A Brief Explainer: Report of the Committee on Digital Competition Law

The indications of a new approach to competition regulation in India

In the last week of February, a committee constituted by the Ministry of Corporate Affairs (the Committee on Digital Competition Law) (hereinafter referred to as ‘Committee’) submitted its report on the need for a new digital competition law, alongside its recommendations. The main body of the report is divided into multiple chapters, each focusing on specific areas of inquiry. These chapters comprehensively cover the existing legal framework under the Competition Act, 2002, the challenges posed by digital markets, international regulatory approaches, and the need for a specialized ex ante regulatory framework for digital markets in India. The report also delves into detailed analyses of concepts such as market power, data as a competitive asset, and the roles of algorithms. The recommendations made in this report are substantiated by references to case studies, international practices, and stakeholder inputs gathered through consultations.

The key observations and recommendations of the Committee in the submitted report have also been incorporated into a ‘draft Digital Competition Bill, 2024’ (‘Draft Bill’) published as Annexure-IV of the report document.

While the recommendations of this Committee are not binding on the Ministry, they lay out a clear rationale for a dedicated digital competition law, and are likely to have a significant influence on the shape of the final legislation on this subject. In the following post, I break down the key recommendations and insights drawn from the contents of the detailed report.

Key Recommendations Outlined by the Committee:

1. Ex post enforcement under the Competition Act, 2002 is too slow: The Committee observed that the present ex post enforcement mechanisms under the Competition Act, 2002 were not adequately equipped to address the dynamic and fast-evolving nature of digital markets. The slow process allowed anti-competitive practices to entrench themselves in digital markets, causing significant harm to competition and consumers before any corrective action could be taken. However, the Committee acknowledged that protracted processes under ex post competition laws were not a uniquely Indian problem. Europe’s Digital Markets Act, 2022 was also enacted due to similar concerns.

2. There is a need for a new ex ante law on digital competition: The Committee has proposed the establishment of an ex ante regulatory framework, akin to the Digital Markets Act, to oversee Indian digital sectors, specifically targeting what are termed under the report as systemically significant digital enterprises (‘SSDEs’). Such a new law is recommended to function in addition to, and not to replace, the existing Competition Act, 2002.

   Moving from an ex post to ex ante regulation for competition is a significant new step in Competition regulation in India. This requires the legislative body to premeditate the anti-competitive harm while drafting the law. Due to the complexity of anti-competitive activities, legislators thus far refrained from adopting such a law. However, as the Draft Bill leaves a large number of obligations to be prepared as subordinate legislation, how such a law will cope with digital market dynamics in practice remains to be seen.

3. Data is an important factor in digital market competition: The report heavily emphasizes the role data play in digital markets and notes how access to, and control over, data can confer competitive advantage, and potentially be used in anti-competitive ways. Following from these concerns, the Draft Bill proposed by the Committee outlines various obligations for SSDEs under Clause 12 regarding data usage, including prohibitions on an SSDE using the non-public data of its business users to compete with these users and gain an unfair market advantage.

4. Categorisation of Systemically Significant Digital Enterprises (‘SSDE’) will be based on quantitative thresholds: The Committee recommends identifying SSDEs based on clear quantitative thresholds related to their turnover, market capitalization, and user base. These thresholds may be subject to periodic revision every three years. In the Draft Bill, these thresholds are provided under Clause 3(2), which states that an enterprise may be termed as an SSDE if in the last 3 financial years, its:

   (i) turnover in India is not less than INR 4000 crore; OR

   (ii) global turnover is not less than USD 30 billion; OR

   (iii) gross merchandise value in India is not less than INR 16000 crore; OR

   (iv) global market capitalisation is not less than USD 75 billion

   AND Additionally,

   (i)the core digital service provided by the enterprise has at least 1 crore end users; OR

   (ii) the core digital service provided by the enterprise has at least 10,000 business users.

   The Committee also recommends that the digital enterprises should self-assess their fulfilment of the quantitative thresholds and report the same to the the Competition Commission of India (‘CCI’) in the manner specified by regulations. This may be handled through an online portal for ease of use. Further, the Committee recommended the formulation of qualitative criteria for designation of SSDEs in those instances where the enterprise does not meet the quantitative thresholds, but the CCI believes that it enjoys a significant presence in a Core Digital Service. These have also been incorporated into the Draft Bill.

5. Designation for Associate Digital Enterprises (‘ADE’) alongside SSDEs: The Committee introduces the concept of ADEs, which are enterprises within the same group as an SSDE and are involved in providing core digital services. These ADEs can be made subject to the same obligations as SSDEs depending on the level of their involvement with the core digital service offered by the SDE. This category has been floated in recognition of the interconnected nature of operation of digital markets.

6. Specified obligations for SSDEs within the Bill: Earlier in 2023, Indian Parliament’s Standing Committee on Finance released its report on Anti-Competitive Practices by Big Tech Companies, in which different kinds of anti-competitive practices in digital markets were identified (such as steering, platform neutrality, predatory pricing, bundling etc.). However, the Committee on Digital Competition Law noted that not all such practices were anti-competitive to the same degree, and some practices even had other kinds of benefits. Instead it recommends an ‘agile’ principle-based framework with specific obligations stipulated through regulations for each core digital service. These are to be instituted following detailed consultations with all relevant stakeholders. However, the Draft Digital Competition Bill, 2024, attached with the report does enumerate a few obligations of SSDEs, which include the need for fair and transparent dealing, ‘anti-self-preferencing’, data usage restrictions, and anti-steering obligations.

7. Scope for exemptions provided within the Bill: The Digital Competition Bill, 2024, as recommended by the Committee provides for certain specific exemptions to be included in the law. For instance, the Central Government may exempt certain enterprises from the provisions of the Act in the interest of national security, public interest, or to fulfill obligations under international treaties under Clause 38 of the Draft Bill. This power ensures some flexibility in the law's application, allowing for exemptions when adherence to the Act might conflict with broader governmental or societal objectives.

8. Enforcement of the law through the CCI and its powers under the Bill: Crucially, the Draft Bill does not create an additional new regulator for digital markets. The CCI has been tasked with the enforcement of the new law, equipped with a broad set of powers to conduct inquiries into alleged contraventions, order investigations, impose penalties, and direct furnishing of information. Clause 16 details the process for initiating inquiries based on information received, references from the government or statutory authorities, or on its own knowledge. The Draft Bill also empowers the CCI to issue interim orders to prevent ongoing or imminent contraventions (Clause 25) and to settle cases (Clause 18), providing a comprehensive framework for enforcement.

9. Penalties for contravention of the proposed law provided: As recommended by the Committee, the Draft Bill stipulates penalties for non-compliance, including penalties based on a percentage (up to 10 %) of the global turnover of the enterprise, for for failing to comply with the obligations laid down in Chapter III of the Draft Bill. Penalties for failing to notify the Commission of qualifying as a SSDE, providing incorrect or misleading information, and other infringements are also specified.

10. Powers of the Central Government under the proposed law: In the Draft Bill, the Central Government retains overarching powers to issue directions to the CCI on policy matters and to supersede the Commission in certain circumstances, as per Clauses 39 and 40. This ensures that while the CCI operates with some autonomy in technical and enforcement matters, it remains within the ambit of broader policy directions of the Central Government, and is aligned with national priorities.

11. Need for improving CCI's technical regulation capacity: Recognizing the complex and technical nature of digital markets, the Committee recommends that the CCI enhance its technical expertise and regulatory capacity. This involves acquiring the necessary technical knowledge and tools to effectively understand and regulate digital markets. It may also include hiring experts in digital technologies, data analytics, and algorithms, or setting up dedicated units within the CCI focusing on digital markets. Enhancing the CCI's technical capabilities is crucial for proactive and informed regulation of digital markets, ensuring that the CCI can keep pace with rapid technological advancements and effectively enforce the proposed digital competition law, once enacted.

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I am an independent Delhi-based lawyer working with technology, law and policy. The views expressed in this post reflect my personal opinion.

Please see my earlier post on Digital Competition and Ex Ante Regulation here.