Mint Explainer: Why we need a new competition law for big tech companies

India may enact a dedicated law to curb the anti-competitive conduct of large digital enterprises, or big tech, in the months following the 2024 Lok Sabha elections. A recommendation for such a law was made by a parliamentary standing committee in December 2022, after which the ministry of corporate affairs appointed an expert panel to examine the advice and draft a digital competition bill.

A major concern of the parliamentary committee and the expert panel was the rising dominance of a few big tech companies in the digital market which gave them an edge over smaller businesses and start-ups. They felt anti-competitive conduct of large digital enterprises needs to be regulated on an ex-ante basis, rather than on the ex-post basis that the Competition Act, 2002 envisages. The idea is to prevent anti-competitive conduct from occurring, given the winner-takes-most outcomes in digital markets. The idea of amending the existing Competition Act to provide for regulation of digital enterprise was not preferred as the law has a sector-agnostic mandate.

Indian subsidiaries and associates of global digital enterprises and a few domestic ones are against the ex-ante regulations, while domestic trade bodies are in favour of such rules. Mint takes a look at what the expert committee has recommended and how it impacts the tech industry.

Why do we need ex-ante competition regulation for digital companies?

Given the pace at which digital enterprises move, it was felt that affected parties would suffer irreparable damage by the time ex-post measures were ordered to remedy uncompetitive practices. The Competition Act’s ex-post measures involve several stages such as forming a prima facie view by the Competition Commission of India (CCI), an investigation by the director general, and passing of the final order, all of which are time-consuming. Some cases of anti-competitive practices of digital enterprise before the CCI have taken four years or more to be adjudicated. In one instance, the CCI had adjudicated in 2018 on a complaint of abuse of dominant position filed in 2012. Yet, even after 11 years, the case has not reached a final resolution and is presently under review by the appellate tribunal.

Therefore, it is felt that the ex-ante framework will be more efficient at preventing anti-competitive conduct by large digital enterprises which have a significant presence in India and the ability to influence the Indian digital market.

What were the major concerns of the parliamentary committee?

In a traditional physical market, there is a competitive disadvantage to become bigger due to diminishing returns to size. However, in the digital market, players experience increasing returns to size as marginal costs diminish rapidly, making scaling up quickly a good business strategy. Therefore, the bigger the player, the more competitive it can be in the digital market. These entities gain from network effects – newer users would opt to use/join a platform that already has a large number of users, as is seen in the instances of social networking and messaging apps.

The parliamentary committee had identified 10 anti-competitive practices of digital enterprises and these include anti-steering provisions, platform neutrality/self-preferencing, pricing/deep discounting, exclusive tie-ups, search and ranking preferences and mergers & acquisitions (M&As). The draft bill addressed all these concerns other than the one about M&As, which the expert committee felt could continue to be dealt with by the Competition Act.

Will the proposed law apply to all large digital companies?

The proposed law will apply to only a select band of big tech companies – these would be digital enterprises that fall into the pre-identified list of entities providing ‘core digital services’, and have a significant presence and the ability to influence the Indian digital market. Such entities would be designated as ‘systemically significant digital enterprises’ (SSDEs).

An enterprise will fall into this category only if it has a turnover of at least ₹4,000 crore in India, global turnover of at least $30 billion, gross merchandise value of ₹16,000 crore in India or global market capitalisation of $75 billion in the immediately preceding three financial years. Additionally, its core digital services should have either one crore end users or 10,000 business users. These thresholds are in line with those prescribed in ex-ante competition regulation for digital enterprises in the European Union’s Digital Markets Act and the UK’s draft Digital Markets, Competition and Consumers Bill. These thresholds are to be revised every three years once the bill becomes law.

Further, the draft states that a provider of core digital services can be designated as an SSDE by the CCI under certain circumstances even if it does not meet the prescribed threshold if the competition regulator is of the opinion that the entity has a significant presence in the identified service.

What is meant by core digital service?

Core digital services include online search engines, online social networking services, video-sharing platform services, interpersonal communications services, operating systems, web browsers, cloud services, advertising services and online intermediation services. Google, Meta, Apple and Amazon are among the global corporations that will be subjected to the proposed law.

What are the obligations of digital companies under the proposed law?

The application of the proposed law to an entity will be based on self-reporting by the tech company providing any of the listed core digital services. The draft bill states that a digital enterprise that meets the criteria for being an SSDE is required to notify the CCI within 90 days of qualifying. The CCI will then decide if the entity meets the criteria to qualify as SSDE.

Additionally, an entity that is part of a group is also required to notify the CCI of other business enterprises within the group that are directly or indirectly involved in providing core digital services as associate digital enterprises. The competition regulator, in such cases, may designate the group as SSDE or the other enterprise as associate digital enterprises to the SSDE.

Once designated as SSDE, an entity will be required to comply with separate conduct requirements for each core digital service. The draft bill includes provisions that prevent SSDEs and ADEs from directly or indirectly favouring their own products, services or lines of businesses or that of related parties and from using or relying on non-public data of business users operating on its core digital service to compete with such a user. It also says that these SSDEs will not be allowed to restrict end users and business users from using third-party applications or software on its core digital service.

How will the CCI deal with non-compliance with the act and its rules and regulations?

Where the commission finds an entity indulging in uncompetitive conduct or an SSDE failing to comply with the obligations listed in the law, it can temporarily restrain the party from carrying on such act until its inquiry concludes. The commission also has the power to impose monetary penalties on non-compliance with ex-ante obligations and with its orders. Monetary penalties for non-compliance with ex-ante obligations can go up to 10% of the global turnover of the SSDE. At the minimum, non-compliance with orders or directions of the commission will involve a penalty of up to ₹1 lakh for each day of non-compliance.