A Revamped Regulatory Landscape for Digital Competition in India

[By Mahiya Shah & Chaitley Sharma]

The author are students at Gujarat National Law University.

 

INTRODUCTION

Today’s world is rapidly transitioning into a new digital era, with digital marketing being one of the latest additions to the global economic landscape. This new digital economy involves the sale of goods through cyberspace, using digital platforms which facilitate interaction between multiple suppliers and customers. The present era sees this global phenomenon as a critical driver of prosperity by impacting innovation, productivity, and, most importantly, consumer welfare. Digitization has enabled the emergence is what is popularly known as “Big Tech,” which refers to Google, Amazon, Facebook, Microsoft, and Apple. The sizes and worldwide influence of these companies have prompted calls for antitrust action to put a rein on their growing size and power. Globally, imposing heavy penalties has been the go-to reprimand to address the concerns about unfair business practices and maintain a level playing field in the technology industry. First, Microsoft and now, Google and Meta Platforms have faced penalties due to their anti-competitive practices. Google was fined a whopping $5.1 billion for breaching EU antitrust rules in the 2018 decision of the European Commission. More recently, this year, the European Data Protection Board (EDPB) imposed a fine of $1.3 billion on Meta Platforms, the parent company of Facebook, for breaching the data privacy regulations of the European Union.

The recent cases of Google Android, Google Play store, FHRAI & anr. v. MMT-GO and OYO, ongoing inquiries against Apple, WhatsApp privacy policy, Amazon & Flipkart, Zomato & Swiggy, and Bookmyshow are illustrations of the growing convergence of digital markets and competition in the global economy. Undoubtedly, the Competition Commission of India (CCI) has done its fair share of keeping a check on these big-tech companies by conducting inquiries, imposing severe penalties, and passing orders to correct their wrong actions. However, there had been doubts regarding the effectiveness of such actions by the authoritative bodies under the existing regulatory framework which led to the formulation of the ex-ante regulations,  under the new Competition (Amendment) Act, 2023. Ex-ante regulations are those which are formulated with the purpose of identifying and resolving potential issues in advance, aiming to influence the conduct of stakeholders through proactive regulatory intervention and the potential detrimental effects of such adopting regulations in India will be discussed in the upcoming sections.

RECENT MODIFICATIONS TO THE COMPETITION ACT: AN ATTEMPT AT STRENGTHENING FAIR TRADE

Given this growing importance and the swift growth of digital businesses in the present age, discussions regarding the requisite modifications to the Competition Act of 2002 have been in progress since the constitution of the Competition Law Review Committee (CLRC) by the Ministry of Corporate Affairs (MCA) in 2018 intending to provide the CCI with enhanced capabilities to monitor and regulate digital giants. In July 2019, the committee submitted its report, leading to the subsequent passing of  ‘The Competition (Amendment) Bill, 2022’. The Bill contained certain amendments targeted explicitly at digital markets. Later in 2022, the Ministry of Corporate Affairs (MCA) proposed specific amendments to the Competition Act, which were subsequently referred to the Joint Parliamentary Standing Committee (Standing Committee) for comprehensive examination and engagement with different stakeholders. After considering the inputs from the Standing Committee, the MCA incorporated additional amendments and presented the final draft to Parliament on 8th February 2023.

On 22 December 2022, the Standing Committee issued its 53rd Report concerning ‘Anti-competitive Practices by Big Tech Companies‘ advocating the need for ex-ante regulations through a new legislation called the ‘Digital Competition Act’ (DCA). In consultation with various stakeholders, the committee highlighted anti-competitive practices in the digital sector and to combat these practices, it proposed enacting a sui generis law to govern the digital market in an ex-ante way.

The rationale behind implementing such rules was to tackle anti-competitive practices and market dominance at an early stage, thereby promoting fair competition and protecting consumers’ interests. By imposing specific obligations on ‘big’ digital players, the goal is to ensure a level playing field and prevent market distortions caused by the dominant position of certain players.

Following the Standing Committee’s report, the MCA provided the Committee on Digital Competition Law (CDCL) with specific terms of reference: (i) determine whether the current framework of the Competition Act is adequate to address the challenges brought on by the digital economy; (ii) clarify the need for a separate piece of legislation is necessary to establish an ex-ante regulatory mechanism for digital markets; and (iii) research global best practices for regulation in the area of digital markets. In light of this, CDCL held its first meeting on February 22, 2023, to discuss the need for ex-ante law.

The Lok Sabha passed the amendments to the Act on March 29, 2023, for stricter compliance, including by giving the antitrust regulator the authority to impose penalties on the global turnover of offending firms, which could pave the way for harsher sanctions against organizations like Big Tech. Today, the CCI cannot penalize corporate entities based on their annual worldwide turnover. Penalties only apply to the company’s sales in the relevant market. The amendments also simplify compliance by giving CCI the authority to control mergers and acquisitions (M&A) based on deals valued at or above the 2,000-crore threshold, provided that the target company has significant business operations in India. It also suggested that CCI must decide within 30 days whether a merger or acquisition will likely negatively impact the market.

While these amendments were introduced with the view to provide a suitable conclusion to these discussions and ensure fairness, contestability and innovation in the digital landscape, the ex-ante nature of these regulations has sparked a new debate on whether ex-ante regulations while seeking to address competition concerns proactively, may inadvertently create adverse effects in the existing ecosystem.

The recommendations put forth by the committee demonstrate commendable intentions and justifications but the n ex-ante method to govern the firms’ activity is doubtful to be suitable for the current landscape. If ex-ante regulations in a digital competition policy are applied based on the size or scale of the players, it would not only affect the growth trajectory of larger market players but also constrain the potential growth of startups. Ex-ante regulations seek to proactively outline what actions businesses should take in anticipation of changes or activities, while ex-post regulations focus on defining what actions are prohibited. According to The Internet and Mobile Association of India (IAMAI), incorporating ex-ante regulations into the digital competition bill will impose heavy burdens on India’s most promising sector, hindering its capacity to grow, innovate, and attract investments.

An ex-ante framework may not be as effective as ex-post regime and may deny businesses the ability to defend themselves, offer objective arguments, and highlight efficiencies resulting from their action, which increases the risk of innovation, competition, and customer choice being stifled. Without such protection, Indian digital players would suffer and be reluctant to innovate and create goods that benefit consumers out of concern that they might break the law.

The proposed ex-ante obligations for ‘big’ digital players under the DCA contradict modern competition jurisprudence, which does not consider size alone as an offense. Such obligations may not adequately capture the complexities of digital platform competition and innovation, potentially harming consumers and stifling innovation. Unlike an ex-post regime, an ex-ante framework may not provide businesses with sufficient protection to defend themselves or justify their conduct, leading to a fear of violating the law and hindering innovation. Additionally, the inflexible nature of ex-ante regulation in digital markets increases the likelihood of error costs. In contrast, ex-post competition remedies are better suited for fostering competition among incumbent and future digital platforms, acknowledging that concentration can bring value to consumers and suppliers through network effects and economies of scale.

IS THIS THE RIGHT WAY FORWARD?

The committee has put forth its suggestions at a good time, given that numerous governments and competition law authorities worldwide are debating the ideal model for regulating major tech companies. Even though the majority of its recommendations are similar to those in the USA and UK, and EU’s Digital Markets Act (DMA), it is essential to remember that India is a developing economy that has just started reaping the benefits of India’s spiking in the form of a burgeoning digital economy and a robust ecosystem of a start-up. To keep up with its foreign competitors, India may be overly  eager to enact similar ex-ante legislation. However, it needs to realize that the laws cited by the committee, such as the Digital Markets Act in EU, (yet to be enforced) or the Open Markets App in USA are being criticized globally for their ex-ante regulations, so relying solely on their provisions may not be appropriate and may put India in inadvertently disadvantageous situations. Therefore, any policy-making initiative must take into account the following factors in addition to the need to regulate the anti-competitive behavior of big tech companies: (i) the benefits of the goods and services that these companies provide to the general public; and (ii) the high cost of excessive regulation of both local and global big tech companies because it may discourage them from innovating further. It might not be wise to introduce any similar ex-ante laws now since they have yet to be tried in developed countries by more established and sophisticated agencies. To prevent Indian consumers from receiving a medication worse than the disease, India should wait and benefit from the externalities and experience of the jurisdictions that have enacted ex-ante legislation. In situations when the activity in question is covered by both ex-ante and ex-post regulation, ex-ante competition legislation for digital marketplaces will only add another contradictory legal regime. Additionally, enforcement overlaps, forum shopping, and regulatory arbitrage could be caused by the uncertainty.

In furtherance, the CDCL took a commendable step and decided after its initial meeting to confer with news publishers, start-ups, and major tech companies on the proposed DCA. For the time being, it is being longed that the proposed ex-ante law reflects the Indian market realities and does not parallel the ex-ante laws of the other developed economies.

Whether DCA (if made a law) will co-exist with the current competition law framework is still being determined.  The Foreign Direct Investment Policy (FDI Policy) under the Foreign Exchange Management Act, 1999, the Consumer Protection Act, 2019, and the Competition Act impose ex-ante responsibilities on firms in the e-commerce industry in India. According to the FDI Policy, foreign-funded e-commerce businesses are not allowed to directly or indirectly affect the prices of the goods and services supplied on their platforms, guarantee contract parity to all sellers without discrimination, or require any seller to sell only on the platform. The Consumer Protection (E-commerce) Rules, 2020 (the “Consumer Protection Rules”) prohibit e-commerce players from manipulating pricing, treating customers unfairly, or engaging in other unfair business activities. The planned Digital Personal Data Protection Bill (DPDP Bill), which asserts that “data fiduciaries” must use data in a way that is legal, open, and equitable, may also conflict with an ex-ante competition regime. The DPDP Bill also requires organizations to only gather the personal information necessary to fulfil a defined purpose and to refrain from using such information for any other reasons.

The Digital India Act, an envisioned piece of legislation that will substitute the Information Technology Act of 2000 and regulate the digital environment on important topics like online harm, de-platforming, doxxing, and social network algorithms, is also almost complete. Although it is too soon to comment on the specifics, there may be a conflict in how the Digital India Act and any potential ex-ante competition legislation are enforced.

Moreover, there is a need for the regulators to work with the government to prevent market over-regulation and a threat to market innovation. As a case in point, the introduction of numerous laws and regulations to control the digital market, such as the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules 2021 and the Indian Telecommunications Bill 2022, the Digital Personal Data Protection Bill 2022, has further added to the ever-increasing compliance requirements.

Given the wide-ranging ramifications and effects, there is a requirement for more consideration, and introducing the Digital Competition Act is anticipated to take some time. Prudence advises that the primary focus should be on implementing the Competition Act amendments and that discussions of the DCA should remain a “work in progress.”

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