New Delhi: The Centre-appointed panel to review the need for digital market regulation has recommended the introduction of a separate ‘Digital Competition Act’ (DCA) with ex-ante, i.e., pre-emptive, measures to regulate large digital enterprises selectively. Ex-ante regulation, however, has seen opposition from big tech companies like Amazon, Google, Meta, Flipkart, Zomato, and Swiggy.
In February last year, the Ministry of Corporate Affairs (MCA) constituted the Committee on Digital Competition Law (CDCL) to examine issues linked to the need for a separate law on competition in digital markets in India, including the need for an ex-ante regulatory framework. The CDCL has now submitted its recommendations in a 236-page report, along with the draft bill on digital competition law.
In its report, the CDCL has recommended ex-ante legislation, specifically applicable to large digital enterprises, to supplement the competition Act and “ensure that behaviours of large digital enterprises are proactively monitored and that the CCI intervenes before instances of anti-competitive conduct transpire”.
The CDCL has observed that competition jurisprudence, traditionally, has favoured ex-post or after-the-fact models of intervention, where corrections and actions are made once something goes wrong, because of the potential risks of the ex-ante model, which would see preventive measures put in place. Risks associated with the ex-ante model include over-regulation and a “chilling effect” on innovation, it said, adding that the premise might require rethinking in the case of Indian digital markets.
To strike a balance between increased regulation and enabling innovation under an ex-ante model, the CDCL has suggested the ex-ante regulation only for enterprises with a significant presence in and ability to influence the Indian digital market.
Bhoomika Aggarwal, senior research associate at The Dialogue, said the proposed law marked a significant exit from India’s current approach to competition law. “The Indian competition framework is largely based on a rule-of-reason approach, in which the effects of conduct are considered before being prohibited or penalised. However, the DCA will follow a per se approach where certain conduct such as data cross-usage is considered anti-competitive by default,” she said.
According to the draft bill, an enterprise will be considered a ‘Systemically Significant Digital Enterprise’ (SSDE) in respect of a ‘Core Digital Service’ if it has a turnover of at least Rs 4,000 crore in India or a global turnover of at least $30 billion or a gross merchandise value of at least Rs 16,000 crore in India or global market capitalisation or fair market value of $75 billion, and if its core digital service has at least one crore end-users or at least 10,000 business users in India in each of the preceding three financial years.
The draft bill also said a ‘Core Digital Service’ might include online search engines and social networking services, video-sharing platform services, interpersonal communications services, operating systems, web browsers, cloud services, and advertising services.
Some of the obligations listed for SSDEs include establishing transparent and effective complaint handling and compliance mechanisms, operating in a fair, non-discriminatory, and transparent manner with the end and business users, not favouring its products or services, and not restricting user ability to access third-party applications, among others.
Stakeholders can comment on the recommendations till 15 April, 2024.
“Obligations have been incorporated into the law in the form of broad principles. The details on their applicability for different services will be provided through subordinate litigation,” said Aman Mishra, senior research associate at The Dialogue.
“While this will likely provide more agility and enable customised dos and don’ts for regulated entities, there will likely be a need to guard against uncertainty and inconsistency in application across the technology ecosystem,” he added.
In a significant departure from the Standing Committee on Finance’s recommendations, the draft bill has not considered anti-competitive mergers and acquisitions. “The stated reason for this is the Competition (Amendment) Act, 2023, has already introduced a deal value threshold, which is likely to catch mergers and acquisitions in technology markets that the CCI have not previously notified,” said Mishra.
It has also proposed penalties for SSDEs for failure to comply with the provisions of the ‘Act’. The penalties could go up to 10 percent of the enterprises’ global turnover in the preceding financial year.
Aggarwal said the punishment for abuse of a dominant position, cartelisation, or any other contravention of the law is now ex post facto, i.e., after it happens. The proposed DCA, however, is an ex-ante law for regulating conduct before it occurs.
“The idea behind the framework is to implement quicker market corrections in fast-paced digital markets. But, a lot will depend on the CCI’s capacity to implement and enforce the law, which will require significant human and financial resources and technical expertise,” she said.
The CCI, she added, might require significantly more strength, considering its responsibilities in advocacy, anti-profiteering, merger review, and antitrust enforcement.
In their submissions to the CDCL, global giants such as Amazon, Apple, Google, Uber and Meta, as well as Indian firms such as Zomato, Swiggy, Oyo, and Internet and Mobile Association of India (IAMAI), have opposed ex-ante regulations.
Some enterprises that have supported ex-ante regulation are Paytm, MakeMyTrip, X, the National Association of Software and Service Companies (NASSCOM), and the Digital News Publishers Association.
Apple has submitted that it does not favour a regulatory approach modelled after the Digital Markets Act (DMA), a European Union (EU) law that aims to ensure a competitive and fair digital sector. The company said it supports a “light touch” regime that will promote innovation.
Sagardeep Rathi, partner, Khaitan & Co., called the recommendations a ‘watershed moment’ for digital competition regulation in India. “The draft law has recognised that digital markets are dynamic and has wisely left room for the ministry or the CCI to periodically review and revise various aspects such as the thresholds for designation of entities on which the law would apply and the conduct requirements of a digital service,” he said.
Moreover, he said, given the proposed sufficiently high thresholds, only a handful of digital entities would likely be within the ambit of the law. “The draft law has ensured that smaller startups or innovators would not be immediately subjected to obligations until they have consistently breached the thresholds for at least three years,” he said.
(Edited by Madhurita Goswami)
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