Digital Competition Law in India: Need and Concerns | UPSC
Introduction:
The Competition Act of 2002 “intervenes after the occurrence of an anti-competitive conduct.”
Such a framework was designed at a time when the extent and pace of digitalisation as is witnessed today could not be foreseen.
The large digital enterprises and their concerned business models have prompted different anti-competitive concerns which have been brought forth before the Competition Commission of India (CCI).
In this context, a Committee on Digital Competition Law, headed by the Secretary to the Ministry of Corporate Affairs, was appointed to regulate the market power of Big Tech firms like Google and Meta.
The Committee recently submitted its report recommending the creation of a new law, the Digital Competition Act.
The aim of the Act would be to address anti-competitive practices by pre-identified large digital enterprises i.e., Big Techs, with significant presence to proactively monitor their behaviour in the market.
The Committee’s recommendations are largely modelled on the EU’s Digital Markets Act, with some India specific variations.
How Big Techs abuse their dominant position:
The prevalence of anti-competitive practices among Big Tech companies underscores the necessity for the implementation of Digital Competition Law.
Predatory Pricing: Selling goods or services below cost to drive competitors out of the market. Example: Amazon offering products at a loss to undercut local retailers.
Exclusive Contracts: Imposing agreements that prevent suppliers from dealing with competitors. Example: Google requiring smartphone manufacturers to pre-install Google apps.
Data Hoarding: Accumulating vast amounts of user data to maintain market dominance and hinder competition. Example: Facebook’s acquisition of WhatsApp and Instagram to consolidate user data.
Algorithmic Bias: Manipulating algorithms to favour the company’s products or services over competitors’. Example: Google displaying its own services prominently in search results.
Tying and Bundling: Forcing customers to purchase unwanted products or services along with the desired one. Example: Microsoft bundling Internet Explorer with Windows OS.
Exclusionary Practices: Preventing competitors from accessing necessary resources or distribution channels. Example: Apple restricting third-party app stores on iOS devices.
Collusive Behavior: Illegally collaborating with competitors to fix prices or divide markets. Example: Allegations of price-fixing among e-commerce platforms.
Acquisition of Potential Competitors: Buying out potential rivals to maintain market dominance. Example: Facebook’s acquisition of emerging social media platforms like Instagram and WhatsApp.
Interoperability Barriers: Creating products or services that are incompatible with competitors’ offerings. Example: Microsoft’s proprietary document formats limiting compatibility with other software.
Restrictive Terms of Service: Imposing unfair terms that inhibit users’ ability to switch to competitors. Example: Social media platforms restricting users’ ability to export their data to other platforms.
How BIG digital enterprises swiftly gain influence:
The Committee noted that certain features of digital markets allow BIG digital enterprises to swiftly gain influence. These features include:
(i) collection of user data which can allow large incumbent enterprises to enter related markets,
(ii) network effects where utility of a service increases when number of users consuming the service increases, and
(iii) economies of scale wherein incumbents can offer digital services at lower costs as compared to new entrants.
Need for ex-ante regulation of digital competition:
The Committee noted that the current ex-post framework (intervening after an event occurs) under the Competition Act, 2002, does not facilitate timely redressal of anti-competitive conduct by digital enterprises.
It observed that the present framework may not be effective to address the irreversible tipping of markets in favour of large digital enterprises (permanent dominance of a firm in relevant market).
The Committee recommended enacting the Digital Competition Act to enable the CCI to selectively regulate large digital enterprises in an ex-ante manner (intervening before an event occurs).
The Committee found that the ex-post model of regulation under the current Competition Act, by design, involves fact-finding and inquiry processes which are time-consuming and hinder early detection and redressal.
The proposed legislation should regulate only those enterprises that have a significant presence and the ability to influence the Indian digital market.
Systemically Significant Digital Enterprises (SSDEs):
The Committee recommended that India must identify the leading players in digital markets, to be categorised as Systemically Significant Digital Enterprises (SSDEs), that can negatively influence competitive conduct.
To identify SSDEs, the Committee recommended the use of both quantitative (financial strength, number of business and end users of the core digital service in India) as well as qualitative (resources of the enterprise and volume of data aggregated by them) criteria.
These SSDEs should annually submit a report to the Competition Commission of India (CCI) detailing the measures taken to comply with various mandatory obligations.
Obligations of SSDEs:
The draft Digital Competition Bill, 2024, as recommended by the Committee, prohibits SSDEs from carrying out certain practices. These include:
(i) favouring their own products and services or those of related parties,
(ii) use non-public data of business users operating on their core digital service to compete with those users,
(iii) restrict users from using third-party applications on their core digital services, and
(iv) requiring or incentivising users of an identified core digital service to use other products or services offered by the SSDE.
Regulations may allow differential obligations for different SSDEs and ADEs based on factors like business models and user base.
Enforcement of provisions:
The draft Bill empowers the Director General, appointed under the 2002 Act, to investigate any contraventions when directed by the CCI.
The Committee recommended that CCI should bolster its technical capacity including within the Director General’s office for early detection and disposal of cases.
It also recommended constituting a separate bench of the National Company Law Appellate Tribunal for timely disposal of appeals.
Penalties:
The Committee recommended that contraventions under the draft Bill should be addressed by imposing civil penalties.
For calculating the ceiling on penalties, the Committee recommended the use of global turnover of enterprises.
The Committee also recommended capping the penalty at 10% of global turnover of SSDEs.
Benefits of the proposed Digital Competition Act:
Implementing a Digital Competition Act in India can offer several benefits in addressing the dominance of Big Tech companies:
Creating a Level Playing Field: The act can establish clear guidelines and regulations to prevent anti-competitive behavior, ensuring fair competition for all players in the digital market.
Promoting Innovation: By fostering a competitive environment, the act can encourage innovation among both large tech firms and smaller startups, leading to the development of new technologies and services.
Protecting Consumers: Regulations under the act can safeguard consumer interests by preventing monopolistic practices that may lead to higher prices, limited choices, and compromised data privacy.
Enforcing Accountability: The act can empower regulatory authorities to enforce compliance and hold Big Tech companies accountable for any violations, promoting ethical business practices and corporate responsibility.
Concerns of such regulations:
While a Digital Competition Act in India holds promise for regulating the behaviour of Big Tech companies and promoting fair competition, there are several concerns associated with its implementation:
Impact on Investment: Some argue that stringent regulations may deter investment in the digital economy, as companies may perceive India as a less attractive market due to regulatory burdens.
Enforcement Challenges: Implementing and enforcing a Digital Competition Act effectively may pose significant challenges, particularly given the complexity of digital markets and the rapid pace of technological change.
Unintended Consequences: Such ex ante regulation could potentially stifle innovation by imposing burdensome regulations on tech companies. This could lead to unintended consequences, such as reduced consumer choice and higher prices.
Way forward on the Digital Competition Act:
The way forward on the Digital Competition Act in India should involve a balanced approach that addresses the benefits of regulation while mitigating the associated concerns. Here are some steps that could be taken:
Stakeholder Consultation: Engage in extensive consultation with stakeholders, including industry representatives, consumer advocacy groups, legal experts, and academia, to gather diverse perspectives and insights on the proposed regulations.
Impact Assessment: Conduct a thorough impact assessment to evaluate the potential effects of the Digital Competition Act on innovation, investment, market dynamics, consumer welfare, and global competitiveness.
Capacity Building: Invest in building the capacity of regulatory authorities responsible for enforcing the Digital Competition Act, including providing training, resources, and expertise to effectively address complex issues in digital markets.
