Tricky call. Competition Bill: Centre’s sudden tweak in indexing penalties to ‘global turnover’ likely to hit Apple

A sudden tweak by the government in introducing the concept of ‘global turnover’ of the enterprises from ‘all the products and services’ as the benchmark for levying penalties by the Competition Commission of India (CCI) for anti-trust violations could dampen investment sentiment with the Cupertino, California-based Apple set to become the first casualty of the proposed major rule change in the Competition (Amendment) Bill 2022, slated to be taken up for passage in Lok Sabha this week.

The passage of the Bill with this proposed amendment would empower the CCI, which is now looking to adjudicate on the investigation it ordered against Apple on December 31, 2021, for mandatory use of its proprietary in-app purchase system (IAP) for distribution of paid digital content, sources familiar with developments said.

The investigation arm of CCI has completed an investigation against Apple in this case and has submitted its report. The findings of the report, however, could not be ascertained. The report is likely to be shared with Apple for its response, they added.

While ordering the investigation, CCI had prima facie noted that Apple through the mandatory use of IAP was restricting the choice available to the app developers to select a payment processing system of their choice especially when it (Apple) charges a commission of 30 per cent for app and in-app purchases.

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Such restrictions imposed by Apple foreclosed the market for app stores for iOS for potential app distributors, CCI noted while ordering probe.

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Firing on all cylinders

While the proposed rule change could significantly bolster the quantum of penalties that may be imposed for any anti-competitive conduct by Big Tech, it does pose a risk of affecting the investment sentiments, say economy watchers.

Interestingly, this rule change is proposed at a time when Apple, the world’s most valuable company, emerged as the largest exporter of smartphones from India, giving a boost to the government’s “make in India” campaign.

The tech giant continues to look to shift more of its assembly lines for manufacturing iPhones and AirPods to India from China due to geopolitical conflicts. It is estimated that smartphone exports from the country for the current fiscal will almost double from the previous year’s $5.8 billion.

Since April 2022, Apple and Samsung have collectively contributed roughly 90 per cent of the total smartphone exports, with Apple’s contract manufacturers (Wistron, Foxconn Hon Hai, and Pegatron) alone accounting for about 55 per cent, and the remaining being accounted for by Samsung at 35 per cent.

In the first two months of 2023, India’s mobile phone exports have reportedly exceeded $2 billion, which is about ₹16,500 crore, mainly owing to increased production and shipments from Apple and Samsung.

No public consultations by MCA

The proposal in the Bill was an official amendment to the original Bill. There was no stakeholder consultation by the Corporate Affairs Ministry (MCA) at any point during the development of the Bill, or during the scrutiny of the Bill by a Parliamentary panel, a top industry representative said on condition of anonymity.

“It is a wild card entry,” added the source.

The proposal to introduce ‘global turnover’ effectively seeks to nullify a Supreme Court ruling which restricted the powers of CCI in levying penalties by holding that turnover for calculating penalties can only be taken as relevant turnover i.e. revenues earned from infringing goods or services.

House Panel Chief’s thumbs up

In a significant development, the Parliamentary Standing Committee on Finance (PSC) Chairman Jayant Sinha has now endorsed the concept of ‘global turnover’.

The PSC did not make such a recommendation, but its Chairman acknowledged it as a “good idea” by the MCA to include it in official amendments to this Bill.

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