Mergers of Companies in Digital Market: Need to Plug Gaps in Indian Competition Law Regime
Author: Prerna Raturi
The author is a student at the Symbiosis Law School Pune
Competition Commission of India (CCI) is a regulatory and statutory body constituted to prevent and protect competition in Indian markets. It is responsible for, inter alia, regulation and review of the mergers in various markets. In furtherance of the same Indian competition law provides for specific turnover and asset thresholds that are required to be satisfied by the merging entities to be under the scrutiny of CCI. Section 6 of the Competition Act, 2002 provides that a notice is to be given to CCI for the approval of the combinations (mergers) which fall under the thresholds given under the Act. Since the main motive of merger control by Competition watchdogs is to eliminate the potential threats to the competition in a market, mergers are ex- ante regulated. Therefore, detecting and correcting the anti-competitive effects post the merger is rarely sought after. However, the Act falls short of effectively regulating mergers in the digital market as it is not very often that these mergers fall squarely under the provided threshold of turnover or asset requirement. More often than not, tech companies easily merge despite being a major concern to the competition. What is important to note that these concerns do not develop post the merger but are existent and foreseeable even before it. However, unfortunately, due to their non-conformity with the relevant turnover or asset threshold, they are not reviewed under the lens of an antitrust violation.
II. Inadequacy of Traditional Antitrust Enforcement Tools
Merger regulation in the digital sector requires a holistic understanding of the market and thus, the price cannot be the only factor while assessing the market power of merging entities and their appreciable adverse effect on competition (AAEC) post the merger. At this point, it is important to cite the example of Facebook’s acquisition of WhatsApp. Facebook executed a US$19 billion acquisition of WhatsApp in 2014. The two entities are the world's most and widely used consumer communication apps and thus, this acquisition was necessary to be scrutinised so that it does not thwart the markets pertaining to video calling and voice calling through internet as well as online and instant messaging. Therefore, the Federal Trade Commission and the European Commission decided to review the WhatsApp's acquisition but had to approve it because it did not fall under the EU merger control thresholds despite its hefty transaction value. The transaction did not meet the turnover thresholds of any merger control regime in the EU. This is a prime example of how a merger, despite drastically affecting the market, can escape the scrutiny of competition regimes based on turnover or asset thresholds limits. Another example of the same kind is that of acquisition of Uber by Grab in South-East Asia. In 2018, Grab, which is a ride-hailing company in Singapore, acquired the assets and operations of Uber in most of the South-East Asian countries. Just like Facebook-WhatsApp acquisition, parties did not notify the competition regimes of the respective countries and escaped their scrutiny because the transaction did not meet the mandatory notification thresholds. It is for this reason that most of the mergers involving tech companies escape the radar of the competition agencies despite being anti-competitive. Even though these examples are of other jurisdictions, an identical problem is being faced by CCI as well for the review procedure in India also involves and is based on similar parameters and determinants.
III. What Needs to Be Improved/Enhanced?
Secondly, in respect of the digital market, a broader definition of the price must be devised. The digital sector is different from other markets and sectors. It is dynamic in nature and works on a completely different set of features. Therefore, the price factor in this sector cannot be limited to the value of market shares but must include the value of the data as well. The data in itself has no value but when it is present in some form and used for a specific purpose. The process of calculating this value will aid in determining the real effect of a merger. Furthermore, the value of the data stored, used and processed by the companies is fleeting in nature. If there is a set of data which is unique and requires a specific algorithm in order to be processed, it definitely has more value than the data which is easily available on any other online platform. Moreover, entities with the ability and facilities to access volumetric data have a better footing in the market as compared to the others. Thus, despite having low turnover and being asset-light, an entity has the potential to affect the market and its consumers. Wherefore, a thorough analysis of the market, beyond market shares, must be conducted.
IV. International Approach to Capture Mergers Between Digital Companies
A different approach to regulations for merger control is not a need limited to India only. Post the Facebook- WhatsApp regulation, most of the EU countries realised the need for overarching rules for effective regulation of mergers of tech companies. Subsequently, Germany and Austria amended their competition laws. The revised competition law of Germany requires the merger of the digital companies to be regulated if the value of the consideration for a transaction exceeds €400 million. Similarly, the threshold of merger value is €200 million in Austria. It is pertinent to note that this is an additional provision to the previously existing norms. Thus, even if the merging companies do not fall under the assets or turnover thresholds, they still cannot escape the competition agencies in case the merger is of the value more than the prescribed limit.
Furthermore, another feature considered by some countries is "public interest test for data-driven mergers". It is a well-known fact that one of the objectives of competition law and its regulators is to safeguard the interest of the consumers. In furtherance of the same, some countries are aligning their competition laws with the concept of public interest so that the mergers that tend to have the potential to cause deleterious effect on public interest must be regulated at the right time and stage. For example, in order to coordinate with the changing modus operandi of merger control in the data-driven economy, the European Commission has considered introducing the provision of "inversion of the burden of proof" in EU merger control rules. This asserts that with respect to a merger in the digital economy, the onus will be on the merging entities to prove that the merger does not pose a threat to the competition and is in favour of the public interest. This is in contrast to the existing situation where a merger is by default considered efficient unless it is a concern to the competition. Similarly, in the United Kingdom, a report to the House of Lords suggests the implementation of a public interest test for data-driven mergers and acquisitions. This test is already being used in case of media mergers and encapsulates three categories for its application in a given merger: media plurality, national security and financial stability. Now the same test has been proposed to be applied in case of data-driven mergers. It can be based on the factor of "data monopoly". In the current scenario, competition watchdogs cannot intervene in an acquisition even if it were concerned about the accumulation of too much data by a platform.
The Digital sector works on completely different methods and features and thus traditional competition laws and regulations are not the appropriate tools to deter the antitrust violation on digital platforms. They are widely based on the economic outcome of a merger. Be it the price of the goods and provision of services or considering the market shares as the reflection of an entity's market power, the conventional measures are not suitable. Where these measures are well-suited for the market in general, the digital market burgeons on data and thus, factors that take into consideration the form and amount of data stored and used by the entities must be adopted for better competition law enforcement. On digital platforms, it is the scale and scope of data that determine market power and is also the creator of entry barriers for new entrants.
Furthermore, young and innovative start-ups are being acquired by large tech-companies, often known as "killer acquisitions". This is done to prevent any competition in the market and maintain the market-dominant position. One of the prominent examples of the same is that in the past two decades, Google has acquired more than 200 start-ups. Following the same, it becomes imperative to prevent such acquisitions which are restricting the market and causing its monopolisation. Parameters for the regulation of merger control must be stretched beyond the purview of assets and turnover thresholds. It is pertinent to note that a committee, Competition Law Review Committee, constituted by CCI and headed by Corporate Affairs Secretary released a report in August 2019 and one of the recommendations in the report was the introduction of a "deal-value" threshold for merger notification. This is definitely a step towards plugging the gap in Indian competition law but there is still a need to make enabling provisions for the same in order to overcome the consequential regulatory burden.