SFLC.in’s Comments on the Draft Digital Competition Bill, 2024

The Ministry of Corporate Affairs (“MCA”) released the Report by the Committee on Digital Competition Law (“CDCL”) along with the Digital Competition Bill (“DCB” or “the Bill”) on March 12^th, 2024. As an ex-ante framework, the DCB aims to enforce obligations against large digital enterprises and prevent them from committing market abuse.  It is meant to serve as a complementary tool – in addition to the Competition Act (“the Act”). SFLC.in has analyzed and drafted these comments on the Bill.

OVERVIEW OF THE BILL

Scope: Such a framework shall involve the identification of large digital enterprises that possess a ‘significant presence’ in India, within the realm of selected ‘core digital services’.¹ The core rationale behind an ex-ante framework is that digital markets are dynamic in nature and timely intervention by the CCI could help in the adoption of preventative measures against anti-competitive conduct.²

Designation of Systematically Significant Digital Enterprises: In lieu of the same, the DCB aims to designate large digital enterprises as ‘systemically significant digital enterprises’ (“SSDEs”). Clause 3(2) of the DCB establishes the criteria based on Clause 3(1) prescribes that an enterprise shall be designated as an SSDE if it enjoys a significant presence in relation to a Core Digital Service in India. Clause 3(2) of the DCB establishes the financial thresholds based on turnover in India, global turnover, global market capitalisation, gross merchandise value, number of end-users and number of business users. Clause 3(3) provides additional parameters [in case an enterprise is not falling under the thresholds given in Clause 3(2)] that the Competition Commission of India (“CCI”) can take into account to identify an enterprise as a SSDE. In addition, the CCI can designate one or more enterprises within a group that are directly or indirectly involved in providing a Core Digital Service as an Associate Digital Enterprise (“ADE”).

Core Digital Services: Core Digital Services online search engines, online social networking services, video-sharing platform services, interpersonal communications services, operating systems, web browsers, cloud services, advertising services and online intermediation services..

Obligations of SSDEs: In relation to SSDEs and ADEs, Chapter of III of the DCB prescribes obligations³ pertaining to fair and transparent dealing,⁴ self-preferencing,⁵ restriction on third-party applications,⁶ data usage,⁷ anti-steering⁸ as well as tying and bundling.⁹ In addition, SSDEs and ADEs are not allowed to circumvent such obligations through contractual, commercial, technical or any other means.¹⁰ They are also subject to reporting and compliance obligations under Clause 9 of the DCB.

ANALYSING THE POTENTIAL IMPACT OF THE DIGITAL COMPETITION BILL ON END-USERS

Possible Impact of the SSDE Designation Thresholds on Users –

First, the user based thresholds does not specify the time period. For instance, the DMA prescribes such thresholds based on the number of monthly active users.¹¹ Second, the thresholds prescribed within the DCB would (especially the user based thresholds) fail to distinguish large digital enterprises from its nascent counterparts. Such an outcome could be counterproductive as this could suppress the competitive challenges offered by newer entrants – thereby reducing the scope for contestability, fairness and innovation.

Wide scope for interpretation under obligation for fair, non-discriminatory and transparent dealing

Clause 10 provides that an SSDE must ‘operate in a fair, non-discriminatory and transparent’ manner with its users. However, the provision does not specify and elaborate further on which actions could result in a violation of the same. It is important that the specific violations and modalities of the alleged conduct are adequately prescribed – albeit in a non-exhaustive manner. Otherwise, this provision is likely to create obscurity on the relationship between SSDEs and users.

Blanket Nature of Obligations pertaining to restrictions on third-party applications

In relation to Clause 13, SSDE might have a reasonable basis to establish restrictions on account of cybersecurity, data protection or any other concerns pertaining to the digital well-being of the end-user. It remains ambiguous how such end-users can be positively impacted. In addition, The DCB should shift to a more participative approach – in order to gain a comprehensive understanding of the scenarios in which restrictions would or would not be justified and result in anti-competitive behaviour.¹²

Mandatory Consent for cross-use of non-public data

Clause 12 enhances the protection of end-users as it obligates SSDEs to request consent (as per its meaning in the Digital Personal Data Protection Act, 2023¹³). Without the latter, an SSDE cannot utilize or cross use the personal data of end-users aggregated from different services within its Core Digital Service.

Issue Complementarity with the Competition Act

The Report mentioned that the draft ex-ante framework will complement the ex post framework in the Competition Act, 2002.¹⁴ However, the text of the DCB does not specifically address how this complementarity will translate on a granular level. It is unclear if a designated SSDE could also face parallel proceedings under the Act as well as DCB. However, the DMA does address this issue. The DCB could be modified to account for the same. Otherwise, the CCI could face difficulties in enforcement.

The broad nature of the Central Government’s powers to exempt enterprises from the Bill

Under Clause 38, the Central Government has a wide ambit of discretion to exempt any of its enterprises from being governed by the any or all provisions of the DCB. However, this provision fails to account for the significant and extensive power of SSDEs to alter the social fabric and democracy. It is vital that the grounds within the provision describes the possible scenarios that could necessitate an enterprise to be exempted from being accountable under the DCB.

RECOMMENDATIONS

The DCB should enable a competitive process that leads to the development of products and services that actually create value for end-users rather than treating them as a tool for maximising ‘value extraction’.¹⁵ The thresholds prescribed for designation of SSDEs should be revised to ensure that only large digital enterprises are being regulated. Furthermore, it would be beneficial if the obligation on fair and transparent dealing outlines the specific actions that could result in a breach of the same. The DCB should be adjusted to ensure that it will adequately complement the Competition Act. Lastly, the grounds mentioned in Clause 38 should be elaborated further – to include the broader scenarios that could necessitate exempting an enterprise.

Please find the detailed comments on the Draft Digital Competition Bill, 2024 hereunder