The Digital Competition Act?: A Dispensable Dilemma

[By Aastha Gupta]

The author is a student of National Law University Jodhpur.

 

INTRODUCTION

The 21st century has witnessed a boom in digital markets powered by Information and Communication Technology. It has transformed market dynamics and spawned phenomena inexplicable by the traditional theories of harm in competition law. Consequently, The Competition Act, 2002 (Act) is deemed outmoded since it was drafted considering traditional brick-and-mortar markets. Pursuant to the Report of the Standing Committee on Finance (Report) titled ‘Anti-competitive practices by Big-Tech companies,’ the Ministry of Corporate Affairs set up a Committee on Digital Competition Law (Committee) to draft a Digital Competition Act (DCA) regulating competition in digital markets. Presently, the European Union (EU) and Germany have introduced such ex-ante laws to rein in the Big-Tech. However, the author argues that a separate DCA modelled on EU’s Digital Markets Act (DMA) is premature for a rapidly growing economy like India. The extant regime bolstered by certain amendments is well-equipped to deal with the challenges. This article will firstly, asses the challenges posed by digital markets; secondly, analyse the disadvantages of the proposed ex-ante framework; thirdly, suggest amendments to the extant regime in the backdrop of its overall suitability.

CHALLENGES POSED BY DIGITAL MARKETS

Defining the relevant market (RM) is the first step in antitrust scrutiny. Over the years, the Competition Commission of India’s (CCI) approach has evolved from Ashish Ahuja v. Snapdeal where it considered online and offline markets as merely separate distribution channels in the same RM; to Federation of Hotel & Other Restaurant Associations of India v. MakeMyTrip India Pvt. Ltd. (FHRAI) where the it segregated online and offline markets as different RM. However, the traditional touchstone of product substitutability is of limited assistance in digital markets. Digital ecosystems often involve two-sided and multi-sided platforms like Google, Uber, Swiggy characterised by zero-price services, network effects, positive-feedback loops etc. The interdependence of consumers on different ‘sides’ of the platform, warrant both sides to constitute the same RM as in Ohio v. Amex. However, in the Facebook/Whatsapp merger, the European Commission delineated separate RMs in a two-sided platform comprising platform users on one side and online advertising activity on the other. Thus, there is no uniform approach and novel approaches of delineation based on ecosystems, secondary-markets, cluster-markets are being explored.

Additionally, these markets are prone to concentration of market share in a few dominant players due to low marginal costs, increasing returns to scale, monopoly leveraging through acquisition of complimentary assets which leads to a winner-takes-all situation. This,  is viewed as a perfect recipe for monopolistic outcomes and anti-competitive practices like self-preferencing, deep discounting, anti-steering provisions etc.; hence the call for an ex-ante regulation.

CRITICISMS OF AN EX-ANTE FRAMEWORK

Presently, Sections 3 and 4 are governed by an ex-post regime wherein firms may be penalized only after they have been adjudged guilty of contravening the Act. The Report recommended designating certain firms as ‘Systematically Important Digital Intermediaries’ (SIDI) and prescribed mandatory obligations for them. However, introducing objective quantitative thresholds to identify SIDIs is dubious since it paints disparate digital platforms like Uber and Amazon with the same brush. This is  undesirable in a dynamic market governed by multitudinous factors that require case-based analysis. It will increase false-positives that will further complicate enforcement, increase compliance costs and time for firms through a system of notices, approvals, disclosures, thus marking a step back in the government’s efforts to ensure ease-of-doing-business.

Additionally, consider that presently, proving a charge of ‘abuse of dominance’ requires the enterprise firstly, to be dominant in the RM, i.e., be able act independently of market participants like suppliers, competitors, customers etc. which is a high threshold given the inherently inter-connected nature of the market system. Secondly, dominance must be abused. However, in the new framework, SIDIs will have to follow a list of obligations that limit their freedom of operation, which amounts to a regression to the outdated principle of the Monopolistic and Restrictive Trade Practices Act where dominance itself is bad.

In CCI v. SAIL, it was held that the main objective of competition law is to promote creation of market responsive to consumer preferences. It is well-recognized that the innovations helmed by Big-Tech firms are responsible for the comfort and convenience we enjoy today, be it e-commerce, social-networking, or food-delivery. Contrarily, it is often argued that this innovation would have reached new heights absent Big-Tech. However, this is mere speculation. Consider for instance, the denunciation of acquisition of smaller firms by large firms as stifling competition. These acquisitions fuel the investment cycle since venture-capital firms often invest in startups hoping that these would be acquired by a large firm. Prohibiting these acquisitions might curb venture-capital investment. Moreover, small firms may not have the wherewithal to make their product successful, depriving consumers of its benefit.

An over-intrusive regulation would be surprising considering CCI’s decisional practice of favouring innovative and fast-developing markets. In RKG Hospitalities Pvt. Ltd. v. Oravel Stays Pvt. Ltd., CCI viewed Oyo’s single largest market share  only as ‘significant’ noting that the market of franchising for budget hotels is still untapped. In Re: Bharti Airtel Limited and Reliance Industries Limited & Reliance Jio Infocomm Limited, CCI effectively allowed Reliance Jio to offer free services and gain share in the broadly-defined market for wireless communication services.

PROPOSED AMENDMENTS

Interestingly, the Report cited the need for a global harmonisation of the competition law regime. However, out of over 120 competition law jurisdictions across the globe, only the EU  and Germany have enforced ex-ante regulation; others are still considering the same. The DMA came into effect only on 2 May 2023 and has not been fully implemented. Thus, its actual effect is speculative. Further, India is still in the growth phase of its digital and technology industry as opposed to EU that has seen its heyday. Varied market conditions and consumer needs warrant broad-based market studies and consumer surveys before implementation. Thus, CCI must not jump the gun by introducing a DCA which would amount to choosing ‘fair’ over ‘free’ competition, precaution and regulation over innovation and disruption. This might curtail the growth of our economy by curbing the digital sector which is estimated rise to US$1trillion by 2025.

Notably, Japan implemented the Act on Improving Transparency and Fairness of Specified Digital Platforms in 2021 which regulates digital operators by designating them as ‘Specified Digital Platform Providers’. They have obligations pertaining to disclosures, procedure, and reporting, violating which may attract measures from the Japanese Fair-Trade Commission based on the Japanese Antimonopoly Act. Article 3 recognizes these platforms as crucial to achieving sustainable economic development and consumer benefits, postulating an approach of co-regulation. The idea is improving transparency and fairness through voluntary initiatives by platforms based on a general framework outlined by the government. CCI should adopt a similar approach based on self-regulation in select markets and review its effects, instead of an all-out transformation.

The concern may also be addressed by amending the extant Act. For instance, introducing a rebuttable statutory presumption of dominance based on market share of an enterprise, clarifying that proof of recoupment of losses is not necessary to prove predatory pricing, lowering the threshold for the application of the doctrines of ‘refusal to deal’ and ‘essential facilities’ among other reforms.

SUITABILITY OF THE EXTANT REGIME

Even now, CCI is not without teeth. It conducted the highest number of dawn raids in a single year in 2022. Several inquiries against Big-Tech companies like Amazon, Apple, Whatsapp, Swiggy etc. are pending before the CCI. In a landmark decision, NCLAT upheld CCI’s order finding Google guilty of abuse of dominant position by imposing unjust restrictions under its agreements with Original Equipment Manufacturers.

The CCI has the powers to issue interim orders under Section 33 pending an inquiry into contravention of the substantive provisions of the Act provided the three tests of : prima-facie view, balance of convenience and irreparable damage are satisfied. In FHRAI, the first case involving interim relief in digital market, CCI noted that satisfaction of the need of interim-relief at the stage of granting prima-facie order would obviate the need to apply a higher standard of proof under Section 33. Surprisingly, this power has been used in only 9 cases so far. given its seemingly intrusive nature and requirement of high standard of proof. An active utilisation of this power will address the issue of lengthy investigations, which is another ground to call for DCA.

These delays also bespeak a resourcing problem which can be resolved through vigorous recruitment of staff and expansion of CCI’s offices in more cities to improve access to justice. Additionally, as recommended in the Report, a Digital Markets Unit must be established within CCI that specially monitors digital platforms, facilitating better oversight, early detection, and speedy resolution of issues. Complemented with a spirted implementation of the extant Act, CCI must closely follow such developments in other jurisdictions, particularly the medium-term effect on industry and economy. It may review the feasibility of a DCA in 5-7 years. However, the time is not ripe for a DCA in India.

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