BY GARIMA THAKUR AND AISHWARYA S. NAIR, THIRD-YEAR STUDENTS AT RGNUL, PATIALA
I. INTRODUCTION
The digital realm has become integral to modern society, encompassing activities from banking to shopping and socializing, all conducted online. India’s digital economy is set to nearly double, reaching about 20% of GDP by 2026. While digitalization promotes market contestability and innovation, it also raises concerns about anti-competitive behaviour, unfair business practices, and discriminatory policies by enterprises.
In 2022 the Parliamentary Standing Committee on Finance presented the 53rd report on Anti-Competitive Practices by Big Tech Companies which discussed the network effects of large digital markets leading to a ‘winner takes most outcome’. It further identified ten Anti-Competitive Practices (‘ACPs’) undertaken by large digital enterprises abusing dominant positions. In response, the Ministry of Corporate Affairs (‘MCA’) created the Committee on Digital Competition Law (‘CDCL’) to suggest recommendations for regulating competition in digital markets. In March 2024, the CDCL released its report highlighting the fragmented and time-consuming legislative approaches under various legislations towards the digital economy, alongside unveiling the draft Digital Competition Bill, 2024 (the ‘Draft Bill’).
II. KEY FEATURES: REPORT OF THE COMMITTEE ON DIGITAL COMPETITION LAW, 2024
1. Ex-ante measures in Digital Competition Law:
The Competition Law in India adopts an ex-post approach in addressing anti-competitive agreements and abuse of dominance, with investigations commencing after contraventions have occurred. However, ex-post investigations might take years to resolve and have proven to be too slow for the fast-evolving digital landscapes. By the time an investigation is underway, the market may irreversibly tilt in favour of the incumbent. Further, this approach provides only for specific claims and is thus unable to address repeat violations or similar conduct by different entities. For example, if an e-commerce giant, say, EcomTech forces suppliers into exclusive deals that harm smaller competitors, a smaller rival, ShopSmall, might file a complaint. This complaint would prompt an investigation by the Competition Commission of India (‘CCI’). However, the process takes years, allowing EcomTech to solidify its dominance in the meantime. By the time the investigation concludes, EcomTech’s market position is even stronger, and the approach only addresses ShopSmall’s specific complaint, not the broader issue. This highlights how the ex-post approach can be too slow and limited for fast-changing markets.
In contrast, Chapter III of the Draft Bill introduces ex-ante regulations that pre-emptively address issues by setting broad legal principles. Obligations will be tailored for various digital enterprises following expert consultations. The CCI is empowered to set specific conduct requirements for different business models within Core Digital Services (‘CDS’), which means means any service specified in Schedule I of the Draft Bill and includes major platforms like online search engines and social networks.
2. Regulation of Significant Enterprises in the Digital Economy:
Established enterprises benefit from larger, data-driven networks and user bases, giving them a competitive edge. New entrants face challenges not only in pricing and service quality but also in overcoming these established user bases. This creates a first-mover advantage for existing enterprises, which, even if not legally dominant, can influence the market similarly to dominant players.
The Draft Bill aims to regulate Systematically Significant Digital Enterprises (‘SSDEs’) that wield substantial influence in the digital economy and within the Indian Digital Market. The Draft Bill introduces two methods under Section 3 of the Draft Bill to determine the status of an enterprise as an SSDE.
Firstly, the ‘Significant Financial Strength’ test quantifies metrics such as turnover in India, global turnover, gross merchandise value, etc. to ascertain SSDE value. Secondly, the ‘Significant Spread’ test evaluates qualitative factors. The CDCL recommends adjusting these measures to suit Indian markets. Further, Section 3(3) grants the CCI discretion to designate an enterprise based on a set of qualitative criteria encompassing factors like enterprise resources, aggregated data volumes, direct and indirect network effects, and the entity’s bargaining position relative to its business users and consumers.
3. Exemptions:
Chapter VIII of the Draft Bill provides the CCI and the Central Government power to exempt certain SSDEs from some obligations on grounds of national security and protection, economic viability, and other factors as may be prescribed. The committee recommends that such exemptions should be devised with regard to the uniqueness of each CDS, in a similar fashion as Section 54 of the Competition Act.
4. Enforcement and Remedies:
The committee acknowledges concerns about potential overlapping proceedings under the Competition Act and the Draft Bill, which could lead to double or unfair penalties. However, it distinguishes between the regulatory interventions and procedures of both frameworks. The committee suggests that the CCI should handle overlaps on a case-by-case basis, ensuring enterprises are safeguarded from disproportionate penalties.
The enforcement framework proposed in the Draft Bill draws heavily from the Competition Act, with the CCI being the enforcing authority for both legislations. It includes provisions mirroring the Competition Act, such as empowering the Director General, granting rights to seek compensation for damages caused by SSDEs, and the authority to issue interim orders. Moreover, recognizing the critical role of timelines in the digital economy, the committee has also integrated a settlements and commitments regime into the Draft Bill.
III. MAJOR CONCERNS AND CRITICISMS ALONG WITH SUGGESTIONS
1. The problem of ‘consent’:
Section 12 of the Draft Bill prohibits SSDEs from using non-public user data to compete on their CDS, effectively outlawing practices like self-preferencing. However, an exception allows platforms to combine data from other sources with user consent. This implies that enterprises can still collect and utilize user data, including selling it to insurers or sharing it with interested third parties, as long as explicit consent is obtained and it doesn’t directly compete with the platform’s main business users.
The Draft Bill employs an ‘opt-in’ model, wherein the user must provide express provision for the usage of data. Yet, amid consent fatigue, a consent-based approach may not effectively curb monopolistic behaviours. Moreover, enterprises may leverage tools like artificial intelligence and manipulative design (such as dark patterns) to micro-target and exploit the psychological vulnerabilities of people to give the creating the illusion of choice and consent. This can deceive consumers into making decisions they might not make if fully informed or aware of alternatives.
The Chinese Antitrust Commission’s guidelines on Antitrust Regulations, which ban algorithms that “violate ethical and moral standards” by “inducing user addiction or excessive spending,” could effectively counteract the dark patterns and strategic models employed by digital platforms to collect consumer information for purposes beyond what is necessary.
2. Effect on Startups and Innovations
The Internet and Mobile Association of India (‘IAMAI’) highlighted that regulations based on financial or size thresholds, might deter Indian tech firms from scaling up to avoid added regulatory burdens. This could impede their global competitiveness and profitability. Critics also argue that such regulations could stifle digital start-ups and innovation, echoing IAMAI’s comparison to the pre-liberalization Monopolies and Restrictive Trade Practices (‘MRTP’) era. They suggest that the Bill could reintroduce restrictive policies that hinder growth, innovation, and investment in India’s digital sector.
Further, it may be argued that it is difficult to gauge the effectiveness of ex-ante measures amid fears of economic loss, as there are only a handful of jurisdictions where such laws have been implemented. Comparisons cannot be drawn due to the novelty of these measures even in foreign nations like the EU (Digital Markets Act, 2024), the UK (Digital Markets, Competition and Consumers Act, 2024), and the US (American Innovation and Choice Online Act, 2023).
3. Clarity is required on the exceptions:
Due to uncertainty about defining the parameters and scope of this exemption, there is room for subjective interpretation during the act’s implementation. This oversight leaves powers arbitrarily with the Central Government, potentially affecting enterprise efficiency and harming consumers. To address these issues, the ‘countervailing benefits exemptions’ in the English Digital Markets, Competition, and Consumers Bill, 2023 (‘DMCC’), can be adopted.
The “countervailing benefits exemption” in competition law permits practices that might seem to breach competition rules if they deliver substantial benefits that outweigh any potential harm. This exemption applies when the conduct provides clear advantages to users and these benefits exceed any negative impact on competition. Additionally, the conduct must be necessary and proportionate to achieving these benefits without undermining effective competition. Implementing this exemption would prevent arbitrary benefits for financially powerful companies and safeguard businesses from unintended consequences that could harm competition.
IV. CONCLUSION
Digital economies, benefit greatly from economies of scale and increasing returns. They can expand into related markets easily and utilize data to enhance their competitive edge, often assuming a “gatekeeper” role in the market. Addressing anti-competitive practices and monopolies posed by such technologies is difficult under traditional laws. In India, recent fragmented regulations have targeted big tech for data privacy issues. The Draft Bill, 2024 proposes new ex-ante obligations inspired by global standards to regulate anti-competitive behaviours of SSDEs. The bill’s potential impact on India’s Digital Ecosystem remains uncertain, but in a rapidly evolving industry, these proactive regulations could help align the law with digital innovation.
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