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Notwithstanding the stiff resistance from Big Tech, the Centre-appointed 16-member Committee on Digital Competition Law (CDCL) has recommended that a separate Digital Competition Act be enacted and an ex-ante framework be introduced so as to enable the Competition Commission of India (CCI) to selectively regulate large digital enterprises.
The proposed law should complement and strengthen the existing competition framework governing large digital enterprises by ensuring timely detection, enforcement, and disposal of proceedings in digital markets, the 236-pages report submitted to the Finance and Corporate Affairs Minister Nirmala Sitharaman has recommended.
Corporate Affairs Ministry (MCA) has now invited public comments on the report and the draft Bill on Digital Competition Law by April 15.
Big tech companies such as Amazon, Apple, Google, Meta, and biggies like Flipkart and Uber conveyed to the panel that they were not in favour of introducing an ex-ante framework to regulate large digital companies.
THRESHOLDS & CRITERIA
The CDCL has developed thresholds and criteria to ‘catch’ entities with the power to influence digital markets analogously to dominant entities. The digital panel has recommended quantitative thresholds for identifying and designating an enterprise as a Systemically Significant Digital Enterprise (SSDE), which will be regulated under an ex-ante framework. SSDEs will be regulated for the specified Core Digital Services they offer and meeting the threshold criteria.
The quantitative threshold has been based on a dual test —‘Significant financial Strength’ and the ‘Significant Spread ‘ test. The significant spread test comprises metrics relating to the number of business users and end users of the Core Digital Service in India, which should also be fulfilled consistently for period of three financial years.
The Digital Panel has recommended that an enterprise be deemed an SSDE when it fulfils several thresholds of the ‘significant financial strength’ test along with fulfilling either the end/business users’ thresholds under the ‘significant spread’ test.
The draft Digital Competition law has said that an entity engaged in “core digital services” will be deemed as an SSDE if it has a turnover in India of at least ₹4,000 crore, or a global turnover of at least $30 billion or gross merchandise value in India of at least ₹16,000 crore, or a global market capitalisation or fair market value of $75 billion; and if its core digital service had at least 1 crore end users or at least 10,000 business users in India in each of the preceding three financial years.
A self-reporting regime is proposed to be introduced, under which enterprises falling under the SSDE definition ought to notify CCI, failing which they may be penalised.
The designated SSDEs will also be prohibited from engaging in anti-competitive practices (ACPs) such as self-preferencing, anti-steering, and restricting third-party applications, among others, for the identified services, and if they do, they can attract a penalty of up to 10% of their global turnover, the Digital Panel has said. The Standing Committee on Finance headed by Jayant Sinha had identified ten ACPs that needed to be addressed by the CDCL in its recommendations. Except for the one on Mergers & Acquisitions addressed in the Competition Act), the Digital Panel has accepted and acted upon the remaining nine ACPs.
Even if these quantitative thresholds are not met, the CCI can designate an enterprise as an SSDE if it thinks that the company has a “significant presence” with respect to a core digital service (CDS) along multiple factors, including the company’s size and resources, monopoly position, network effects, volume and commerce, number of end or business users, economic power and data-driven advantages, market structure and size of the market, etc.
The Draft Bill proposes that the CCI can impose different sets of regulations for different CDS and different obligations for different SSDEs depending on the nature of the market, the number of users in India, and any other factors that the CCI deems fit. It can also specify different regulations to the group entities of the SSDEs that offer CDS, designated as “Associate Digital Enterprises”.
Also, the draft Bill has stipulated that the SSDEs and ADEs should not engage in any behaviour (such as dividing up their business, etc.) that will allow them to escape the regulations.
Among other obligations, SSDEs are prohibited from using any non-public data of their business users or cross-using personal data of end users collected from different CDSs. They must also allow users to access third-party applications, and change default settings.
The Centre is proposed to be empowered to exempt enterprises from any provisions, rules, or regulations for three reasons:—state security or public interest; India’s obligations under bilateral or global treaties; or if the enterprise performs a sovereign function on behalf of the central or state government.
MCA set up the CDCL on February 6 last year with a mandate to submit a report along with a draft Bill on Digital Competition Law within three months. It was tasked with examining whether India needed an ex-ante framework (where the conduct of Big Tech is sought to be regulated and specified practices are upfront declared illegal) or not. India is currently adopting an ex-post framework where a regulator adjudicates whether certain acts of a player are illegal after they have been committed.
Commenting on the report, Saksham Malik, Senior Programme Manager - Competition Law and Policy, The Dialogue, said the public consultation period (till April 15) is too short for the community to provide meaningful and well-researched comments. The law will impact large companies, technology startups, consumers, and small businesses. For the ecosystem, especially those stakeholders with limited to no knowledge of competition and digital markets, it will prove immensely difficult to submit well-researched and thought-out comments. A significant extension may be required on this front, he added.
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