Why competition law for big tech companies is the need of the hour

The proposed law would affect tech companies offering essential digital services like search engines, social networking platforms, video-sharing platforms, operating systems, web browsers, and cloud services. One major worry is the growing dominance of a handful of large tech firms in the digital marketplace, creating advantages for them over smaller businesses and startups.

India is considering enacting a dedicated law to address the anti-competitive behavior of large digital enterprises, or big tech, after the 2024 Lok Sabha elections. This recommendation was made by a parliamentary standing committee in December 2022, prompting the ministry of corporate affairs to appoint an expert panel to examine the advice and draft a digital competition bill.

A major concern raised by both the parliamentary committee and the expert panel is the increasing dominance of a few big tech companies in the digital market. This dominance grants them an edge over smaller businesses and start-ups. The focus is on regulating the anti-competitive conduct of these enterprises proactively, rather than reactively as per the existing Competition Act, 2002.

Why Ex-Ante Regulation for Digital Companies is Necessary?

Digital companies move fast, making slow regulatory responses inadequate. The traditional process, including investigation and final orders by the Competition Commission of India (CCI), takes years, often leaving damages unaddressed. For instance, some cases have lingered over four years without resolution, like a complaint from 2012 that, even after six years, was still pending in 2018.

An ex-ante approach is advocated to prevent such delays. It aims to proactively curb anti-competitive behaviors in significant digital enterprises, ensuring market fairness and consumer protection efficiently and effectively, unlike the lengthy ex-post processes.

Major Concerns of the Parliamentary Committee

The parliamentary committee expressed concerns about the competitive landscape in the digital market. Unlike traditional physical markets where becoming bigger can lead to diminishing returns, digital players often experience increasing returns to size due to rapidly diminishing marginal costs. This dynamic makes scaling up quickly a favorable business strategy, as larger players can be more competitive in the digital market. These entities benefit from network effects, where newer users are attracted to platforms with a large existing user base, as observed in social networking and messaging apps.

Identifying 10 anti-competitive practices of digital enterprises, the parliamentary committee highlighted issues such as anti-steering provisions, platform neutrality/self-preferencing, pricing/deep discounting, exclusive tie-ups, search and ranking preferences, and mergers & acquisitions (M&As). While the draft bill addressed most of these concerns, the committee decided that M&As could continue to be regulated under the existing Competition Act.

Applicability of the Proposed Law to Large Digital Companies

The proposed law will specifically target a select group of big tech companies known as 'systemically significant digital enterprises' (SSDEs). These are digital enterprises identified as providing 'core digital services' and having a considerable influence on the Indian digital market.

To qualify as an SSDE, a company must meet certain criteria, including having a turnover of at least ₹4,000 crore in India or a global turnover of at least $30 billion. Additionally, it should have a gross merchandise value of ₹16,000 crore in India or a global market capitalization of $75 billion over the past three financial years. Moreover, its core digital services must cater to either one crore end users or 10,000 business users. These thresholds align with those set by the European Union's Digital Markets Act and the UK's draft Digital Markets, Competition, and Consumers Bill and will be reviewed every three years once the law is enacted.

Furthermore, even if a provider of core digital services does not meet these thresholds, the Competition Commission of India (CCI) can designate it as an SSDE under certain circumstances if it is deemed to have a significant presence in the identified service.

Understanding Core Digital Services

Core digital services encompass various online platforms and tools that are integral to the digital ecosystem. These services include:

• 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

These services form the backbone of digital interactions and play a crucial role in modern-day communication, commerce, and information dissemination. Global corporations such as Google, Meta, Apple, and Amazon are among the entities that will fall under the purview of the proposed law, given their significant presence and influence in providing these core digital services.

Obligations of Digital Companies under the Proposed Law

Under the proposed law, digital companies have specific obligations to fulfill:

1. Self-Reporting and Notification: Digital enterprises providing core digital services are required to self-report to the Competition Commission of India (CCI) within 90 days of qualifying as a 'Systemically Significant Digital Enterprise' (SSDE).
2. Assessment by CCI: The CCI will evaluate the reported entity to determine if it meets the criteria for designation as an SSDE.
3. Group Notification: Entities that are part of a group must notify the CCI about other business enterprises within the group involved in providing core digital services as Associate Digital Enterprises (ADEs).
4. Designation by CCI: Based on the information provided, the CCI may designate the group as an SSDE or designate other enterprises as ADEs to the SSDE.
5. Compliance with Conduct Requirements: Once designated as an SSDE, the entity must adhere to separate conduct requirements for each core digital service it provides. These requirements include:
   • Prohibiting favoritism towards their own products, services, or lines of business, or those of related parties.
   • Restricting the use of non-public data of business users operating on its core digital service to compete with such users.
   • Not restricting end users and business users from using third-party applications or software on its core digital service.

Enforcement Measures for Non-Compliance

In cases of non-compliance with the act and its regulations, the Competition Commission of India (CCI) has several enforcement measures:

1. Temporary Restraints: If the CCI finds an entity engaging in uncompetitive conduct or an SSDE failing to comply with the law's obligations, it can temporarily restrain the party from continuing such actions until its inquiry concludes.
2. Monetary Penalties: The CCI has the authority to impose monetary penalties for non-compliance. For violations of ex-ante obligations, monetary penalties can amount to up to 10% of the global turnover of the SSDE.
3. Penalties for Non-Compliance with Orders: Non-compliance with the orders or directions of the CCI may result in monetary penalties. The minimum penalty for each day of non-compliance can be up to ₹1 lakh.

These enforcement measures aim to ensure compliance with the law and uphold fair competition in the digital marketplace.