Committee Report on Digital Competition Law- Explained Pointwise

The Committee Report on Digital Competition Law, has recommended an ex-ante (intervention before an event occurs) regulation for digital markets in India. Presently, the Competition Commission of India (CCI), takes ex-post measures (intervention after an event occurs) for anticompetitive practices in the digital sector. In its report, the Committee also published a draft Digital Competition Bill to give effect to its recommendations.

What are the recommendations of the Committee?

Digital Competition Law for ex-ante regulation of digital competition

a. The current ex-post framework (intervening after an event occurs) under the Competition Act, 2002, does not facilitate timely redressal of anti-competitive conduct by digital enterprises. It is ineffective to address the irreversible tipping of markets in favour of large digital enterprises (permanent dominance of a firm in relevant market).

b. The Committee has recommended enacting the Digital Competition Act to enable the Competition Commission of India (CCI) to selectively regulate large digital enterprises in an ex-ante manner (intervening before an event occurs).

Systemically Significant Digital Enterprises (SSDEs) and Associate Digital Enterprises (ADEs)

The Committee has recommended designating entities offering certain core digital services like search engines, social networking services, operating systems, and web browsers, as Systemically Significant Digital Enterprises (SSDEs).

The business enterprises within the SSDE group that are directly or indirectly involved in providing core digital services are required to be notified by the CCI as Associate Digital Enterprises (ADEs).

Thresholds for classification of SSDEs

a. The Committee has recommended using both quantitative thresholds and qualitative criteria to designate enterprises as SSDEs.

b. Quantitative Criteria- Dual test for gauging significant financial strength and spread–
(i) Parameters for significant financial strength- Turnover (at least ₹4,000 crore in India and global turnover of at least $30 billion), Gross merchandise value (₹16,000 crore in India), and market capitalisation (global market capitalisation of $75 billion in the immediately preceding three financial years)
(ii) Parameter for significant spread- Number of business users and end users of the core digital service in India (either 10,000 business users or one crore end users)

c. Qualitative criteria- Since the quantitative criteria may not cover all digital enterprises that may have a significant presence in Indian digital markets, the committee has recommended qualitative criteria. This includes resources of the enterprise and volume of data aggregated by them.

Obligations of SSDEs

The SSDEs are prohibited from carrying out certain practices. These include:
(i) favouring their own products and services or those of related parties
(ii) use non-public data of business users operating on their core digital service
(iii) restriction of users from using third-party applications on their core digital services
(iv) Incentivising the users of an identified core digital service to use other products or services offered by the SSDE.

Enforcement of provisions

a. The Director General, appointed under the Competition Act 2002 is required to investigate any contraventions when directed by the CCI.

b. A separate bench of the National Company Law Appellate Tribunal must be constituted for timely disposal of appeals.

Penalties

CCI has the powers of imposing civil penalties on the SSDEs found to be indulged in anti-competitive practices. CCI has the powers to impose monetary penalties for non-compliance with ex-ante obligations and with its orders. The monetary penalties have been capped at 10% of the global turnover of the SSDE.

What is the need for Digital competition Law?

1. Abuse of Dominant market position- Core digital service providers have been found to be involved in abuse of their dominant market position. For ex- Google abusing its dominant position in the Android and Play Store ecosystem by pressurising app developers to use Google’s proprietary billing system or face a fee if they opt for a competitor’s service.

2. Self-preferencing and platform bias- Core digital companies have been competing with other third party service by promoting their services or subsidiaries on their own platform. For ex- Amazon’s e-commerce service has been under scrutiny in India due to its dual role of being a marketplace operator, as well as retailer on its own platform.

3. Restrictions on Third-Party Applications- There are instances where big digital entities have restricted the installation or operation of third-party applications. For ex- Apple’s restriction on installing third-party applications on the iPhone.

4. Bundling and Tying- Big Digital tech firms have been compelling consumers to purchase related services by linking their main products or services to other complementary offerings. For ex- Operating system providers like Microsoft, bundling the use of its search engine and products like Office, which generates pricing asymmetry and results in the elimination of competition from the market.

5. Anti-Steering- Anti-steering provisions are employed by big tech entities to hinder business users from migrating away from the platform and utilizing alternative options. This results in restriction of customer choices. For ex- Apple’s anti-steering practices prevents users from truly exercising their choice of services with the Apple ecosystem.

6. Network effect and Economies of Scale- The core digital services companies demonstrate ‘network effects’, which enable rapid growth of their user base and fixation of arbitrary prices, which creates challenges for new competitors to overcome. For ex- Meta’s subscription model offering people in EU, European Economic Area (EEA) and Switzerland the choice to use Facebook and Instagram without any ads.

7. Concerns Over Data Privacy- Core digital companies gather vast amounts of user data through their platforms and services. This has raised concerns about data privacy, digital surveillance, and data security. For ex- CCI’s probe into WhatsApp’s privacy policy, on allegations that the messaging platform shares user data with its parent Facebook.

8. Killer Acquisitions and Mergers leading to monopoly- Killer acquisitions, where big techs purchase valuable start-ups without being subject to merger control rules based on turnover, create an unfair playing field in the digital market. For ex- Facebook’s killer acquisition of Instagram and WhatsApp, led to the monopolisation of social media communication domain.

What will be the purported advantages of Digital Competition Law?

1. Reduction in time for anti-competitive case redressal– Ex-post measures for redressal of anti-competitive practices were time-consuming. For ex- CCI adjudicating in 2018 on a complaint of abuse of dominant position filed in 2012. However, the ex-ante measures introduced with the digital competition law will reduce the redressal time.

2. Create Level Playing Field- The new Digital Competition law will create a level playing field for all digital service providers operating in India.

3. Further catalyse the startup growth- The new law will further catalyse the growth of digital startups in India. They will not be in a disadvantageous position due to the ‘network effect‘ and ‘economies of scale‘ of core digital service providers.

4. Address Data privacy Concerns- The incorporation of penalties for violation of data privacy will further strengthen data privacy regime in India.

5. Boost to Digital Economy- It is expected that India’s digital markets will reach $800 billion by 2030 by effective regulation through this digital competition law.

What are the prevailing Concerns?

1. Stifling  of Innovation- There are concerns that strict regulations could limit creativity and growth in the digital sector.

2. Potential for Misuse- Critics point that the draft Bill’s ex-ante approach gives excessive discretionary power to the regulators. This raises concerns about its potential misuse.

3. Duplication with Existing Laws- The proposed new law might overlap with provisions in the current Competition Act, leading to regulatory complexity and potential confusion.

4. Potential for Conflicting Decisions: The overlap between current competition law and proposed digital competition law could result in parallel inquiries and divergent rulings for the same issue.

What Should be the way Forward?

1. Revamping of CCI- The institutional structure of CCI must be revamped by creating separate cell/division, beefing up the technical manpower for dealing with digital anti-competitive practices.

2. Early establishment of separate bench of NCLAT- The government must constitute a separate bench in the NCLAT at the earliest for early adjudication of anti-competitive cases.

3. Effective Checks and balances- A mechanism of ensuring effective checks and balances must be instituted to curb any abuse of discretionary powers by the authorities.