India's Shift Towards Proactive Competition Law in the Digital Age
From Ex-Post to Ex-Ante
Digital compatibility of Competition Law:
Currently, ensuring fair competition in markets is done through The Competition Act of 2002 in India (the Act), and the body enforcing it is the Competition Commission of India (CCI). The Act, designed with the characteristics and features of traditional markets in mind, predates the current era of extensive digitalisation.
As an overview, competition or antitrust law is a legal framework designed to ensure fair competition in markets. Competition laws traditionally prohibit any actions that restrict competition or encourage monopolising tendencies, such as predatory pricing strategies, horizontal/vertical tying agreements etc. The development of antitrust laws, in a statutory and codified form, can be credited to the USA and goes back to the 1890s.
The Act currently is limited in its suitability to digital markets, due to a few factors. First, it only enforces penalties post an anti-competitive act being reported, and no pre-emptive action can be taken. This is also called the ‘ex-post’ enforcement framework.
Other issues are having lengthy investigations and growing potential for digital service providers to engage in anti-competitive practices.
With all these and more issues in mind, a Committee on Digital Competition Law (CDCL) was set up on 6th February, 2024 to review the current provisions of the Act and make them more compatible to the digital times we live in. They have published a report which has been analysed in detail through this article.
Alongside it, the CDCL has also published a Draft Digital Competition Bill, 2024 (the Draft Bill) with the report, which is open for public feedback.
Working of the CDCL:
The Committee undertook a comparative analysis of traditional and digital markets, aiming to outline the threshold for regulatory intervention. They also looked into international regulatory trends and the Parliamentary Standing Committee's report on anti-competitive practices by large technology companies.
The Committee's report recognised the fundamental role of network effects and economies of scale in digital markets, often resulting in “winner-takes-all” scenarios where dominant players employ strategies that stifle market competition and solidify their position. Critically, the report identified the inherent time-consuming nature of the Competition Act's ex-post regulatory model, with its emphasis on fact-finding and investigations, that impede the timely detection and remediation of anti-competitive behaviour.
Furthermore, the Committee acknowledged the crucial role of Digital Public Goods (DPGs) like Aadhaar, UPI, and ONDC in facilitating the development of Indian start-ups’ products and solutions. These DPGs have demonstrably enabled ventures to serve remote regions and contribute to India's trajectory towards a trillion-dollar digital economy. Additionally, the report highlighted the remarkable growth of the Indian IT services sector, which has seen revenue explode from under $100 million to $250 billion in just three decades, solidifying India's position as a global leader in high-quality tech talent.
Key Recommendations of the CDCL:
- Introduction of a Digital Competition Act with proactive or ex-ante measures. A draft Digital Competition Bill, 2024 (the Draft Bill) has been prepared by the Committee.
- The Draft Bill should apply to a pre-identified list of Core Digital Services prone to concentration.
- The CDCL recommends designating enterprises with a significant presence and financial presence in the Indian digital market as “Systemically Significant Digital Enterprises” (SSDEs).
- If a group of companies offers a core digital service together, the law might apply to more than one company in the group. The most relevant company might be designated as the SSDE, with others as “Associate Digital Enterprises” (ADEs).
- Obligations applicable to each Core Digital Service would be specified through CCI regulations through a consultative process.
- The CDCL recommends that the grounds for exemption from complying with the ex-ante obligations should be provided for in the statute itself.
- Enforcement of the Draft Bill is entrusted to CCI.
- The CDCL recommends monetary penalties for non-compliance.
International Best Practices:
The scope of abuse of dominant position in digital markets is divergent and the same can take place in a variety of ways. The common methods of abuse of dominant position in the market have been elaborated hereunder.
- EU: The Digital Markets Act Regulation 2022 addresses anticompetitive conduct by large digital undertakings designated as ‘Gatekeepers’ providing ‘core platform services. Both prohibitory and mandatory ex-ante obligations are imposed on Gatekeepers.
- UK: The Draft Digital Markets, Competition and Consumers Bill 2023 (not yet passed) focuses on large undertakings engaged in digital activities having a UK nexus and imposes obligatory and preventive conduct requirements.
- US: Apart from the central antitrust laws (the Sherman Act, 1890; the Clayton Act, 1914; the Federal Trade Commission Act, 1914) twelve Bills have been proposed specifically for regulating competition in digital markets before the US Congress.
Conclusion
The report by the CDCL highlights the limitations of current competition law in addressing the fast-moving digital market. Their proposed Draft Bill with proactive measures aims to tackle anti-competitive practices by large digital companies. However, successful implementation relies on clear criteria for identifying core digital services and large digital players (SSDEs). Additionally, regulating groups of companies and ensuring the CCI has the resources to enforce the law are crucial. Finally, international cooperation is important for India to stay ahead in regulating this dynamic sector. By addressing these challenges, India can unlock its digital economy's potential while promoting fair competition for a flourishing marketplace.
Attempting to implement these features, the Draft Bill is open for all public comments and feedback until May 15, 2024. You can provide yours today, through the Civis platform here.