NCLAT sets aside CCI ban on WhatsApp sharing of user data with Meta, upheld Rs 213.14cr penalty

New Delhi, Nov 4 (PTI) In a partial relief to WhatsApp, the appellate tribunal NCLAT on Tuesday set aside a section of a Competition Commission of India (CCI) order that had banned the instant messaging app from sharing data with Meta Platforms for advertising purposes for five years, but retained a Rs 213-crore penalty on the social media platform.

Modifying the order passed by the CCI on November 18, 2024, the NCLAT set aside directions in para 247.1 of the 158-page-long order. However, the two-member bench upheld the breach of Section 4(2)(a)(i) and 4(2)(c) as "WhatsApp’s 2021 policy constituted abuse of dominance by WhatsApp" and created a situation of market denial.

NCLAT said that imposition of unfair or discriminatory conditions on users, through a “take it or leave it” policy, WhatsApp forced users into accepting expansive data sharing as a condition to using WhatsApp, without offering an effective opt-out.

"We find that mandatory acceptance of broad and vague data sharing terms amounted to coercion and unfair condition on users," which is violative of Section 4(2)(a)(i) of the Competition Act.

Commenting on the NCLAT ruling, a Meta spokesperson said, “We welcome the NCLAT’s decision. While we await the written order, we continue to reiterate that WhatsApp’s 2021 privacy policy update did not change the privacy of people’s personal messages which remain end-to-end encrypted. WhatsApp’s optional business features make people’s lives more convenient with services like bill payments, ticket booking, and shopping – while supporting local businesses and furthering India’s digital economy.” The NCLAT in its 184-page-long order said that cross-platform data sharing between WhatsApp and Meta enhanced Meta’s advantage in the display advertising market, creating an entry barrier for rival firms in digital advertising that did not have equivalent access to WhatsApp data.

"We note that Meta is not dominant in Market but a leading business entity and by its conduct has created a situation of market denial and thus Meta has violated Section 4(2)(c). It needs to be noted that section 4(2)(c) gets attracted herein due to special circumstances existing in this case," it said.

However, the National Company Law Appellate Tribunal (NCLAT) said CCI "order holding breach of Section 4(2)(e) is not sustainable" as it cannot be concluded that Meta has leveraged its dominance in one market (OTT messaging) to protect or extend dominance in another (online display advertising).

This is mainly for the reason that WhatsApp and Meta are distinct legal entities, said NCLAT bench comprising Chairperson Justice Ashok Bhushan and Arun Baroka, Member.

"The directions issued by the CCI to cease and desist in paragraph 247.1, i.e. “247.1 WhatsApp will not share user data collected on its platform with other Meta Companies or Meta Company Products for advertising purposes, for a period of 5 years from the date of receipt of this order.... is not sustainable and is set aside," said NCLAT.

The "rest of the Impugned Order is upheld" said NCLAT while modifing the order passed by CCI on November 18, 2024.

NCLAT further said "penalty imposed of Rs 213.14 crore only (by CCI) upon Meta is upheld".

The appellate tribunal said it has gone through the methodology adopted by the CCI for calculating the penalty and does not find any infirmity.

"We therefore do not find justification in ordering review of the penalty," it said.

NCLAT said though that Meta is not dominant in the market for "online display advertising in India" but a leading player. But its conduct has caused anticompetitive effects in the market for "online display advertising in India" by denial in this market.

"We have determined earlier, it is the WhatsApp alone, which is dominant in relevant market of OTT messaging apps through smartphones in India and is also found to have abused its dominant position and violated Section 4(2)(a)(i) of the Act. Thus, imposition of penalty on WhatsApp is wholly justified," it said.

NCLAT further said Meta enjoys full control over the activities and operations of WhatsApp.

"WhatsApp doesn’t have standalone financial statements. Furthermore, WhatsApp and Meta have common executives. We need not pierce the corporate veil but Commission has established that due to excessive data sharing between WhatsApp and Meta, a situation of market denial has been created. Therefore, there is a justification in imposing penalty on both in a combined manner as has been worked out by the Commission," it said.

Earlier in September, the National Company Law Appellate Tribunal (NCLAT) reserved its order after completing its hearing over the petitions filed by Meta Platforms and WhatsApp against the orders of the CCI, in which the fair trade regulator had imposed a penalty on both social media major Meta for unfair business practices with respect to the WhatsApp privacy policy update done in 2021.

Both tech firms had also challenged a penalty of Rs 213.14 crore on the social media major for unfair business practices with respect to the WhatsApp privacy policy update done in 2021.

In November last year, the CCI imposed a penalty of Rs 213.14 crore on social media major Meta with respect to the WhatsApp privacy policy update.

Meta Platforms and WhatsApp had challenged this order before the NCLAT, which in January this year passing an interim order, stayed the five-year ban imposed by the CCI on data-sharing practices between WhatsApp and Meta for advertising purposes, offering a breather to the tech giant. PTI KRH KRH MR