The Digital Competition Bill, 2024 [‘DCB’], proposed by the Indian government, aims to establish a comprehensive regulatory framework for digital markets and prevent anti-competitive practices by giants in the industry. This legislation seeks to address the unique challenges posed by the rapidly evolving digital economy, focusing on issues such as market dominance, data monopolies, and anti-competitive practices in the digital sphere. The DCB is a depiction of a significant shift in India’s approach to regulating technology companies, aligning with global trends towards increased scrutiny of tech giants. The DCB draws inspiration from the European Union’s Digital Market Act [‘DMA’] passed in the year 2022. The DCB proposes ex-ante forms of regulation i.e., predictive regulation that can foresee and possibly prevent issues that can arise in the Indian markets. Another salient feature of the DCB is that the DCB defines Systemically Significant Digital Enterprise [‘SSDE’] and prohibits SSDE’s from engaging in anti-competitive practices, such as anti-steering, self-preferencing etc. The Competition Commission of India [‘CCI’] is entrusted with the responsibility for identification of SSDE’s and regulating their practices.
Legislative Context & Objectives
The DCB puts in place obligations for large digital enterprises intending to create a level playing field and promote fair competition within the digital space, it is rooted in the recommendations of the Parliamentary Standing Committee on Finance and the Competition Law Review Committee. Its primary objective is to amend the Competition Act, 2002, to incorporate provisions specifically tailored to digital markets. DCB aims to foster innovation, protect consumer welfare, and ensure a level playing field for all market participants, including startups and smaller enterprises.
By introducing ex-ante regulations, the legislation seeks to prevent anti-competitive conduct before it occurs, rather than relying solely on ex-post enforcement. Furthermore, the DCB aims to prevent large digital companies from exploiting non-public users data and favoring their services over competitors, promote fair practices in the digital ecosystem and prevent self-preferencing by companies only promoting their products on top of search results and excluding similar products etc.
Systematically Important Digital Intermediaries (SIDIs)
SIDIs are defined as entities with substantial control over gateway services in the digital ecosystem, SIDIs have a significant impact on the digital ecosystem and have a high market share in their respective digital markets. DCB empowers the CCI to designate SIDIs based on quantitative thresholds and qualitative parameters. SIDIs will be subject to enhanced obligations, including mandatory interoperability requirements and restrictions on certain data usage practices. DCB also introduces the concept of ‘digital gatekeepers,’ entities with significant impact on the digital ecosystem and market share which can control access to digital markets, they exhibit strong network effects and vast amount of data.
Key Provisions:
The legislation prohibits specific anti-competitive practices in digital markets, including self-preferencing, search bias, and bundling of services. It proposes a preventive (ex-ante) approach rather than post-incident (ex-post) approach in order to foresee and prevent potential anti-competitive practices and prevent potential anti-competitive practices before their occurrence. It mandates algorithmic transparency for SIDIs and introduces data portability requirements to reduce switching costs for consumers amongst other obligations on SIDIs. Moreover, the DCB envisages ‘core digital services’ like search engines/social media sites to be designated as SSDE automatically. It has also introduced Associate Digital Enterprises **[‘ADE’], ADE are entities benefiting from data shared by a major Tech company or group of companies, ADEs shall have similar obligations as SSDEs. DCB also addresses the issue of killer acquisitions by lowering the thresholds for mandatory merge notifications in the digital sector. Furthermore, it grants the CCI powers to conduct market inquiries into the digital economy and issue binding directions to ensure fair competition.
Enforcement Mechanism & Penalties
To ensure compliance, the DCB established a robust enforcement mechanism. It grants the CCI enhanced investigative powers, including the ability to conduct dawn raids on digital entities. DCB introduces significant financial penalties for non-compliance, with fines up to 10% of global turnover of SIDIs for non-compliance with the provisions of DCB with an additional 5% of the global turnover of the SIDI for each day of continued non-compliance.
CCI also has the power to suspend or revoke the licenses of SIDI that fail to comply with the provisions of DCB along with this, the CCI can also issue directions to SIDI’s to cease and desist from anti-competitive practices. CCI may in its discretion appoint a monitor to oversee the compliances done by SIDI’s. further, CCI may also order SIDI’s to compensate affected parties for losses suffered due to anti-competitive practices. DCB also provides for personal liability of key managerial personnel in cases of willful non-compliance. The legislation established a specialized digital markets unit within the CCI to oversee enforcement and conduct market studies.
NM LAW OPINION:
The Digital Competition Bill aims to promote fair competition and innovation in the digital marketplace and targets monopolistic practices, such as self-preferencing, that stifle competition and innovation by promoting a level playing field, the DCB fosters an environment where new entrants and smaller competitions can thrive. Although some argue that the DCB’s provisions may lead to excessive regulation, hindering the ability of companies to innovate and adapt. Moreover, requirements and enforcement mechanisms under DCB may create uncertainty, making it challenging for businesses to comply. Overall, the Digital Competition Bill aims to strike a balance between promoting competition and innovation while protecting consumers. Its success will depend on effective implementation, clear guidance, and ongoing evaluation to address any unintended consequences.