Introduction
The omnipotent entities prevailing in the realm of information technology, colloquially referred to as ‘big tech,’ have become the focal point of intense scrutiny by antitrust authorities spanning the globe. Eminent conglomerates such as Google, Amazon, and Facebook, among others, have been implicated in the perpetration of anti-competitive maneuvers. A case in point is the recent legal action initiated by the United States Federal Trade Commission to impede Microsoft’s ambitious endeavor to acquire the esteemed video game company Activision Blizzard for a staggering $69 billion. Similarly, in the Indian landscape, the Competition Commission of India (CCI) has wielded its authority by imposing a hefty penalty of Rs 1,337.76 crore on Google, citing the abuse of its dominant position within the Android mobile ecosystem. These momentous occurrences incontrovertibly demonstrate the market-disruptive prowess wielded by these behemoth tech enterprises.
In order to curtail the deleterious impact of these technological giants on fair market competition, countries worldwide are adopting pre-emptive regulatory measures designed to forecast and preempt potential antitrust transgressions. India, too, is poised to embrace the smooth integration of ex-ante regulations. Nevertheless, mounting apprehensions have surfaced in tandem with the implementation of said regulations. This scholarly discourse undertakes a comprehensive analysis of the recent proposition to incorporate ex-ante regulations into India’s existing antitrust framework and concludes by advocating for additional modifications to be made prior to the full assimilation of ex-ante regulations.
Ex-ante Regulation of big techs: a way to ensure the level playing field
Ex-ante regulation emerges as a cutting-edge regulatory mechanism, distinct from the conventional ex-post assessment approach, which solely evaluates anti-competitive practices post facto. In stark contrast, ex-ante regulation strives to prognosticate such anti-competitive practices prior to their occurrence, forestalling any detrimental effects on the market and ensuring expeditious rectification without compromising competition or consumer welfare. Nonetheless, it eschews the uniform regulation of all market operators, instead establishing supplementary rules exclusively for those operators who possess a substantial competitive advantage or, in other words, hold a dominant market position within their operational sphere, exemplified by Google’s position in the Android OS market. These formidable tech entities, known as gatekeepers, are subject to specific rules and regulations distinct from those governing ordinary digital entities.
Historically, ex-ante measures have been deployed in utility markets, such as electricity distribution, where the presence of significant entry barriers and extensive investment requirements resulted in market control by a sole entity, thereby affording unchecked profitability. Consequently, ex-ante obligations pertaining to non-discriminatory treatment, anti-competitive practices, and price regulation became customary within the utilities sector. However, owing to the disruptive potential wielded by major technology platforms like Google and Facebook, countries worldwide are now embracing ex-ante frameworks to rein in the market-disruptive influence of these tech giants and foster an equitable playing field.
India, too, contemplates the implementation of ex-ante regulation, in addition to measures like the identification of Systematically Important Digital Intermediaries (SIDI) and the introduction of a new Digital Competition Act, as advocated by the parliamentary standing committee’s report on “Anti-competitive Practices by Big Techs.” These recommendations align with the European Union’s recently enacted Digital Market Act, which aims to curb the anti-competitive conduct of tech behemoths through ex-ante regulation.
The CCI maintains that the adoption of ex-ante regulation will yield prompt market corrections, fortify regulation of the digital industry, and establish a level playing field for all market participants, irrespective of their size, age, or dominance.
Nevertheless, the implementation of ex-ante regulation in India presents certain caveats. It runs the risk of impeding innovation within the digital industry and hindering the growth of the country’s digital economy, as it classifies the content and application layer of the internet as a utility, disregarding the interoperability inherent in Web 2.0. Furthermore, it mandates regulations in anticipation of future anti-competitive acts, imposing a uniform set of rules on all digital platforms (gatekeepers), disregarding the significant variations among technological platforms and the accompanying associated risks.
Ex-ante Regulation: A Cause of Concern for Innovation in the Digital Industry in India?
The digital market, being characterized by its perpetual flux and incessant technological progress, engenders constant disruptions instigated by novel and innovative technologies. These disruptions, indispensable for the growth and maturation of the digital industry, foster equitable competition within the market and facilitate the provision of high-quality products to consumers at reasonable prices.
However, the recent proposition to introduce ex-ante regulations appears to stifle these very disruptions, potentially impeding the expansion of the digital economy. Furthermore, unlike the ex-post assessment approach, which is contingent upon the presence of substantial evidence of anti-competitive practices, ex-ante regulation imposes controls based on regulators’ speculative anticipation of future anti-competitive conduct, thus rendering it susceptible to manipulation and biases within the purview of the regulators. Lastly, it mandates a uniform set of rules and regulations applicable to all SIDIs, irrespective of their specific functions. Consequently, it imposes inflexible regulations that may prove advantageous to some but disadvantageous to others.
Although these concerns merit serious contemplation, they can be effectively addressed through the establishment of a robust regulatory framework that strikes a delicate balance between fostering innovation and implementing market regulations for big tech entities and SIDIs. The potential implementation of ex-ante regulation by several countries, including the United States, Australia, and New Zealand, underscores its potential efficacy. Therefore, rather than rejecting it outright due to its remediable shortcomings, the focus should shift towards formulating an efficient regulatory framework to facilitate its implementation.
Regulatory Framework: A way to strengthen ex-ante regulation
Presently, within the Indian context, the prevailing regulatory framework aimed at addressing the anti-competitive practices of major technology companies adopts an ex-post assessment approach. Section 20(1) of the Competition Act, 2002, delineates this method, which examines anti-competitive practices subsequent to their occurrence. However, this approach is fraught with challenges, as the damage to the market has already transpired by the time ex-post assessment is triggered. Furthermore, the process of levying charges against a company for anti-competitive practices under ex-post regulation is arduous, entailing protracted investigations and inquiries punctuated by legal obstacles.
These deficiencies inherent in ex-post regulation have spurred a call for the adoption of ex-ante regulation, which has the ability to anticipate anti-competitive behaviors in advance, thus safeguarding the market against the detrimental consequences of competition erosion. Nonetheless, implementing ex-ante regulation without a comprehensive regulatory framework would yield counterproductive outcomes. Therefore, it is imperative to undertake a thorough analysis of the impact of ex-ante regulation on the digital market and establish protective measures that strike a harmonious equilibrium between regulation and innovation. These safeguards should ensure the establishment of precise terms and conditions for the identification of any major technology company as a SIDI, thereby mitigating the potential for regulatory bias.
Additionally, there exists a pressing need for ongoing evaluation of SIDIs, given the dynamic nature of the digital market. Failure to continuously assess and update the status of SIDIs would jeopardize the interests of significant technology entities and prove detrimental to the broader digital economy. Furthermore, the regulatory process should not burden businesses with cumbersome procedures, as it would instill apprehension in the minds of major tech players and impede the ease of conducting business. Such ease is indispensable for India’s aspiration of attaining the status of an advanced digital economy.
Conclusion
The rapid pace of technological advancement and the extensive dominance of major technology companies in the digital sphere have rendered conventional regulatory methods ineffective, necessitating the adoption of innovative regulations to address anti-competitive practices. The imperative of establishing a level playing field, which upholds the delicate balance between regulation and innovation, forms the crux of the digital industry. Consequently, the exigency of the present moment lies in embracing ex-ante regulation as a solution. However, its introduction must be accompanied by robust safeguards and a comprehensive regulatory framework to avert potential setbacks that could impede prospects for innovation. It is vital to implement ex-ante regulation within a well-structured framework that effectively governs the digital market, ensuring equitable treatment for all market operators, regardless of their size, consumer base, stability, or market reach.
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