Draft Digital Competition Bill 2024

Context

India has proposed a new Digital Competition Law, aimed at preventing tech giants like Google, Facebook, and Amazon from favoring their own services or using data from one business to benefit another within the same company.

India Proposes Digital Competition Law to Regulate Tech Giants

• Committee Recommendations: The Ministry of Corporate Affairs (MCA) had formed a Committee on Digital Competition Law, which in its report recommended a new Digital Competition Act, to introduce proactive legislation aimed specifically at large digital companies, to complement the Competition Act.

About Digital Competition Bill 2024

• Inspired by the EU: The proposal is similar to the EU’s Digital Markets Act (DMA), which went into complete effect earlier this year, and requires large tech firms like Alphabet, Amazon and Apple to open their services, and not favor their own at the expense of rivals.
• Objective of the digital competition bill: The provisions of the Digital Competition Bill 2024 aims to set presumptive norms to curb anti-competitive practices before they actually take place, and promises to impose heavy penalties

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Need for Digital Competition Bill

• Inadequacy of Current Ex-Post Antitrust Framework: The current ex-post antitrust framework, under the Competition Act, 2002, reacts to violations after they occur, often too late to protect competition effectively. 
  • The DCB proposes an ex-ante approach, preventing antitrust violations before they disrupt the market.
• Addressing Monopolistic Actions: Recent fines against big-tech companies like Google for anti-competitive behaviors underscore the need for stringent rules. 
  • The DCB aims to establish clear regulations to prevent such dominant practices upfront.
• Anti Competitive Practice by Big-tech companies: Big-tech companies have shown a history of engaging in anti-competitive practices. 
  • In 2023, Google was fined Rs 1.337 crore by the CCI for its anti-competitive conduct in the Android ecosystem.
• Facilitating New Entrants and Innovation: The digital market’s structure disproportionately benefits big tech, deterring new competitors. 
  • The DCB seeks to reduce these barriers, encouraging innovation and diversity in the marketplace.
• Ensuring Fair Competition: Big tech’s dominance often overshadows smaller entities, making competition unfair. The DCB focuses on creating equitable conditions that allow smaller companies to compete effectively.
• Promoting Systematic Growth and Fairness: The digital competition bill aims to guide the digital ecosystem’s growth towards fairness and competitive equity, tackling issues like arbitrary pricing and anti-competitive practices.

Key Proposals of the Draft Digital Competition Bill

• Predictive Regulation: The digital competition bill proposes  a forward-looking, preventive, and presumptive law (an ex ante framework), which foresees the potential harms that can arise out of antitrust issues and prescribes pre-determined no-go areas. 
  • Example: Setting clear rules to avoid conflicts in advance, similar to how GDPR regulates data privacy.
  • Currently India follows an ex post antitrust framework under the Competition Act, 2002, which involves delays and rules out smaller competitors.
• Enlisting of Core Digital Services: The bill lists down “core digital services”under Schedule I of the bill. It consists of 
  • online search engines,
  • video-sharing platform services,
  • online social networking services,
  • interpersonal communications services,
  • operating systems, web browsers, cloud services, advertising services, and
  • online intermediation services (includes web-hosting, service providers, payment sites, etc.)
• Provision of Significant Entities: The digital competition bill proposes to designate certain enterprises as Systemically Significant Digital Enterprises (SSDEs). 
  • SSDEs are companies that provide “core digital services” in India and are determined by various quantitative and qualitative parameters such as turnover, user base, market influence etc.
  • Entities that don’t fall under these parameters can still be designated as SSDEs if the CCI believes that they have a significant presence in any given core digital service.
• Responsibilities of SSDEs: Entities which are designated as SSDEs, have been prohibited from engaging in practices such as self-preferencing, anti-steering, and restricting third party applications. 
  • Example: Google cannot favor its own services like Google Maps over competitors in search results.
  • If they violate these requirements, they can be fined up to 10% of their global turnover.
• Designation of Associate Digital Enterprises (ADE): Recognizing the impact of data shared within a tech group in benefitting other group companies, the Bill proposes to designate associate digital enterprises (ADEs).
  • If an entity of a group is determined to be an associate entity, they would have the same obligations as SSDEs, depending on the level of their involvement with the core digital service offered by the main company.

Regulations Governing Tech Companies in Other Countries

Criticism of the Draft Digital Competition Bill

• Compliance Burden: Big tech companies argue that the ex-ante framework imposes heavy compliance costs, shifting their focus from innovation to regulatory adherence.
  • Example: The EU’s Digital Markets Act (DMA) has increased the time to find things via Google search by 4,000%, leading to delays and inefficiencies.
• Impact on Innovation: Tech giants believe strengthening the current competition law is preferable to the new framework, which they say could stifle innovation.
  • Example: Apple would need to allow third-party app stores on iPhones, which it opposes, arguing it could hinder its platform’s security and user experience.
• Broad Definitions: Companies are concerned about the broad and discretionary definitions of significant platforms, causing uncertainty.
  • Example: Unlike the EU’s DMA, which clearly identifies ‘gatekeeper’ entities, India’s draft leaves this determination to the CCI, causing uncertainty.
• Potential Arbitrary Decisions: The discretion given to the CCI could lead to arbitrary decision-making, impacting start-ups and small businesses.
• Impact on Smaller Businesses: Restricting data sharing and making platform changes could negatively affect smaller businesses that rely on these platforms to reach large audiences.
  • Example: Reducing data sharing could limit small businesses’ ability to target customers effectively on major digital platforms.
• Industry Concern: The Internet and Mobile Association of India (IAMAI) has expressed apprehensions about the draft Digital Competition Bill 2024. It suggested that this bill could have adverse effects on Indian startups and other digital enterprises.
  • They argued that the proposed regulations stifle venture investments in technology startups.

Existing Governance Frameworks to Regulate Technologies for Responsible Use

• Competition Act 2002 and CCI: The Competition Act 2002, addresses antitrust issues and regulates Big Tech Companies in India. 
  • The act also establishes the Competition Commission of India (CCI), which monitors monopolistic practices to ensure fair competition. 
  • Recently, CCI penalized Google over misuse of its dominant position in the online search market.
• Competition Amendment Bill, 2022: This bill strengthens CCI’s review process, particularly for digital and infrastructure sectors, by mandating regulations to assess significant business operations in India.
• Information Technology Act, 2000: The Act provides a legal framework for electronic governance, recognizing electronic records and digital signatures. However, it lacks provisions for modern technology misuse.
• Multi-stakeholder Initiatives: Collaboration between governments, businesses, and academia for technology governance. 
  • Example: Global Network Initiative (GNI) and Partnership on AI (PAI).
• RBI Directions and Vision documents: The RBI regularly issues directives and regulations to oversee the activities of big tech companies in the fintech sector.

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Conclusion

The Draft Digital Competition Bill represents a significant step towards ensuring fair competition and preventing monopolistic practices in India’s digital markets. Moving forward, balanced implementation and stakeholder engagement will be key to its success in promoting sustainable digital growth.