1. Introduction of a Digital Competition Act with ex-ante measures
○ Proposes the enactment of a new Digital Competition Act specifically designed to regulate Systemically Significant Digital Enterprises (SSDEs) through ex ante obligations.
○ Aims to address the unique challenges posed by digital markets, including market concentration and anti-competitive practices.
2. Scope and Applicability
○ The Draft Digital Competition Bill, 2024, is intended to apply only to digital services prone to concentration, to mitigate unintended effects on innovation. ○ Focuses on a targeted approach to regulate entities that significantly impact the digital market landscape.
– Higher error costs associated with ex-ante competition framework necessitate a careful consideration of the scope of the Draft DCB.
– Scope should apply only to clearly identified digital services susceptible to concentration to avoid unintended chilling effects.
– Committee recognizes the fast-paced nature of digital markets and emphasizes the need for inclusivity and forward-looking approach in defining scope. Recent revolutionary developments like ChatGPT highlight the necessity for agility in identifying digital services under the Draft DCB.
– Two divergent approaches internationally in determining applicability of ex-ante competition instruments: service/market specific vs. service/market agnostic. – EU, Australia, and South Korea adopt service/market specific approach, identifying pre-identified markets/services for ex-ante intervention.
– Pre-identifying markets/services fosters certainty for market players and regulators. – UK, Japan, and Germany refrain from pre-identifying specific markets/services, allowing for greater adaptability and swift response to dynamism in digital markets. – Committee recommends a balanced approach: Draft DCB should apply to an inclusive and pre-identified list of Core Digital Services susceptible to concentration and anti competitive behaviour.
– Such a list should be guided by CCI’s enforcement experience, market studies, and emerging international practices.
– Recommends providing the list of Core Digital Services as a Schedule to the Draft DCB to allow flexibility for the Central Government to add new digital services over time.
3. Regulation of Digital Enterprises with ‘Significant Presence’
○ Targets enterprises with a ‘significant presence’ in Core Digital Services in India, capable of influencing the market.
○ Designation as SSDEs is based on a twin test of ‘significant financial strength’ and ‘significant spread’.
4. Thresholds and Criteria for Designation as SSDEs
○ Involves both quantitative thresholds and qualitative criteria for identifying entities with significant market presence.
○ Enterprises are obligated to self-assess their fulfilment of these thresholds and report to the CCI.
● Emphasis on Thresholds for SSDEs:
○ The law should have thresholds to capture entities with significant
influence in digital markets akin to dominant entities.
○ Challenges in using traditional parameters for dominance in digital
markets led to the recommendation for criteria based on attributes
allowing significant presence and influence.
○ The effectiveness of an ex-ante model depends on precise identification
of SSDEs, possibly requiring quantitative/objective thresholds.
● Comparative Study of Parameters Internationally:
○ Parameters for intervention under ex-ante competition instruments
globally include both quantitative thresholds and qualitative criteria.
○ Quantitative thresholds provide objective markers for swifter
identification and intervention.
● Quantitative Thresholds:
○ Dual test proposed for significant presence: ‘significant financial
strength’ and ‘significant spread’ tests.
○ Financial strength criteria include Indian turnover, global turnover,
gross merchandise value, and global market capitalization.
○ Spread metrics include number of business users and end users in India.
○ Recommendations for base values: INR 4000 crore for Indian turnover,
USD 30 billion for global turnover, INR 16,000 crore for GMV, and
USD 75 billion for global market capitalization.
○ Periodic review of base values every three years to account for market
dynamics.
○ Self-assessment by digital enterprises and reporting to CCI for SSDE
designation proposed.
● Qualitative Criteria:
○ Recommendations for qualitative criteria for SSDE designation,
including enterprise resources, data volumes, network effects, and
bargaining position.
○ These factors indicate the enterprise’s ability to set ecosystem rules and
influence the market.
5. Associate Digital Enterprises
○ Addresses the scenario where enterprises within a group provide Core Digital Services, potentially extending SSDE designation to Associate Digital Enterprises (ADEs).
○ Proposal for designation of group entities associated with SSDEs to ensure effective compliance.
○ Flexibility for CCI to designate SSDEs or ADEs based on the most appropriate entity for proactive monitoring.
○ Requirement for notifying enterprises to identify all group entities involved in Core Digital Service provision.
6. Obligations
○ Outlines differentiated sets of obligations for SSDEs, considering factors like market nature and user base.
● Deliberation on ACPs:
○ Committee discussed ten ACPs identified by the Standing Committee Report, excluding mergers and acquisitions due to recent amendments in the Competition Act.
○ Acknowledged varying degrees of anti-competitive harms associated with different ACPs.
○ Considered pro-competitive benefits of certain ACPs such as tying and bundling and IP…
● Incorporation of Pro-competitive Effects:
○ Committee emphasized incorporating pro-competitive effects of ACPs while formulating ex-ante obligations.
○ Recommended laying down broad principles in Draft DCB and specifying specifics for each Core Digital Service through subordinate legislation.
○ Advocated for a consultative process involving stakeholders for framing regulations, akin to ‘Participative Antitrust’ model.
○ Mandated consultation with statutory authorities or government bodies before framing regulations, in line with the spirit of Section 64A of the Competition Act.
● Recommendations for Draft DCB:
○ ACP related to mergers and acquisitions excluded from Draft DCB due to recent amendments in the Competition Act.
○ Proposed agile principle-based framework to accommodate varying degrees of anti-competitive harms.
○ Specific ex-ante obligations to be stipulated through regulations for each Core Digital Service.
○ Graduated approach in specifying conduct requirements for different business models within a Core Digital Service, if applicable.
○ Regulations to be made through consultative process involving stakeholders of the digital economy.
○ Obligation for all SSDEs to establish a transparent grievance redressal
mechanism upon designation, with operational modalities outlined by
the CCI through regulations.
● Obligations for ADEs:
○ Default application of broad principle-based obligations under Draft
DCB to ADEs.
○ Empowerment of CCI to specify differential obligations for ADEs based
on their involvement in Core Digital Services provision.
○ CCI may outline lower degree of compliance or exempt certain
obligations for ADEs partly or indirectly involved in Core Digital
Services provision.
7. Exemptions
○ Provides for exemptions from obligations through regulations by the CCI or the Central Government.
A. Exemptions from obligations through regulations:
● CCI empowered to exempt certain obligations through regulations.
● Grounds for exemptions include economic viability and protection of existing intellectual property rights.
● Exemptions should not be hardwired in Draft DCB; CCI may frame accompanying exemptions in regulations related to obligations.
● Legislative guidance on grounds for exemptions to be laid down in Draft DCB. ● Consideration of advance ruling mechanism for exemptions, but committee concluded against it due to potential hindrance to innovation-driven ecosystem. ● Grounds for compliance exemptions should be statutorily encoded, with attributes devised based on uniqueness of each Core Digital Service.
● Exemptions to be woven into regulations on obligations, tailored to each Core Digital Service and related business models.
B. Exemptions by the Central Government:
● Drawing from Section 54 of the Competition Act, Central Government empowered to specify exemptions for:
○ Security of state or public interest.
○ Practices or agreements arising from treaty obligations.
○ Enterprises performing sovereign functions.
● Committee recommends similar overarching power for Central Government to exempt enterprises from Draft DCB.
● Consideration of statutory exemption for start-ups, but committee concluded against blanket exemption due to ambiguous criteria for start-ups and financial thresholds stated in Draft DCB.
● Draft DCB to empower Central Government to exempt certain enterprises or classes of enterprises, similar to Section 54 of the Competition Act.
8. Enforcement
○ Recommends using the procedural framework from the Competition Act for enforcement, with the CCI as the enforcing body.
○ Proposes a separate bench within the National Company Law Appellate Tribunal for appeals against CCI’s orders.
● Jurisdictional Overlaps:
○ Committee noted potential for overlapping jurisdictions between Competition Act and Draft DCB.
○ Acknowledged difference in approach: Competition Act evaluates anti competitive effects, while Draft DCB considers violation of predetermined conduct requirements as illegal per se.
○ Considered scenarios of simultaneous or different proceedings under both statutes.
● Resolution of Overlaps:
○ CCI should not be disempowered to proceed against digital enterprises under both statutes simultaneously.
○ Need to guard against disproportionate penalties resulting from parallel proceedings.
○ Overlaps in proceedings and penalties to be resolved on a case-by-case basis by CCI.
● Enforcement Framework:
○ Borrowing enforcement framework from Competition Act for Draft DCB enforcement.
○ Powers of CCI under Competition Act to apply, subject to specific modifications to give effect to Draft DCB.
○ Settlements and commitments regime introduced in Competition Act to be borrowed for Draft DCB enforcement, aiming for swifter resolution of cases.
● Technical Capacity and Digital Markets Unit (DMU):
○ Noted stakeholders’ suggestions for establishing a Digital Markets Unit under CCI.
○ Deliberated on international practices and existing Digital Markets and Data Unit (DMDU) within CCI.
○ Recommended strengthening DMDU with experts on emerging technologies for early detection and disposal of cases.
○ Urged advisory roles for DMDU experts in enforcement and regulation making under Draft DCB.
○ Technical capacity enhancement needed for swift identification of compliance breaches under Draft DCB.
9. Remedies
○ Includes monetary penalties for non-compliance, with a cap of 10% of the global turnover of the SSDE or its group.
● Types of Remedies:
○ Structural remedies (e.g., divestment) alter market structure to restore competition.
○ Behavioural remedies (e.g., commitments) modify conduct of enterprises with oversight by competition regulator.
○ Some jurisdictions allow criminal sanctions against competition infringements.
● Penalties under Competition Act:
○ Primarily relied on behavioural remedies and high monetary penalties for deterrence.
○ Recent efforts to promote ease of doing business include decriminalizing corporate offences.
● Recommended Approach for Draft DCB:
○ Contraventions of Draft DCB to be met with civil penalties to balance ease of doing business and deterrence.
○ Table provided with snapshot of penalties under ex-ante competition instruments in EU, UK, Germany, and USA.
