Digital Competition Bill: A mixed bag

The timeline needs to be cognizant of the fact that the draft bill and report are technically complex and might  require analysis from the lens of law, economics, governance frameworks, and business operations. A longer timeline of at least three months would give the stakeholders ample time to submit comments.

Exclusion Of Mergers And Acquisitions

While the Parliamentary Standing Committee on Finance proposed obligating SSDEs to notify transactions to the CCI, mergers and acquisitions are excluded from the Bill’s ambit, considering the recent inclusion of the Deal Value Threshold criteria in the Competition Act, 2002. The new threshold mandates transactions with a value exceeding Rs 2,000 crore and a local nexus to India mandatory to be notified to the CCI.

Due to the limited ability of the traditional merger control regime which relied on assets and turnovers to cover new-age transactions in technology markets, the Deal Value Threshold was introduced by the Competition Amendment Act 2023. Therefore, the new criteria should address various concerns about transactions in technology markets.

Obligations For Big Companies

The Bill proposes an agile principle-based framework, considering the varying degrees of anti-competitive harms from different anti-competitive practices. The approach is similar to the UK’s approach in the Digital Markets, Competition and Consumers (DMCC) Bill. By suggesting that the specifics of ex-ante obligations be outlined through regulations for each Core Digital Service (CDS) and allowing the CCI to specify different conduct requirements for various business models within a CDS, the Committee has recommended a flexible and adaptable approach to regulation.

The consultative and participative nature of the regulation-making process that has been recommended could help curate dos and don’ts that fit the needs of specific sectors. However, implementing a principle-based, sector-specific framework is expected to augment the CCI's workload significantly. Therefore, as the Committee recommended, it becomes crucial to urgently bolster the CCI and the Digital Markets & Data Unit (DMDU) capacity.

Scope Of Core Digital Services

Enterprises that qualify the quantitative threshold criteria in certain Core Digital Services (CDS) will be subject to ex-ante regulation. In this light, it may be worth looking at the pre-determined list of CDS in Schedule I. Instead of limiting the scope of markets that may have observed structural competition law bottlenecks in India, the law has included a broader scope of services, including those 'susceptible to concentration’.

Moreover, the reason behind including certain services in the list, which is similar to those covered by the EU’s DMA, is unclear. While some of the CDS mentioned in the proposed bill can be traced back to CCI’s enforcement history and market studies, various services mentioned therein have seen little to no evidence from the Commission of structural competition concerns in the Indian landscape.

Exemptions 

The law and the report allow the CCI to exempt SSDEs from certain obligations on grounds such as economic viability, protection of existing intellectual property rights, and other factors as may be prescribed. However, the lack of clarity within the bill regarding the precise scope and methodology of different parameters, like the economic viability of an enterprise, raises uncertainty about its implementation and the potential for subjective interpretation. Additionally, within these exemptions, the Bill currently lacks provisions for objective justifications.

This oversight may lead to a narrow perspective that overlooks the potential efficiency of certain business practices and their impact on consumers Therefore, it would be advantageous for the Bill to allow for such justifications, akin to the approach adopted by the DMCC Bill. Under the DMCC Bill, entities can seek 'countervailing benefits exemptions' for conduct that generate net consumer benefits but would otherwise breach conduct requirements. To qualify, an entity must demonstrate that such actions benefit users or potential users of the digital activity, or that the resultant benefits outweigh the actual or potential negative impact on competition arising from the breach of conduct requirements.

Efforts should urgently be made to enhance the capacity of both the CCI and the Digital Markets & Data Unit for effective regulation of technology markets. Additionally, services should only be included in the CDS list if there is quantitative evidence of competition bottlenecks within those sectors. Lastly, there is a need for clearer delineation of the scope and nature of exemptions, with a particular focus on extending exemptions to encompass consumer benefits.

Kazim Rizvi is Founding Director, The Dialogue. Views are personal, and do not represent the stand of this publication.