Mint Explainer: Why the ban on WhatsApp's data-sharing practices has been stayed

The CCI penalized Meta for abusing its dominant market position through WhatsApp’s 2021 privacy policy update.  (HT_PRINT)
The CCI penalized Meta for abusing its dominant market position through WhatsApp’s 2021 privacy policy update. (HT_PRINT)

Summary

  • The NCLAT’s decision has come as a major relief for the US tech giant, which has a combined user base of 850 million—350 million on Facebook and over 500 million on WhatsApp.

NEW DELHI : On 23 January, the National Company Law Appellate Tribunal (NCLAT) temporarily stayed the Competition Commission of India’s (CCI) November 2024 order, which imposed a five-year ban on WhatsApp's data-sharing practices with parent Meta Platforms Inc.-owned companies for advertising purposes.

The NCLAT’s decision comes as a major relief for the US tech giant, which has a combined user base of 850 million—350 million on Facebook and over 500 million on WhatsApp.

Mint explains the entire case and the NCLAT’s decision.

What does the NCLAT judgement say?

The NCLAT chairperson justice Ashok Bhushan and technical member Arun Baroka temporarily stayed the CCI’s 18 November order imposing the five-year ban on WhatsApp’s data-sharing with Meta-owned companies.

To secure a stay on the 213.14 crore penalty, the appellate tribunal directed Meta to pay 50% of the fine within two weeks. The amount may be refunded if Meta wins the case.

Also Read: CCI's WhatsApp order revives question on regulatory turf

The NCLAT upheld the part of the CCI ruling confirming users’ right to opt out of data sharing. It ordered the social messaging app to clarify its data-sharing practices, giving users more control over their choices.

The NCLAT also advised the parties to approach the appellate tribunal for modifications, especially in light of the upcoming Digital Personal Data Protection Act, 2023 (DPDP Act).

Why did the NCLAT rule in favour of Meta?

The NCLAT’s decision was influenced by the Supreme Court’s February 2023 ruling, which refused to stay WhatsApp’s 2021 privacy policy and directed the company to ensure that users who disagreed with the new terms would not lose services until the new data protection regime was implemented. WhatsApp’s undertaking confirmed that it would not restrict functionality for users who did not accept the update and would periodically show it to users, reinforcing their choice.

The appellate tribunal acknowledged that WhatsApp offers its services free of charge and that the five-year ban could disrupt its business model, potentially affecting its commercial sustainability in India.

The insolvency court also considered the upcoming DPDP Act, which is expected to address data privacy concerns comprehensively. It suggested that the new law could regulate the issues currently under dispute.

Why did the CCI fine Meta?

The CCI penalized Meta for abusing its dominant market position through WhatsApp’s 2021 privacy policy update. The CCI found that the update forced users to accept expanded data-sharing terms with other Meta companies like Facebook and Instagram without offering an option to opt-out. This was deemed an abuse of WhatsApp’s dominance in the over-the-top (OTT) messaging market, giving Meta an unfair advantage in online advertising and stifling competition.

Also Read: Did WhatsApp's policy tweak break the law?

The update also violated user autonomy by making data-sharing mandatory for WhatsApp usage, limiting users’ ability to make informed decisions about their data. 

The CCI ruling, which also directed WhatsApp to provide users an opt-out option, followed a suo motu order from the completion regulator, which began investigating WhatsApp’s 2021 privacy policy under the Competition Act, 2002.

What are the CCI’s powers under the law?

The CCI derives its authority from the Competition Act, 2002, specifically Section 4, which addresses the abuse of dominance. Sections 4(2)(a)(i), 4(2)(c), and 4(2)(e) were invoked due to WhatsApp’s coercive data-sharing conditions, market access denial, and leveraging dominance to benefit Meta’s online advertising. 

Also Read: Mint Quick Edit | Meta’s meta-fiction shouldn’t bother us

The decision also reflects a shift in the CCI’s approach. It now considers privacy an influential factor in competition law and acknowledges that privacy standards can affect market dynamics and consumer welfare.

This shift stems from reports like the 2019 Competition Law Review Committee Report and the 2021 Market Study on Telecom, which noted that privacy can influence competition, especially when dominant firms reduce privacy standards.

How did Meta respond?

Meta expressed concerns that the CCI’s ruling could severely affect its operations in India, particularly its ability to offer personalized ads on Facebook and Instagram, which depend on data shared through WhatsApp. Meta argued that the ruling could force the company to roll back key features, undermining WhatsApp’s commercial viability in India.

Meta also argued that the CCI’s investigation was initiated suo motu without user complaints. The company pointed out that its users had not raised concerns about the policy.

Consequently, Meta decided to appeal the CCI’s ruling in the NCLAT. 

During the hearing, Meta’s legal team, led by senior advocates Mukul Rohatgi and Kapil Sibal, highlighted the announcement of the Digital Personal Data Protection Rules, 2025, expected by mid-2025. They argued that the CCI’s ruling should be deferred until the new legislation is enacted, as it could supersede the current directive. 

Meta also noted that the 2021 policy update was largely an extension of WhatsApp’s 2016 policy, with no significant changes.

What are WhatsApp’s 2016 and 2021 data-sharing terms?

WhatsApp’s 2016 privacy policy allowed data-sharing with Facebook for friend suggestions and targeted ads, with a 30-day opt-out window. After August 2016, new users could not opt out of data-sharing.

However, the 2021 update required users to accept the new terms to continue using WhatsApp, with no opt-out option. It expanded data-sharing with Meta companies for personalized ads and service improvements, which led to widespread criticism and the CCI investigation.

Why did the Supreme Court intervene?

In 2016, petitioners Karmanya Singh Sareen and Shreya Sethi challenged WhatsApp’s privacy policy in the Delhi high court, arguing it violated the right to privacy. The high court declined to intervene, and the case moved to the Supreme Court.

Also Read: Mint Quick Edit | Meta’s morphosis: Good news or bad?

In February 2021, the Supreme Court directed WhatsApp to publicize its 2021 undertaking, assuring that users who did not accept the new policy would not face restricted functionality until new data protection laws were enacted. The court also directed WhatsApp to publish the undertaking in five national newspapers. The Union government requested a delay, as the Digital Data Protection Bill of 2022, which addressed these concerns, was expected to be introduced in Parliament.

What lies ahead?

The NCLAT has granted interim relief to Meta, but the case is scheduled for further deliberation on 17 March 2025. The CCI now has the option to approach the Supreme Court to challenge the NCLAT ruling. This could lead to a prolonged legal battle, especially with the ongoing challenge to WhatsApp’s 2021 privacy policy pending before the Supreme Court’s five-judge Constitutional bench.

 

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