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REVOLUTIONIZING DIGITAL COMPETITION: UNPACKING THE 2024 DRAFT BILL'S EX-ANTE & PRINCIPLES-BASED APPROACH

[Isha Katiyar is a third-year B.Com, LL.B. (Hons.) law student at Gujarat National Law University in Gandhinagar]


Introduction

 

The recent Draft Digital Competition Bill, 2024 aims to create a new ex-ante regulatory framework to complement the Competition Act's ex-post model to better regulate the Indian digital market. Given the dynamic nature of such markets, timely interventions are essential to prevent anti-competitive behaviour. The rise of digitalization in India with one of the world's largest and fastest-growing digital markets has fuelled sectors like e-commerce and advanced technologies such as Artificial Intelligence, bringing a surge of new digital users.

 

Large digital enterprises, often regulated inconsistently, have sparked anti-competitive concerns addressed also by the Competition Commission of India (‘CCI’) from time to time. The Draft Digital Competition Bill sets principle-based obligations for large digital enterprises known as Systematically Significant Digital Enterprises (‘SSDEs’) corresponding to GDPR’s gatekeepers and allows the CCI to adapt regulations as well. In this article, the author aims to explore how the Draft Digital Competition Bill represents a significant step towards an ex-ante and principles-based approach, shaping India's digital market regulation for the future, fostering innovation, and safeguarding competition in the digital era.

 

History of Digital Market Regulation in India and Need for an Ex-ante Approach

 

Digital markets are inherently dynamic, influenced by network effects, data usage, and user numbers, which impact market concentration. Regulating these markets poses challenges for regulators, who must adapt to their evolving nature by implementing flexible and responsive statutory provisions. The 53rd Parliamentary Standing Committee Report, issued in December 2022 and titled “Anti-Competitive Practices by Big Tech Companies,” highlighted emerging anti-competitive practices in the digital economy. It proposed a new antitrust framework with an ex-ante approach, acknowledging that the evolving nature of digital markets.

 

Large digital enterprises engaging in anti-competitive practices can lead to an outcome where they may exploit the market due to strong network effects and economies of scale. The ex-post framework of the Competition Act struggles to address this due to lengthy enforcement proceedings that commence after the harm has occurred. It is now also increasingly being accepted globally that these systematically significant digital enterprises could not be judged by traditional means of ex-post evaluation. Therefore, after considering all these points the report recommended enacting a separate ex-ante competition law to prevent such harm in digital markets.

 

In February 2023, the Ministry of Corporate Affairs formed the Committee on Digital Competition Law to explore the necessity of an ex-ante competition framework specifically for digital markets. This committee was tasked with assessing whether the existing regulatory framework, including the Competition Act, sufficiently regulated digital markets and examining global regulatory practices. The committee's final report was released on March 12, 2024 which included the draft bill. The comments on the same are invited by the Ministry of Corporate Affairs which may be submitted until the extended deadline of 15th May, 2024.

 

Recommendations of the Committee and Aligning with Global Anti-Trust Regulation Model

 

Initially, the Committee began by evaluating the ex-post framework of the Competition Act, identifying its limitations in addressing the unique aspects of digital markets. It further explored legislative instruments intersecting with digital market regulation in India, such as the Digital Personal Data Protection Act 2023, the Draft E-commerce Policy 2019, the Consumer Protection Act 2019, and the Information Technology Rules 2021, etc. Additionally, the Committee reviewed ex-ante regulatory frameworks from other jurisdictions, including the European Union’s Digital Markets Act, the United Kingdom's Digital Markets, Competition and Consumers Bill, and similar statutes and proposals from the United States, Germany, China, South Korea, Australia, Japan, Taiwan, Singapore, and Canada.

 

The draft bill, under Section 3, classifies specific enterprises within core digital services as SSDEs based on market characteristics, user numbers, and other criteria. These enterprises may receive exemptions from the CCI or central government on specified grounds. Chapter III of the bill imposes obligations on SSDEs, such as establishing transparent complaint handling and compliance mechanisms, prohibiting the misuse of non-public data, and allowing users to access third-party applications. After extensive deliberation, the Committee highlighted the necessity of enhancing the CCI’s Digital Markets and Data Unit by hiring technology experts to keep pace with the rapidly evolving digital landscape. It also suggested forming a dedicated bench within the National Company Law Appellate Tribunal (‘NCLAT’) to expedite competition appeals, especially those concerning digital markets.

 

Other significant features of the draft ex-ante legislation include the designation of Associate Digital Enterprises by companies, giving the CCI the flexibility to identify appropriate entities for designation. The bill adopts much of its procedural framework from the Competition Act, with the NCLAT serving as the appellate authority. Penalties for violating obligations under this proposed legislation, aligned with the Competition Act, are capped at 10% of the SSDE’s global turnover. For providing no or inaccurate information, penalties can reach up to 1% of the enterprise’s turnover. If the SSDE is part of a group, the ‘global turnover’ cap applies to the entire group’s turnover.

 

How the Principles Based Approach incorporated in the Draft Bill is more favourable for India

 

While many global antitrust regulations, such as the Digital Markets Act, adhere to a rules-based approach, the proposed legislation in India diverges by adopting a broad principles-based model. Instead of imposing specific obligations and standardized norms on all SSDEs, this legislation advocates for overarching requirements that can be flexibly applied to an industry in constant flux, where each enterprise's treatment varies based on its activities. This approach, less rigid and codified, provides regulatory efficacy through delegated legislation to the CCI, allowing for adaptability in response to evolving digital markets.

 

By encapsulating legislative objectives into principles, technological advancements no longer necessitate structural change in the regulation's core framework or constant amendments. Moreover, the principles-centric approach significantly diminishes compliance costs for firms, a pivotal factor in safeguarding innovation which is a cornerstone of the digital economy. Concerns regarding uncertainty as a deterrent to antitrust regulation can be assuaged through safeguards in the Competition Act and other ex-post regulations if the need arises. Principle-based regulations underscore an outcome-oriented framework, empowering legislative bodies to envisage a flexible framework tailored to desired outcomes. Such an approach proves optimal for regulating digital markets, enabling swift responses to market changes. Increasingly, technology-based legislations are leaning towards principle-based or light-touch regulations to enhance flexibility while allowing for reasonable regulation. The simplicity inherent in these regulations bolsters oversight and signals a willingness to exercise discretion. It is thus essential to note that ex-ante measures, often viewed as intrusive and anti-competitive, require careful and judicious application as has been urged by the companies in the opposition to the recent bill.

 

In order to strike a balance between certainty and flexibility, under Schedule I of the Draft Digital Competition Bill, there exists an inclusive and pre-identified list of Core Digital Services provided by major digital intermediaries. This open-ended schedule accommodates emerging digital activities in digital markets and facilitates their regulation.

 

Extensive Powers with CCI and Central Government - The Good and the Bad

 

The draft bill envisions that the Competition Commission of India will exercise subordinate legislation-making powers through delegated legislation, such as rules and regulations, to fulfill the objectives of the parent legislation. These subordinate legislations will outline detailed procedures and supplementary provisions under the Draft Digital Competition Bill. They will address the calculation of end users and business users, impose differential obligations for SSDEs  based on each Core Digital Service, set obligations for SSDEs and Associate Digital Enterprises and establish complaint handling mechanisms. This approach ensures the legislative framework remains adaptable to the rapidly evolving digital markets. As the competition regulator and delegated legislation-making body, the CCI will have the authority to introduce regulations responsive to the swiftly changing digital landscape. The CCI also plans to establish a Digital Markets and Data Unit, an interdisciplinary center of expertise dedicated to digital markets, to assist in monitoring market changes and ensuring timely regulatory interventions.

 

Being consistently updated on the evolving digital market realities, the CCI will be well-positioned to craft regulations that align with advancing digital technologies. While the Central Government of India can grant exemptions under Section 54 of the Competition Act for public interest and utility access, the proposed legislation argues that digital economy companies, unlike traditional utilities, do not require such government intervention. Consequently, the CCI's sector-specific exemption powers should suffice, rendering additional government powers unnecessary and excessive.


Conclusion and Way Forward

 

The key recommendations of the Committee, encapsulated in the Draft Digital Competition Bill, mark a transformative phase in India's competition law, establishing a flexible, principle-based framework tailored for dynamic digital markets. With its pioneering introduction of ex-ante obligations and alignment with international standards, the bill signals India's commitment to fostering a digital market that integrates seamlessly with global players while safeguarding domestic interests. By granting subordinate legislative powers, the bill ensures adaptability to the fast-evolving digital landscape, all while adhering to the overarching principles of the parent legislation and assisting the ex-post laws.

 

Moving forward, the question remains: How can we strike a balance between regulatory oversight and fostering innovation in an increasingly interconnected digital world? It is through ongoing dialogue, critical analysis, and proactive engagement that we can shape the future of digital competition in India and beyond.

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The article by Isha Katiyar is a comprehensive and insightful analysis of the significant shifts in India's digital market regulation. The author effectively elucidates the necessity and implications of the Draft Digital Competition Bill, 2024, providing a thorough examination of its ex-ante regulatory framework and principles-based approach. Isha's adept comparison with global standards, coupled with a detailed historical context, demonstrates a deep understanding of the subject matter and presents a compelling case for the bill's transformative potential in fostering innovation while safeguarding competition. This well-researched and articulate piece is a valuable contribution to the discourse on digital competition law in India.

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