Investigating Anti Competitive practices in digital markets

INTRODUCTION

Competition law, also referred to as antitrust law, is a collection of legislation that forbids anticompetitive behaviours including price fixing, bid rigging, and market allocations to foster fair competition in the marketplace. In a free market economy, where companies strive to provide customers with the greatest products and services, competition law is essential. The development of cyberspace has brought new difficulties for the law of competition. Businesses can now operate internationally thanks to the internet, which makes it challenging to enforce competition laws across borders.

Digital technology has also made it possible for businesses to gather and evaluate enormous amounts of data, which may result in anticompetitive actions like price discrimination or strategic alliances. The digital age has required changes to competition law. For instance, anti-competitive agreements between businesses in the same industry, even if they are located in different countries, are forbidden by regulations in many of these countries.

Furthermore, authorities are increasingly identifying and looking into anticompetitive activity using data-driven methodologies. Businesses need to be aware of the laws and rules that apply to them to guarantee that competition law works in cyberspace. This entails being aware of the kinds of actions that are deemed to be anticompetitive as well as the possible consequences for participating in them. Governments are also taking action to make sure businesses abide by competition law. Examples of these actions include enacting enforcement policies and filing lawsuits against businesses that break the law

COMMON ANTI-COMPETITIVE PRACTICES IN THE DIGITAL MARKET

With the digital economy growing at a rapid pace and certain businesses dominating important sectors, anti-competitive behaviours in India’s digital markets are becoming a growing source of worry. These actions may hurt consumers’ interests, impede innovation, and weaken competition.

1. Predatory Pricing: Predatory pricing, in which dominant companies purposefully cut prices to unsupportable levels to push competitors out of the market, is a prevalent anti-competitive conduct seen in digital markets. Long-term, this may reduce consumer choice and put up obstacles for new competitors to enter the market. Predatory pricing has been documented in India in industries like ride-hailing, e-commerce, and food delivery.

2. Exclusive Agreements: To stop sellers or service providers from offering their goods or services on rival platforms, digital platforms frequently sign exclusive agreements with them. This may reduce consumer access to a wide variety of options and eliminate competition. The Competition Commission of India (CCI) has looked at cases involving exclusive contracts in industries including app-based services and online shopping.

3. Abuse of Dominant Position: In digital markets, dominant actors have the potential to unfairly disadvantage competitors or impede their capacity to function by abusing their market dominance. This can manifest itself in several ways, such as tying agreements, reluctance to trade, and discriminatory behaviours. Cases of digital platform abuse of dominance have been closely examined by the CCI, especially in industries where a small number of companies have a substantial share of the market.

4. Violations of data privacy: Digital platforms frequently gather enormous volumes of customer data, which can be exploited for anti-competitive activities or to obtain a competitive edge. Competition distortion and harm to consumer interests can result from misuse of consumer data and violations of data privacy legislation. India has passed laws about data privacy, such as the Personal Data Privacy Bill, which attempts to control how digital platforms gather, store, and use personal data.

5. Collusive actions: Collusive actions can damage consumer welfare and impede competition. Examples of such practices include price-fixing agreements and market allocation schemes. Digital platforms may collude to set prices or market tactics, either directly or indirectly. Cases of cooperation between digital players have been looked into by the CCI, especially in industries with little competition.

6. Algorithmic Bias: This is the term used to describe the application of algorithms that give preference to particular sellers, goods, or services over others, resulting in unfair competition and distortions of the market. Digital platforms frequently employ algorithms—which are manipulable to the advantage of dominant players—to decide search rankings, prices, and recommendations. The effects of algorithmic bias on competition in digital markets have drawn the attention of Indian regulators.

THE  53RD PARLIAMENTARY STANDING COMMITTEE REPORT OF DECEMBER 2022 

Internet-based businesses with millions of users make up digital markets. These marketplaces could be dominated by a small number of dominant firms that rise to prominence quickly. On December 22, 2022, the Standing Committee on Finance (hereafter referred to as the “Committee”) submitted its report titled “Anti-Competitive Practices by Big Tech Companies.”1. The Committee’s observations and recommendations are presented for each of the ten significant anti-competitive practices by Big Tech corporations in this report. The report highlights how, in the absence of regulation, monopolistic behaviours will hinder fair competition, limit customer choice, and impede the establishment of new entities as the Indian digital ecosystem evolves.

Ex Ante Measures and Systematically Important Digital Intermediaries

Companies found guilty of anti-competitive behaviour are punished ex-post, or after the practice or harm has occurred, under the current Competition Act of 2002. The Committee deliberated about the possibility that these actions might come too late to spare the impacted parties irreversible harm. The Committee suggested that ex-ante clauses be mandated for digital marketplaces, especially for Big Tech firms.

The Committee observed that there is a growing international agreement that, to maintain fair competition in digital markets, it is essential to identify the Big Tech companies, or Systematically Important Digital Intermediaries, or “SIDI,” that have the potential to adversely affect competitive behaviour in the digital ecosystem and to subject them to ex-ante provisions. Based on their revenue, market capitalization, and the quantity of active end users and businesses, they ought to be classified as SIDIs. It was suggested that the Central Government and the Competition Commission of India (“CCI”) work together to develop a fair definition. Every year, these SIDIs ought to send a report to the CCI outlining the steps they took to abide by their legal requirements.

Digital Competition Act

The Committee noted that to meet the particular requirements of the digital market, India must improve its competition law. The Committee suggested that to guarantee an equitable, open, and contestable digital economy, the government should enact a Digital Competition Act. The Committee also suggested that to combat anti-competitive behaviour in digital marketplaces, the CCI’s role should be strengthened. It recommended that the CCI create a dedicated unit for digital markets. This unit would oversee both established and newly emerging SIDIs, check compliance, recommend SIDI designations to the federal government, and decide cases about digital markets.

Anti-competitive practices discussed in the 53^rd Standing Committee report

The following are certain anti-competitive practices discussed in the Report:

1. Acquisitions and Mergers: A recurring problem in digital marketplaces is killer acquisitions, or big companies purchasing highly valued start-ups without subjecting the deal to merge control regulations that emphasize turnover. The Committee observed that certain mergers and acquisitions fall outside of CCI’s purview due to their failure to reach the asset and turnover levels necessary for combinations. Given that digital markets contain little assets and minimal turnover, it suggests using a deal value-based approach. It also suggests that a SIDI notify the CCI in advance of any planned concentration in which the merging companies or the concentration target offer digital services or facilitate data gathering, regardless of whether the CCI has to be notified.

2. Platform Neutrality/Self-preferencing:When a business plays the dual roles of platform provider and competitor on the same platform, self-preferencing happens when it favours its services or the services of its subsidiaries on the platform, either directly or indirectly. Businesses could abuse their authority as application store owners, for example, by favouring their programs over those of their rivals in search results. The Committee observed that if platform neutrality is compromised, downstream markets may suffer as a result of the platform receiving an unfair advantage and downstream market revenues falling. SIDIs were advised not to give preference to their services over rivals while facilitating access to supply and sales marketplaces.

3. Data Usage:Digital businesses gather a ton of consumer data. Owing to network effects, a platform’s subscriber base grows as more people utilize it, collecting more data in the process. Such information could be exploited to follow and profile final consumers. Additionally, organizations may use this data for other services they offer. Big Tech companies benefit from this and their market dominance is solidified, but it also puts obstacles in the way of small and emerging businesses’ growth and entry. The Committee suggested that if third parties use the core services of the SIDI, then SIDIs should not process end users’ data to offer online advertising services. They shall also refrain from combining personal information obtained from the applicable platform core service with information obtained from any other platform core service or third-party services. It is not permitted to use personal information from the applicable SIDI core service for other platform services. To integrate personal data, end users shouldn’t be logged into other platform services unless they have been given an option and have given their agreement.

4. Restricting Third-Party Applications:The Committee reported that it had been discovered that certain entities prohibited the installation or use of third-party programs. An operating system may, for example, prohibit users from using services provided by applications other than its own. An example of this would be Apple’s policy of not allowing third-party apps to be loaded on iPhones. According to the Committee, third-party software programs should be allowed to be installed and used on SIDIs.

5. Adjacency/Bundling and Tying:Digital companies engage in such methods when they link their primary product or services to other supplementary products or services, forcing their customers to purchase related services. Consider a mobile operating system that promotes the use of its search engine. It was noted how application stores hinder developers’ ability to charge fairly for each service and limit their options by combining various services into a single, all-or-nothing package. The Committee observed that this leads to pricing imbalance and eliminates competition in the market. Leading companies can also use it to transfer their market dominance from one core platform to another. It was suggested that for enterprises or end users to use, access, sign up, or register for their primary platform service, SIDIs should not require them to subscribe to or register with any additional services.

6. Anti-steering:Entities employ anti-steering clauses to restrict business users’ options by keeping them from leaving the platform and employing other options. As an example, application stores require the purchase of applications through their payment gateways. Anti-competitive exclusionary practices stem from these actions. The Committee deliberated about the idea of explicitly designating anti-steering as anti-competitive. It was advised that SIDIs should refrain from granting access to their platform in exchange for preferential status or the purchase or use of extraneous goods or services.

THE COMMITTEE ON DIGITAL COMPETITION LAW OF FEBRUARY 2023

In light of this, in February 2023, the Committee on Digital Competition Law (CDCL/Committee) was established to investigate the necessity of establishing an ex-ante competition framework to regulate digital markets. The Committee was given the task of determining whether the Competition Act and other current regulations for digital markets were sufficient to appropriately govern these markets. Examining international standards for regulating digital markets was another duty assigned to the Committee. On March 12, 2024, the Committee’s final report was made public.

The Committee examined the Competition Act’s ex-post framework and any potential drawbacks in handling the unique characteristics of digital marketplaces. The Committee also looked at laws about data privacy, e-commerce, consumer protection, and information technology that are related to the regulation of digital markets in India. These laws include the Digital Personal Data Protection Act, 2023, the Consumer Protection Act, the Draft E-commerce Policy 2019, and regulations under the Information Technology Act, 2000 like the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021.

Key Findings and Recommendations of the Committee

After careful consideration, the Committee concluded that the current domestic legislative tools are insufficient to tackle the anti-competitive actions that are common in digital markets. Furthermore, the ex-post regulatory structure and drawn-out enforcement procedures of the Competition Act, which was initially created for traditional markets, might not be appropriate for the quick-paced digital markets.

The Committee also discovered a growing body of international regulatory agreements regarding the necessity of digital market ex-ante regulation. The Committee’s three main recommendations are as follows: (i) India’s digital markets should be governed by a new ex-ante competition law, which would supplement the Competition Act’s current ex-post framework by ensuring prompt intervention against large digital enterprises engaging in ACPs before the anti-competitive harm occurs; (ii) The CCI’s Digital Markets and Data Unit (or “DMDU”) needs to strengthen its technical capacity by onboarding technology experts to help it navigate the rapidly evolving digital market landscape; and (iii) The NCLAT should establish a separate bench to expedite the resolution of competition appeals, especially those about digital markets.

Key features of the Draft Digital Competition Bill

The key features of the draft ex-ante legislation as deliberated upon extensively by the Committee, i.e. the Draft Digital Competition Bill (‘Draft DCB’), are:

1. Associate Digital Enterprises: The Draft DCB gives the CCI the authority to identify group enterprises that are either directly or indirectly involved in providing CDS with SSDEs as Associate Digital Enterprises (‘ADE’), to ensure that businesses are unable to evade their responsibilities. To provide the CCI with the freedom to choose which group entities are most suitable for designation, the Draft DCB requires notifying companies to also notify any other group entities that are directly or indirectly involved in supplying CDS.

2. Obligations: For SSDEs and ADEs, the Draft DCB lays forth broad, principle-based requirements. The responsibility of defining the specifics of these commitments through rules has fallen to the CCI. Since different SSDEs and ADEs have varying degrees of market influence, the Draft DCB gives the CCI the authority to impose varied responsibilities on each CDS according to variables including user base size and business models.

3. Exemptions: The CCI has the authority to waive SSDE’s responsibilities under the Draft DCB for specific reasons, including cybersecurity and compliance with existing laws. Through laws that are particular to each CDS, the CCI will provide the details of such exemptions. The Central Government may also exclude businesses from the Draft DCB’s application if there are specific justifications, such as the public interest or the state’s security.

4. Enforcement: The Competition Act provides the main procedural framework that the Draft DCB uses. The NCLAT is the appellate body under the Draft DCB.

5. Remedies: The maximum penalty for breaking the terms of the Draft DCB, which is in line with the Competition Act, is 10% of the SSDE’s total worldwide revenue. Penalties of up to 1% of the enterprise’s turnover may be imposed for failing to provide information or providing information that is erroneous as required by the Draft DCB. Interestingly, the “global turnover” cap is determined using the total turnover of the group in situations where the SSDE is a member. The CCI will calculate penalties in compliance with the Draft DCB’s penalty guidelines.

CONCLUSION 

The online domain is becoming a more significant place for competition law challenges, and as cyberspace grows, so too will the need for competent regulation. Businesses need to be aware of the possibility of antitrust infractions and ready to take preventative measures to make sure competition rules are followed. In addition, regulators need to make sure that competition law is applied correctly and keep up with the most recent advancements in the digital economy. Businesses may continue to develop and provide value to customers while maintaining fair competition in the digital sphere if the proper laws and enforcement are in place.

As a result of networks, technology, and globalization, it is now more crucial than ever to govern these e-platforms. The Indian Competition Laws must have explicit measures to deal with such platforms to ensure such regulation. Even though the CCI has stepped in to guarantee a free and fair market in recent cases, no clear legal framework exists. Unregulated markets might lead to a situation where certain Big-tech companies control the whole industry, which would be detrimental to the interests of other competitors and consumers overall. It is crucial to prevent digital businesses from unfairly outperforming their rivals and to shield customers from dishonest and fraudulent business practices. Furthermore, competition law can support competition and innovation in the digital sphere, allowing businesses to keep launching cutting-edge goods and services. We can make sure that the digital world is a secure, just, and advantageous place for all users by regulating it under competition law.