Source: Indian Express

Introduction

The Digital Competition Bill, 2024 currently in development, is poised to subject major tech corporations to scrutiny, particularly regarding their tendency to prioritize their own services. This proposed legislation, known as the Digital Competition Bill of 2024, includes provisions aimed at preemptively addressing anti-competitive behaviors and threatening severe penalties for non-compliance. Once enacted, it is anticipated to compel significant structural changes across the various platforms operated by these tech giants. Furthermore, it pledges to enforce substantial penalties, potentially reaching billions of dollars, for any breaches.

What is the Significance of Digital Competition Bill, 2024?

• Addressing Anti-Competitive Behavior: The bill aims to regulate major tech corporations and prevent anti-competitive practices in the digital market. By introducing proactive measures to curb unfair trade practices, it seeks to create a level playing field for all participants.
• Promoting Fair Competition: With the rise of digital platforms and the dominance of certain tech giants, there has been growing concern about market concentration and the stifling of competition. This bill is a proactive step towards promoting fair competition by establishing clear rules and guidelines for digital market players.
• Protecting Consumer Interests: By preventing practices like self-preferencing and anti-steering, the bill seeks to protect consumer interests and ensure that users have access to a diverse range of products and services. This is crucial for maintaining consumer choice and preventing monopolistic behavior.
• Encouraging Innovation: While the bill introduces stricter regulations for tech companies, it also aims to strike a balance by fostering innovation and entrepreneurship. By promoting a competitive environment, it encourages companies to innovate and offer better products and services to consumers.
• Setting a Precedent: The Digital Competition Bill of 2024 could set a precedent for other countries grappling with similar issues in the digital space. Its implementation and effectiveness may serve as a model for future legislation aimed at regulating digital markets and promoting competition worldwide.

What is the Background of the Digital Competition Bill?

• The Competition Act, 2002
  • The New Economic Policy of 1991 initiated deregulation and competition promotion in India.
  • In response to the inadequacy of the MRTP Act (Monopolies and Restrictive Trade Practices Act, 1969), the Raghavan Committee recommended substantial reforms, leading to the enactment of the Competition Act in 2002.
  • The Competition Act established the Competition Commission of India (CCI) and regulates anti-competitive agreements, abuse of dominance, and mergers above certain thresholds to ensure fair competition in the Indian market.
• The Competition Law Review Committee and its recommendations
  • After a decade of enforcement under the Competition Act, the Ministry of Corporate Affairs formed the Competition Law Review Committee (CLRC) to review and amend key provisions.
  • The CLRC, in its 2019 report, recommended updating the competition law framework in India but suggested caution in regulating digital entities due to the nascent stage of the digital economy.
  • The CLRC deliberated on including factors like 'control over data' or 'network effects' in assessing dominance but concluded that the existing provisions of the Competition Act were flexible enough to consider such novel factors.
• The Competition (Amendment) Act, 2023
  • The Competition (Amendment) Act, 2023, implemented recommendations from the CLRC Report to widen the scope of Section 3 of the Competition Act, particularly in digital markets, by including 'other agreements' under Section 3(4).
  • Recognizing loopholes in regulatory scrutiny of acquisitions by dominant firms in the digital space, the amendment introduced a deal value threshold of INR 2,000 crore for notifying transactions to the CCI if the acquired entity has substantial business operations in India.
  • The amendment also broadened the definition of 'relevant market' under Sections 19(6) and 19(7) of the Competition Act, incorporating factors like the nature of services and switching costs associated with demand or supply.
• The Parliamentary Standing Committee’s Report on ‘Anti-Competitive Practices by Big Tech Companies
  • The Standing Committee Report highlighted concerns about anti-competitive practices by large digital enterprises, including unfair trade practices, self-preferencing, and violation of consumer rights.
  • It emphasized the rapid evolution of digital markets and the need for an ex-ante competition law framework to address market dynamics effectively.
  • The report identified ten anti-competitive practices (ACPs), such as anti-steering provisions, platform neutrality, data usage, and exclusive tie-ups, and recommended measures like designating Systemically Important Digital Intermediaries (SIDIs) and establishing a Digital Markets Unit within the CCI to regulate digital markets effectively.
• Committee on Digital Competition Law and its mandate
  • The Committee on Digital Competition Law (CDCL) was formed by the MCA to review the Competition Act's efficacy in addressing digital market challenges, with a focus on anti-competitive practices by large digital enterprises and the need for ex-ante regulatory measures.
  • The growth of India's digital ecosystem, accelerated by the COVID-19 pandemic, led to increased internet users and the emergence of start-ups. However, concentration among large digital enterprises created imbalances in the market.
  • The Committee's working process involved extensive stakeholder consultations, sub-group analysis, and engagement with legal research entities, resulting in a comprehensive report structure covering the evolution of competition law, analysis of existing frameworks, examination of international practices, and recommendations for a separate digital competition law, supported by detailed annexures.

What is the Internation Aspects of the Digital Competition Legislation?

What is the Key Feature of the Bill?

• Predictive Regulation
  • In the dynamic landscape of digital markets, relying on post-incident regulation is inefficient due to evolving complexities and interconnectedness within companies' offerings.
  • An ex ante regulatory approach, proposed in the draft Bill, emphasizes forward-thinking measures to prevent potential market abuses before they occur.
  • India's current antitrust framework operates on an ex post basis under the Competition Act, 2002, which has faced criticism for its delayed response to market abuses.
  • Delayed regulatory action allows offending companies to exploit market dynamics, disadvantaging smaller competitors by the time penalties are imposed.
  • Transitioning to an ex ante framework would enable proactive regulation, safeguarding competition and fostering a fairer digital market environment.
• Significant entities
  • The proposed Bill suggests designating certain "core digital services" providers like search engines and social media platforms as "Systematically Significant Digital Enterprises (SSDE)" by the Competition Commission of India (CCI).
  • Companies meeting specific quantitative and qualitative criteria, such as turnover, user base, and market influence, can be designated as SSDEs by the CCI.
  • Quantitative parameters include minimum turnover thresholds in India or globally, gross merchandise value, global market capitalization, and a minimum number of end users or business users.
  • SSDEs are prohibited from engaging in practices like self-preferencing, anti-steering, and restricting third-party applications.
  • Violation of these requirements may result in fines of up to 10% of the company's global turnover.
• Associate Digital Enterprises
  • The proposed Bill introduces the concept of associate digital enterprises (ADEs) to address the interconnectedness within major technology groups.
  • ADEs would have similar obligations as Systematically Significant Digital Enterprises (SSDEs), depending on their level of involvement with the core digital services offered by the main company.
  • For example, Google Maps and YouTube could be designated as ADEs based on their utilization of data collected by Google Search, influencing user recommendations and service functionalities.
• Penalties
  • Penalties for Non-Compliance: The Commission may impose penalties up to rupees one lakh per day for failure to comply with its orders, with a maximum limit of rupees ten crore. Non-compliance may also lead to imprisonment for up to three years or a fine of up to rupees twenty-five crore.
  • Penalties for Contraventions: For contraventions related to designated Systematically Significant Digital Enterprises (SSDEs) or their associates, penalties may be imposed up to ten percent of their global turnover.
  • Penalties for Providing Incorrect Information: Entities providing incorrect, incomplete, or misleading information may face penalties of up to one percent of their global turnover.
  • Responsibility of Individuals: Persons in charge of SSDEs or their associates, or directors, managers, or officers of the company, may also be penalized up to ten percent of the average income of the last three financial years if the contravention occurred with their consent, connivance, or neglect.
  • Limitation Period and Recovery: The Commission has a limitation period of three years for initiating inquiries, and penalties recovered are credited to the Consolidated Fund of India. If penalties are not paid, recovery may proceed as per the Income Tax Act, with the Commission having authority to make references for recovery.

What are the Shortcomings of the Bills?

• Big tech companies are resistant to the proposed ex ante framework for regulating digital markets, fearing increased compliance burden and a shift away from innovation.
• They argue for strengthening existing competition laws rather than adopting the ex-ante approach.
• Concerns include potential impacts on user experience, such as longer search times, and requirements for platforms like Apple to allow app downloads from third-party stores.
• Google also opposes certain provisions, citing security concerns related to sideloading apps.
• Companies are worried about the broad definition of significant platforms, fearing arbitrary decision-making by regulatory authorities, which could affect both large tech firms and startups.
• They anticipate potential impacts on data sharing and access for smaller businesses reliant on their platforms to reach a wider audience.

Conclusion

In conclusion, the Digital Competition Bill of 2024 represents a proactive step towards regulating major tech corporations and addressing concerns of anti-competitive behavior in the digital market. However, resistance from big tech companies highlights the challenges of transitioning to an ex ante regulatory framework and underscores the need for balanced legislation that fosters innovation while ensuring fair competition. Despite these challenges, the bill's potential to promote transparency and accountability in the digital ecosystem makes it a significant milestone in India's regulatory landscape.