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The Digital Market Saga Vis-a-Vis Proposed Digital Competition Act

Updated: Feb 10

by Shreya Sharma *










INTRODUCTION

Abuse of dominance and unfair business practices are not new in the Indian Tech Ecosystem. The digital competition market matrix is directly managed by key players like Amazon, Google, Meta, Twitter, etc, which subsequently also select the market's winners and losers. This leaves both consumers and startups at a disadvantaged end. The BigTechs have faced the heat of the Competition Law watchdog, the Competition Commission of India (CCI), in a number of cases. For Example, in October 2022, US-based Google Inc. was recently penalized by the CCI with a fine of 1338 Cr. INR for indulging in anti-competitive practices pertinent to its Play Store Policies and alleged discriminatory agreements between the company and the mobile manufacturer. Likewise, another incident saw the regulator cracking down on well-known online hotel booking companies MakeMyTrip, OYO, and Goibibo, fining them 392 Cr. INR for supposedly engaging in collusive business practices. Whereas, CCI’s inquiries regarding Meta and Amazon are in full swing.

To further strengthen CCI’s grip on the unruly horses of the tech world, in February 2023, the Ministry of Corporate Affairs (MCA) ordered the creation of the Committee on Digital Competition Law (CDCL) to weigh in the need for a unique piece of law to address unfair business practices in particular digital marketplaces. As the committee is finally to unravel the final contours of its report in June 2023, the author would like to shed some light on alike enactments of matured foreign jurisdictions and implications of the proposed statute on the Indian Digital Market, which is envisaged to create a level playing field for all players as well as expected to promote transparency, innovation, and competition.


 

POSITION IN REST OF THE WORLD


European Union (EU)

The United States (US) IT industry's biggest players have been charged with tax evasion, impeding competition, making billions off from news without paying for it and disseminating false information. The European Union is working to reign them in. One of the cornerstones of the European digital strategy is the enactment of the Digital Markets Act (DMA Regulation (EU) 2022/1925) on July 2022, which is aimed to place a cap on BigTech's market dominance while rendering violators subject to penalties of up to 10% of the company’s total worldwide annual turnover or up to 20% in case of repeated violation. The aforesaid legislation identifies the key digital platforms as the "gatekeepers" of the digital markets, such identification enables the act to remain laser-focused on the problem at hand, which is a gigantic, systemic internet platform. Briefly, to bring these company under the ambit of the definition of ‘gatekeepers’, such companies should (a) have a strong financial position, a substantial effect on the relevant internal market, and is functional in numerous EU nations, (b) provider of a core platform service that functions as an essential conduit between business clients and end users (no fewer than 45 million monthly active end users situated in the EU in the previous fiscal year, alongside at least 10,000 annual active business users situated in the EU). (c) has or in the future will have an entrenched and enduring market position in the relevant geographical market (i.e. if the company meets the two requirements mentioned above in the past 3 fiscal years). These gatekeepers are subjected to certain ex-ante obligations(such obligations attempt to detect market concerns beforehand and modify entities’ conduct and responses through certain regulatory corrective measures.) and numerous far-reaching obligations like Anti-steering practises (restrictions that forbid business users of a platform from directing their clients to products or services other than those made available by the platform.) are forbidden, prohibition on Most Favoured Nations clauses on business users, Freedom for users to choose default services, the ban on repeated cookie banners requiring the consent of end users, Prevention of usage of the data collected as well as selective advertising, due consideration given to FRAND terms (an acronym for fair, reasonable, and non-discriminatory), prohibition of tie-in agreements, etc.


United States

When addressing antitrust issues within the technology industry, US antitrust regulators adopt the 'big is evil' philosophy. These agencies identified that traditional antitrust enactments are not adequate to cater to and resolve the contemporary challenges faced in the digital sector. Thus in 2022, revised guidelines for Horizontal and Vertical Mergers were announced to fill the loopholes in merger enforcement of digital space by trying to plug in network effects, zero-price dynamics, and the competitive importance of data. Such modifications were intended to address "modern market realities" in acquisitions in the digital marketplaces and closely examine the acquisition of nascent competitors in the digital marketplace that are 'ecosystem-driven, concentric, or conglomerate' agreements rather than horizontal or vertical ones and malpractices employed by these big fishes to maintain a dominant position such as data aggregation, self-preferencing, etc. Apart from that, there are a number of bills pending in the Senate, concerning rectification of the competition matrix which is dangerously dominated by the BigTechs. Measures like the establishment of a separate department (Digital Market Bureau) within the Federal Trade Commission, removal of pre-requisite to define “relevant market” in the digital arena, enactment of the American Innovation and Choice Online Act, Augmenting Compatibility and Competition by Enabling Service Switching Act and the Open App Market Act are proposed.


 

POSITION IN INDIA

Competition regime in India is governed by The Competition Act, 2002. Contemporary era is the digital era where business models and consumer preferences are continuously evolving leading to creation of monopolies in the tech world . The present competition act, catered the traditional market but fall short when instances of violations were reported against the BigTechs due to interpretation issues of certain terms like ‘relevant market’, ‘market power’. Thus , to align the aforesaid act with the needs of current scenario, a separate digital competition act becomes a vital imperative.

The Parliamentary Standing Committee of Finance, headed by Mr. Jayant Sinha, submitted its 53rd report titled "Anti-Competitive Practices by Big Tech Companies," in which it considered the necessity for regulation of the constantly evolving digital market arena predominated by few key players (thus creating an oligopoly or even monopoly, which leads to winner take all situation) and its distinct nature from the traditional market. Instead of the current ex-post assessment, the Committee advised that competitive behaviours ought to be assessed before markets become monopolised. Inspired by the policy of the EU of categorisation of leading players as Gatekeepers, the committee has suggested similar categorisation of such players as Systemically Important Digital Intermediaries (SIDIs). Such Intermediaries will be required to file an annual report to the Competition regulator outlining the steps taken by them to comply with a number of legal obligations. Additionally, the committee emphasised the need for a separate piece of legislation for ensuring a digital space that is equitable, open, and contestable, along with the creation of a specialised unit within CCI. Apart from the above recommendation, malpractices like self-preferencing, anti-steering provisions, tie-in agreements pertaining to additional services, cross utilisation of personal data, the default installation of the Company’s Apps and restriction on the installation of third-party apps, and deep discounting or predatory pricing shall be done away with. Additionally, the committee emphasised the minutes of the Competition Law Review Committee (CLRC) report of 2018, which specifically pointed out that certain mergers and acquisitions forming part of the digital market may not cross the outlined threshold of assets and turnover but do affect the competition matrix as well as endorsed quicker dispute resolution alternative mechanism like Settlement and Commitment.

One of the noteworthy recommendations was the introduction of ex-ante assessment (which is a proactive approach) in place of ex-post assessment as the latter is designed to penalise anti-competitive behaviour only when irreparable damage has occurred in the competition matrix as well as monetary penalties are not likely to be fully effective in dealing the issue. The main tenet behind this is while regulatory actions under an ex-post regime might mitigate some of the harm, the market will never return to the position that existed prior to the onset of BigTech's anti-competitive behaviour and practices. As a result, prompt action is required not just to cure the damage, but also, more importantly, to prevent BigTech businesses from engaging in anti-competitive behaviour."



 

CONCLUSION

The Indian start-up ecosystem is severely harmed by the current structure, which permits BigTech to unilaterally determine the terms of the game for Digital Arena without any bargaining leverage on the opposite side. This development is anticipated to cater to the ever-evolving business dynamics specific to the digital economy and provide an impetus for Indian start-ups.

The novel approach has garnered mixed remarks from the legal fraternity. Some saw it as a crucial move to fill in the gaps in the current statute which will lead to the promotion of fair or equitable competition in digital market-space, while others point this as a catastrophic mistake, as several statutes like proposed Personal Data Protection Bill, Digital India Act, and Competition Amendment Bill cater similar problem, this could lead to an issue of overlap, excessive regulation and tussle; overregulation could lead to fatal outcomes as India is still a developing economy which should predominantly stress on nurturing investment rather than focusing on imposing statutory measures which may further derail the deployment of critical infrastructure and pose a roadblock to investment and lastly, such an approach may jeopardise domestic innovation, which has been the bedrock of projects such as Digital India and Startup India. Implementing such a regulation would discourage burgeoning businesses that would not be able to handle the increasing compliance load. Only time will tell if the new framework will be a success or a failure in the future, whether it will be an encouraging or blundering provision.


*Shreya Sharma is a fifth year student at Rajiv Gandhi National University of Law,Punjab at the time of publication of the blog.

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