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Digital Competition Bill: Its core needs strengthening

The ministry of corporate affairs recently closed public consultations on the draft Digital Competition Bill (DCB) and the findings of the Committee on Digital Competition Law (CDCL). The CDCL emphasized the importance of a robust framework to support the rapid expansion of the digital ecosystem in India and recommended the introduction of ex-ante measures in form of the DCB to complement the existing ex-post framework under the Competition Act. 

The DCB has received a mixed response from the digital sector. Big tech companies are opposing it by underlining its potential negative effects on innovation and investment in the digital sector. Many startups, on the other hand, believe that the DCB is indispensable for creating a level playing field in the digital ecosystem.

The DCB, much like its European counterpart, the Digital Markets Act (DMA), is built on the pillars of fairness and contestability in digital markets. There are four key stages proposed under the DCB: (i) identification of a ‘core’ digital service (CDS); (ii) designation of systemically significant digital enterprises (SSDE) for each CDS; (iii) mandatory ex-ante compliance obligations for an SSDE; and (iv) penalties for non-compliance of obligations by an SSDE.

As the first stage is to identify CDSs, the CDCL recommended that certain digital services that are susceptible to market concentration can be pre-identified based on the CCI’s enforcement experience, market studies and emerging global practices. Such CDSs must be listed as a schedule to the DCB and be updated regularly by the government. 

Accordingly, based on the CCI’s enforcement experience, nine digital services (including online search engines, operating systems, video sharing platform services and online intermediation services) have been identified as CDSs.

Unlike the DMA, however, the DCB does not offer any fundamental guidance to assess how and when a digital service may be identified as a CDS. It is critical to codify the broad contours on the basis of which the government or CCI may revise the country’s list of CDSs. The DMA clearly sets out that ‘core platforms services’ (the European counterpart of CDSs) are widespread and commonly used digital services, the markets for which are characterized by frequent and pronounced weak contestability and unfair practices. 

This is particularly the case where extreme scale economies, strong network effects, lock-in effects, lack of multi-homing or vertical integration are the most prevalent. In India, the absence of even the most basic guidance on the identification of a digital service as a CDS may raise concerns around the fairness and transparency of this process.

The DCB also requires a more systematic approach for the government and CCI to proactively deliberate on recurrent modifications of the CDS list. Under the proposed regime, only the government can request the CCI to examine and recommend any addition to or deletion from the list. Given that the CCI would be dealing with allegations of anti-competitive practices in various digital services, it would be better placed to propose timely amendments to the list of CDSs for the government’s approval.

Another concern which has been briefly mentioned in the CDCL’s report is the risk of a double whammy for an SSDE. A double penalty by the CCI is possible, as the proposed ex-ante regime under the DCB would be in addition to (and not in lieu of) the existing ex-post regime under the Competition Act. It has been proposed that the CCI may simultaneously investigate an SSDE under both regimes, as these are inherently different. 

Whilst the existing regime is a broader ‘effects-based’ one, requiring evaluation of the anti-competitive effects of an SSDE’s conduct, the proposed regime under the DCB could lead to a violation per se if there is non-compliance with any preset obligation. There may not be a problem if simultaneous investigations lead to a contravention under only one of the two regimes. 

However, if both probes result in contraventions, there is a risk of a disproportionate penalty being imposed on an SSDE for the same conduct and for the same period. To avoid this risk, the CDCL rightly suggested that the CCI must rationalize penalties if there is an overlap of proceedings under the two regimes. 

The suggestion of the CDCL that the CCI must resolve overlaps and rationalize penalties may be codified in the statute itself to alleviate any concerns of a double whammy. The CDCL indicated that this could be done through CCI penalty guidelines, but, unlike CCI regulations, these are generally not binding on the CCI.

The DCB is a promising legislation and can prove to be a game-changer in ensuring fairness and contestability in the country’s booming digital sector. Based on the feedback received through public consultations, the government could work towards strengthening the core of the DCB and ensure that the revised bill clearly sets out the broad contours within which the CCI formulates details through its various regulations. 

This would be a step forward towards building a sturdy ex-ante regime that is not marred by a lack of certainty or fairness. Another critical aspect is for the CCI to ramp up its technical capacity and Digital Markets and Data Unit, which can play an instrumental role in achieving the objectives of the DCB without compromising the CCI’s equally important ex-post responsibilities under the extant regime.

These are the authors’ personal views.

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