Digital regulation

Proposed competition law should not stifle innovation

The proposed Digital Competition Bill has been drafted by the 16-member committee on digital competition law and presented for public comment after over a year’s deliberation. It is designed to regulate India’s digital sector more effectively. The Bill proposes an ex-ante approach while giving startups exemption from purview. It empowers regulators to proactively check if a proposed action is in breach of competitive principles. It prescribes possible penalties of up to 10 per cent of global turnover in fines, as well as possible jail sentences. Some proposals may duplicate provisions of the extant Competition Act and this adds to the complexity of regulation. Areas of duplication will need to be clarified and the penalties to be imposed in such cases aligned.

There are concerns that ex-ante regulation could stifle innovation and an ex-ante regime may give too much discretionary power to the regulator. Normal ex-post investigation under the Competition Act requires assessment on a case-to-case basis to judge if some violation has occurred. The ex-ante approach could ban a proposed action before it comes into force and, thus, stifle innovation. Ex-ante regulation is deployed in the European Union’s (EU’S) Digital Markets Act (DMA), giving regulators the powers to investigate dominant players and proactively prevent anti-competitive practices. In the proposed Bill, “systemically significant digital enterprises (SSDES)” would have to self-declare they are above the SSDE threshold. These big players could be targeted ex-ante.

SSDES may be defined as large corporations with at least ~4,000 crore in India revenues, and global revenues of $30 billion and at least 10,000 business users in India along with some other criteria. The Bill also entrusts SSDES with preventing fraud, maintaining cybersecurity, preventing trademark and copyright infringement, compliance with local laws, etc. This is in addition to compliance with relevant provisions of the Competition Act and the Digital Personal Data Protection Act. These SSDES would have to establish transparent complaint-handling mechanisms and operate in a fair, non-discriminatory, and transparent manner. SSDES cannot directly, or indirectly, favour their own products, services, or lines of business, or those of related parties, and they may not use or rely on non-public data of business users. Nor can they restrict the use of third-party apps. They cannot indulge in “steering” or “self-referencing”. Predatory pricing must also be avoided. Big tech firms have run into trouble with the EU’S DMA, and they opposed the concept in consultation with the Indian Committee on Digital Competition Law. Another issue is that SSDES could face parallel inquiries for anti-competitive behaviour, or abuse of dominant position, under both the proposed Digital Competition Bill and the existing Competition Act. This duplication could lead to confusion and divergent rulings.

India is a huge digital market with over 750 million mobile broadband users and a growing set of services delivered online. By 2030, the domestic digital economy could be around $800 billion. Hence, a regulatory update is surely necessary. But apart from clarifying the areas of duplication in the proposed Bill and finetuning when ex-ante may apply, the Competition Commission of India will need to bolster its capacity to ensure early detection. The Committee on Digital Competition Law also recommends setting up a separate Bench within the National Company Law Appellate Tribunal for speedily disposing of digital cases. The Bill may require some thought and re-drafting before it is presented for legislative approval.