The Corporate & Commercial Law Society Blog, HNLU

Tag: Digital Competition Bill

  • Digital Competition Bill: Complementing or Competing with the Competition Act?

    Digital Competition Bill: Complementing or Competing with the Competition Act?

    BY Winnie Bhat, SECOND- YEAR STUDENT AT NALSAR, HYDERABAD
    Introduction

    Data is the oil that fuels the engine of the digital world. The economic value and competitive significance of data accumulation for companies in the digital age cannot be overstated. It is in recognition of this synergy between competition and data privacy laws, that the Competition Commission of India (‘CCI’) has imposed a fine of Rs 213 crore on Meta, the parent company of WhatsApp, for abusing its dominant market position under Section 4 of the Competition Act, 2002 (‘CA’).

    As digital markets evolve, so too must the legal frameworks that regulate them. This article considers whether the proposed Digital Competition Bill, 2024 (‘DCB’) enhances the current competition regime or risks undermining it through regulatory overlap. In doing so, it assesses how traditional competition tools have been stretched to meet new challenges and whether a shift toward an ex-ante model is necessary and prudent.

    Reliance on Competition Act, 2002

    In the absence of a dedicated digital competition framework, Indian regulators have increasingly relied on the CA to address issues of market concentration, data-driven dominance, and unfair terms imposed by Big Tech firms. One of the clearest examples of this reliance is the CCI’s scrutiny of WhatsApp’s 2021 privacy policy. In the present case, CCI found that WhatsApp’s 2021 privacy policy which mandated sharing of users’ data with WhatsApp and thereafter its subsequent sharing with Facebook vitiated the ‘free’, ‘optional’ and ‘well-informed’ consent of users as WhatsApp’s dominant position in the market coupled with network and tipping effects effectively left users with no real or practical choice but to accept its unfair terms.

    This contrasts with the CCI’s previous stances in Vinod Kumar Gupta v WhatsApp and Harshita Chawla v WhatsApp & Facebook, where it declined to intervene because data privacy violation did not impact competition. However, in a slew of progressive developments, a market study by CCI has now recognized privacy as a non-price competition factor and the Supreme Court’s nod in 2022 for CCI to continue investigation in the Meta-WhatsApp mater has effectively granted CCI the jurisdiction to deal with issues relating to privacy that have an adverse effect on competition.

    The facts of this case very closely resemble that of Bundeskartellamt v Facebook Inc.,2019 wherein the German competition regulator had flagged Facebook for imposing one sided terms about tracking users’ activity in the social networking market where consent was reduced to a mere formality. Both cases illustrate how dominant digital platforms exploit their market power to impose unfair terms on users, effectively bypassing meaningful consent. This pattern reflects a deeper structural issue—where existing competition law, focused on ex-post remedies, is used to address the unique challenges of digital markets. It is precisely this regulatory gap that the proposed DCB seeks to fill through its ex-ante approach.

    Abuse of dominant positions by Big Tech companies in the digital era occurs in more subtle ways as the price of these services is paid for with users’ personal data. A unilateral modification in the data privacy policy leaves users vulnerable as they have little bargaining power against established corporate behemoths. These companies collect huge chunks of “Big data” by taking advantage of their dominance in one relevant market (in the present case, the instant messaging market) and use them in other relevant markets (social networking, personalized advertising, etc.) which gives them a significant edge against their competitors. This creates entry barriers and a disproportionate share of the market goes to a few large corporations resulting in monopoly-like conditions.

    To deal with such issues, competition law first identifies a corporation’s dominant position in the market. Once this is established, it investigates the factors that lead to the abuse of this position. Here, the factor is collection of data which invades the privacy of users without their free and informed consent. The CCI, in its ruling against Meta, held WhatsApp to be in violation of Sections 4(2)(a)(i), 4(2)(c) and 4(2)(e) of the CA, dealing with imposition of unfair conditions in purchase of service, engagement in practices resulting in denial of market access and use of dominant position in one market to secure its market position in another relevant market respectively.

    The Digital Competition Bill, 2024

    The proposed Digital Competition Bill, 2024  when enacted, would signify a landmark shift in how India approaches competition regulation in digital markets. Unlike the CA, which operates on an ex-post basis; acting upon violations after analysing their effects, the DCB introduces a proactive approach that seeks to regulate the conduct of Systemically Significant Digital Enterprises (‘SSDEs’) through an ex-ante framework. SSDEs are large digital enterprises that enjoy a position of entrenched market power and serve as critical intermediaries between businesses and users. The DCB aims to curb their ability to engage in self-preferencing, data misuse, and other exclusionary practices before harm occurs, rather than waiting for evidence of anti-competitive outcomes. While this progressive approach aims to address the unique challenges posed by the dominance of digital giants, it also raises critical concerns about legislative overlap, disproportionate penalties on corporations and potential legal uncertainty.

    A key issue with the coexistence of the DCB and the CA is the overlap in their regulatory scopes. The CA, particularly through Section 4, targets abuse of dominance through a detailed effects-based inquiry. As evidenced in the CCI’s ruling against WhatsApp, a compromise or breach of data privacy of the users will not be tolerated and has the potential to be considered as a means of abuse of an enterprise’s dominant position. By contrast, the DCB imposes predetermined obligations on SSDEs, which are deemed to have significant market power. Section 12 of the DCB prescribes certain limitations on the use of personal data of the users of SSDEs, whereas Section 16 grants the CCI the power to inquire into non-compliance if a prima facie case is made out, regardless of the effects such non-compliance may have on competition.

    Concerns about dual enforcement

    This duality creates an ambiguity. For instance, should a prima facie case involving data misuse by an SSDE, which unfairly elevates its market position, be assessed under the CA’s abuse of dominance provisions, or should it fall exclusively within the purview of the DCB? The risk of dual penalties further compounds these challenges. Section 28 (1) of the DCB empowers the CCI to impose significant fines (not exceeding 10% of its global turnover) on SSDEs for non-compliance with its obligations. However, under Section 48 of the CA, these entities are also subject to penalties for engaging in anti-competitive behaviour that may stem from the same act of data misuse.

    Although, the protection against double jeopardy only applies to criminal cases, the spirit of double jeopardy is clearly visible in this case, wherein businesses could face disproportionate punishments for overlapping offenses, raising concerns about fairness and proportionality. This mirrors similar concerns in the European Union, where the Digital Markets Act (‘DMA’) (India’s DCB is modelled on EU’s DMA) and Articles 101 and 102 of the Treaty on the Functioning of the European Union (traditional EU competition law provisions) operate in tandem. However, EU’s DMA grants the European Commission overriding powers over the nations’ competition regulating authorities, which brings unique challenges and is not applicable in India since the regulating authority (CCI) oversees implementation of both the CA and DCB. This vests the CCI with considerable discretion in deciding which act takes precedence and their spheres of regulation. The MCA report leaves potential overlaps in proceedings to be resolved by the CCI on an ad hoc basis. Therefore, statutory clarity on the application of the DCB and the CA are essential to avoid inconsistency in outcomes.

    The Way Forward

    To address these challenges, India must focus on creating a harmonious regulatory framework. Moreover, a Digital Markets Coordination Council could be established to harmonize enforcement actions, share data, and resolve jurisdictional disputes. Such a body could include representatives from the CCI, the Ministry of Electronics and Information Technology (MeitY), and independent technical experts to ensure holistic oversight.

    Proportional penalties are another area for reform. Lawmakers should ensure that corporations do not have to bear the burden of being punished in two different ways for the same offence. Introducing a standardised penalty framework across the DCB and CA would prevent over-penalisation and ensure fairness.

    Since the DCB has not been enacted yet, India can pre-empt these concerns of overlap and ensure that the CA and DCB complement rather than compete with each other. The exact scope of a solution to these concerns is beyond the scope of this article, but by learning from the EU’s experiences and adopting a coordinated, balanced approach, India can create a regulatory framework that promotes innovation, safeguards competition, and protects consumers’ rights and interests in the digital age.

  • Examining Loopholes and Challenges in the Draft Digital Competition Bill

    Examining Loopholes and Challenges in the Draft Digital Competition Bill

    BY KASHVI SINGH SHEKHAWAT, SECOND-YEAR STUDENT AT NLU, ODISHA

    Digital platforms have significantly transformed the global economy and society and are central to 21st-century technological advancements. They have introduced innovative products and services that were unimaginable a few decades ago which break down borders to deliver these benefits worldwide. 

    The COVID-19 crisis has highlighted the importance of digital platforms, but also raised concerns about market dominance and anti-competitive practices. In response, the Ministry of Corporate Affairs proposed the Draft Digital Competition Bill (‘the Bill’) on March 12 to curb these practices, promote fair competition, and improve market transparency.

    This Bill, which aims to regulate digital markets and curb anti-competitive practices contains potential loopholes that could undermine its effectiveness. This might impact the Bill’s ability to effectively curb anti-competitive practices, ensure fair competition, and promote market transparency. Thus, there is a crucial need to identify and address areas where the Bill may fall short ensuring a more robust and comprehensive regulatory approach.

    Ex-Ante Regulation

    Ex-ante regulation involves setting rules and guidelines in advance to prevent market issues before they arise, as opposed to addressing problems after they occur (which is ex-post regulation). It’s a proactive approach aimed at maintaining fair competition and preventing market failures from the outset. This is typically used to address market failure but this is not the case with India. As per the ITIF’s Hamilton Index Report, India is a top producer in key industries with a thriving digital market and the third-largest startup ecosystem. However, concerns about market power in digital markets persist with claims that consumer data feedback loops, network effects, and economies of scale favor incumbents, potentially leading to market concentration. While network effects can benefit consumers, market concentration is not an inevitable outcome. Digital markets often exhibit multi-homing, where consumers use multiple platforms, enhancing competition. Market power in dynamic markets can drive innovation, reflecting Schumpeterian “gales of creative destruction” where firms continually innovate to compete.

    Even if market failure exists, ex-ante bans as proposed by the Bill must demonstrate that they improve the current system. The ITIF report suggests that ex-ante regulation might hinder market forces essential for correcting failures and enhancing consumer welfare. The report also highlights that the current ex-post enforcement model has limitations but that does not prove that ex-ante regulation would be better. The complementarity between ex-ante and ex-post regimes does not necessarily enhance consumer welfare and could maintain administrative costs while risking false positives. Thus, the questions arise that whether the benefits of an ex-ante regime outweigh the potential harms.

    Tailored Regulatory Approach

    The approach of implementing more tailored, company-specific rules, as seen in the Bill following the UK’s Digital Markets, Competition and Consumers model aims to mitigate false positives in theory. This strategy gives regulators the discretion to craft individualized conduct codes for each company rather than imposing blanket rules across entire industries. However, this strategy poses challenges. Firstly, it runs the risk of generating high administrative costs that the ex-ante regime was meant to avoid. For instance, the Bill anticipates extensive non-compliance inquiries involving costly processes like discovery, detailed fact-finding, and potentially adversarial proceedings. Secondly, as noted previously, such an approach could lead to concerns about regulatory capture, where regulatory decisions might favor established players over new entrants. This could result in disparate treatment within the digital market ecosystem. Thirdly, the government’s ex-ante regulatory approach could impose significant burdens on digital companies, potentially making operations untenable and stifling venture investments in tech startups. High regulatory risks can deter investors by affecting returns and business conditions, with increased compliance costs and scrutiny especially challenging for resource-limited startups. 

    In essence, instead of effectively addressing market failures, the Bill could potentially create a regulatory framework that escalates administrative expenses and selectively benefits certain digital entities while disadvantaging others.

    Systematically Significant Digital Enterprises

    The Bill’s definition of Systematically Significant Digital Enterprises (‘SSDE’) is problematic. Firstly, its quantitative threshold targets companies solely based on their size, without considering whether they possess market power—a necessary though not sufficient condition for market failure. Additionally, the Bill includes a vague and ambiguous qualitative test for identifying SSDEs if quantitative criteria are not met. This test vague because it involves assessing broad and subjective factors, such as a company’s influence on digital markets or its potential effect on competition, without clearly outlining how these factors should be measured. The absence of precise definitions makes it difficult for companies to understand the criteria they must meet, leading to inconsistent application by regulators. This uncertainty can result in varying interpretations, leaving digital firms unsure of how they will be classified.

    This could lead to an ad hoc regulatory regime, granting excessive discretion to regulators and creating uncertainty for many digital firms. This uncertainty is further compounded by the Bill’s company-specific approach to rulemaking, which raises concerns about regulatory capture and the potential for the Bill to be used to pick digital winners and losers in India.

    According to the Competition Commission of India, at least 580 companies from the digital service and e-commerce sectors alone would qualify as SSDEs in India. This contrasts sharply with the European Union’s Digital Markets Act (‘DMA’), which designates only 6 gatekeepers. Thus, this large number of designated SSDEs would impose significant compliance burdens on these companies, potentially hindering their ability to introduce new services and innovate. 

    Innovation

    The Bill proposed in India raises significant concerns regarding its potential impact on innovation. Firstly, unlike the EU’s DMA and the UK’s Digital Markets, Competition and Consumers Bill, the Indian Bill does not mandate a finding of market power as a prerequisite for applying its quantitative tests. This omission suggests that the Bill could target companies purely based on their size, rather than addressing genuine market failures, which regulation should ideally target. Moreover, the Bill’s provision for a three-year designation period with automatic renewal, coupled with limited opportunities for revocation, fails to account for the dynamic nature of market power in digital markets, potentially leading to regulatory overreach. Secondly, while the Bill proposes company-specific restrictions, its approach of imposing per se bans on various common business practices is likely to stifle pro-competitive behavior. For instance, prohibitions on practices like self-preferencing, where digital platforms prioritize their own products over third-party offerings could hamper innovation and reduce consumer choice. Such practices often enhance user experience and foster competition among digital platforms, as seen in cases where companies like Google leverage scale to improve search quality and compete effectively with rivals.

    Thus, the lack of clear market power criteria, broad SSDE designation criteria, and per se bans on common business practices raise significant concerns about the Bill’s potential negative impact on innovation in India’s digital economy.

    Cost- Benefit Analysis 

    The Bill in India raises critical questions about its potential impact and necessity in the digital sector. One fundamental concern is whether the costs and benefits of digital competition regulation have been adequately assessed. As it currently stands, the objectives of the Bill appear to diverge from traditional competition law principles, which aim primarily to safeguard consumer welfare. Instead, akin to the EU’s DMA, the Bill seems more focused on assisting competitors rather than directly benefiting consumers. This shift could open the door to rent-seeking behaviors from private entities with vested interests, potentially leading to demands for extensive product-design changes that may not align with consumer preferences. Thus, the costs of the Bill are palpable. In the EU, similar regulations have delayed products like Meta’s Threads due to compliance uncertainties. Consumer experiences have also been impacted, such as Google’s changes to search result functionalities under DMA rules, which affect user convenience and business outcomes.

    While proponents argue the Bill addresses digital market risks, India already has robust competition laws and sector-specific regulations under the Competition Commission of India (‘CCI’). Introducing the Bill would mark a departure by using size-based criteria reminiscent of older regulatory regimes which could potentially disrupt India’s current approach aligned with international best practices.

    Enforcing the Bill would demand significant resources and expertise across multiple domains, similar to challenges faced by the European Commission with the DMA. There are grounds for revisiting or reevaluating the proposed legislation unless the benefits of the Bill clearly outweigh its costs in enhancing public welfare. This includes ensuring regulatory interventions support innovation and do not unduly burden digital businesses in India’s dynamic market landscape.

    Conclusion

    There is a need to enhance the collaborative nature of enforcement by establishing regulatory dialogues involving gatekeepers, business users, end-users, and external stakeholders such as experts and auditors as designating SDSE’s will lead to more litigations. This inclusive approach aims to encourage gatekeepers to comply with regulations without allowing regulatory capture. Such dialogues are seen as essential for improving compliance monitoring. This dialogue should be meaningful and not merely procedural, ensuring that the obligations outlined by the CCI are genuinely developed through these interactions. CCI should also take a more proactive role in assisting and resolving complaints from businesses. This proactive stance would enable quicker and more effective resolution of issues, strengthening overall compliance with the Bill Furthermore, alongside enforcement efforts by the CCI and national authorities, there is a call for greater private enforcement. This would allow businesses using gatekeeper services to initiate legal actions in courts, seeking injunctions and damages for bill violations. Private enforcement mechanisms can swiftly identify infringements and act as a robust deterrent, thereby bolstering overall Bill compliance.