Digital Competition Bill is a trouble for Big Tech Companies

The Ministry of Corporate Affairs (MCA) recently opened the floor for public commentary on a pivotal report and a proposed piece of legislation — the Digital Competition Bill. This move marks a significant stride in India's regulatory landscape, particularly concerning the digital domain.

The objective behind the draft bill is crystal clear — to curb the prevalence of anti-competitive practices rampant among big tech firms and other systemically significant digital enterprises (SSDEs). These practices have long been a cause for concern, given their potential to stifle innovation and hamper fair market competition.

India's digital landscape is booming, with over 350 million users engaging in online transactions across various sectors, from e-commerce to entertainment apps. With the number of users set to double by 2030, constituting about 70% of the internet population, the digital economy is slated to reach a staggering $800 billion market value by the same year—a tenfold increase from 2020.

However, amidst this rapid growth, concerns loom large over the dominance of big tech companies and their potential to stifle competition in the market. Recognizing the need for proactive measures, the government proposed the Digital Competition Bill—an ambitious endeavor aimed at curbing anti-competitive practices and fostering a level playing field for all players in the digital sphere.’

At its core, the bill seeks to rein in the power of major tech players by identifying and regulating Systemically Significant Digital Enterprises (SSDEs) based on key parameters like turnover, market capitalization, and user base. These entities will be required to adhere to a transparent reporting mechanism, ensuring fairness and transparency in their operations.

The bill also introduces the concept of ex-ante regulation—an approach aimed at preventing anti-competitive behavior before it occurs. By empowering regulatory bodies like the Competition Commission of India (CCI) to proactively monitor and enforce compliance, the legislation aims to address issues swiftly and decisively, without waiting for violations to manifest.

Key highlights of the Digital Competition Bill include setting quantitative thresholds for SSDE designation, instituting a transparent grievance redressal mechanism, and empowering regulatory bodies with enhanced technical capacity for early detection and resolution of cases.

Moreover, the bill places significant obligations on major tech giants, ranging from fraud prevention to compliance with data protection laws. Importantly, these entities will be barred from restricting the use of third-party apps—a move aimed at promoting competition and innovation in the digital ecosystem.

The need for such legislation has become increasingly apparent, particularly in light of recent disputes between Indian startups and tech behemoths like Google. The bill empowers regulatory bodies to investigate non-compliance and imposes penalties of up to 10% of global turnover on errant SSDEs.

Pankaj Agarwal, a partner specializing in IT Advisory at consultancy firm Nangia & Co LLP, voiced optimism regarding the proposed regulatory framework and self-reporting obligations outlined in the draft Digital Competition Bill. According to Agarwal, these measures could "considerably foster competition and reduce anti-competitive practices followed by global tech giant”

While the proposed legislation has garnered support from industry experts and stakeholders, concerns linger over its potential impact on innovation and consumer choice. Striking a delicate balance between regulation and fostering a conducive environment for growth remains paramount to ensure that the bill achieves its intended objectives without stifling innovation.

Furthermore, the draft bill empowers the government to exempt certain enterprises, particularly startups, from its purview, recognizing the unique challenges they face in the digital landscape. It also emphasizes the need for the CCI to enhance its technical capabilities to effectively monitor and regulate digital markets.

To expedite the adjudication process, the draft bill proposes the creation of a separate bench within the National Company Law Appellate Tribunal (NCLAT) dedicated to handling appeals related to digital markets. This specialization is expected to streamline proceedings and ensure swift resolution of disputes.

In addition to regulatory measures, the draft bill imposes a set of obligations on big tech giants, covering a wide range of areas including fraud prevention, cybersecurity, trademark and copyright infringement, and compliance with local laws. Moreover, these entities will be required to adhere to the provisions of the Digital Personal Data Protection Act, 2023, and refrain from impeding the use of third-party apps by end users and businesses.

The timing of this regulatory overhaul couldn't be more apt, given the recent standoff between Indian startups and tech behemoths like Google. The latter's decision to delist apps from the Play Store due to non-compliance with a new billing system sparked controversy and underscored the need for stronger regulatory oversight in the digital sphere.

Unnati Agrawal, partner at IndusLaw, emphasized the need for balance, stating, "There needs to be a balance between the need for regulation and the unique realities of the Indian economy to avoid unintended consequences so that the consumers do not end up with a medicine that is worse than the disease."

Moreover, concerns raised by a parliamentary panel regarding the dominance of foreign-owned companies in the UPI payments space have further fueled calls for stricter regulations. Add to that the ongoing antitrust probes targeting tech giants like Meta and Apple, and it becomes evident why the proposed Digital Competition Act is so crucial.

However, while the need for regulation is undeniable, striking the right balance is paramount. Overregulation could stifle innovation and deter investment, ultimately harming consumers and the broader economy. Therefore, policymakers must tread carefully, ensuring that regulatory measures are effective yet flexible enough to accommodate evolving market dynamics.

Google expressed its stance on ex-ante regulation, stating, "The new regime should promote competition and innovation; provide for evidence-based justifications (e.g., pro-competitive) for conduct under scrutiny; provide for separation of powers between rule-making bodies in charge of designation of SIDIs and bodies in charge of enforcement, etc."

Zomato emphasized the importance of ensuring that any introduction of ex-ante regulation should support the growth of startups and not impede innovation or consumer interests.
On the other hand, Flipkart argued against adopting a "one-size-fits-all approach" akin to the EU's Digital Markets Act for regulating digital markets, citing its untested nature and potential unsuitability for effective regulation.

In conclusion, the proposed Digital Competition Act represents a significant step towards fostering fair competition and innovation in India's digital ecosystem. By adopting an ex-ante regulatory framework and imposing obligations on major players, the government aims to level the playing field and safeguard the interests of consumers and smaller enterprises. As the digital landscape continues to evolve, proactive regulation will be essential to ensure a thriving and competitive marketplace for all stakeholders.