Gear Up Wisely to Clamp Down on Important Digital Intermediaries

26 Dec 2022
  • DMD
  • Article

Hard on the heels of its recommendations on the Competition (Amendment) Bill, 2022, India’s Standing Committee on Finance tabled its report on “anti-competitive practices by big tech companies” in the Lok Sabha on 22 December 2022. To address the unique needs of digital markets, the committee has recommended the introduction of a ‘Digital Competition Act’ (DCA), which would ensure a fair, transparent and contestable digital ecosystem in India. The committee has also recommended the establishment of a dedicated ‘Digital Markets Unit’ at the Competition Commission of India (CCI), staffed with skilled experts to handle issues and cases related to digital markets.

Based on the committee’s proceedings, it appears that a consensus has finally emerged on the need for ex-ante regulations for tech giants. The CCI’s earlier stance was that existing competition rules are ‘flexible’ and ‘robust’ enough to ensure fair competition in the digital space. However, the CCI has now itself submitted to the committee that it “strongly feels that ex-ante provisions are required.” This view seems to have developed based on various learnings and challenges during multiple competition inquiries into the digital markets in the recent past.

The absence of an ex-ante regime may lead to the creation of gatekeepers and could result in a ‘winner takes all’ problem. To avoid this, the committee has recommended that a small number of leading tech players which can negatively influence competition must be identified as ‘Systematically Important Digital Intermediaries’ (SIDIs), based on their revenue, market capitalization and number of active users. Stakeholders must collaborate to arrive at a reasonable definition of a SIDI. Certain mandatory behavioural obligations should be imposed on SIDIs and they must be required to submit an annual compliance report to the CCI and publish a copy on their websites. A key challenge nevertheless would be to monitor compliance by SIDIs, as these reports would be prepared by them internally.

Another key recommendation of the committee is that any merger or acquisition (M&A) involving a SIDI, where the target provides services in the digital sector or enables data collection, must be notified to the CCI, even if it does not otherwise trigger a CCI filing. Although ‘killer acquisitions’ have been identified as a concern, deliberations with stakeholders seem limited to the introduction of a deal-value based threshold, in addition to existing turnover/ asset based thresholds. There seems to be no discussion during the committee’s meetings to introduce a requirement to pre-notify every deal led by a SIDI in the digital economy. Although there is no specific recommendation to suspend the consummation of such deals until CCI approval, it is surprising that there is no minimum threshold or local nexus requirement to keep no-issue deals out and avoid an unnecessary burden on the CCI.

Based on its deliberations, the committee has identified ten key competition issues in digital markets in India. To address these, the committee has recommended that a SIDI should: (i) not make platform access conditional on acceptance of ‘anti-steering’ conditions; (ii) not indulge in self-preferencing, including search biases or a pre-installation requirement of its own apps (i.e., must maintain platform neutrality); (iii) not make access to platform’s core service conditional on subscribing to any other service (i.e., bundling); (iv) neither commercialize user data of third parties using the platform nor use it to compete with its business users; (v) not curtail the freedom of businesses to list their products or services on various platforms/ websites at any price or terms; (vi) not indulge in self-preferencing in search rankings (i.e., a search bias) and must offer fair and non-discriminatory terms to ensure organic search results; (vii) allow use of third-party apps and prompt users to positively choose their default apps so that such apps can fairly compete with the SIDI’s own apps; and (viii) offer transparency on advertising revenues. Considering the submissions of news publishers on bargaining power imbalances and global developments on this issue, especially in Australia, the panel also recommended that a SIDI must ensure fair advertisement revenue-sharing arrangements with news publishers.

The committee has also emphasized the need to globally harmonize regulations governing digital markets to reduce the overall regulatory burden. This indicates that the DCA may be developed along the lines of Europe’s Digital Markets Act. Whilst doing so, we must be guided by learnings from other countries which may be marginally ahead of us in implementing similar rules. At the same time, we must be mindful of our local market conditions and tailor the DCA to our specific requirements, aligning it with other digital policies and laws which are already in the pipeline.

A consistent theme in the parliamentary panel’s report is the exceptional growth of the digital economy in India and its bright forecasts (not to mention its contribution to keep the Indian economy on its feet during the pandemic).

Given that digital markets are now beginning to manifest initial signs of maturity, some level of state intervention may be reasonable to ensure fair competition and the successful co-existence of mavericks and smaller players.

As a closing remark, I must mention that one must not lose sight of the fine balance which must be struck between the need to regulate and the freedom to innovate. Whilst arriving at such a balance, we must also focus on developing the concept of ‘voluntary and informed consent’ and make it compatible with the use of big data, which is currently considered to be a ‘destroyer’ of informed consent.

Divyansh Prasad, associate, DMD Advocates, contributed to this article. These are the author’s personal views.

Vivek Agarwal is partner, DMD Advocates and co-chair, competition committee, PHD Chamber of Commerce & Industry

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