[Pariekh Pandey is a Senior Tax Law Associate with EY GDS India LLP]
The Ministry of Corporate Affairs (MCA) in February 2023 mandated the establishment of a Committee on Digital Competition Law (CDCL) for analysing the requirement of a separate legislation for tackling unfair competitive practices specifically in digital markets. The CDCL has been entrusted to provide a draft Digital Competition Act (DCA) within 3 months, after analysing various parameters including assessment of the existing competition enforcement framework, and comparison with other jurisdictions. This comes after the Competition Commission of India (CCI) giving the recommendation for building an ex-ante framework for effectively regulating fair competition in the Indian digital markets, which is why it also assured providing its support on the logistical and secretarial front alongside research assistance.
Precedential measures against alleged abuse of dominant position in digital markets
India has already embarked on the path paved by global deliberations for enforcing stringent regulatory frameworks around US “BigTech” companies like Google and Amazon, with the Government seemingly taking inspiration from the Digital Markets Act newly enforced in the European Union (EU) in November 2022. Similar to Belgium, the CCI has already taken steps to tackle the rising instances of multinational “Big Tech” companies like Google abusing their dominant position in the relevant digital market.[1] In another instance, the CCI in October 2022 clamped down on popular online hotel booking businesses of MakeMyTrip, OYO and Goibibo, awarding them a penalty of ₹ 392 Cr. against their alleged collusive business practices.
The same month saw the CCI penalising Google for abusing its dominant position in two separate instances to the tune of ₹ 1337 Cr. and ₹ 936 Cr., after completing an antitrust probe into its Play Store policies and its standing in the Android mobile device ecosystem. The company was directed not to discriminate against “disadvantaged” original equipment manufacturers (OEMs) in terms of accessing Play Store plugins and licences being conditional on pre-installing Google applications. Additionally, the CCI also ordered the removal of restrictions on app developers having the liberty to distribute their apps through alternatives outside Google’s Play Store.[2] At present, the CCI is entertaining allegations against e-commerce majors Amazon and Flipkart of opting for discriminatory preferences and prioritising listings by particular sellers.
Even the Indian judiciary has been compelled to intervene in appeal cases by BigTech entities challenging the CCI’s orders and investigations into the activities of social media giants. In the case concerning Meta, the Indian Supreme Court upheld the string of past judicial opinions and refused to raise any novel objection to the CCI’s power to investigate the policy updates on its app Whatsapp, which intended to leverage consumers’ personal conversations to encourage preferential treatment to particular businesses through targeted advertising.[3] Twitter in another matter requested the Madras High Court to squash the Indian Government’s orders to block particular tweets and accounts on account of its business in India being adversely affected, claiming 50-60% of the impugned tweets to be “innocuous” and unjustified.[4]
Parliamentary Panel’s recommendations
The Parliamentary Standing Committee (PSC) on Finance presented a report in December 2022, reiterating its earlier stance of proposing ex-ante regulations targeted at digital market players, as presented in the June 2022 report by the Parliamentary Standing Committee on Commerce and the July 2019 report by the Competition Law Review Committee (CLRC) established by the Indian Government. The December 2022 report provided guidelines for the CDCL to engage in proper research and analysis for the creation of a legislation specific to matters pertaining to digital markets, which have a different operational structure than other industries utilising tangible infrastructure for carrying out daily operations.
The PSC conducted a ten-fold analysis into the existing anti-competitive practices in the digital ecosystem, ranging from a rapidly expanding web of network users to the proportionate fall in marginal cost with the growth of digital market organisations. In the long list of unfair competitive practices rampant due to little regulation, the PSC report mainly focusses on the widespread tendency of big market players to articulate “anti-steering provisions” prohibiting sellers to utilise other sale channels, or to actively exhibit the lack of platform neutrality by incentivising products of favourable parent companies through practices such as “bundling and tying”.
The potential of having entry barriers and eliminating nascent businesses in these “winner-takes-all markets” is unmatched by other industries due to the unprecedented pace of growth which sometimes easily surpasses national boundaries with breakneck speed and scale. Larger enterprises in digital markets get the opportunity to exercise monopolistic control over their consumer base, after leveraging private business data obtained through special algorithms in order to skew market dominance in their favour. The scale of such companies also enables them to influence online consumer behaviour by modifying product preferences on online websites based on the stored consumer data, sometimes involving the usage of artificial intelligence to manipulate targeted advertising to make consumers believe that their tastes and interests are specifically catered to.
Through painstakingly obtained industry representations from BigTech companies, the PSC report justified its stance on having a separate set of rules and policies to address the peculiarities endemic to digital markets. Through the suggested legislation, the report advocated for introducing a regimen of classifying particular digital market players as Systematically Important Digital Intermediaries (SIDIs), attracting specific regulatory provisions under the new legislation. The main intention behind the new law is to clearly define SIDIs for classifying different kinds of market practices, alongside pushing them through an ex-ante compliance mechanism to affirm their conformity with the regulations imposed by the proposed DCA. The report also argued for the establishment of a separate digital markets unit being established within the CCI, for advance monitoring of competitive practices in digital markets to achieve legally compliant behaviour from SIDIs and other businesses.
Reactions by BigTech companies – Analysing impact on future operations
As anticipated, BigTech companies heavily opposed the PSC’s recommendations, questioning the heavy regulatory constraints suggested to control their business operations and scale-building activities. The Asia Internet Coalition (AIC), an industry association established for the Asia-Pacific region in 2010 representing major market leaders like Meta, Amazon and Google, condemned the report as “prescriptive, absolutist and regressive in nature” which might “dampen digital innovation in India”. The AIC’s statement raised apprehensions on Indian consumers bearing the brunt of the DCA ultimately raising disproportionate costs to access digital technologies, while simultaneously affecting the efforts on innovation and investment by digital businesses.[5]
For such situations, the AIC urged the Indian Government to conduct stakeholder consultations across the market for ensuring that new legislative proposals strike a balance between protecting their interests alongside the consumers’ preferences, while analysing international best practices and their suitability in the Indian arena. They requested the Government to study the legislative impact on Indian digital consumption, as they believe that simply transplanting legislative reforms, which are still under debate in other jurisdictions, could harm the possibility of promoting innovation to achieve the objective of connectivity for all under the ongoing Digital India initiative.[6]
Opinions published by experts do support analysing foreign policies tackling digital competition, while considering the viewpoint presented by BigTech companies to examine their viability in the Indian digital markets which are gradually pacing up to the highly developed Western markets. However, other experts also recognise the “stranglehold” placed by large-scale BigTech companies for forcing customers to choose favourable products and services without proper information or independence. While the DCA provisions will have an obvious impact on the business operations of such companies, it will definitely invite greater liberty for the Indian consumer populace to make choices with their informed consent without being influenced by targeted marketing gimmicks hidden to the eye.
Experts also express concerns on the ex-ante regulations under the DCA, since new entrants in the digital markets would be demotivated with the stringency of regulation the DCA would uphold in following the PSC’s recommendations. Larger firms fuelling the drive for innovation-based digital advancements would end up bearing the majority burden of propagating fair competition under heavy scrutiny, while smaller firms with lesser impetus to innovate would be indirectly affected by this lag in technological advancement, in lieu of adequate resources for investment. Therefore, while monopolies may be inevitable, the new legislation would be able to root out unjustified ones by ensuring that action is taken well before any economic damage is even remotely inflicted through unfair digital competition.
While the PSC’s intentions to regulate digital competition ex-ante may be well placed, a balancing act is undeniably required on the part of the CDCL, to draft the DCA as a firewall fortifying consumers’ wellbeing in the Indian digital market without driving away opportunities to innovate and the ability to achieve rapid technological advancements. In light of the lucrative policies enforced in foreign jurisdictions, the CDCL needs to recognise the intense pressure on its shoulders to make Indian digital markets attractive for new entrants, while also acknowledging the scale of growth of digital entities amongst the eager Indian consumers.
[1] https://government.economictimes.indiatimes.com/news/governance/india-looks-to-join-eu-with-new-digital-competition-act-to-end-bigtech-hegemony/96443508/. [2] https://indianexpress.com/article/technology/centre-sets-up-committee-to-prepare-draft-digital-competition-law-8428005/. [3] https://inc42.com/buzz/big-blow-to-meta-sc-green-lights-ccis-probe-into-whatsapp/. [4] https://inc42.com/buzz/centre-issued-blocking-orders-for-several-innocuous-tweets-twitter-in-ktaka-hc/. [5] https://www.business-standard.com/article/technology/india-s-new-competition-law-may-dampen-digital-innovation-big-tech-123010900568_1.html. [6] https://techcrunch.com/2023/01/08/us-tech-giants-say-indian-panels-recommended-competition-act-absolutist-and-regressive/.