Apple's privacy update: an Indian antitrust perspective

APPLE'S PRIVACY UPDATE: AN INDIAN ANTITRUST PERSPECTIVE

Apple recently launched a new software update, iOS 14.5, which includes certain new privacy features for its users (the "Privacy Update"). News reports indicate that the Privacy Update has become a point of conflict between Apple and some application developers, including big tech companies such as Facebook and Google (collectively referred to as "App Developers").

In a series of newspaper advertisements running in the New York Times, Wall Street Journal, and Washington Post, Facebook said that Apple's forced software update will limit businesses' ability to run personalized ads and reach their customers effectively. It is also being estimated that Google stands to lose billions of dollars in revenue if it is not able to provide personalized ads to users based on their history, interests, and activity as they could in the past. Some reports also suggest that Facebook is considering filing an antitrust complaint against the Privacy Update in the U.S.

In this article, we analyse the implications of the Privacy Update under the Competition Act, 2002 (the "Competition Act").

I. What is Apple's Privacy Update?

Apple devices (such as iPhones, iPads and Apple TV) have a unique identification code known as Identification for Advertisers software tracker ("IDFA").

IDFA allows the App Developers to track a user's activity across apps and the web which enables them to send users targeted advertisements. Some App Developers also piece together the data collected through IDFA, aggregate and then monetise the data as advertising opportunities, fuelling an industry that is valued at USD 227 billion per year.

The Privacy Update now requires that the apps take permission from the user before tracking their activity across apps and the web, affecting the revenue model of the App Developers. Based on early reports from the U.S., it is estimated that around 96 per cent of the users have chosen to not allow the apps to track their activity.

II. Relevant Provisions of Indian Competition Law

The provisions of the Competition Act relating to abusive conduct and anti-competitive vertical agreements which could be relevant to the Privacy Update are summarised below.

A. Abuse of dominance (Section 4 of the Competition Act)

The Competition Act prohibits the 'abuse' of dominance by enterprises (and not mere dominance of an enterprise). Examining any abusive conduct requires delineation of the relevant market by the Competition Commission of India (the "CCI"). It is only once an enterprise is found to be dominant in the relevant market, that the question of abuse arises.

The Competition Act prohibits the following abusive conduct: (a) imposition of unfair or discriminatory conditions or prices in purchase or sale of goods or services, (b) limiting or restricting the production of goods or services (or their technical or scientific development), (c) denial of market access in any manner, (d) bundling (i.e., concluding contracts subject to acceptance by other parties of supplementary obligations), and (e) leveraging (i.e., using dominant position in one relevant market to enter into or protect another relevant market).

The CCI has recently endorsed the 'effects test' while considering the abuse of dominance allegations[1], and has stated that it will also consider whether there is any legitimate and objective necessity for the relevant enterprise to engage in the abusive conduct.

B. Anti-competitive vertical agreements (Section 3(4) of the Competition Act)

Vertical agreements that could raise concerns under the Competition Act include: (a) tie-in arrangements, (b) exclusive supply agreements, (c) exclusive distribution agreements, (d) refusal to deal and (e) resale price maintenance agreements.

The CCI's decisional practice indicates that it will intervene in vertical restraint cases only when the enterprise has substantial market power in the relevant upstream/downstream market¹. Therefore, even when analysing vertical restraints, the CCI is likely to define a relevant market in order to analyse the market power of the enterprise.

The effects caused or likely to be caused by vertical restraints in the relevant market and the objective justifications or legitimate business rationale, if any, offered by the enterprise for imposing anti-competitive vertical restraints² are also taken into account when assessing such restraints.

III. Potential Competition Issues

A. Relevant Market

The definition of the 'relevant market' will depend on the nature of allegations made and what is regarded as interchangeable or substitutable in terms of providing or using apps at Apple's App Store.

One of the relevant markets considered by the European Commission in its 2018 Apple/Shazam order³ approving Apple's acquisition of Shazam Entertainment Ltd., was the market for the platforms for software solutions and/or apps⁴ .

In an order initiating an investigation against the Google Play Store in 2019 (the "GPS Order"), the CCI prima facie observed that the relevant market for app stores for android mobile operating systems appears to be appropriate and necessary for the assessment of allegations made by original equipment manufacturers against the Google Play Store.

The GPS Order also observes that for each application such as online video hosting platform, browser, map, music, etc., there will be separate relevant market⁵.

B. 'Dominant Position' and 'Market Power'

Section 19(4) of the Competition Act requires the CCI to have due regard to the following factors while analysing the dominant position of an enterprise:- (i) market share of the enterprise, (ii) size and resources of the enterprise, (iii) size and importance of competitors, (iv) dependence of consumers on the enterprise, (v) entry barriers, (vi) countervailing buyer power, etc.

In this regard, the CCI's GPS Order observes that "Google is dominant in the worldwide market (excluding China) for app stores for the Android mobile operating system. Google's app store, the Play Store, accounts for more than 90% of apps downloaded on Android devices. Google's app store dominance is not constrained by Apple's App Store, which is only available on iOS devices. As such, Google's dominance in this relevant market also becomes evident."

C. Analysis of Conduct

The CCI has in the past viewed the allegations of users being required to accept onerous and arbitrary conditions imposed by a dominant enterprise as an imposition of an unfair condition and a violation of Section 4 of the Competition Act[1].

Further, some reports suggest that Apple may not be applying the same privacy standard (resulting from the Privacy Update) to its own apps. Such practice may be considered to be an imposition of an unfair and discriminatory condition on App Developers by Apple by way of self-preferencing. Allegations of self-preferencing have been analysed by the CCI in the GPS Order where the CCI observed that "If Google started featuring Google Pay in the list of top apps, user choice apps and top free apps, not on objective parameters but simply as a means of self-preferencing, then the same, in conjunction with other preferential policies, may amount to the imposition of an unfair condition on both user groups (apps and app users), imposition of a discriminatory condition on apps, an act of leveraging its dominance in the application stores market to enter/protect the relevant market for UPI based payments market and may thus contravene the provisions of Section 4 of the Act as alleged by the informant."

Another issue that may be considered is whether Apple is leveraging its dominance in the App Store market to enter/protect other markets for Apps where Apple competes with the App Developers.

The French Competition Authority (the "FCA") has recently examined allegations arising out of Apple's Privacy Update on a referral received from various players in the online advertising market. The FCA refused to grant any interim measures against the Privacy Update, stating that it does not appear to be an abusive practice and that a company, even if it is in a dominant position, has the freedom to set rules to access its services. The FCA is, however, continuing to investigate the case particularly with respect to "self-preferencing" by Apple as against the third-party developers.

At the same time, a majority of the Apps provided by the App Developers do not charge any fees to the end-users, which has been possible so far because of the revenues that the App Developers have been able to generate from advertisers. If a change to this business model results in higher prices for consumers, this may also be a relevant factor.

The Privacy Update may also have a pro-competitive effect as it gives the users an option to 'opt-out' by asking them to either "Ask App not to Track" or "Allow" the app to track their activity, as per their preference. Apple has stated that the Privacy Update is intended to help users make more informed decisions about their data.

IV. Conclusion

The preamble of the Competition Act requires the CCI to protect the interest of the consumers as well as to ensure the freedom of trade carried on by the participants in the markets in India.

There has been a shift in the CCI's approach to the new age markets. While a few years back, the CCI was following a hands-off approach and letting the market's dynamics play out,[1] more recently the CCI has shown an inclination to look at allegations in the new age markets closely - in line with the global antitrust regulators.

Disclaimer: This article has been jointly authored by Akshat Kulshrestha (Associate) and Samali Verma (Associate). They can be reached on akulshrestha@snrlaw.in and sverma@snrlaw.in for any questions. This article is intended only as a general discussion of issues and is not intended for any solicitation of work. It should not be regarded as legal advice and no legal or business decision should be based on its content.