Earlier this year, the Competition Commission of India (CCI) hosted a workshop on the startup ecosystem and competition. Views emerged that data portability and interoperability can address market power concerns in digital markets. While appealing at first, these views overstate their benefits and discount the anti-competitive effect of such measures and their impact on innovation and the privacy rights of individuals.
Interoperability means enabling two different systems to interact with each other and has existed in technology markets for many years. Proponents of interoperability argue that mandating interoperability of services and platforms will reduce lock-in effects, reduce switching costs and increase multi-homing. These arguments fail on two counts.
First, technology is not zero-sum. Users do not have to discontinue the use of one application or platform to multi-home or switch to a different application or platform. The ability to multi-home or switch exists even without an interoperability requirement. Second, there is no demonstrable evidence that interoperability would actually incentivise users to switch to or use other applications and platforms. For example, if interoperability is made mandatory for messaging platforms, a user may be able to send messages from the Signal application to a user with the Telegram application; however, that would not increase the number of users of either application.
Data portability also raises concerns that have not been sufficiently considered or addressed. Data portability means allowing the transfer of data held by one enterprise to another. Firms generate or create datasets by incurring investments and through utilisation of resources. Mandating the portability of such datasets that are proprietary is likely to disincentivise incumbents as well as new entrants from investing and innovating. The decline in innovation could affect competition by reducing differentiation and quality of products and services offered. Further, while the Data Protection Bill, 2021, introduces the concept of data portability, the proposal directly conflicts with various other obligations proposed for data controllers and data processors in the bill. Conflict is also likely between users who wish to exercise their rights to control their data and firms seeking access to that data. Lastly, the effectiveness of portability depends significantly on the nature of the data, the format of the data, manner of storage and the security measures implemented by firms.
From the perspective of competition law, data portability and interoperability have the potential to lead to co-ordination of market behaviour among actual or potential competitors. Data that goes beyond the form in which a firm collects it from users, could be commercially sensitive. Data sharing and interoperability mandates would require firms to share datasets in their possession including commercially sensitive data. In In Re: Cartelisation in Industrial and Automotive Bearings, the CCI held that the mere exchange of commercially sensitive information was an illegal information exchange among competitors and amounted to a contravention of section 3(3) of the Competition Act, 2002. Therefore, efforts aimed at decreasing market concentration can instead lead to co-ordinated behaviour among competitors. This would not only reduce competition but would also create entry barriers for new entrants who would otherwise have to participate in the collusive conduct. This clear conflict between the purpose for which mandatory data portability and interoperability is advanced and its potential adverse consequences needs to be carefully considered.
Data portability and interoperability mandates will also be costly to implement. These mandates will increase barriers to entry and will ultimately increase market concentration. Further, implementation of these mandates by way of setting standards to be followed is a difficult issue as standards can confer market power on an entity.
There is little empirical evidence available to support the argument that interoperability and data portability can increase competition. Any proposed regulatory measure must be supported by detailed sectoral studies that take into account the characteristics and market dynamics of each sector. The analyses should spell out the need for such a regulatory measure, the harm that the regulation aims to remedy and the likely outcome of the proposed measure. Ill-designed measures will do more harm than good to competition and consumer interest.
Karan Singh Chandhiok is a partner and Lagna Panda is a managing associate at Chandhiok & Mahajan
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