Context: The rapid surge in business operations of digital entities and its anti-competitive business practices like anti-steering provisions, platform neutrality/self-preferencing, pricing/deep discounting, exclusive tie-ups, search and ranking preferences and mergers & acquisitions (M&As) have led to rise in demand for their apt regulation.
In this regard, the Ministry of Corporate Affairs had appointed a committee on Digital Competition law.
This committee has come out with its recommendations and put forward a draft Digital Competition Bill.
The committee has recommended a separate legislation for legislation outside the scope of Competition Commission of India Act having ex-ante mechanisms to deal with anti-competitive practices in the Digital Markets.
Need for a ex-ante Digital Competition Law:
- Time consuming nature of ex-post measures: Ex-post measures involve several stages such as forming a prima facie view by Competition Commission of India (CCI), an investigation by the director general, and passing of the final order, all of which are time-consuming.
- Some cases of anti-competitive practices of digital enterprise before the CCI have taken four years or more to be adjudicated. In one instance, the CCI had adjudicated in 2018 on a complaint of abuse of dominant position filed in 2012. Yet, even after 11 years, the case has not reached a final resolution and is presently under review by the appellate tribunal.
- So, parties would suffer irreparable damage by the time ex-post measures were ordered to remedy anti-competitive practices.
- In this regard, it is felt that the ex-ante framework will be more efficient at preventing anti-competitive conduct by large digital enterprises which have a significant presence in India and the ability to influence the Indian digital market.
Difference between ex-post law and ex-ante law:
- An ex-post law is curative in nature i.e. comes into action once the violation or wrong has been done. Ex: Competition Commission Act, 2002.
- An ex-ante law is preventive in nature i.e. identifying issues beforehand and then responding with regulatory intervention before the occurrence of the event. Ex: Draft Digital Competition Bill.
Committee's Recommendation:
- The digital panel has recommended that the existing ex-post framework under the Competition Act 2002 be supplemented with ex-ante measures to better address concerns related to alleged anti competitive practices of large digital enterprises.
- Applicability:
- Pre-identified list of entities providing ‘core digital services’, and have a significant presence and the ability to influence the Indian digital market. Such entities would be designated as ‘systemically significant digital enterprises’ (SSDEs).
- Criteria: Entity has a turnover of at least ₹4,000 crore in India, global turnover of at least $30 billion, gross merchandise value of ₹16,000 crore in India or global market capitalisation of $75 billion in the immediately preceding three financial years. Additionally, its core digital services should have either one crore end users or 10,000 business users.
- These thresholds are in line with those prescribed in ex-ante competition regulation for digital enterprises in the European Union’s Digital Markets Act and the UK’s draft Digital Markets, Competition and Consumers Bill. These thresholds are to be revised every three years once the bill becomes law.
Note: A provider of core digital services can be designated as an SSDE by the CCI under certain circumstances even if it does not meet the prescribed threshold if the competition regulator is of the opinion that the entity has a significant presence in the identified service.
Note: Core digital services include online search engines, online social networking services, video-sharing platform services, interpersonal communications services, operating systems, web browsers, cloud services, advertising services and online intermediation services. Google, Meta, Apple, and Amazon are among the global corporations that will be subjected to the proposed law.
Obligations of Digital Companies:
- The application of the proposed law to an entity will be based on self-reporting by the tech company providing any of the listed core digital services.
- A digital enterprise that meets the criteria for being an SSDE is required to notify the CCI within 90 days of qualifying. The CCI will then decide if the entity meets the criteria to qualify as SSDE.
- An entity that is part of a group is also required to notify the CCI of other business enterprises within the group that are directly or indirectly involved in providing core digital services as associate digital enterprises. The competition regulator, in such cases, may designate the group as SSDE or the other enterprise as associate digital enterprises to the SSDE.
- Once designated as SSDE, an entity will be required to comply with separate conduct requirements for each core digital service.
- Prevent SSDEs and ADEs from directly or indirectly favouring their own products, services or lines of businesses or that of related parties and from using or relying on non-public data of business users operating on its core digital service to compete with such a user.
- SSDEs will not be allowed to restrict end users and business users from using third-party applications or software on its core digital service.
Penalty:
- Where the commission finds an entity indulging in uncompetitive conduct or an SSDE failing to comply with the obligations listed in the law, it can temporarily restrain the party from carrying on such act until its inquiry concludes.
- The commission has the power to impose monetary penalties on non-compliance with ex-ante obligations and with its orders. Monetary penalties for non-compliance with ex-ante obligations can go up to 10% of the global turnover of the SSDE.
- At the minimum, non-compliance with orders or directions of the commission will involve a penalty of up to ₹1 lakh for each day of non-compliance.