The Draft Digital Competition Bill, 2024: Legitimate Guardrails Or Regulatory Overreach?

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Digital markets are an important component in India's developmental journey. In 2023, the information and communications technology sector contributed to over 13% of India's GDP. Technological innovation...
India Antitrust/Competition Law
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Digital markets are an important component in India's developmental journey. In 2023, the information and communications technology sector contributed to over 13% of India's GDP. Technological innovation has immensely enhanced benefits available to consumers while reducing costs for enterprises. India is the world's fourth largest exporter of digitally delivered services, constituting over a fifth of global trade in services; and this sector provides employment to around 5.4 million people, mostly educated youth. Digital services are fast becoming integral to India's 700 million plus internet users (including 350 million digital payment users and 220 million online shoppers) and are on a path to reach a USD 1 trillion consumer internet economy by 2030. An ever increasing number of global companies are setting up research or global capability centres (GCCs) in India. As per a renowned consultancy firm's estimate, the number of GCCs in India has expanded from 700 in 2010 to 1,580 last year; with the revenues of the Indian GCCs being as high as USD 120 billion i.e. equal to roughly 3.5% of the country's GDP and these employ about 3.2 million workers. It is therefore no surprise that the Government of India aims for technology to account for about 20-25% of the country's GDP by 2025-26. This significant economic footprint underscores the vital role that digital markets play in shaping India's economic landscape.

This has come with its own set of challenges, one of which is balancing innovation with the need for regulatory oversight to ensure fair competition on one hand and to maximise consumer welfare on the other. With the view to rein in the perceived adverse effects on competition in the digital markets, the Ministry of Corporate Affairs (the MCA) recently released the draft of the Digital Competition Bill, 2024 (the Draft DCB) for stakeholder consultations. The Draft DCB aims to regulate on an ex-ante basis enterprises having a 'significant presence' in India (by crossing certain quantitative / qualitative thresholds) in the provision of certain 'core digital services'. Here though one important question that needs to be answered is whether a new law is even required at this stage in a developing economy like India where digital services and markets are expanding at a furious pace?

A. Is an ex-ante law premature at this stage?

It is important to consider whether an ex-ante law as contemplated by the Draft DCB is needed at this stage, and whether any regulatory gaps that currently exist can be plugged through a less intrusive route. Whilst there is no doubt that the Draft DCB has been drawn up with the intent to maintain healthy competition in the market, it is important to examine the potential unintended consequences it may have on the growing digital sector in the country such as the hampering of innovation and technological development as well as impeding the several benefits that digital enterprises bring to consumers and the economy. The draft legislation itself also raises certain concerns.

(i) Lack of an opportunity to assess justifications including benefits to consumers: The guiding principle of competition law has always been to be non-invasive, with regulatory intervention being called for only where an enterprise resorts to conduct that is prohibited under competition law. In such a case, due inquiry should be undertaken by the competition authority to examine the pros and cons of the challenged conduct before passing a final order. The enterprise should also be provided with an opportunity to justify its practices.

None of this is possible under an ex-ante law such as the Draft DCB which sets out practices that a systemically significant digital enterprise (SSDE) would be prohibited from engaging in, without providing the Competition Commission of India (the CCI) the opportunity to examine whether these could result in efficiencies or benefits for consumers or any innovation, technical or economic development or indeed for the enterprise to argue of its pro-competitive effects.

(ii) Lack of a level playing field: There is no level playing field provided to enterprises caught by the Draft DCB; the blanket prohibitions thereunder apply automatically once an enterprise is designated as an SSDE (upon meeting the relevant thresholds) without any regard to its size in comparison to other larger SSDEs. This could affect its ability to compete effectively, while also raising compliance costs.

To explain, such an SSDE could be a much smaller player when compared to the established global players in digital markets, in which case the prohibitions under the Draft DCB may end up stifling its ability to effectively compete with the established global players once it is designated as an SSDE. Some of the prohibited practices may in fact be needed by the smaller SSDEs to scale up and meet the competition posed by the larger players. This would also affect the choices available to consumers in the market. Even the extant competition law permits dominant enterprises to impose conditions / prices (including those that may be viewed as "predatory prices") to meet the competition, but no such opportunity is provided under the Draft DCB.

(iii) The principle of 'caveat emptor': The blanket prohibition on practices like self-preferencing and anti-steering does not consider the well-established and time-tested principle of 'caveat emptor' i.e., that the buyer needs to conduct the necessary checks and is ultimately responsible for their choices. An informed consumer should be free to choose their preferred service, product or platform – even where certain services, products or platforms are being given a preference by a digital market player. This is especially so in today's information age where consumers have several avenues to conduct their due diligence; it would be remiss to consider users as not being able to make the best choices for themselves.

(iv) An untested law: The European Union (EU) is the only jurisdiction that so far regulates digital markets on an ex-ante basis through the recently enacted Digital Markets Act (the DMA). In terms of implementation, the world is yet to see its impact; for instance, the first investigation against certain identified gatekeepers only commenced as recently as March 2024. Such an ex-ante law therefore remains untested the world over, with little to no evidence of its positive impact. Its adoption at this stage in a developing economy like India may end up doing more harm than good.It therefore needs to be considered whether emulating the EU's as yet untested ex-ante law would be an appropriate course for Indian conditions.

Innovation is the driving force in digital markets. The introduction of an ex-ante digital competition law could stifle innovation and have far-reaching consequences on consumer welfare and employment and also on breakthrough developments in the technology industry. This could also create significant roadblocks for sustained investment in this industry.

B. Strengthening the existing framework – a more appropriate option?

One of the primary arguments for introducing a new ex-ante law is that the existing competition law framework's processes are time-consuming and resource-intensive at the level of both the CCI (and the Director General, at the investigation stage) and the appellate stage. As a result, the harm to digital markets may already have been done and the markets may have already tipped in favour of the relevant big tech entity. But even in an ex-ante model, any action against an enterprise would need the CCI to jump through the same hoops as the existing competition law. The appeals process remains the same as well, which means that appeals under both the existing competition law and the Draft DCB are likely to be time-consuming.

In that case, the question arises whether this regulatory deficiency / enforcement gap can be addressed in other ways instead of a heavy, prescriptive ex-ante law with potential harmful effects on the growth of digital markets? From a merger control perspective at least, the recent introduction of the deal value threshold will ensure that significant transactions in digital markets will not escape the CCI's scrutiny. On the antitrust front, query if it would then be better to:

(i) introduce additional provisions specifically governing digital markets into the existing competition law This can include, for instance, thresholds / factors for designating enterprises as SSDEs and listing specific practices by SSDEs that would amount to being anti-competitive if these result in an appreciable adverse effect on competition in India;

(ii) conduct an effects-based analysis of any such anti-competitive practices by providing an opportunity to the concerned party to justify its practices on similar grounds as available in cases of anti-competitive agreements (with appropriate modifications, if required). Consumer benefits / welfare and innovation, technical or economic development must especially be examined;

(iii) further bolster the CCI's power to pass interim orders to alleviate concerns about prolonged proceedings causing harm to markets. This power can in fact be utilized more liberally by the CCI to address any immediate / significant harm that may be envisaged during the pendency of a detailed inquiry;

(iv) set up / allocate dedicated benches comprising of competition experts at the appellate level to expedite the adjudication of competition law matters in a timely manner. The existing six-month time limit to dispose off appeals may also be more strictly enforced;

(v) rely on the newly introduced Settlements and Commitments regime to effectively enforce remedial measures for correcting any apprehended market distortions without necessarily waiting for the final end of lengthy proceedings; and

(vi) substantially enhance the CCI's capabilities for analysing digital markets cases by suitably strengthening the existing Digital Markets Unit set up by the regulator.

In summary, it may be premature to bring in an ex-ante law in India at this stage to deal with competition issues relating to the digital sector. Only in the EU has an ex-ante law been introduced and enforced so far in the form of the DMA; however, its effectiveness is yet to be seen. A better option for a developing economy like India would be to strengthen the existing competition framework to account for anti-competitive practices in the digital sector, with a provision for the CCI to examine the pro-competitive effects and the consumer welfare aspects of any SSDE's practices.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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