Imagine a world where wrongs are prevented before they happen. Sounds utopian, right? Well. It may be but don’t forget that defining “wrong” is as complex as it gets and “who” defines it, adds another layer of suspicion. So, does it sound utopian when we don’t know that what’s being preempted is actually wrong? Hold on to that thought, while I fill in some context…
(Disclaimer: The issue at hand is somewhat technical, so I’ve aimed to simplify it as much as possible. Hopefully, this hasn’t resulted in an oversimplification or nixed any nuances. Please correct me, if so. Désolé.)
What’s the Context
So, in early 2023, the Government of India formed the Committee on Digital Competition Law (CDCL) to examine the need for an ex-ante regulatory mechanism for digital markets in India. The task(s) were 1.) reviewing the current provisions of the Competition Act, 2002; 2.) assessing whether they are sufficient to deal with challenges that have emerged from the digital economy; and 3.) evaluating whether separate legislation to regulate digital markets is needed. The committee released its report in March, which is available here.
In its report (see pages 4-5), the committee concluded that “the current ex-post framework under the Competition Act, 2002 needs to be supplemented to better address concerns related to alleged anticompetitive practices of large digital enterprises.” It recommended introducing ex-ante measures to identify large digital enterprises with a ‘significant presence’ in India in selected ‘core digital services’ and setting pre-determined rules for their conduct. Due to the dynamic nature of digital markets, the report notes, timely intervention is necessary to prevent anticompetitive behavior. For, ex-ante measures will enable the CCI to intervene effectively before markets irreversibly tip and problems erupt. The committee also suggests enhancing the CCI’s capacity for technical regulation and implementing inter-regulatory consultation mechanisms. Against the backdrop of all this, the Committee appended the draft Digital Competition Bill, 2024 (see page 151), drawing inspiration from various countries’ laws, especially from European regulations.
All good so far? There is also some background story of why the committee was even established to review, which I am not delving into here. However, you can check Prof. Vikas Kathuria’s post, here to get an idea.
But … what’s Ex-ante regulation?
In simple terms, ex-ante regulations are like a preemptive strike against competition issues, tackling them before they even arise, unlike ex-post rules that clean up the mess afterward. To put it subtly, these proactive/pre-emptive measures aim to keep the playing field fair, especially in the digital arena where big players often dominate. But here’s a knotty part: how do you regulate a market that’s always in flux, influenced by ever-shifting socio-political factors? ‘Tis where things get tricky! The proposed Bill, regardless of its bene intentions to control big tech giants, will impact India’s Digital Public Infrastructure (DPI), raising concerns about its implementation and effectiveness. Several NGOs, law firms, and think tanks have raised concerns. See a few reports, I have mentioned at the end.
Having set the context, let’s dive into what the Digital Competition Bill actually offers and explore the popular discussions surrounding it.
What’s the BiIl About?
The Committee defines the Bill as:
“An Act, to identify systemically significant digital enterprises and their associate digital enterprises, and to regulate their practices in the provision of core digital services, keeping in view the principles of contestability, fairness and transparency, with an objective to foster innovation, promote competition, protect the interest of users of such services in India, and for matters connected herewith and incidental thereto.” (emphasis supplied.)
If you look closely at the wording, there are a few key terms that the whole Bill revolves around. There are four key features of this Bill namely, (as this Mint report (Sorry, ‘tis paywalled!) also notes), (i) identification of a ‘core’ digital service (CDS); (ii) designation of systemically significant digital enterprises (SSDE); (iii) SSDE’s compulsory ex-ante compliance obligations; and (iv) penalties on SSDE for non-compliance of obligations This is also how Bill’s structure goes:
(Keep these four points in mind … )
First thing first, what’s a “core” digital service: As per the Bill (Schedule I), a “Core Digital Service” includes any of the following: (a) online search engines; (b) online social networking services; (c) video sharing platform services; (d) interpersonal communications services; (e) operating systems; (f) web browsers; (g) cloud services; (h) advertising services; and (i) online intermediation services.
Second thing, what’s a Systemically Significant Digital Enterprise aka SSDE? The Bill doesn’t “define” it but, as the PRS succinctly notes, uses both quantitative thresholds and qualitative criteria to designate enterprises as SSDEs (See pages 99-108 of the report). The quantitative thresholds include (i) significant financial strength, which can be determined by turnover, gross merchandise value, market capitalization, etc., and (ii) significant spread/reach, which can be determined based on the number of businesses and end users of the core digital service in India. Within 90 days of meeting the quantitative thresholds, SSDEs are to self-report to the Commission. However, herein lies a hitch. Since the quantitative thresholds might not cover all significant digital enterprises in India, the Bill recommends using qualitative criteria to identify additional SSDEs. This includes factors like the resources of the enterprise, the volume of commerce and data they collect, the economic power of the enterprise, etc. I ain’t diving into the nitty gritty.
The Bill also refers to Associated Digital Enterprises (ADE). For this, the Bill notes that when an enterprise is designated/being considered as an SSDE, and it is part of a group with other enterprises involved in providing the Core Digital Service in India, the CCI may designate these other enterprises as ADEs after giving them a chance to be heard. They also retain their status for three years like SSDE.
Upon being designated as an SSDE, an enterprise must ensure it operates with end users and business users in a “fair, non-discriminatory, and transparent” manner. Furthermore, SSDEs must adhere to the following obligations: 1.) Avoid self-preferencing (i.e., giving preferential treatment to its own products or services over those of its competitors), 2.) Allow unrestricted usage of third-party applications, 3.) Refrain from implementing anti-steering policies (i.e., preventing users from choosing competing products/services, thereby limiting market competition and consumer choice), 4.) Avoid tying and bundling practices (i.e., practices where products/services are sold together or linked in a way that restricts consumer choice and competition.), 5.) Ensure fair and transparent dealings, 6.) Prohibit the use of non-public data of business users for competitive purposes, 7.) Obtain consent before cross-using personal data, 8.) Facilitate data portability (i.e., allowing consumers to transfer their personal data to another service provider easily and securely.).
Now if an enterprise fails to meet this obligation, it faces a huge penalty that can go up to 10 percent of tits global turnover.
Few Thoughts:
While I’m not an expert on this topic and won’t make critical comments, one thing is certain: the Bill must fulfill its purpose, which is to foster innovation, promote competition, and protect the interests of users of digital services in India. However, according to some reports, this Bill appears counterproductive to its intended goals and needs revision. Particularly, it can dis-incentivize companies to invest in India and may impact US-India relations For instance, as raised by Vivek Agarwal and Divyansh Prasad in the paywalled Mint piece, the Committee suggests identifying a predefined set of Core Digital Services that are prone to concentration and thus proposes that this list be developed using the CCI’s enforcement history, market studies, and global practices. However, it would have been better to clearly outline the criteria/contour on how and when a digital service may be identified as a CDS. Since the central government is tasked with this responsibility, it is crucial to have a clearer understanding and guidance on the selection process for Core Digital Services. Especially because CCI already has a broad discretionary power under the Bill to designate an SSDE.
Similarly, another concern that the Committee also noted (see page 113) is about the potential double penalties on SSDEs under both the existing ex-post regime and the proposed ex-ante regime. For, the current regime requires evaluating the anti-competitive effects of an SSDE’s conduct, while the proposed DCB regime could penalize non-compliance with preset (or per se) obligations directly. This could lead to disproportionate penalties for the same conduct over the same period if both investigations find violations. To fix this, the committee suggested that the CCI must resolve overlaps and rationalize penalties from separate proceedings that address similar conduct by an enterprise. Although the CDCL indicated that this could be done through CCI penalty guidelines, it is to be noted that, as Vivek and Divyansh noted, unlike CCI regulations, these are generally not binding on the CCI. A better option would have to provide a clear mention in the Bill and minimize any potential harm.
ITIF’s detailed comments (17 pages total) are also noteworthy. They raised three main issues, with data and backing, which I summarize below: First, ex-ante regulation in the digital sector should address market failure. However, there is no evident market failure in India’s dynamic and growing digital markets. The Bill doesn’t convincingly show that India’s current ex-post framework is insufficient or that the ex-ante regime’s benefits outweigh its harms, potentially reducing dynamic competition. Second, the Bill’s definition of SSDR needs changes for it mainly targets companies based on size, not market power, and includes vague qualitative criteria, leading to regulatory uncertainty and potential favoritism. Third, following the EU’s model, the Bill bans activities like self-preferencing or bundling without allowing firms to justify their actions, stifling innovation and harming consumers. However, ITIF argues that these are indeed useful for consumers, and if pre-empted with a “per se” rule, could also deter future investments and impact US-India relations. I’d recommend you check their comments once.
Conclusion: If it ain’t broke, don’t fix it (?).
That’s all from my end. I hope this post helps clarify the context and details of the Bill. For more comprehensive insights, please refer to the above-mentioned detailed comments provided by the CDCL Report, Information Technology and Innovation Foundation’s Schumpeter Project on Competition Policy, Internet Freedom Foundation’s here, and CUTS International’s section-specific comments. Additionally, Professor Kathuria’s post is here, and Lexology’s post is here. While my commentary is limited to specific aspects, these sources collectively provide a robust overview of the Bill’s implications. That’s about it from my end. One lesson we can learn from this is that: if it ain’t broke, don’t fix it.
Thanks to Ojasvi Mishra, Associate (Competition Law) AZB & Partners, for his help with the topic. All mistakes are mine.
Image source –here
