commerce highlighted upon the gaining importance of e-commerce across various sectors in India and thereby the advantage of price competition and transparency resulting from it. However, the report also analyses several competition issues, which influences and hinders competition, and is relevant for the Facebook-Jio deal:
1. Platform neutrality: Going by the report, many e-commerce platforms who are intermediaries, play a dual role of being a marketplace and then acting as a competitor of that marketplace, by adapting a preferential treatment policy to their own private labelled products and subsidiaries by listing and marketing such products exclusively as compared to other brands in the same category, which creates a conflict of interest. This is disadvantageous and discriminatory to both consumers and other sellers, as the platform manipulates the products search rankings and reviews, thus showcasing its private label products as ‘bestsellers’ to the consumers, which impacts the ability to compete effectively. This is pertinent to observe since JioMart will also adopt a similar strategy of promoting its own kitchen brands such as Home-one, Best Farms etc. & then using Whatsapp for ordering these to the local grocery stores.
2. Biased Contractual terms: The report also highlights the imposition of unfair contract terms on the sellers, often unilaterally, by not adopting a standard contract for all sellers & customizing it on an individual basis. The practices hereby includes forcing sellers to compromise on their profitability, so as to increase the traffic and transaction value generated on their platform, increasing the commission rates arbitrarily without negotiation, drop in search appearances & rankings on account of payment of lower rates of commission, mandatorily bundling with the platform’s own delivery services and data masking wherein basic customer details are also not shared with the sellers on the plea of privacy, whereas the same information is used for launching & promoting their own products.
3. Platform Price Parity: This clause restricts the sellers from offering their goods at lower prices on other platforms, so as to guarantee the lowest price & limit competition for itself.
4. Exclusive agreements: This agreement includes launching a product exclusively on a particular online platform & making it available for a substantial initial period after its launch on that platform only, which deprives the consumers of choices.
5. Deep discounting methodology: This practice is similar to predatory pricing which involves pressurizing the service providers to offer heavy discounts to the consumers, which improves ranking of the products, but erodes the sellers of their legitimate share of profit & devalues their brand. This discounting has an adverse impact on their offline transactions where the products are sold at higher prices in comparison to the online platforms. This also has a negative impact on existing competitors which are not able to offer their products at such high discounts, which drives them out of the market & leads to minimization of choices for consumers. Subsequently, the left-out brand increases its price and consumers are forced to purchase at any prices. Jio has already adopted this practice in the telecom sector, and soon will be experimenting this in the e-commerce business, banking on its high reserves.
APPRECIABLE ADVERSE EFFECT ON COMPETITION
Given the huge subscriber and database that both Facebook and Reliance have in their respective markets in India, it is likely that the resources of both the Companies will be used for entering into this new and entirely different set of a product market.
It will be a really tough competition for Amazon, Bigbasket, and Flipkart etc. as Reliance Retail has already marked its footprint across the country, becoming India’s largest and most profitable retailer. Besides, JioMart will look forward to providing products at an extremely low price (deep discounts) during the initial phase and aggressively campaign for establishing its online-offline business model. This will enable Reliance to get hold of a significant share in both the online as well as offline markets.
In the matter of Google LLC, the CCI observed that besides evaluating the adverse impact on the relevant market, it is also necessary to outline the effect by the conduct of the parties on the markets associated with the relevant market.
The present deal is purely an outcome of vertical integration, whereby the internet connection provided by Jio to smartphones will be used to operate Whatsapp which has now integrated with JioMart. This scenario depicts the use of dominance in one market to enter into a new market. It would be of no surprise, if in future Jio introduces an ‘offer plan’ of shopping for a particular amount on JioMart and in lieu, receiving free data and voice calls. This will result in adverse effects on the market and a deterrent to fair competition.
NETWORK SYNERGY: PROBABILITY OF BREACH OF DATA PRIVACY?
The consequences of the collaboration of the duo, in terms of holding ‘private data’ of millions of Indians is a major cause of concern. Both the giants will look on to capitalize their Network effect, which implies, the gain the corporates can derive as a result of huge databank of consumers. The deal will jointly create an amalgamation of a large user base, including the customer details. Both Facebook and JioMart will attempt to cross-leverage this unprecedented amount of data for their own benefits and expansion. This huge data will certainly provide them undue advantage over their rivals, as JioMart will utilize this data to evaluate user preferences as well as their patterns, whereas Facebook will attempt to expand its e-commerce platform ‘Marketplace’ as well as user base of both ‘Whatsapp’ and its new payment services application ‘Whatsapp pay’.
Over the years, Facebook has landed itself in a multiple controversies for breach of data, ranging from German Bundeskartellamt Investigation, where Facebook was held liable for infringement of data protection and was prohibited from combining users data from different sources, without user’s voluntary consent, to $5 billion fine imposed by the U.S. Federal Trade Commission [FTC] for violating consumer’s privacy.
The nine-judge bench of the Supreme Court in Justice K.S.Puttaswamy v UOI affirmed privacy as a fundamental right and thereby forming an integral part of Part III of the Constitution of India. Although both Facebook and Reliance have assured that there would be no transfer of consumer’s data between the parties, however there is a greater chance of privacy being prone to vulnerability and the conglomeration leading to ‘foreclosure of markets’, which would also involve ‘abuse of dominance’.
The retail sector in India has already seen huge Investments from big players like Amazon, Bigbasket, Grofers and Flipkart etc. But it is expected that there will be a complete operational turnaround in the sector once JioMart starts functioning because of its venture with India’s most accessible application, Whatsapp. Also, the competition is bound to increase tremendously overall in the retail sector, as JioMart also claims to collaborate with the farmers directly, so as to supply fresh produce to the consumers and help farmers fetch higher yield, besides its partnership with the small and medium stores. The heat is already visible in the retail sector with Flipkart starting with its 90-Minute delivery services.
The deal also presses for the need of having strict privacy laws and an independent data regulator in India, for protection of personal data. As far as the CCI is concerned with respect to regulating privacy, it has already put forth its views in Vinod Kr. Gupta v Whatsapp Inc. that issues arising out of privacy, do not fall within the domain of the Competition Act, 2002 and should be dealt as per the provisions of the Information Technology Act, 2000.