The Ministry of Corporate Affairs has recently come up with a the draft report asking for public comments of the Committee on Digital Competition Law along with a draft bill on Digital Competition Law as per Press Release, dated 12-3-2024 can be assessed at https://taxguru.in/corporate-law/mca-seeks-feedback-digital-competition-law-report-draft-bill.html. This development was curtail in the context of the evolving landscape of digital markets, particularly in light of the increasing scrutiny surrounding the practices of big tech companies. The draft bill proposes a structured framework to address concerns related to anti-competitive behavior in digital markets and aims to complement the existing regulatory landscape.
The digital markets in India have experienced remarkable growth in recent years, however, this expansion has not been devoid of challenges. The Competition Commission of India has received many complaints from individuals and companies against large digital enterprises. Additionally, it was noted that different industry associations or trade unions had raised concerns about the digital enterprises with other regulatory bodies. These include unfair trade practices, one-sided and discriminating policies, as well as consumers’ rights violation.
In this article I am going to discuss it in detail!
What is competition?
Competition refers to a situation where two or more people or organizations are trying to get the same thing or be better than someone else.
So why digital competition now?
The Bill on Digital Competition was presented in 2024 (Digital Competition Bill) by the Parliamentary Standing Committee on Finance aimed at curbing anti-competitive behavior of big tech firms. In light of such incidents as Google’s delisting Indian apps that had failed to follow billing policies, there was an urgent need for enhancement of the regulatory framework to effectively handle these issues. Consequently, to find out whether legislation dedicated solely for digital competition is required in India, Ministry of Corporate Affairs (MCA) set up Competition and Digital Markets Committee (CDCL).
Which apps were delisted by google?
In In Re: People Interactive India (P.) Ltd. vs Alphabet Inc., CASE NOS. 37 OF2022 & 17, 27 of 2023 March 15, 2024, The Competition Commission of India had ordered an investigation into Google over alleged abuse of dominant position and the imposition of unjust payment policies on app developers operating within the confines of the Google Play Store.
Informants, comprising both companies and industry associations, contend that Google’s payment policies, notably the compulsory utilization of the Google Play Billing System (GPBS) and the introduction of the User Choice Billing (UCB) system, impose exorbitant service fees and display bias against certain app developers. These practices are purported to breach several provisions of Section 4 of the Competition Act, potentially influencing competition within the app market and consumer options. The Competition Commission of India (CCI) has mandated an exhaustive investigation to investigate these claims within a 60-day timeframe.
So what was the conclusion?
In a case under Section 33 of the Competition Act, 2002, regarding Google’s updated payment policy for its Google Play Store, where informants, an internet company providing audio content through apps on the store, filed a petition before the Competition Commission of India (CCI). Google has been identified as dominant in the markets for licensable operating systems designed for smart mobile devices and for app stores catering to the Android OS platform.
The Director General was directed to investigate the allegations. The informants requested interim relief to prevent Google from charging fees for transactions related to paid downloads or in-app purchases. However, the court noted that several of the relief requests were not part of the CCI’s investigation directive and therefore could not be granted.. The informants failed to demonstrate irreparable harm from Google’s conduct that couldn’t be compensated monetarily, leading to the dismissal of the instant applications, citations of the case were Competition Commission of India People Interactive India (P.) Ltd. V. Alphabet Inc., Case Nos. 37 of 2022 & 17 and 27 Of 2023 March 20, 2024
So Why this bill and what are the Key Provisions of the Draft Bill?
Main reason is for identification of systematically significant digital enterprises that means the bill proposes both qualitative and quantitative criteria to identify enterprises as ‘Systematically Significant Digital Enterprises’, based on factors such as turnover, user base, and market capitalization.
An enterprise is considered a Significant Social Media Intermediary (SSDE) if it meets a dual criterion demonstrating ‘significant presence’:
(a) the significant financial strength test, which includes quantitative indicators of economic power such as India-specific turnover, global turnover, global market capitalization, and gross merchandise value
(b) the significant spread test, which assesses the extent of the enterprise’s presence in providing a Core Digital Service in India based on the number of end-users and business users. The Draft Digital Communication Code (DCB) requires enterprises to self-assess their compliance with these thresholds and report them to the Competition Commission of India (CCI).
Moreover, the Draft DCB anticipates residual powers for designation through ‘qualitative’ criteria for designating certain enterprises as SSDEs that do not meet the quantitative thresholds but still have the potential to significantly influence the market in which they operate.
So what are the thresholds?
For a business to be called a Gatekeeper under the Digital Markets Act (DMA), three qualitative tests should be met:
i) indicated that it has significant impacts on the internal EU market
ii) offers business users an essential gateway through which they can reach final consumers
iii) possesses deep-rooted and predictable durability in operations. On the other hand, there are also measurable thresholds set out by the DMA which if reached will automatically assume compliance with qualitative benchmarks.
These include providing at least three member states with the same core platform service either having an annual EU turnover of at least EUR 7.5 billion in each of the last three financial years or average market capitalization/fair valuation of at least EUR 75 billion for last year. Also, to be regarded as an important gateway between business users and end users, this service must have had not less than 45 million monthly active end users and 10,000 yearly active business users within European Union during preceding fiscal year. Lastly, if you want to establish entrenched and durable positions there is need for an entity to satisfy both end user and business user thresholds for each of the past three fiscal years.
Enterprises meeting the specified criteria must notify the Competition Commission of India (CCI) within 90 days. The CCI may designate an enterprise as ‘Systematically Significant’ based on the information provided.
Measures are proposed to prevent enterprises from segmenting services to evade regulatory thresholds.
Obligations and Compliance Mechanisms: Designated enterprises and their associates are required to comply with prescribed obligations. Non-compliance may attract penalties.
The bill prohibits enterprises from engaging in behaviours that would undermine compliance with obligations set forth within its provisions. These obligations typically pertain to various aspects of operation and conduct within digital markets, such as ensuring fair competition, safeguarding consumer rights, upholding data privacy and security standards, and adhering to regulatory requirements.
Behaviours that undermine compliance with these obligations may include anti-competitive practices such as monopolistic behaviour, predatory pricing, or collusion; violations of consumer rights through deceptive practices or unfair terms and conditions, neglecting data protection measures or mishandling personal information; and disregarding regulatory directives aimed at maintaining a level playing field and ensuring market integrity. By prohibiting such behaviours, the bill aims to foster a more transparent, fair, and accountable digital marketplace that benefits both businesses and consumers while promoting innovation and healthy competition.
Systematically Significant Digital Enterprises are mandated to establish transparent complaint handling mechanisms. Along with that, the enterprises are barred from favouring their own products as done by google or those of related parties over others, also they are prohibited from using non-public data of business users without consent.
Other main reason is to give Freedom for Third-Party Apps, Systematically Significant Digital Enterprises must not restrict the use of third-party applications by end users and business users, also enterprises are not supposed to restrict business users from communicating with end users.
By this bill, CCI is empowered to inquire into non-compliance of obligations by designated enterprises, with presence of provision for settlement procedures for inquiries initiated against enterprises, with the power rested with the Director General who is mandated to assist in investigating contraventions.
Penalties for Non-Compliance?
The bill outlines penalties for contraventions by Systemically Significant Digital Enterprises (SSDEs) or their Associate Digital Enterprises (ADEs). In cases of non-compliance with obligations specified in Chapter III and related regulations, the Commission may impose penalties not exceeding ten percent of the global turnover in the preceding financial year. Additionally, failure to notify the Commission of meeting specified criteria or providing incorrect, incomplete, or misleading information may result in penalties not exceeding one percent of global turnover.
Individuals in charge of SSDEs or ADEs may also be held liable for contraventions, with penalties not exceeding ten percent of the average income for the last three preceding financial years, unless they can prove lack of knowledge or due diligence. Furthermore, if contraventions occur with the consent, connivance, or neglect of directors, managers, or officers, they too may be subject to penalties not exceeding ten percent of the average income for the last three financial years, A limitation period of 3 years is prescribed for initiation of inquiries.
Confidentiality of Information: Strict provisions are in place to maintain the confidentiality of information obtained by the Commission or Appellate Tribunal.
Conclusion
The draft Digital Competition Bill, 2024 represents a significant step towards addressing the challenges posed by anti-competitive practices in digital markets. By introducing a comprehensive regulatory framework, the bill aims to promote fair competition, protect consumer interests, and foster innovation in the digital ecosystem. As stakeholders provide feedback on the draft, it is expected to undergo further refinement to effectively address the dynamic nature of digital markets and emerging challenges therein.
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