Context
India has proposed a 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.
Draft Digital Competition Bill 2024
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.
Digital Competition
- It refers to the competitive landscape within the digital sector, encompassing industries such as technology, internet services, e-commerce, and digital platforms.
- It involves competition among companies in digital products, services, or platforms, focusing on market entry, innovation, pricing, and consumer choice.
Need to Foster Digital Competition:
- High barriers prevent new entrants from competing, leading to dominance by a few companies.
- Example: Companies like Spotify have criticized Apple and Google’s policies for stifling competition.
- Encouraging Innovative Ecosystem: Most innovation has been concentrated within a few large tech firms. Reducing market barriers can foster broader innovation.
- Relegation of Niche Online Products: Users preferring privacy may choose to use Signal for messaging over WhatsApp. and a search engine like DuckDuckGo over Google Search. This results in relegation of such platforms to specific users, rather than being a norm.
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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 Bill: The provisions of the bill 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 2024
- 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 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 2024
- Predictive Regulation: The 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 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.
Quantitative parameters for a company to be designated a SSDE:
- If in the last 3 financial years, turnover in India is not less than Rs 4,000 crore; or
- Global turnover is not less than $30 billion; or
- Gross merchandise value in India is not less than Rs 16,000 crore; or
- Global market capitalisation is not less than $75 billion; or
- The core digital service provided by these companies should also have at least 1 crore end users, or 10,000 business users.
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- 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.
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Regulations Governing Tech Companies in Other Countries
| Country |
Mechanism |
Description |
| Europe |
Digital Markets Act (DMA) and Digital Services Act (DSA) |
The DMA aims to eliminate harmful business practices by major digital players, fostering fairer competition.
The DSA regulates various online services, including websites, infrastructure, and platforms. |
| USA |
Anti-trust legislation |
The US has implemented anti-trust laws to curb the dominance of Big Tech Companies. The law empowers the states in competition cases and boosts federal regulators’ funding. |
| Australia |
Competition watchdog recommendations |
Australia’s competition watchdog advises stricter regulations for Facebook and Google to enhance media competition.
The Online Safety Act empowers authorities to mandate the removal of online bullying posts and imposes fines on companies and hosts involved in the alleged abuse. |
| Japan |
Digital Platform Transaction Transparency Act (DPTTA) |
Japan enforces the DPTTA, requiring tech giants to disclose terms and conditions, prevent unfair trade practices, and protect user information to ensure fair competition. |
| Canada |
Competition Act Amendments |
Canada has updated its Competition Act to include stricter rules for digital markets, targeting anti-competitive practices by large tech firms. |
| South Korea |
Amendment to the Telecommunications Business Act |
South Korea bans app store operators from enforcing in-app payment systems, promoting fair competition and consumer choice. |
Criticism of the Draft Digital Competition Bill 2024
- 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. Examples: 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 2024 is a significant step towards fair competition and preventing monopolies in India’s digital markets. Despite concerns about compliance burdens and innovation impacts, its aim to level the playing field for new entrants and smaller businesses is crucial. Balanced implementation and stakeholder engagement will be key to promoting sustainable digital growth.
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May 20, 2024