Internationally, the push for digitization by Governments towards digitization has led to a remarkable growth of digital avenues across various sectors, which has introduced new complexities and challenges. With this exponential growth, there is a growing need for specialized regulatory measures to foster competition innovation, and safeguard consumer interests in the digital realm. Regulators across the globe are currently evaluating an effective framework for addressing competition in the digital sphere.
Notably, EU adopted the Digital Markets Act with the objective to govern large online platforms that act as gatekeepers to the digital sector in EU. The EU law becomes effective in large parts from May 02, 2023. The UK's Digital Markets, Competition and Consumers Bill is in its final stages of approval and is awaiting royal assent. Countries, such as Australia, Japan and Germany have already been governing large digital platforms through their competition regulators.
In February 2023, the Ministry of Corporate Affairs in India established the Committee on Digital Competition Law (CDCL) to examine the adequacy of existing laws, particularly the Competition Act, in addressing the unique challenges of the digital economy. On March 12, 2024, the CDCL released its findings in the form of a report (CDCL Report) along with an ex-ante Draft Digital Competition Bill, 2024 (Draft Bill), inviting public feedback until April 15, 2024.
Through the proposed legislation, CDCL empowers the Competition Commission of India (CCI) to proactively monitor and regulate anti-competitive behaviour of large digital enterprises, such as exclusionary tactics, preferential treatment of in-house products, bundling services, exploitation of personal data, predatory pricing, and manipulation of search engine algorithms. The Draft Bill applies to a predefined list of Core Digital Services (CDS) susceptible to concentration and anti-competitive behaviour. Some of the identified CDS include, online search engines, social networking services, video-sharing platforms, operating systems, cloud services, interpersonal communications services and advertising services. This list would be curated based on the CCI's enforcement experiences, market studies, and global practices.
The proposed law regulates Systemically Significant Digital Enterprises (SSDEs), based on their turnover and volume of commerce. CCI has been empowered with discretionary powers to designate certain enterprises as SSDEs based on qualitative criteria, even if they do not meet the quantitative thresholds but still wield significant market influence. Additionally, all associated entities (Associated Digital Enterprises or ADEs) of large SSDEs will be subject to the same obligations as SSDEs, with penalties for non-compliance. The designation of SSDEs lasts for three years and is renewable, subject to market changes. The Central Government may exempt certain enterprises from the Draft Bill's purview.
According to the proposed law, the SSDEs along with its associated entities must establish transparent and effective complaint handling and compliance mechanisms. They are required to self-assess their qualification as an SSDE and report to the CCI within a period of 90 days of meeting the SSDE thresholds. They cannot directly or indirectly favour their own products, services, or lines of business. They cannot rely of non-public data of business users operating to compete for the identified service. More specifically, they cannot restrict or impede the ability of end users and business users to download, install, operate, or use third-party applications or other software on its Core Digital Services.
The CCI has the power to initiate inquiries either independently or from a complaint received. Orders of the CCI may range from prohibitions on a particular type of activity or contract, with monetary penalty of up to 10% of the global turnover, or directions to modify the conduct of an enterprise. The CCI can also pursue inquiries against enterprises for non-compliance under this law, even if an enterprise is based outside India or if any practices originate from outside India. There is an additional provision for fine of up to 1% of global turnover for furnishing false information or failure to notify CCI of non-compliances. The enterprises may appeal against the CCI directions/orders to the National Company Law Appellate Tribunal ("NCLAT") within 60 days, after depositing 25% of the penalty amount. Additionally, they can appeal NCLAT decisions before the Supreme Court within the same timeframe.
Key takeaways
The proposed law presents opportunities for smaller players and start-ups to enhance their competitiveness thereby potentially stimulating innovation within the digital ecosystem. At the same time, large digital enterprises can likely face heightened regulatory scrutiny under the Digital Competition Bill. This could result in changes to market concentration, the emergence of new competitors, and shifts in consumer preferences and behaviour. Moreover, compliance with the proposed provisions may entail significant costs for SSDEs and other industry players, impacting market dynamics and necessitating adjustments to business practices. The provisions for regulating enterprises based outside India and for pursuing inquiries against practices originating from outside India could have implications for global digital players operating in the Indian market. These companies may need to ensure compliance with Indian regulations and cooperate with Indian authorities in regulatory inquiries. This law is a significant development in India's digital regulatory framework, which requires careful attention and adaptation from all stakeholders.
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