INTRODUCTION
Today, India is amongst the world’s largest and fastest-growing digital markets. India’s booming e-commerce market has about 125 million users, and an additional 80 million online users are expected by 2025. However, this digital landscape is not free from dominance exercised by Digital platforms like Google, Facebook, Uber, Ola, Amazon, and Flipkart, who have been accused of engaging in anti-competitive behaviour on several occasions in the past ten years.
With the Digital Markets Act (“DMA”) ushering in a new regime of ex-ante Regulations in Europe, this article discusses some of the critical provisions of the latest enactment. This article also delves into the applicability of ex-ante provisions in India in light of the recent report submitted by the Committee on Digital Competition Law constituted by the Ministry of Corporate Affairs in February 2023, whose purpose was to review the existing regime under the Competition Act 2002 and to evaluate the need for an ex-ante competition framework for digital markets in India.
UNDERSTANDING THE DIGITAL MARKETS ACT
The DMA was proposed by the European Union in 2020 in an attempt to exercise regulations in the digital market and curb the growing menace of unfair trade practices. The Act came into force in 2022 and instantly stirred up debate on its practicality in the current regime since it entailed a shift from ex-post laws towards ex-ante regulation.
DMA aims at precisely formulating rules for the digital markets and mainly providing customers with more choices, opportunities, and fair play at the price. The Regulation emphasises on the need of recognizing the emergence of digital markets and their substantial stake in the economy while following a ‘regulatory’ approach. The instruments used in the anti-trust framework to ascertain dominance would be brutal in the digital market due to the multiplicity of services. This leads to more difficulty in characterizing unfairness and exploitative practices since proceedings brought in by the traditional approach would not reap the same benefits due to the constraints that digital markets bring.
The objectives of the DMA run in accordance with the competition law by advocating for ‘fairness’ which finds place in the current antitrust laws, and ‘contestability’ which is given heavy importance in the traditional set-up. Recital 11 of the DMA mentions that the regulation is “complementary to, but different from that of protecting undistorted competition on any given market” thereby classifying DMA as an ex-ante competition law statute while also holding similarities with regards to enforcement and procedural set-up.
The DMA is narrowly constructed with certain obligations for businesses that fulfill its criteria, which means that only some businesses in the digital market come under the purview of the DMA. It governs the conduct of businesses classified as ‘Gatekeepers’ as defined under Article 2(1) of the Act. The European Commission has notified certain core platform services that the businesses have to offer to be evaluated for the criteria of a gatekeeper.
THE 53RD REPORT ON ‘ANTI-COMPETITIVE PRACTICES BY BIG TECH COMPANIES’
Herein, it is pertinent to note the 53rd Report on ‘Anti-Competitive Practices by Big Tech Companies’ submitted by the Parliamentary Standing Committee. This Report acknowledged that the Anti-Competitive regime in India has not been able to keep pace with the rapid digitalisation of markets and the leading players in the digital ecosystem tend to raise barriers for new entrants in the market. The committee, amongst others, recommended a tag akin to what existed in DMA, which identified large incumbents as the so-called ‘Systemically Important Digital Intermediary’ or SIDIs. Tagging as above shall be done based on specific criteria, such as revenue, market capitalization, and the number of active businesses and end users. It further recommended a ‘Digital Competition Act’ to encourage contestability in the digital markets, along with a ‘Digital Markets Unit’ within the CCI to monitor the SIDI and recommend its designation to MCA continually. But before these recommendations can be brought into reality, it is essential to take a look at the current regime.
CURRENT APPROACH UNDER THE COMPETITION ACT, 2002
The Competition Act aims to sustain competition in markets and to protect the interests of consumers in India. Section 3 of the Competition Act seeks to prohibit anti-competitive agreements between enterprises, while Section 4 seeks to prohibit abuse of their position by dominant enterprises. Under the current abuse of dominance assessment scheme, the practices enumerated in Section 4 of the Competition Act are anti-competitive only if carried out by dominant entities. Therefore, establishing ‘dominance’ is a precondition for assessing whether a particular practice is abusive under Section 4 of the Act. Section 4 defines dominance as a position of market strength enjoyed by an enterprise in its relevant market, allowing it to operate independently of competitive forces. The sources of such power include factors such as the market share of the entity, its size, resources at its disposal and the economic power of such enterprises.
PROBLEMS WITH THE CURRENT EX POST FACTO FRAMEWORK
The present ex-post framework under the Competition Act is not designed to facilitate timely and speedy redressal of anti-competitive conduct by enterprises. Section 19 of the Act provides that the Commission may inquire into cases of anti-competitive agreements or abuse of dominant position by enterprises, either suo moto or based on information provided by individuals, consumers, or trade associations. Once an inquiry is initiated, a multi-step procedure is followed, which includes preliminary inquiries and the Director General’s (DG) investigation. The process does not end here, and the CCI scrutinises the DG’s report. This tiered process leads to significant delays before any enforcement action can be taken, as both the investigative and adjudicatory phases can take considerable amount of time.
Moreover, ex-post enforcement only sometimes leads to optimal restoration of competition in evolving and fast-paced markets. By the time the investigation is completed, the market may irreversibly ‘tip’ in favour of the incumbent and consequently drive out competitors. A classic example is the investigation ordered by the CCI in 2020 into Amazon and Flipkart, who were accused of offering their preferred sellers deep discounts and exclusive listings. It was only in August of this year that the investigation concluded with the observation that they had acted in contravention of the Act. These giants already possess plenty of resources, and the 4-year delay has inevitably allowed the incumbents to strengthen their dominant position further, thereby causing irreversible damage to competition.
Another problem which arises is that ex-post competition investigations are limited to the narrow claims made in each specific case. They may do little to address similar anti-competitive conduct arising regarding the same entity’s conduct in a different/associated market or a separate entity’s conduct resulting in the same issues as investigated. For example, in the case as mentioned above of Amazon and Flipkart, the allegations were limited only to the sale of smartphones on these platforms and products of other categories were not covered. These factors show the growing need to have regulations that can govern the practices of these digital businesses and provide a conducive environment for the benefit of all the stakeholders involved.
IS AN EX-ANTE REGIME SUITED FOR INDIA?
DMA is based on the presumption that restricting major digital companies will significantly increase competition in EU’s digital landscape. However, increasing competition in India is about more than just restricting big digital corporations to fulfil the goals of the local digital economy. Apart from large foreign entities being in a dominant position, other competitive paradigms exist, such as legacy businesses versus their digital counterparts.
Today, India is a preferred destination for foreign investment. In FY 2023-24, total FDI inflows amounted to $70.95 billion, with equity inflows reaching $44.42 billion. The introduction of a DMA-like regime might seriously impede investment at this critical juncture as ex-ante regulations place preventive limitations on digital platforms without taking potential consumer-beneficial efficiencies into account. According to recent research, while competition enforcement may tend to encourage innovation, jurisdictions that do not permit efficiency defences tend to produce relatively less innovation because pre-emptive prohibitions that obstruct experimentation take the place of careful, case-by-case competition enforcement.
Noting India’s thriving digital economy and the likelihood of an ex-ante framework to cause undue adverse effect upon innovation, the Committee was correct in highlighting the need to strike a delicate balance between increased regulation and enabling innovation. Therefore, the Committee urges that such an Act may regulate only those enterprises that have a significant presence and as such, the ability to influence the Indian digital market.
CONCLUSION AND SUGGESTIONS
The digital ecosystem in India has witnessed the proliferation of tech giants and the emergence of anti-competitive practices. The Committee Report establishes the need to revamp the digital ecosystem to accommodate the needs of the digital market, however, India is still not ready for an ex-ante regime. The Indian digital landscape benefits greatly from a case-to-case analysis and introducing an ex ante regime would prove to be antithetical to the dream of giving impetus to India’s digital regime since firstly, an ex-ante regulation is based on an inadequate understanding owing to the fact that it fails to take into account market dynamics and how preformed regulations could directly impact innovation and label benevolent conduct as anti-competitive by not adapting to emerging trends. Secondly, the Indian markets would be heavily constrained since regulating the SIDIs would ultimately affect the business that are reliant on these SIDIs and could potentially dampen their growth aspects.
However, India can still learn from the DMA and introduce provisions that could prioritise consumer benefits like better clarity on terms and conditions and greater transparency and accountability. While an ex-ante regulation is heavily driven by preventing delays in addressal of issues, the CCI already has a provision for interim measures under Section 33 of the Act that could be utilised and further strengthened by introducing a more speed bound and effective solution. Identifying SIDIs and forming specific guidelines for prevention of abuse of their dominant position could be attained by introducing measures that prohibit self-preferencing and facilitate interoperability. Thus, while India may not benefit from introducing an ex-ante regime, it could still observe, learn and incorporate regulations that could address the current challenges with India’s ex-post regime and strengthen the digital market of India.
This article is a part of the DNLU-SLJ (Online) series, for submissions click here.
Students, Dr. Ram Manohar Lohiya National Law University, Lucknow
