Committee On Digital Competition Law Recommends Ex-Ante Legislation For Tech Giants

The committee on digital competition law has submitted its report to the Ministry of Corporate Affairs and it has recommended ex-ante legislation for pre-identified large digital enterprises.

Ex-ante legislation implies pre-determined rules for conduct.

The committee has proposed a separate Digital Competition Act to selectively regulate Systemically Significant Digital Enterprises or SSDEs.

The Committee has recommended that the proposed legislation should apply to an inclusive and pre-identified list of core digital services that are susceptible to concentration and anti-competitive behaviour.

"Such a list should be guided by CCI’s enforcement experience, market studies, as well as emerging international practices,"  the report says.

As a measure to enhance the judicial infrastructure for dealing with competition law cases, the committee has recommended the setting up of a separate NCLAT bench for speedy disposal of appeals, particularly those relating to digital markets.

Further, the committee has suggested thresholds to ‘catch’ entities with the power to influence digital markets.

An entity will be subject to these thresholds based on the dual test of significant financial strength and significant spread.

The former will comprise metrics such as the entity’s India turnover, its global turnover, and gross merchandise value and the latter will be determined by the number of business users and end users of the core digital service in India.

For the significant financial strength test, the committee has recommended Rs 4,000 crore as the base value for an entity's India turnover, $30 billion as the base value for its global turnover, and Rs 16,000 crore as the base value for its gross merchandise value.

The committee has also suggested one crore end users or at least 10,000 business users in India for the purposes of the significant spread test.

In addition, the committee has said that these base values should be reviewed every three years.

The draft legislation should stipulate a uniform set of thresholds to identify and designate SSDEs, irrespective of the core digital service they provide. However, their obligations might differ, as the committee has suggested.

The committee has recommended that the enterprises self-assess their fulfilment of the above thresholds and report the same to the CCI in such form and manner as may be specified by regulations. The CCI may then proceed to designate the enterprise as an SSDE.

The committee has proposed that all SSDEs should be obligated to institute a transparent grievance redressal mechanism upon designation.

Lastly, the committee has capped the penalty at 10% of the SSDE’s ‘global turnover’. The committee has noted that such a cap also harmonises the penalty regimes across the Competition Act and the proposed legislation and therefore minimises avenues for forum shopping, which is the practice of making conscious efforts to choose a court that is most likely to favour the litigant.

In cases where the SSDE is part of a group of enterprises, the committee recommends that the ‘global turnover’ cap be calculated in relation to the turnover of the entire group of enterprises.

This will have a major impact on big tech enterprises like Google, Apple, Amazon, etc., as they will now also be subject to a separate regulatory regime, Vaibhav Choukse, partner at JSA Advocates & Solicitors, said.

Such ex ante regulation could potentially stifle innovation by imposing burdensome regulations on tech companies. This could lead to unintended consequences, such as reduced consumer choice and higher prices, Choukse added.

Given that the enactment of this law will have significant impact on 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 the Indian consumers do not end up with a medicine that is worse than the disease, Unnati Agrawal, partner at IndusLaw said.