THE BIG DATA PROBLEM IN MERGERS AND ACQUISITIONS

Introduction

The Chairperson of the Competition Commission of India [“CCI”], Devendra Kumar Sikri has recently suggested reviewing the anti-competitive effects Big Data can have in mergers and acquisitions [“M&A”] and revisiting the Section 5 thresholds to compensate for not accounting Big Data as an ‘asset’.[1] Currently, the framework of thresholds is uniform for enterprises entering combinations across sectors.[2]

Issue

Section 5 thresholds ascertain which transactions need to be notified to the CCI for analysing the possibility of an Appreciable Adverse Effect on Competition [“AAEC”]. As of now, as per Section 5 of the Competition Act, 2002, [3], the Big Data held by enterprises is not a consideration in rendering a transaction notifiable. Thus, it is imperative to scrutinize the provisions of the Act dealing with M&A and to analyse the rationale behind the abovementioned opinion of the CCI Chairperson.

1. What is Big Data and why is it relevant?

Big Data constitutes a large amount of related or unrelated data produced by multiple sources at high speeds. It requires great processing power and powerful algorithms to handle and analyze.

Big Data can be distinguished from data in general with the help of three ‘V’s which formulate the criteria for constituting the former.[4] These criteria are –

1. The colossal volume of the data collected.

2. The high velocity at which the data is collected and processed.

3. The vast variety of the data collected.

Recently, another ‘V’ i.e. value, has been linked with Big Data due to the cumulative effect of the increase in volume, velocity and variety of the data being collected.[5] This value attached to the data being collected flows out of the extraction of meaningful conclusions from large unrelated data sets by Artificial Intelligence with the assistance of sophisticated Machine Learning algorithms.[6]

Value of Big Data

Big Data, after being processed with the help of complex methods, can be converted into money value.[7] The Supreme Court of India, in its judgment in the Puttaswamy case[8], has observed that the digital footprints and extensive data created as a result of the use of the internet in the digital economy are valuable information as the analysis of this data reveals patterns, trends and associations related to human interactions and behaviour. Various studies have confirmed the same. For instance, the processing and analysis of Big Data such as the history of customers visiting their stores or browsing their website has led to a 10% to 15% increase in Walmart’s online sales.[9] Another study has estimated the multitude of avenues of use of Big Data can help the economy of the European Union grow by an additional 1.9% by the end of the year 2020.[10] Furthermore, the CCI itself has equated the value of data in this century to the value oil held in the previous century.[11]

Combinations of enterprises possessing Big Data

1. Regulation of Combinations

Section 5 of the Competition Act[12] dictates that when the two enterprises enter an acquisition, merger or amalgamation, the total value of assets and turnover of both would be taken into consideration for determining if the transaction meets the asset or turnover thresholds or not. If the transaction does meet the either of the thresholds, it is a combination and is required to be notified to the CCI. As the law stands today, if the combined value of assets of the enterprises is higher than rupees one thousand crores or the combined turnover of the enterprises is higher than rupees three thousand crores, the transaction would be notifiable.[13] However, the De Minimis exemption[14] renders the combination not notifiable if the target enterprise i.e. the enterprise being acquired, has either assets worth less than rupees 350 crores or turnover worth less than rupees 1000 crores.

Revealing the nature of the rules of Combinations encompassing scrutiny of M&A, Sections 6(2) and 6(2)(A) of the Competition Act respectively exhibit that the combination review regime requires pre-notification of combinations and that the process is suspensory in nature. The rationale behind the adoption such a system of notification is to avoid not only the adverse effect on the market that may be caused if the transaction is allowed to be consummated but also the plausible complications that could arise when there is a requirement of a demerger of the combining enterprises also coupled with collateral social costs incurred in any such unscrambling.[15]

Purview of the term ‘asset’

For the assessment under Section 5, the definition of ‘asset’ is not limited to physical objects which generate additional value or provide liquidity. This can be inferred from explanation (c) of Section 5 which extends the definition of assets to include “brand value, value of goodwill, or value of copyright, patent, permitted use, collective mark, registered proprietor, registered trademark, registered user, homonymous geographical indication, geographical indications, design or layout-design or similar other commercial rights if any, referred to in sub-section (5) of Section 3”. [16] It is quite clear that Intellectual Property, too, falls under the purview of the CCI. The recent Srikrishna Committee report refers to Big Data in the light of protection of privacy of individuals whose data can only be collected with their explicit consent.[17] The report is silent about the ownership of any such data collection. On the other hand, the Telecom Regulatory Authority of India has, in its press release[18], recommended that users are the owners of their data collected by enterprises in the digital ecosystem and the latter are just custodians of the data provided to them. Though the press release constitutes only a bare recommendation, if accepted, this would imply that the users’ Big Data cannot be an ‘asset’ of the enterprise holding it.

Thus, at this juncture, the law neither includes nor can be construed to include Big Data under the definition of an ‘asset’ which can render a transaction notifiable to the CCI.

1. The problem with enterprises possessing Big Data

The acquisition of WhatsApp by Facebook for almost $19.3 dollars was a deal affecting around 1.7 billion users in the world[19] and yet, it did not trigger notification to the CCI as the Section 5 thresholds were not met. The reliance on the thresholds considering just the assets and the turnover is problematic in cases of such enterprises which are technically free to use for users and do not hold assets or produce turnover in India per se.

The problem is further aggravated because of the De Minimis[20] exemption which may inadvertently exempt, from the scrutiny of the CCI, the acquisitions of enterprises with Big Data by enterprises which would, otherwise, meet the Section 5 thresholds. This is possible because the exemption only assesses the value of assets and turnover for its application.Thus, the acquisitions of small enterprises which possess Big Data by enterprises, which on their own meet Section 5 thresholds, become not notifiable.

The aforementioned can be read with Section 8(1) of The Combination Regulations, 2011[21] which dictates that the CCI has the power to initiate a suo moto inquiry in cases where a ‘Combination’ has not been filed as contemplated under sub-section (2) of Section 6 of the Act. As the De Minimis rule is an exemption to the application of Section 5, any transaction exempted by it is not a Combination and, as a result, the CCI loses its power to suo moto inquire into cases of acquisitions of small enterprises holding Big Data.

1. Another unvisited lacuna in the law

Mere tweaking of thresholds or even expanding the scope of the term ‘asset’ to circumscribe Big Data would not be adequate to curb the competition concern which might follow acquisitions or mergers of enterprises holding Big Data. Another pressing issue is that of concentration of Big Data resulting out of M&A.

To check the possibility of an AAEC, the CCI has, in innumerable cases, determined the existence of a vertical relationship and/or a horizontal overlap between the combining enterprises.[22] In the absence of any such relationship, the CCI has consistently decided in favour of there being no AAEC.[23] Such a scenario can be seen in the market of Internet of Things [“IoT”], Google’s acquisition of Nest[24] and Hewlett Packard’s acquisition of AWS[25]. Acquisitions of small enterprises which hold large databases and are horizontally and vertically unrelated to the acquiring enterprise can increase the concentration of data pertaining to the market in which the small enterprise functions.[26] Moreover, as Big Data that is transferred can always be utilized in deriving meaningful conclusions, transactions involving the transfer of the same have a potential of foreclosing the market[27] and creating entry barriers for new entrants[28].

Conclusion

Big Data, when processed with adequate processing power and a potent algorithm, can certainly be exploited in making huge chunks on profits. The interplay between the exclusion of Big Data from the purview of ‘asset’ under Section 5, the De Minimis exemption, and Section 8(1) of the Combination Regulations, 2011, not only absolves Big Data possessing enterprises from notifying their M&A transactions to the CCI, but also incapacitates the CCI for scrutinizing such transactions. It is undoubtedly reasonable to amend the law concerning notifiability of transactions to consider the value added by the possession of Big Data when enterprises enter M&A.

Furthermore, in the realm of IoT, where the existence of a vertical relationship or a horizontal overlap between transacting enterprises is effectively immaterial due to the wide array of possibilities in which Big Data can be employed, it is vital for the competition regulators to devise an Omni-temporal test that looks beyond the mere existence of a vertical relationship or a horizontal overlap in accessing the notifiability of a transaction.

This post has been authored by Nishant Pande, a Third Year Student of the National Academy of Legal Studies and Research, Hyderabad.

[1]Competition body chief calls for review of M&A processes, The Hindu Business Line, May 11, 2018, available at https://www.thehindubusinessline.com/companies/competition-body-chief-calls-for-review-of-ma-processes/article23857149.ece.

[2]Id.

[3] Competition Act, 2002, Act No. 12, Acts of Parliament, 2003.

[4]Competition Law and Data, Autorité de la concurrence (May 10, 2016), http://www.autoritedelaconcurrence.fr/doc/reportcompetitionlawanddatafinal.pdf.

[5]Id.at 4.

[6]Supra note 4, at 4.

[7]Big Data: Bringing Competition Policy to The Digital Era, Organisation for Economic Co-operation and Development (October 27, 2016), https://one.oecd.org/document/DAF/COMP(2016)14/en/pdf.

[8]Justice K.S. Puttaswamy v. Union of India, 2017 10 S.C.C. 1.

[9]How Big Data Analysis helped increase Walmarts Sales turnover?,DeZyre (May 23, 2015), https://www.dezyre.com/article/how-big-data-analysis-helped-increase-walmarts-sales-turnover/109.

[10]Pawel Swieboda, Big and Open Data in Europe: A growth engine or a missed opportunity?

Microsoft (January 29, 2014), https://news.microsoft.com/europe/2014/01/29/big-and-open-data-in-europe-a-growth-engine-or-a-missed-opportunity/.

[11]Competition Commission of India, Cases Nos. 7 and 30 of 2012, Matrimony.com Limited v. Google, 8 February 2018, available at http://www.cci.gov.in/sites/default/files/07%20%26%20%2030%20of%202012.pdf.

[12]Supra note 3.

[13]Id.

[14] S.O. 675(E) MCA notification dated 4th March 2016,     http://cci.gov.in/sites/default/files/notification/SO%20673%28E%29-674%28E%29-675%28E%29.pdf.

[15]4.7.7, Report of the High Level Committee on Competition Policy and Law, S.V.S. Raghavan Committee. Available at: http://www.ccr.org.in/reports.html Accessed on 08-08-2018.

[16]Combination Registration No.C-2017/02/485, order dated 11 December 2017.

[17]A Free and Fair Digital Economy, Committee of Experts under the Chairmanship of Justice B.N. Srikrishna (July 27, 2018 3:19 PM),http://meity.gov.in/writereaddata/files/Data_Protection_Committee_Report-comp.pdf.

[18]Information Note to the Press (Press Release No. 78/2018), Telecom Regulatory Authority of India (July 16, 2018), https://www.trai.gov.in/sites/default/files/PRNo7816072018.pdf.

[19] Nisha Kaur Uberoi, How CCI should look at M&A deals in digital economy, Livemint, April 12, 2018. Available at:https://www.livemint.com/Opinion/R2jJb12xH9BX9heTYleESK/How-CCI-should-look-at-MA-deals-in-digital-economy.html Accessed on 08-08-2018.

[20]Supra note 14.

[21]Aamir Khan Productions Private Limited v. Union of India, 2010 (112) Bom L.R. 3778.

[22] Combination Registration No. C-2016/10/441, order dated 13 December 2016.; Combination Registration No. C-2015/07/290, order dated 8 September 2015.

[23] Combination Registration No. C-2017/01/476, order dated 16 March 2017.; Combination Registration No. C-2016/11/455, order dated 20 December 2016.; Combination Registration No. C-2016/11/453, order dated 29 December 2016.

[24] Anirban Ghoshal, Google merges smart home unit Nest with its hardware team in bid to outgun Alexa, Techcircle, February 12, 2018. Available at: https://techcircle.vccircle.com/2018/02/12/google-merges-smart-home-unit-nest-with-its-hardware-team-in-bid-to-outgun-alexa Accessed on 08-08-2018.

[25] Michael Novinson, HPE Buys 200-Person AWS Consulting Workhorse Cloud Technology Partners, CRN, September 05, 2017. Available at: https://www.crn.com/news/channel-programs/300091546/hpe-buys-200-person-aws-consulting-workhorse-cloud-technology-partners.htm?itc=refresh Accessed on 08-08-2018.

[26]Competition policy: The challenge of digital markets, Monopolkommission (2015), http://www.monopolkommission.de/images/PDF/SG/s68_fulltext_eng.pdf.

[27]Supra note 4, at 16.

[28]Supra note 4, at 12.