Understanding the Draft Digital Competition Bill: Key Proposals and Implication

What’s in today’s article?

• Why in News?
• Growing need for an ex-ante framework
• What is Digital Competition Bill, 2024?
• What are the Key proposals of the draft digital competition Bill 2024?
• Criticism of the digital competition Bill 2024

Why in News?

In February 2023, the Ministry of Corporate Affairs (MCA) formed the Committee on Digital Competition Law (CDCL) to explore the necessity of a separate law addressing competition in digital markets. 

After a year of discussions, the CDCL concluded that the existing Competition Act, 2002, which operates on an ex-post framework (addressing issues after they occur), needed to be supplemented with an ex-ante framework (preventive measures to address issues before they occur). Ex-ante competition regulation is unusual. The European Union is the only jurisdiction where a comprehensive ex-ante competition framework, under the Digital Markets Act, is currently in force.

This led to the creation of the draft Digital Competition Bill, which outlines the ex-ante framework designed to enhance the current regulatory system for digital markets.

Growing need for an ex-ante framework

• Due to the complex world of digital markets, regulating for market abuse after it takes place (as in an ex-post framework) is not optimal.
• This is due to following reasons:
  • Digital enterprises enjoy economies of scale and economies of scope.
    • I.e., reduction in cost of production per unit as the number of units increase and reduction in total costs of production with increase in number of services respectively. 
    • This propels them to grow rather quickly as compared to players in the traditional market. 
  • This growth is aided by network effects — utility of the digital services increases with the increase in the number of users.
• A forward-looking, preventive, and presumptive law (an ex-ante framework), which foresees the potential harms that can arise out of antitrust issues and prescribes pre-determined no-go areas is considered as the way forward.

What is Digital Competition Bill, 2024?

• About
  • The bill seeks to further regulate large digital enterprises, including news aggregators, as part of efforts to ensure a level-playing field and fair competition in the digital space.
    • It was proposed in March 2024.
  • The new law could prevent big tech companies like Google, Facebook, and Amazon from favoring their own services or using data collected from one of their businesses to help another one of their businesses.
  • It has provisions to set presumptive norms to curb anti-competitive practices before they actually take place.
  • It promises to impose heavy penalties — which could amount to billions of dollars — for violations.
• Similarity with EU’s Digital Markets Act (DMA)
  • The new law is similar to the EU’s Digital Markets Act (DMA), which went into complete effect earlier this year.
  • DMA requires large tech firms like Alphabet, Amazon and Apple to open their services, and not favour their own at the expense of rivals.
• Nodal ministry
  • The Ministry of Corporate Affairs (MCA) is handling the draft.

What are the Key proposals of the draft digital competition Bill 2024?

• List of Core Digital Services (CDS)
  • The list of core digital services has been mentioned under Schedule I of the bill.
    • It consists of 
      • 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 (includes web-hosting, service providers, payment sites, auction sites, app stores, e-commerce marketplaces and aggregators, etc.)
• Significant entities
  • The Bill proposes to designate certain enterprises as Systemically Significant Digital Enterprises (SSDEs).
    • SSDEs are those enterprises that provide core digital services in India and have a significant presence and significant financial strength in the country.
• Parameters to determine whether the enterprise may be designated as SSDE
  • If an enterprise is engaged in a CDS, the Bill proposes two tests – the financial strength test and spread test (user base test) to determine whether the enterprise may be designated as SSDE.
  • The quantitative parameters for a company to be designated a SSDE are:
    • If in the last 3 financial years, its turnover in India is not less than Rs 4,000 crore; or its global turnover is not less than $30 billion; or
    • Its gross merchandise value in India is not less than Rs 16,000 crore; or
    • Its global market capitalisation is not less than $75 billion; or
    • The core digital service provided by these companies should also have at least 1 crore end users, or 10,000 business users.
  • Entities that do not fall under these parameters can still be designated as SSDEs if the CCI believes that they have a significant presence in any given core digital service.
• Obligations imposed on SSDE
  • Entities which are designated as SSDEs, have been prohibited from engaging in practices such as self-preferencing, anti-steering, and restricting third party applications. 
  • If they violate these requirements, they can be fined up to 10% of their global turnover.
• Associate Digital Enterprises
  • The Bill proposes to designate associate digital enterprises (ADEs) to understand the role that data collected by one company of a major technology group can play in benefiting other group companies.
  • If an entity of a group is determined to be an associate entity, they would have the same obligations as SSDEs.
    • However, this will depend on the level of their involvement with the core digital service offered by the main company.
  • For example, Google Maps could be seen as an associate entity because Google Search directs users to it. 
  • The same goes for YouTube, depending on how much data is shared between Google Search and YouTube, affecting the video recommendations YouTube makes to users.

Criticism of the digital competition Bill 2024

• Significant compliance burden
  • An ex-ante framework with its strict prescriptive norms could lead to significant compliance burden for big tech companies.
  • It may lead to shift of focus from innovation and research to ensuring that companies do not presumptively engage in an anti-competitive practice.
• Stringent requirements of the EU’s DMA and associated impact
  • Experts have highlighted the fact that because of the stringent requirements of the EU’s DMA, there has been an increase of 4,000 per cent in the time it takes to find things via Google search.
• Broad definition of who a significant platform could be
  • Companies are concerned about the broad definition — both quantitative and qualitative — of who a significant platform could be.
  • Unlike EU’s DMA which specifically names the ‘gatekeeper’ entities, that decision in India’s draft law has been left to the discretion of the CCI.
    • Companies believe that could lead to arbitrary decision making, which could potentially also impact start-ups.
• May affect smaller businesses
  • Companies are claiming that the bill would force them to make the changes to their platform and cut down on data sharing.
  • It could also impact smaller businesses who rely on their platforms to reach a big target audience.

Q.1. What is Systemically Significant Digital Enterprises (SSDEs)?

SSDEs are those enterprises that provide core digital services in India and have a significant presence and significant financial strength in the country.

Q.2. What is EU’s Digital Markets Act (DMA)?

The EU's Digital Markets Act (DMA) is legislation aimed at ensuring fair competition in the digital sector by regulating large online platforms, known as gatekeepers, to prevent anti-competitive practices and promote a more open and competitive digital market.

Source: What is the draft Digital Competition Bill? | Explained | News 18 | Business Standard