By Aakriti Singh, Amity University Noida
ABSTRACT
Efficient regulatory frameworks are crucial in addressing contemporary challenges such as market dominance and anti-competitive practices within the rapidly evolving digital landscape. The proposed Digital Competition Bill (DCB) represents a crucial step in the direction for redefining the regulatory framework to meet the needs of the evolving digital market of India. This research paper attempts to comprehensively discuss the DCB, presenting a detailed study of its structure, key provisions, and the broader implications for stakeholders.
The DCB is designed to meet the challenges presented by digital markets, particularly laying focus on issues of market dominance, anti-competitive behaviors, and safeguarding consumer interests. Key provisions such as stringent regulations governing data usage, enhanced transparency mandated for digital platforms, and measures to prevent unfair market practices. These provisions together seek to create a regulatory environment that promotes fair competition and consumer welfare in digital markets.The paper offers a deep dive into the bill’s overviews and offers a take on what could be the implication and challenges that the Bill could pose for various stakeholders in the digital market.
By promoting a competitive and transparent digital economy, the DCB seeks to stimulate innovation and enhance consumer welfare. Through this analysis, the research paper contributes to a deeper understanding of the regulatory framework needed to navigate the complexities of today’s digital economy and addresses the implications of such regulatory measures for stakeholders in India.
Keywords: Digital Competition Bill, Dominance, Anti-competitive Practices, Protection to Consumers, Digital Economy, Regulatory Framework.
INTRODUCTION
The fast-growing economy has changed the scene of the world market, with this there has been an influx of opportunities as well as challenges that were never anticipated. With increasing influence of digital platforms on market power, there’s a rising need for regulatory frameworks that can ensure fair competition and protection of consumers. It is this very fact which has given way to several legislative initiatives across the world to reduce monopolistic behaviors and enhance competition in the digital space.
India is no different in this fast-growing economy, as digital platforms continue to influence our economy and society, concerns over unfair practices, competition, and consumer protection have come to surface and this led to the setting up of a Committee on Digital Competition Law by the Ministry of Corporate Affairs.
The Ministry of Corporate Affairs established a Committee on Digital Competition Law, and the latter proposed a Digital Competition Bill. This Bill proposes to contribute to preventing anti-competitive practices, stimulating innovation, and maintaining an even playing field for all actors in the market. The proposed Digital Competition Bill, 2024 indicates a rather proactive stance toward the management of digital market dynamics.
It seeks to establish an ex-ante regulatory framework to prevent anti-competitive practices of large digital enterprises, particularly those identified as “Systemically Important Digital Enterprises”. Some of the key provisions entail restrictions on the following: self-preference, use of non-public data to compete unfairly, and enforcement of interoperability with third-party services. In light of these developments, the DCB highlights preventive action to alleviate the major risks related to market concentration toward more diversity in the digital ecosystem.
RESEARCH METHODOLOGY
This paper is descriptive in nature and employs a qualitative research methodology, drawing primarily from the Committee on Digital Competition Law’s (CDCL) Report, which provides the foundational insight into the Digital Competition Bill (DCB) and its proposed regulatory framework. Supplementary information was sourced from various web-based articles and academic papers offering diverse perspectives and comparative analysis of similar legislations. The draft Digital Competition Bill was also referred to understand its key provisions, scope, and intended impacts.
REVIEW OF LITERATURE
In writing this research paper I relied on three primary sources that provided substantial insight and relevant data. These sources were instrumental in my research work, these sources aided me in my analysis, discussion and conclusions presented in the paper.
- Report of the Committee on Digital Competition Law and the Digital Competition Bill, 2024:
This Report served as the cornerstone for understanding the proposed Bill, it served as my primary source. It provided an in-depth detail on objectives, structures and key provisions of the Bill. the report’s analysis of the market dominance, anti-competitive practices and consumer protection was especially useful in framing
- The Dialogue’s Brief Report of the Committee on Digital Competition Law and Draft Digital Competition Bill, 2024:
This brief contained valuable insights and simplified explanation of the DCB, this source offered crisp and clear provisions of the DCB in tabular form and graphical representations, which guided me in creating flowcharts and table for this research paper.
By integrating information from these sources, this research paper offers a well-rounded analysis of the Digital Competition Bill.
SETTING THE LANDSCAPE:
India introduced its first legislation aimed for the promotion of competition in its markets was back in 1969, and this was the first regulation in that respect. In 2002, India espoused an exhaustive Competition Law, inspired by the contemporary economic theories, making way for the creation of the Competition Commission of India, the CCI. Nevertheless, the CCI actually commenced its operation only in 2009, after several setbacks to its constitutional validity were overcome.
Not long after its establishment, the CCI found itself facing highly challenging cases related to technology. In 2012, it took up the major case against Google, where it was alleged that the company was favoring its own services. This marked a spate of similar allegations against various firms in sectors such as e-commerce, social media, app stores, and booking platforms. These emerged as significant challenges to sustaining competition through the existing ex-post tools of the CCI. Thus, in many cases, firms were not considered “dominant” according to conventional Competition Law, and therefore slipped out of CCI’s radar. Quite apart from this, lengthy investigations and litigation at various levels delayed timely interventions in the markets. Markets subject to network effects are vulnerable to “tipping,” where one firm rapidly acquires a dominant position from which it is difficult to dislodge. This led to the realization that all these enforcement shortcomings were beyond the control of the CCI, calling for the government to introduce an ex-ante tool to avoid the recurrence of such enforcement issues in the future.
It was amidst this background that the CCI undertook a market study on e-commerce, which brought out increased concentration, opacity, and anti-competitive issues within the sector. Specifically, the concerns include platform neutrality, unfair contractual terms, price parity clauses, exclusive contracts, and discount policies. At best, the problems could be remedied with suggestions of self-regulation by the CCI. These domestic developments mirrored global concerns about the digital economy, notably in the EU and other regions. International expert reports have reiterated that traditional competition law is not suitable for ensuring market contestability in the unique context of digital markets.
A critical factor driving the commission was the drawback that home-grown startups and businesses would operate at because of the superior bargaining power taken out on them by Big Tech platforms. Local businesses and civil society have brought several such cases before the CCI, including allegations of self-preferencing in search results, unfair billing practices by app stores, or preferential listings on e-commerce platforms.
The CDCL report, taking cues from international studies, focused on the systemic economic features that result in digital markets being prone to concentration and grant of excessive powers to larger firms. It noted the lengthy nature of competition proceedings impede timely action to prevent market “tipping” in the digital sector. And therefore, the CDCL recommended an ex-ante based framework through the Digital Competition Bill (DCB) to tackle these challenges effectively.
To provide more context, the DCB aspires to set certain clear rules and guidelines that large digital platforms will have to follow in an attempt to make sure that competition is not being manipulated. This includes measures such as prohibition of self-preferencing, data portability measures, and transparent terms for business users. The introduction of the DCB comes in-tune with global trends where jurisdictions like the European Union with its Digital Markets Act (DMA), and the United States with its proposed legislation, are also arriving at the implementation of an ex-ante regulatory frameworks to curb the dominance of Big Tech and move towards a more competitive digital ecosystem. Through the adoption of the DCB, India hence is trying to create a level-playing field that will protect the interests of the smaller business and start-ups, at the same time encouraging more innovation and consumer choice in a fast-moving digital market space.
REGULATING THE DIGITAL GIANTS: KEY PROVISIONS
As digital markets are rapidly evolving, there has been a growing need for regulatory frameworks to step up and ensure fair competition and consumer protection. The proposed Digital Competition Bill, with the lead given by CDCL, aims to establish proactive measures for monitoring and regulating the conduct of large digital enterprises in the digital space. Following are the significant provisions outlined in the draft bill and the CDCL report:
Scope and Applicability:
The Digital Competition Bill (DCB) proposes the classification of certain enterprises offering Core Digital Services (CDS) into Systemically Significant Digital Enterprises (SSDEs) and Associate Digital Enterprises (ADEs). These classifications have been formed with an eye on both quantitative and qualitative parameters under the bill. More specifically, nine digital services categories have been identified as CDS due to their vulnerability to concentrated market structures.[1]
Each of these service categories is defined within the Bill, setting forth their characteristics and the extent of regulation they fall under. For example, online search engines circle around platforms that facilitate user queries and retrieval of information, while online intermediation services circle around a range of digital platforms, including web hosting, payment sites, auction sites, and various aggregators offering services like mobility aggregation and food delivery.[2]
The DCB recognizes the dynamism that underlies digital marketplaces and does not therefore lay out any kind of rigidity in identifying any digital services. For this purpose, the DCB suggests that a list of CDS be added as a Schedule to the DCB so that the Central Government gets flexibility in bringing any new kind of digital service under its jurisdiction at the right point in time.
| Online Search Engines | Online Social Networking Services | Video-Sharing Platform Services |
| Interpersonal Communications Services | Operating Systems | Web Browsers |
| Cloud Services | Advertising Services | Online Intermediation Services |
List 1: Core Digital Services
DESIGNATION OF ENTERPRISES
The Committee conducted a detailed comparative review of foreign regulatory frameworks so as to establish a criteria for the designation of significant entities in the digital market. This analysis showed that most foreign laws incorporated both quantitative as well as qualitative factors in identifying influential enterprises easily and promptly. Consequently, the draft Digital Competition Bill adopted a twin-track or a dual approach, by setting out a quantitative criteria and a qualitative criteria, corresponding to objective and subjective thresholds that would help determine the significant market presence of an enterprise.
ASSOCIATE DIGITAL ENTERPRISES:
CDCL proposes that every enterprise belonging to a group should identify all the other enterprises of its group, directly or indirectly undertaking the activity relating to Core Digital Services. The enterprise in control of other entities providing CDS shall be called Systemically Significant Digital Enterprise or SSDE. Other enterprises, directly or indirectly engaged in providing CDS shall be called Associate Digital Enterprises (ADE). It is provided in the Draft Bill that the same obligations shall apply to Associate Digital Enterprises, non-compliance with which will attract the same penalties as in the case of SSDEs.
SELF-REPORTING BY SSDES:
The Draft Bill requires digital enterprises to self-assess their compliance with quantitative thresholds and report this to the CCI as specified by regulations. The CCI may then designate the enterprise as an SSDE. Additionally, the CCI can request any enterprise to provide information regarding these thresholds and designate it as an SSDE if it meets the criteria. An enterprise designated as an SSDE or ADE will retain this status for three years, with automatic renewal unless the SSDE requests revocation due to no longer meeting the thresholds or if significant market changes occur.[3]
DESIGNATION PROCESS:
Figure 1: Flowchart on the designation process[4]
OBLIGATIONS:
The Committee took into consideration the obligations envisaged in respect of SSDEs and was of the view that M&As are anyway otherwise covered under the Competition Amendment Act, 2023. Thus, as this statute requires the transactions above INR 2000 crore to have the approval of CCI, it was kept outside the obligations under the Draft DCB.
The Committee suggested a principle-based framework—although specific requirements are detailed for each CDS. Nearly all these requirements will apply to ADEs, too, although it is left open to the CCI to relax requirements to make compliance easier for ADEs.[5] These principle- based obligations include obligations on SSDEs in relation to Tying and Bundling, Fair and Transparent Dealing, Self-Preferencing, Data Usage, Restricted Third Party Apps, and Anti-Steering.
EXEMPTIONS:
The Committee has recommended two kinds of exemptions — exemption from obligations and exemption by the Central Government. SSDEs and ADEs can get themselves exempted from obligations on grounds like Economic viability, Fraud prevention, Cybersecurity, Protection of intellectual property rights, Compliance with other laws, and Other prescribed factors.
PENALTIES:
The provisions of the Digital Competition Bill specify penalties in case of non-compliance and entail a range of infringements for which these need to be complied with.
For instances of failure to comply with the orders such as cease and desist, interim orders, or orders that are enforceable overseas, the fine is up to Rs. 1 lakh per day, up to Rs. 10 crores. Continuing instances of failure to comply attract a prison term of as long as 3 years or a fine of Rs. 25 crores, or both.
For instances of non-compliance with Chapter III and subsequent regulations, or if the enterprise is found to be deliberately dividing, fragmenting or subdividing its services whether through contracts, or commercial means or technical means, or any other approach to bypass designation thresholds, the Commission will impose penalties unto 10% of the SSDE or ADE’s global turnover from the preceding year.
Not informing the commission of the enterprise meeting the designation thresholds, will be considered as an act of non-compliance by the enterprise, and this will attract a penalty of 1% of the global turnover of the enterprise.
Furthermore, in case an SSDE or its ADE contravenes any provisions of the Act or associated regulations; every person who is responsible for its business conduct at the time of contravention is regarded to have contravened the Act. Then Penalties on these persons shall not be more than 10% of his average income from the last three previous financial years.
APPELLATE PROCESS:
Procedure for appeals and jurisdiction of Appellate Tribunal has been provided under the DCB, the National Company Law Appellate Tribunal (NCLAT) has been designated as the appellate authority. Appeals against any type of directions, decisions, or orders by the CCI under varied sections of the Act can be made. An appeal against the order of the Commission has to be made within a period of sixty days, along with a prescribed fee; however, the NCLAT can, with sufficient cause shown, entertain an appeal after this period. Further, if penalties are imposed on any person who is liable, then such an entity, prior to filing the appeal, shall deposit twenty-five percent of the amount with the agency.
After hearing both the parties, the NCLAT has the power to affirm, alter or annul the order and communicate its order to the CCI and the parties concerned. The appeal should be disposed of as far as possible, expeditiously, ideally, within a period of six months. An Appeal to the Supreme Court can also be made within sixty days from the date on which a copy of the decision or order of the Appellate Tribunal is received.[6]
Where breach by an SSDE/ADE has taken place on the account of approval or collusion or is the result of any negligence of any director, manager, secretary, or any other officer of the company, then every such director, manager, secretary, or other officer shall also be liable to incur the penalty. The penalty will not exceed 10 percent of their average income for the last three preceding financial years.
IMPLICATIONS AND CHALLENGES
The Digital Competition Bill (DCB) displays a crucial step taken towards regulating the Indian digital economy, aimed at fostering competition and securing the rights of the consumer in a sector that is dominated by large digital enterprises. Its implications and challenges are multifaceted, displaying potential for both— benefits as well as complexities in the implementation of such a regulatory framework.
One of the most primary benefits that the bill will directly lead to is the enhanced competition in the digital market, by curbing anti-competitive practices, such as self- referencing, and unfair data usage, the DCB aims to create a level playing field for all market players, this will lead innovation and diversity in the digital market. Moreover, the strict regulations on data privacy and transparency in the business practices and fair dealing will enhance the trust of the consumers and will safeguard their interest. Furthermore, as DCB establishes clear rules and regulations for the Systematically Significant Digital Enterprises (SSDEs) and Associate Digital Enterprise (ADEs) this could lead to reduced market concentration and prevent monopolistic behaviors, this will result in a more stabilized market. Since DCB aligns with various other international practices, like the EU’s legislation, the Digital Markets Act, this bill will position India within global discussions on digital regulation and could lead to smoother cross- border operations in the future.
However, the bill is not entirely bulletproof, there could be potential challenges on the way, like, the operationalization of ex-ante regulations and defining qualitative and quantitative thresholds for SSDEs and ADEs poses administrative and technical challenges, ensuring compliance and enforcement across the vast and diverse digital sector will require a efficient as well as robust institutional capacity and resources.
While the DCB seeks to promote competition, strict regulations should, ideally enhance innovation, but may also have a counter-effect and could instead stifle innovation, specifically for smaller firms and start-ups that may struggle to comply with regulatory requirements from the get-go, designed for larger enterprises.
SUGGESTIONS
While the Digital Competition Bill is a great step towards regulating competition in the digital market, it is not entirely bulletproof. To ensure the successful implementation of the Bill, it is important for the Commission to designate the SSDEs in clearly like the amount of data they control, their market influence and their ability to influence or dominate the market, this will ensure that the most influential companies are appropriately regulated.
As the digital market is prone to change quickly, it is important to periodically review and update the financial thresholds that determine which companies are considered as major players. This could be done every three years, this will help keep the criteria relevant to the changing market.
CONCLUSION
In the legislative effort to address the set of challenges posed by the digital markets in India, the Digital Competition Bill is a crucial step. The DCB aspires to secure the interests of customers, promote fair competition, and oversee market dynamics proactively through laying out an ex-ante regulatory framework. Its successful implementation, however, requires overcoming formidable obstacles in the fields of global competitiveness, innovation, and enforcement.
In the near future, lawmakers must make sure that the Draft Competition Bill finds a balance between strict rules while establishing an atmosphere that promotes economic growth and digital innovation. To improve and modify the DCB to meet the evolving needs of India’s digital ecosystems, it will be important to preserve ongoing stakeholder participation and to implement periodic review processes and international collaboration.
To conclude, the Draft Competition Bill has the power to change India’s digital environment and foster a more competitive and customer-focused marketplace. India can pave the way towards a fair and inclusive digital economy that benefits all market players— companies, customers, and society at large by carefully considering its implications and obstacles.
REFERENCES
1 Committee on Data Governance Framework (CDGF), Government of India, “Report on Data Governance Framework,” Schedule 1 to the Draft Digital Competition Bill, 2024, Annexure IV (hereinafter ‘Draft DCB’), https://www.mca.gov.in/bin/dms/getdocument?mds=gzGtvSkE3zIVhAuBe2pbow%3D%3D&type=open(last visited July 8, 2024).
2 Ministry of Corporate Affairs, Government of India, Brief Report of the Committee on Digital Competition Law and Draft Digital Competition Bill 2024, at pg. 192, Schedule 1 to the Draft DCB, https://www.mca.gov.in/bin/dms/getdocument?mds=gzGtvSkE3zIVhAuBe2pbow%253D%253D&type=open (last visited July 9, 2024).
3 LexCounsel, “Analysing India’s Digital Competition Bill and Its Legal Landscape,” LexCounsel (May 2024), https://lexcounsel.in/newsletters/analysing-indias-digital-competition-bill-and-its-legal-landscape/ (last visited July 9, 2024).
4 Committee on Digital Competition Law, Brief Report of the Committee on Digital Competition Law and Draft Digital Competition Bill 2024, The Dialogue (April 2024), https://thedialogue.co/wp-content/uploads/2024/04/Brief-Report-of-the-Committee-on-Digital-Competition-Law-and-Draft-Digital-Competition-Bill-2024.pdf (last visited July 9, 2024).
5 Ministry of Corporate Affairs, Government of India, Brief Report of the Committee on Digital Competition Law and Draft Digital Competition Bill 2024, at pg. 161, Clause 8(1), https://www.mca.gov.in/bin/dms/getdocument?mds=gzGtvSkE3zIVhAuBe2pbow%253D%253D&type=open (last visited July 10, 2024).
6 Ministry of Corporate Affairs, Government of India, Brief Report of the Committee on Digital Competition Law and Draft Digital Competition Bill 2024, at pg. 180, Clause 34, https://www.mca.gov.in/bin/dms/getdocument?mds=gzGtvSkE3zIVhAuBe2pbow%253D%253D&type=open (last visited July 10th, 2024).
[1] Committee on Data Governance Framework (CDGF), Government of India, “Report on Data Governance Framework,” Schedule 1 to the Draft Digital Competition Bill, 2024, Annexure IV (hereinafter ‘Draft DCB’), https://www.mca.gov.in/bin/dms/getdocument?mds=gzGtvSkE3zIVhAuBe2pbow%253D%253D&type=open (last visited May 31, 2024).
[2] Ministry of Corporate Affairs, Government of India, Brief Report of the Committee on Digital Competition Law and Draft Digital Competition Bill 2024, at pg. 192, Schedule 1 to the Draft DCB, https://www.mca.gov.in/bin/dms/getdocument?mds=gzGtvSkE3zIVhAuBe2pbow%253D%253D&type=open last visited May 31, 2024).
[3] LexCounsel, “Analysing India’s Digital Competition Bill and Its Legal Landscape,” LexCounsel (May 2024), https://lexcounsel.in/newsletters/analysing-indias-digital-competition-bill-and-its-legal-landscape/ (last visited May 31, 2024).
[4] Committee on Digital Competition Law, Brief Report of the Committee on Digital Competition Law and Draft Digital Competition Bill 2024, The Dialogue (April 2024), https://thedialogue.co/wp-content/uploads/2024/04/Brief-Report-of-the-Committee-on-Digital-Competition-Law-and-Draft-Digital-Competition-Bill-2024.pdf (last visited June 1st, 2024).
[5] Ministry of Corporate Affairs, Government of India, Brief Report of the Committee on Digital Competition Law and Draft Digital Competition Bill 2024, at pg. 161, Clause 8(1), https://www.mca.gov.in/bin/dms/getdocument?mds=gzGtvSkE3zIVhAuBe2pbow%253D%253D&type=open (last visited June 1, 2024).
[6] Ministry of Corporate Affairs, Government of India, Brief Report of the Committee on Digital Competition Law and Draft Digital Competition Bill 2024, at pg. 180, Clause 34, https://www.mca.gov.in/bin/dms/getdocument?mds=gzGtvSkE3zIVhAuBe2pbow%253D%253D&type=open (last visited June 2, 2024).