With the underlying objective of fostering innovation, promoting competition, and protecting the interests of users of digital services in India, the government has recently proposed the Digital Competition Bill, 2024. This bill aims to regulate and penalise the anti-competitive practices of tech companies providing “core digital services,” including online search engines, online social networking services, video-sharing platform services, interpersonal communications services, operating systems, web browsers, cloud services, advertising services, and online intermediation services.
The primary feature of the bill is its ex-ante framework, which is preventive and presumptive in nature, aiming to curb anti-competitive practices before they occur. This contrasts with the existing Competition Act, 2000, which is an ex-post antitrust framework and has been deemed suboptimal for addressing antitrust issues in the digital environment. The current framework regulates market abuse after it happens, a process criticized for being slow, especially in dynamic digital spaces, negatively impacting smaller industry players who are at risk of being ousted from the market before final adjudication by the CCI.
Similar to the recently enacted EU Digital Markets Act (DMA), the Indian bill would require large tech companies to refrain from self-preferencing services or using the data of one company to benefit another group company. In other words, these big tech companies would need to ensure transparency in their services, allowing smaller players to use these services without bias and not favor their own services by restricting access to others' services. The bill includes provisions to designate companies as “Systematically Significant Digital Enterprises (SSDE)” and their “Associate Digital Enterprises” (ADEs).
Section three of the proposed bill lists some of the financial and user thresholds for designating enterprises as SSDEs, which are as follows:
Financial thresholds
1 Turnover of Rs 4000 crores or more, in last three financial years;
2 Global turnover of $30 billion or more, in the last three financial years;
3 Gross merchandise value in India of Rs 16000 crores or more, in last three financial years; or
4 Global market capitalisation of $75 billion or more, or its equivalent fair value of $75 billion or more, calculated in such manner as may be prescribed.
User thresholds
1 Core digital services provided by enterprises having at least one crore end-users; or
2 Core digital services provided by enterprises having at least ten thousand business users.
It is noteworthy that failure to furnish or maintain the above-mentioned data may also lead to enterprises being designated as SSDEs.
Interestingly, in addition to the specified thresholds, the commission under the proposed bill retains the power to designate any enterprise as an SSDE even if it does not meet the specific criteria mentioned. The commission further retains the power to designate group enterprises of the designated SSDEs, directly or indirectly involved in providing core digital services in India, as "Associate Digital Enterprises" (ADEs). Such ADEs shall be subject to the same liabilities and compliance requirements as SSDEs under the proposed bill. For example, if Google is designated as an SSDE, its other enterprises, such as Google Maps and YouTube, which rely on data collected by Google to provide their core digital services, may be designated as ADEs under this proposed ex-ante antitrust framework.
Obligations on SSDEs and ADEs under chapter III of the proposed bill
The proposed framework lists out following obligations on SSDEs and ADEs, non-compliance of which may lead prosecution under the framework and impositions of penalties as provided under the same:
1 Anti-circumvention from obligations: SSDEs are discouraged from engaging in any behavior that undermines the effective compliance with obligations under the proposed frameworks and the rules and regulations framed thereunder. It further discourages SSDEs and ADEs from directly or indirectly preventing or restricting their business or end users from raising any issues of non-compliance.
2 Reporting and compliance: SSDEs are required to establish transparent and effective complaint handling and compliance mechanism. It further places an obligation on such SSDEs/ADEs to report on measures taken by them to comply with the obligations under Chapter III.
3 Fair, and transparent dealings: SSDEs shall operate in fair, non-discriminatory, and transparent manner with its business and end users.
4 Self-preferencing: SSDEs shall not, directly or indirectly, favor their own products, services, or lines of business, or those of related parties, or third parties with whom SSDEs have arrangements, over those offered by third-party business users on the Core Digital Service.
5 Data usage: SSDEs shall not, directly or indirectly, use or rely on ‘non-public’ data of business users operating on its Core Digital Service to compete with its business users. Further, SSDEs shall not intermix, cross-use, or permit third-party usage of the personal data of end users or business users. SSDEs must allow business and end users to easily port their data in a format or manner as may be specified.
6 Restricting third-party applications: SSDEs shall not restrict or impede the ability of their users to download, install, operate, or use third-party applications or other software on their Core Digital Services. SSDEs must also allow users to choose, set, and change the default settings. For example, this provision may require Apple to allow its users to access and download applications from the Google Play Store, and vice versa.
7 Anti-steering: SSDEs shall not restrict their business users from communicating with or promoting offers to their end users, or directing their end users to their own or third-party services, unless such restrictions are integral to the provision of the core digital service.
8 Tying and bundling: SSDEs shall not require or incentivize their business or end users of the identified core digital service to use one or more of the SSDEs' other products or services, or those of related or third parties with whom SSDEs have internal business arrangements, unless the use of such products or services is integral to the provision of core digital services.
Interestingly, the commission retains the power to specify what may be considered as "integral" for the aforementioned purpose.
Power of the commission to pass interim order
If, during an inquiry, the commission is satisfied that a contravention of the provisions of the proposed bill or rules or regulations framed thereunder has occurred, is ongoing, or is about to occur, it may pass an ex-parte temporary restraining order against any party committing such acts, without giving notice to said party, until the conclusion of the inquiry or until further orders, whichever comes first
Cross-border application of the provisions of the proposed bill
The commission proposes to exercise the power to conduct an inquiry for non-compliance with the provisions of the said bill, rules, or regulations framed thereunder against the SSDEs, even if they are located outside India, or for any other matter, practice, or action arising from the SSDE's conduct that occurs outside India.
Penalties for non-compliance with the provisions of the proposed bill
The proposed bill provides for both civil and criminal liability in the event an SSDE fails to comply with various provisions under the bill, as discussed below. However, before passing an order imposing a penalty, the commission shall provide the SSDE with a reasonable opportunity to be heard, in compliance with the principles of natural justice.
1 Failure to comply with the orders of the commission: If any enterprise/person fails to comply with the directions of the commission under sections 17, 25, 26, or 28, they shall be liable to pay a penalty which may extend to one lakh rupees for each day of such non-compliance, with a maximum penalty of ten crore rupees as determined by the commission. Furthermore, such non-compliance or failure to pay the penalty may also result in imprisonment for a maximum term of three years, or a fine which may extend to twenty-five crore rupees, or both.
2 Failure to comply with the provisions of chapter III: If an enterprise is found to be in contravention of obligations under Chapter III (Section 17(1)), the commission may impose a maximum penalty of ten percent of its global turnover on the SSDE or its ADE.
3 Failure to comply with anti-circumvention obligation: If the SSDE or its ADE is found to be in contravention of the anti-circumvention obligation under Section 5(1), which prohibits the SSDE from directly or indirectly segmenting, dividing, subdividing, fragmenting, or splitting services through contractual, commercial, technical, or any other means to circumvent the thresholds qualifying an enterprise as an SSDE as stipulated under clause (a) or clause (b) of sub-section (2) of section three, they shall be subject to a maximum penalty of ten percent of their global turnover.
4 Failure to notify that SSDE meet the criteria under Section 3(2): If the SSDE fails to notify the commission that it meets the criteria for qualification as an SSDE under section 3(2), it may be subject to a maximum penalty of one percent of its global turnover.
5 Act of providing incorrect/ misleading information: Where the SSDE provides incorrect, misleading, incomplete, or refuses to provide complete information as requested by the commission under various provisions of the proposed bill, it may be subject to a maximum penalty of one percent of its global turnover.
6 Personal liability on the person-in-charge and/or director/manager/secretary or other officers: The proposed bill also provides for personal liability up to a maximum amount of ten percent of the average income in the last preceding financial year, if it is found that the contravention of the provisions of the bill was committed with the knowledge of the person-in-charge of the conduct of the business or with the consent of such directors/managers/secretaries or other officers.
Conclusion
Valued at $5.15 billion in 2023, India is the second largest online/digital market in the world, with over 900 million internet users. The Indian digital market is further estimated to grow at a CAGR of 30.2 per cent during 2024-2032, potentially reaching $55.37 billion, thereby becoming the world’s largest digital market. In light of this growth, proposing an ex-ante framework to regulate antitrust issues in India's digital markets comes as no surprise, especially with various international watchdogs monitoring big-tech companies like Apple, Microsoft, Meta, Google, etc., allegedly engaging in anti-competitive practices through their digital services.
While the underlying objective and intent of proposing such legislation appear positive, some provisions of the bill may significantly impact these big-tech companies and their ease of doing business in India. For instance, the discretionary power of the commission under sub-section (3) of section three to designate any enterprise as an SSDE based on specified factors or “any other factor which the commission may consider relevant for the assessment” could have far-reaching consequences. Such discretionary powers might lead to increased government intervention in the operations of companies offering core digital services.
Moreover, the proposed legislation could potentially stifle innovation by granting the commission powers to interfere with the underlying technology of these companies, thereby affecting their intellectual property rights. For example, requiring companies not to restrict third-party applications could force Apple to offer Google Play Store on its devices, conflicting with Apple's exclusivity rights over its technology. Additionally, such provisions might discourage big-tech companies from investing in research and development, particularly if competitors offer similar services under strict regulation. Therefore, it is crucial for the proposed legislation to include exceptions to prevent conflicts with the exclusive rights of SSDEs guaranteed under intellectual property laws.
In our opinion, it is imperative for the government to amend the provisions of the proposed legislation to limit the discretionary powers of the commission, minimize intervention in underlying technology, and introduce appropriate exceptions in consultation with industry stakeholders to avoid conflicts with laws promoting innovation. The legislation should focus on enhancing ease of doing business in India rather than burdening big-tech companies with excessive compliance requirements and severe penalties for non-compliance.
The article has been authored by ANM Global senior associate Deepank Singhal.
