Explained - How CCI's new penalty guidelines will impact investigations against Big Tech

CCI investigations against big tech maybe affected due to new CCI regulations

The Competition Commission of India's new guidelines, empowering it to levy penalties based on the global turnover of enterprises, is likely to impact ongoing investigations against Big Tech companies, experts said.

“This means that the penalties imposed on companies, including Apple, could now be based on their entire global turnover, potentially leading to more substantial penalties for violations of competition laws,” said lawyer Ekta Rai.

The Ministry of Corporate Affairs notified the CCI’s penalty guidelines, turnover regulations, settlement regulations and commitment regulations on March 6. The turnover regulations deal with the methods that the antitrust regulator must adopt to determine a company’s turnover for imposing penalty.

The settlement guidelines deal with rules on how a company that is in violation of law can opt for a settlement with the regulator.

Until now, penalties were determined on the turnover of the product for which a violation was alleged. If it was alleged that Google abused its dominant position in the Android ecosystem, a penalty was imposed only on the basis of its revenue from the Android eco system.

Big tech companies such as Apple, Google, Amazon and Meta are under the CCI scanner.

All the guidelines and regulations were issued pursuant to a 2023 amendment to the Competition Act, 2002. The concept of global turnover is also an offshoot of the 2023 amendment to the act.

Penalty under the Competition Act

Section 27 of the Competition Act, 2002, allows the CCI to impose penalties on enterprises for violating the competition law by taking action under anti-competitive agreements or when a dominant position is abused. Until recently, such penalties were generally based on "relevant" turnover, which is the revenue linked to the products or services affected.

In 2017, the Supreme Court clarified that the penalty is to be levied on the “relevant” turnover, i.e., the revenue of the company from the product or service where it was found to be abusing its dominant position.

“The 2023 amendment to the Act took away this shackle of 'relevancy' and explained that turnover meant 'global turnover derived from all the products and services by a person or an enterprise,'” said Abilash Agarwal, counsel at Law SB.

As a result, the CCI is now empowered to impose a penalty of up to 10 percent of a company's average turnover from all goods and services for the three preceding financial years.

Naval Chopra, a partner for competition law practice at Shardul Amarchand Mangaldas & Co., said: “The penalty guidelines are a significant step in bringing transparency and proportionality in the method of calculating penalties, especially since the CCI now has the power to impose penalties based on an enterprise’s global turnover.”

Chopra noted that the penalty guidelines reinforce the CCI's ability to impose higher penalties than before, if the situation demands it.

However, the CCI still has the discretion to determine penalties on a case-by-case basis.

Utsav Trivedi, managing partner at TAS Law, said, “It is important to note that the specific impact on ongoing investigations will depend on the individual circumstances of each case. The guidelines provide a framework, but the CCI will still have discretion in determining the appropriate penalty in each case.”

Settlement regulation

The 2023 amendment also introduced the concept of "commitment" and "settlement" in relation to ongoing investigations. These provisions enable enterprises under CCI’s scrutiny to submit settlement or commitment terms to the commission, which it may accept or reject at its discretion.

Commitment refers to assuring the CCI that it will not engage in activities that violated the competition act. Both settlement and commitment options are available to companies before the CCI passes judgment.

“Given the recent tussle between the Big Tech companies and startups, the timing is fortuitous as now there is a legal avenue available for swift resolution,” said Unnati Agrawal, a partner at Induslaw, referring to the settlement and commitment options.

Some Indian startups have been warring with Google, which took down certain apps from its Play Store over issues regarding its billing system. However, Google reinstated these apps 'temporarily' on March 5. The tussle over Google's billing system is pending in the CCI.

“Looking at the global market and considering the future of these companies, the companies which are under the scanner might not want to get into further scrutiny and investigation and might settle the dispute by paying the required penalty. The flip side would be that companies which have been following the guidelines of CCI might also opt for settlement,” said Alay Rizvi, a partner at Accord Juris LLP.