Digital Competition Bill, 2024: India’s first digital ex-ante Bill

Why did we need another anti-trust instrument? The digital space in India is growing rapidly. The markets in the digital space are different from the physical markets considering the increasing returns to size, i.e., the increasing number of users on the platform leads to an increase in utility. This can result in the establishment of a dominant position and the creation of a monopoly or digital oligarchy before the regulator can take any steps to alleviate the same. Thus, a need was felt to evaluate this issue and the Committee on Digital Competition Law was established under the Ministry of Corporate Affairs, Government of India.

 

Findings of the Committee

The provisions of the Competition Act of 2002 (“Act”) were deemed to be insufficient to regulate this space. At present the Act only allows for action to be taken after an event has occurred. This leads to a delayed redressal. In the digital enterprise industry, such intervention can occur at a stage where the markets have already tipped in favour of the large digital enterprises. The concern is not unfounded as an article in Forbes published 7 years ago, also highlighted the rise of the digital oligarchy. (Andriole, 2017) The committee proposed an ex-ante manner of regulation for digital enterprises having a significant presence and influence in the Indian digital market.

 

SSDEs and their Classification

The legislation is specifically applicable to ‘Systemically Significant Digital Enterprises’ (“SSDEs”). There were certain features that allowed these enterprises to gain influence in a short span of time. They included collection of user data, usage of network effect and economies of scale. The services that require ex-ante regulation for SSDEs include search engines, social networking services, operating systems, and web browsers. They are classified on the basis of certain thresholds like financial strength and spread. They are analysed from parameters like market capitalization, number of end users, turnover and more. Quantitative thresholds will be assigned, and the committees fulfilling them will report themselves to the CCI to be designated as SSDEs. There is a possibility that there are other enterprises involved in the provision of digital services which are a part of SSDEs. They are to be classified as Associate Digital Enterprises. (“ADEs”)

 

Obligations and Enforcement under the Act

The Bill mandates that the SSDEs refrain from undertaking certain practices. These include favouring their own products and services and usage of non-public data for business. It further prohibits restriction of third-party applications on their service and identification of core digital services for usage of other products offered by SSDE. For the enforcement of the provisions, the Director General who has been appointed under the Act is to investigate contraventions by CCI. The penalties will be of a civil nature with global turnover used to determine the penalty amount. It is recommended to be capped to 10% of the global turnover of the SSDEs.

 

Analysis of the Bill

The Bill is significant as it attempts to address the lacunas in the Competition Act with respect to the regulation of certain Digital Enterprises. The digital space is different from the physical space since the time taken for a monopoly to become established is extremely limited. Moreover, a few companies already enjoy a lion’s share in the space leaving little room for innovation and new entrants. The bill prima facie seems to further the objectives of the already existing Act and create a specific scenario for SSDEs. It introduces the ex-ante framework which is a regulatory measure taken before potential anti-competitive behaviours or market failures occur. It is preventive in nature.

 

Status of ex-ante framework across the globe

The ex-ante framework in the Bill has been used by the European Union in the Digital Markets Act Regulation. Similar laws have also been introduced by Germany and Australia by amending their previous anti-trust laws. Japan also came up with a similar instrument, Transparency and Fairness of Digital Platforms. This indicates that the framework is widely accepted.

 

Impact of Indian Digital Sector

The Indian digital sector has been growing rapidly with a lot of domestic companies also attempting to enter the IT space. India has often been dubbed as the ‘Sleeping Giant’ (Krishna, 2023) when it comes to IT, and the entry barriers to such an industry have been relatively high due to the presence of established giants. This has stifled domestic innovation and has resulted in talent outflow to the dominant companies. Such a move will prevent abuse of market power and provide them with room to thrive. The ex-ante nature would prevent the stifling of competition. It would also allow alternatives to come up in the market which will increase competition and further innovation. The existing tech giants will continue to enjoy a significant market share and will also be forced to innovate to compete with the new players in the market. The regulation can be a win-win situation for all parties involved.