Digital competition law will provide more teeth to CCI to regulate digital markets, legal experts say

Digital competition law and its implications

Legal experts say  that the proposed digital competition law, if brought into force in its current form, will give more teeth to India’s anti-trust regulator, the Competition Commission of India (CCI) .

Tech companies such as Apple, Amazon, Flipkart, Zomato, Google, etc.,  are likely to be affected if the law comes into play.

However, a section of experts feel that two anti-trust laws (the Competition Act, and this) may lead to over-regulation and a manifold increase in the compliance cost of  companies, the burden of which  consumers may have to bear.

The Ministry of Corporate Affairs (MCA), on March 12, released the draft Digital Competition Bill, a proposed legislation that aims to tackle big tech firms' anti-competitive practices, for public consultation. The bill aims to bring in regulations for bigger companies based on their turnover, gross merchandise value (GMV), global market capitalisation, number of users, and other factors.

Unnati Agrawal, Partner, Induslaw, said: “In order to provide more teeth to the CCI and strengthen the regulatory framework to effectively regulate digital markets in a timely manner and  ensure they remain competitive, the report of the Committee on Digital Competition Law (CDCL) has recommended the enactment of an ex-ante law to supplement the existing ex-post regime.”

Agarawal noted that enactment of the law may impact the development of Indian digital markets / economy. “It is hoped that a balance is struck between the need for regulation and the unique realities of the Indian economy, to avoid unintended consequences so that  Indian consumers do not end up with a medicine that is worse than the disease,” she said.

The Competition Act, 2002 is India’s only anti-trust law at the moment. The digital competition law will be an additional legislation, meant exclusively to govern digital markets.

“Two co-existing legislations will increase regulatory costs, which will spill over to consumers. This will lead to over-regulation and require big tech firms to completely overhaul their policies,” said Natasha Treasurywala, Partner at Desai & Diwanji.

Abhay Joshi, partner at law firm Economic Laws Practice (ELP), also said, “Additional compliance obligations would mean additional financial burden on these companies, who may have to spend more time, resources, and capital to comply with the new set of laws / regulations. This might hamper growth and innovation in the industry.”

Ex ante regulations and obligations
The draft digital competition bill introduces a new term for big tech firms — Systematically Significant Digital Enterprises. SSDEs are enterprises that offer "core digital services" such as online search engines, social networking services, video-sharing platforms, and so on.

“An enterprise can be called an SSDE if has significant financial strength and a significant  number of end-users,” said Treasurywala,

A key feature of the proposed digital competition law is the introduction of ex ante regulations. Ex-ante is a method of evaluation, wherein the regulator predicts a violation of anti-trust law before it happens based on a company's business conduct. Ex-post  is when the regulator penalises a company after it is found to be in violation of anti-trust law.

“Ex-ante measures under the proposed Digital Competition Bill will empower the CCI to discipline big tech players that are designated as SSDEs, by placing the onus on them to self-assess their compliance,” said G R Bhatia, Partner at Luthra and Luthra Law Offices India.

To implement ex-ante regulations, the committee has provided certain obligations that SSDEs must necessarily comply with. These include establishing transparent and effective complaint handling and compliance mechanisms, operating in a fair and transparent manner, not using non-public user-data, and not restricting third party applications, among others. An elaborate set of obligations are expected to be released in the subordinate legislation, once the digital competition law is enacted.

Manmeet Kaur, Partner at Karanjawala and Company, said, “Towards the implementation of this ex-ante framework, the committee has also outlined the scope,  obligations, and provisions for exemption from complying with such ex-ante obligations.”

Naval Chopra, Partner at Shardul Amarchand Mangaldas noted that the recommendations introduce certain onerous obligations on digital companies without following the usual process of an investigation to find whether there is a violation of law or not. According to Chopra, these recommendations, if implemented, will increase the cost of doing business in India.

“The Digital Competition Bill  lays down the broad contours of the regulations that the CCI can prescribe. While the CDCL recommends that different sets of obligations be introduced for different business models, like cab aggregators, food aggregators, etc., there is no clarity on how narrowly these obligations would be crafted,” said Chopra.