Written By: Apoorv Agarwal, Nischay Purohit
Introduction:
Competition law holds a crucial position in today’s complex business landscape. With a surge in the emergence of new companies and market expansion, various complexities are arising. The Competition Act of 2002 aims to promote healthy competition in the market.[1] It intervenes where there’s abuse happening and imposes penalties on companies to deter such behaviour in the future.
In a developing country like India, the arrival of new companies is essential. However, when these new companies face demotivation due to the abuse of dominant positions by their already established competitors, competition law steps in to support them. It ensures that consumers, who purchase services from these companies, are protected from exploitation in the market.
With the rapid advancement in technology, the digital marketplace is growing exponentially. There have been numerous complaints against large digital enterprises, which need to be addressed by the competition commission. These complaints include unfair trade practices, discriminating policies, and violations of consumer’s rights. To address these issues, the draft of the Digital Competition Bill 2024 has been put in place.
Understanding the need of Draft Digital Competition Law:
The need for the Digital Competition Law became apparent to the Parliamentary Standing Committee on Finance when a case, Re: People Interactive India (P.) Ltd. vs Alphabet Inc.,[2] was brought to light. In this case, informants, which included companies and industry associations, collectively raised concerns about two payment policies of Google.
The first policy pertained to the compulsory utilization of the Google Play Billing System (GPBS), while the second introduced the User Choice Billing (UCB). These policies imposed exorbitant service fees and exhibited bias towards certain app developers. Such practices by Google were deemed to violate Section 4 of the Competition Act 2002,[3] as it appeared to abuse its dominant position.
Upon examining the matter, the Competition Commission of India ordered an investigation, as alleged by the informants. The informants requested interim relief to prevent Google from charging fees for transactions related to paid downloads or in-app purchases. However, the court observed that some of the relief requests were not within the scope of the CCI’s investigation directive and thus could not be granted.[4]
The informants failed to demonstrate irreparable harm from Google’s conduct that couldn’t be compensated monetarily, resulting in the dismissal of their applications. Therefore, it was crucial to enact this law to hold digital enterprises, especially big tech companies, accountable. There was previously no legislation systematically recognizing digital enterprises to enable us to curb such abusive practices of dominance and take necessary actions. This would ensure that these companies couldn’t exploit their position in the market and prevent harm.
Under this Law, enterprises meeting the specified criteria are obliged to inform the Competition Commission of India (CCI) within 90 days. Upon reviewing the information provided, the CCI has the power to designate a Digital Enterprise as ‘Systematically Significant.’[5]
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Criteria for Identifying Systematically Significant Digital Enterprises:
The proposed Digital Competition Bill 2024 includes both qualitative and quantitative criteria for identifying a “systematically significant Digital Enterprise” (SSDE). An enterprise is considered an SSDE when it fulfils two significant presence criteria:[6]
- Significant Financial Strength Test: This test assesses the economic power of the enterprise. It includes specific factors such as the turnover in India, global turnover, global merchandise value, and global market capitalization.
- Significant Spread Test: This test is based on the number of end users and business users of the enterprise.
According to the Draft Digital Communication Code, enterprises will undergo a self-assessment based on these compliances and thresholds. Subsequently, a report will be submitted to the Competition Commission of India. This process aims to ensure that SSDEs are identified accurately, considering both their financial strength and their reach among users.
The Digital Competition Bill also includes a residual power through designation to assess qualitative criteria. This means that even if an enterprise fails to fulfil the quantitative measures, but has the potential to significantly influence the market, it can still fall under the umbrella of SSDE.
In simpler terms, apart from quantitative factors like financial strength and spread, the bill acknowledges that certain enterprises may possess intangible qualities or potential to wield significant influence in the market. Therefore, if an enterprise demonstrates such potential, it can be designated as an SSDE, ensuring that comprehensive measures are in place to regulate its activities in the digital space.
Obligations and Regulations for Fair Digital Competition:
The Digital Competition Bill 2024 imposes obligations on designated enterprises,[7] and failure to comply with these obligations may result in penalties. The bill aims to prohibit enterprises from engaging in anti-competitive behaviour and related activities such as predatory pricing, monopolistic behaviour, and deceptive practices that violate consumer rights. It also addresses concerns regarding data privacy and security breaches, ensuring the integrity of the market within the digital sphere.
One of the obligations is to establish a transparent complaint handling mechanism for SSDEs.[8] Moreover, enterprises will be restricted from favouring their own products, as observed in the case of Google. Additionally, they cannot use non-public data of business users without their consent.
Furthermore, restrictions on third parties will be lifted. This means that SSDEs cannot restrict business users and end users from using third-party applications. Moreover, enterprises cannot impose restrictions on business users communicating with end users.[9]
These obligations aim to foster a healthy competition in the market, safeguard consumer rights, promote innovation, and ensure compliance with regulatory requirements. By establishing transparent mechanisms, preventing favouritism, protecting data privacy, and lifting restrictions on third parties, the bill seeks to create a fair and competitive digital ecosystem.
Penalties and Liability Framework for Non-Compliance:
The Digital Competition Bill 2024 specifies penalties for Systematically Significant Digital Enterprises (SSDEs) and their Associate Digital Enterprises (ADEs) in case of non-compliance with obligations. Bill outlines penalties for failure to comply with obligations and related regulations.[10] The Competition Commission of India (CCI) may impose penalties not exceeding 10% of the global turnover in the preceding financial year for such non-compliance.
If an SSDE or ADE fails to notify the CCI about meeting specified criteria, provides incorrect or incomplete information, or furnishes misleading information, penalties may be imposed not exceeding 1% of the global turnover.
Individuals in charge of SSDEs or ADEs may also be held liable for contraventions, with penalties not exceeding ten percent of their 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 their average income for the last three financial years. A limitation period of 3 years is prescribed for the initiation of inquiries.
Conclusion:
As we have seen, the introduction of the Digital Competition Bill addresses the previous issues where big tech companies exploited their dominant positions, hindering healthy competition and significantly influencing markets without falling under the scope of the Competition Commission of India (CCI). Companies like Google were able to hamper fair competition and wield considerable market influence.
The Digital Competition Bill recognizes digital enterprises as systematically significant, making them liable within the purview of the digital realm. This makes it easier to hold them accountable and ensures that compensation can be sought if necessary. With the rapid advancements in technology, we are witnessing an influx of new startups and companies in the digital realm. Therefore, legislation is needed to monitor and promote healthy competition in the market, benefiting new startups, app developers, and consumers alike, while preventing ulterior motives.
It’s essential to consider the viewpoints of various stakeholders while reviewing and transforming the bill into an act. By engaging in debates and inviting comments, we can identify loopholes in the draft and address them in a more constructive manner, leading to the development of successful legislation that serves the interests of all parties involved.
[1] the-competition-act-20021652103427.pdf, https://cci.gov.in/images/legalframeworkact/en/the-competition-act-20021652103427.pdf (last visited Apr 12, 2024).
[2] People-Interactive-India-Private-Limited-and-Ors-Vs-Alphabet-Inc-and-Ors.pdf, https://lawchakra.in/wp-content/uploads/2024/03/People-Interactive-India-Private-Limited-and-Ors-Vs-Alphabet-Inc-and-Ors.pdf (last visited Apr 12, 2024).
[3] Section 4, The Competition Act, 2002
[4] People-Interactive-India-Private-Limited-and-Ors-Vs-Alphabet-Inc-and-Ors.pdf, supra note 2.
[5] Section 4, Draft Digital Competition Bill, 2024
[6] getdocument.pdf, https://www.mca.gov.in/bin/dms/getdocument?mds=gzGtvSkE3zIVhAuBe2pbow%253D%253D&type=open (last visited Apr 12, 2024).
[7] Chapter III, Draft Digital Competition Bill 2024
[8] Section 10, Draft Digital Competition Bill 2024
[9] Section 13, Draft Digital Competition Bill 2024
[10] Chapter VI, Draft Digital Competition Bill 2024
