Towards Regulating the Digital Market

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The government appointed a 16-member committee on Digital Competition Law^[1] under the Ministry of Corporate Affairs to draft the “Digital Competition Act”. To start the process, the Standing Committee on Finance presented a report^[2] on “Anti-Competitive Practices by Big Tech Companies”. The report was adopted on December 19, 2022. The Committee report proposed ex-ante regulations, a new digital competition law to curb anti-competitive practices in digital markets in India.^[3]

Key observations and recommendations of the Committee include:

Regulating digital markets: With the surge in digital markets, big tech companies dominate the industry, and markets can be monopolised. Enactment of a Digital Competition Act is required to regulate such issues.
Digital Competition Act: To address the needs of a competitive digital market, the government should introduce a Digital Competition Act.
Digital Gatekeepers: The leading entities in the digital market who can influence the competition practices must be identified. They are to be known as ‘Systemically Important Digital Intermediaries (SIDIs’). The regulating authority will be the Competition Commission of India (CCI).
The criteria for determining whether an entity is SIDI are revenue, market capitalisation, and the number of active businesses and end users.
An entity may have the dual role of providing the platform and competing on the same platform. However, SIDIs must refrain from favouring their services over their competitors when mediating access.
SIDI should only process personal data with the consent of the data owner, especially when they are not the direct users of the services of SIDI.
Creation of a specialised digital markets unit in the CCI.
The CCI is to be given more power.
Monitor established and emerging SIDIs.
The CCI to give recommendations to the central government on designating SIDIs.
SIDIs should allow the use of third-party applications. It shall be ensured that data does not get transferred to a foreign government entity that may be considered a competitor.
SIDIs should not force business entities to subscribe to their commonly used services.

The Committee on Digital Competition Law identified systemically important digital intermediaries (SIDIs), making sure that they are compliant with the 10 anti-competitive practices, and they should file an annual report.^[4]

The 10 anti-competitive are^[5]:

Anti-steering provisions
Platform Neutrality/Self-Preferencing
Adjacency/Bundling and Typing
Data Usage (use of non-public data)
Acquisitions and mergers
Pricing/Deep discounting
Exclusive Tie-ups
Search and Raining preferences
Restricting third-party applications
Advertising policies

The guiding principles behind the enactment of the Competition Act were Articles 38 and 39 (Directive Principles of the State Policy) of the Constitution of India^[6]. These Directives lay down that there must be policies to reduce inequalities in income, possession/control of material assets are dispersed so that they may benefit everyone, and the monetary framework does not lead to the grouping of riches.^[7]

The enactment of the competition law is also guided by Art. 14, 19, and 21 of the Indian constitution providing equality before the law, the right to freedom and life, and personal liberty as fundamental rights.

International Background

In 1980, the United Nations Conference on Restrictive Business Practices approved the Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices (The UN Set) for adoption as a resolution.

The UN Set is a multilateral agreement on competition policy that:

Provides a set of equitable rules for the control of anti-competitive practices.
Recognises the development dimension of competition law and policy.
Provides a framework for international operation and exchange of best practices.^[8]

The Competition (Amendment) Act, 2023

To address the issues of anti-competitive practices, the Competition (Amendment) Bill 2023 came into force and amended the Competition Act, 2002 (“Act”).

Following are some key notified provisions of the Act^[9]

Companies that are not engaged in identical or similar business activities can also be held liable for an anti-competitive horizontal agreement, where they participate or intend to participate in facilitating such an agreement.
A complaint against anticompetitive conduct needs to be filed before the Competition Commission of India (‘CCI’) within three years from the date on which the cause of action arose. The CCI is empowered to condone delays.
The CCI may not inquire into a complaint regarding an anti-competitive agreement or abuse of dominance if it has already decided on the same or substantially the same facts and issues in a previous order.
Enterprises appealing CCI’s penalty with the National Company Law Appellate Tribunal (‘NCLAT’) will be required to deposit 25% of the penalty amount as a condition for the NCLAT to adjudicate on the appeal.
The maximum penalty that the CCI may impose on a party to a combination for intentionally making a false statement or omitting any material information has now been increased to INR 5 crore.
The CCI is now required to publish draft regulations for public comments, issue a general statement in response to the public comments by the date of the regulations’ notification, and periodically review its regulations. Although the Amendment Act has now formalised this process, the CCI typically ensured transparency in its regulation-making process.
The Amendment Act introduces a provision that allows the compounding of any offence under the Competition Act, 2002 (which does not entail imprisonment) at any point during the proceedings by the NCLAT or a court before which the proceeding is pending. The Amendment Act does not provide any clarity as to whether this is applicable to merger control as well.

Conclusion

The initiative to update the laws to regulate the increasing digital market is very relevant. In order to truly meet the principles enshrined in the Constitution, the implementation of measures to stop anti-competitive practices has to be undertaken appropriately.

The efforts made towards updating competition laws have been worldwide, and many countries have been updating their laws. The United Nations also lays down principles for regulating anti-competitive practices.

The Competition (Amendment) Act, 2023 has been enacted during these efforts. The changes brought by the Amendment Act to the Competition Act, can regulate the industries better and more efficiently implement the competition law. The condemnation is the concentration of vast powers in the CCI, which might make business more difficult for smaller companies and start-ups. Increasing liability of the companies can also be concerning for start-ups.