A Step Towards Digital Competition Law in India

In 2002, India implemented competition laws to reduce anti-competitive behavior, promote market competition, and protect consumer interests. The article highlights the importance of amending the Competition Act of 2002 in light of digitalization and the Ministry of Corporate Affair’s 53 reports on anti-competitive practices by big tech companies in the context of digital competition law, where new technologies can create challenges and opportunities for businesses, consumers, and competition authorities writes Ayushmaan Chouksey.

INTRODUCTION

Competition law in India came in 2002 to reduce anti-competitive behavior, sustain the market competition, and defend the consumer interests. In 2023,amid the peak of digital India, the government of India aims to reduce the regulatory hurdles and promote the ease of doing business.With this new objective, the government of India seeks to formulate legislation to prevent big tech giants from breach competition laws or engaging in anti-competitive.

The central government established the Competition Law Review Committeeto ensure that the Competition Act aligns with India's current economic realities and formulate legislation to attaindevelopment goals using technology. In 2022, the committee introduced the Seventeenth Lok Sabha report titled “Anti-Competitive Practices by Big Tech Companies”to address the need for digital competition in India.¹ Throughout its discussions, the committee emphasized the world’s is shift towards technological innovation and digitalization, with many e-commerce companies entering the market.To promote small tech companies in the new digital market, legislation should be passed to tackle the contemporary practices of big tech companies.

Consumer protection regulations are founded on the principle of safeguardingconsumers. This principle recognizes that consumersare in a relatively weaker position than traders and, therefore,consumer should receive direct protection through specific consumer rights in their transactions.² In contrast, competition laws indirectly safeguard the economic welfare of consumers by ensuring that markets function effectively under competition. In the last decade, many incidents have occurred, leading to new legislation or amendments to the competition law, ensuring consumer interests are protected even in the new digital market with the emergence of big tech firms.

Consumer protection is necessary in the digital age due to the increased reliance on e-commerce and online transactions. Many countries are reviewing their consumer lawand competition laws to address the unique challenges of digitalization, such as data theft, violation of consumer privacy, unfair competition, etc. Big Tech giants are advancing themselves by scaling up their economies through the self-reinforcing advantages of data, network effect, unethical information exploitation from the consumer, collecting data to boost their digital infrastructure, etc. Some competition regulators have acknowledged that these elements enable digital marketplaces to favor a single winner, exploiting the dominant position created by the abundance of unethical data.³

DIGITALIZATION OF COMPETITION LAW IN INDIA AND ITS IMPLICATIONS ON THE INDIAN MARKET

Indian Competition Law was established over more than twenty years agoto foster competition and safeguardcustomers in the Indian market. However, the digital economy’srapid evolution necessitates concurrent development of competition law.

The digital economy is characterized by its speed, global reach, and data-driven nature.Due to the widespread availability of data, collecting evidence of anti-competitive behavior in the digital economy becomes more challenging, as does executing judgments against multinational corporations. These characteristics pose new challenges for competition law enforcement in India.⁴

Intervention in a market only arises when a business has used irrational means to illegally limit competition—a practice known as an "exclusionary act." These exclusionary actions often entail erecting fictitious barriers that keep hinder other businesses entry into the market without legitimate competitive reasons.Antitrust proceedings occurs when a company uses unfair tactics to suppress or limit competition without a justifiable purpose.⁵

In response to these challenges, the Indian Competition Law regime shoulddevelop a new digital competition law in India. At present, these exclusionary practices pose significant obstacle for other small tech companies to conduct business. Exclusionary acts by big tech are seenas a barrier for small tech companies,effectively establishing monopolies in the market. So, makinga new digital competition law will address this kind of problem and create an environment for small companies to conduct their business smoothly in the market.

SYSTEMICALLY IMPORTANT DIGITAL INTERMEDIARIES

The government is creating a mechanism to curb anti-competitive behavior by grouping some big tech firms into a category called Systemically Important Digital Intermediaries (from now on as SIDIs). SIDIs are a group of big tech giant companies based on their revenue, market capitalization, and the number of active businesses and end users. SIDIs should annually submit a report to the Competition Commission of India (“CCI”) detailing the measures taken to comply with various mandatory obligations.

The committee recommended adopting a platform's anti-steering restrictions, forbidding business users from directing clients to non-platform offers. The Committee suggested that SIDIs refrain from purchasing or using other goods or services that are not essential to or a part of the platform to gain access to theirs.⁶

Self-referencing is an area of concern, as it involves a platform showing preference towards its services or those of its affiliated subsidiaries. The Committee observed that failure to maintain platform neutrality could result in adverse consequences for downstream markets. It suggested that entities with SIDIs should refrain from prioritizing their services over those offered by their competitors during the mediation of access. The SIDIs will be scrutinized more strictly by the digital market unit to ensure they do not engage in anti-competitive activities.⁷

However, there are significant concerns about the effectiveness of the SIDIs. The government is confused in implementing the SIDIs as this will have adverse effect in the functioning of the Big tech firms in India. Suppose the government puts a heavy restriction on them. In such a case, there are higher chances that this will backfire on the government by holding or stopping the innovation and, in total, the country's development.

DARK PATTERN METHOD

The government is aware of manipulation of consumer data, so they have introduced a draft guideline on preventing and regulating “dark pattern”₈. Dark pattern is a method of deception in the user’s decision-making and undermining their autonomy through deceptive strategies like applied psychology, AB testing, and user interface design.⁹ The idea behind using the Dark Pattern by the Big Tech giants is to gain more information about the consumers to take advantage over the other competitor in the market.

Self-preferencing is also a type of Dark Pattern. Similarly, self-referencing is considered an anti-competitive activity under section 4 of the Competition Act. An example of this is the self-referencing of Google Pay by the Google Play Store, which constitutea formof self-referencing anti-completive activity under section 4 of the act. ¹⁰

Big tech firms gather enormous amounts of consumer data to gain an unfair competitive edge. For instance, companies like Google, Zomato, and many other big tech companies utilizes data from targeted users to deliver more relevant advertising, thereby making it more difficult for other search engines to compete. This practice represents one of thedark pattern methods through which big tech giants gain an advantaging over their competitors in the market.

The Digital Competition Law and the new draft guidelines related to “dark pattern” aim to minimize illegal data stealing and promote healthy competition in the market. The Digital Competition Law seeks to mitigate this anti-competitive activity by requiring big tech firms to obtain user consent before collecting their data.This concept draws inspiration from the European Union's privacy law, which highlights the potential for dark patters to impede a user’s ability to give informed consent.¹¹ Obtaining user permission will create a more transparent mechanism and mandatory requirement for the Big Tech Giants. Breach of these regulationwill result inhigh costs and imprisonment.Overall, this mechanismwill empower the consumer to have more control over their data and level the playing field for the other competitors in the market.

CASE LAWS

Big techgiant companies have employed anti-competitive practices to stifle competition and inflate consumer prices. The most common practices utilized by these companies includes price discrimination, tying arrangements, and exclusive dealing.Uber uses one of them, which automatically re-routes riders and charges them higher prices.The Supreme Court in the Case of Uber consideredthat: -

"the practice of automatically re-routing riders and charging them higher prices could be seen as a way for Uber to extract more money from consumers and discourage them from changing their destination."¹²

Further, the casenotes: -

"Uber's use of surge pricing is not always transparent, making it difficult for riders to shop around for a better price."¹³

Here are some other important case laws that illustrate the application of competition law in the digital economy:

• In 2021, the CCI fined Amazon ₹202 crore (US$26 million) for abusing its dominant position in the online retail market. The CCI found that Amazon had engaged in several anti-competitive practices, including using its market power to force sellers to use its exclusive arrangements and its data to discriminate against sellers.¹⁴
• In 2022, the CCI fined Google ₹1337 crore for abusing its dominant position in the online search market. The CCI found that Google had engaged in several anti-competitive practices, including favoring its products and services in its search results and making it difficult for users to find and access competing products and services.¹⁵

These cases illustrate the importance of competition law in the digital economy and the challenges users encounterwith big tech giants, which have a competitive edge over theircompetitors.

CURRENT STATUS OF THE DIGITAL COMPETITION LAW IN INDIA AND ALL AROUND THE WORLD

UNITED STATES OF AMERICA

In the domain of digital competition law, the United States has witnessed significant developments reflecting the challenges posed by major digital platforms. In 2020, landmark antitrust suits were filed against Google and Facebook, marking a pivotal shift in addressing monopolistic practices in the digital age. Respectively, theJustice Department and the Federal Trade Commission allege the anticompetitive behavior of these tech giants and take steps to curb their perceived dominance.¹⁶

One notable change is the renewed focus on enforcing antitrust laws in the digital sector after a hiatus following the U.S. v. Microsoft¹⁷ case two decades ago.¹⁸ The lawsuits against Google and Facebook the first significant cases targeting monopolization since then. These actions signal a recognition of the unique challenges posed by digital platforms, particularly in online advertising, search services, and personal social networking.¹⁹

The proposed legislative changes underscore a broader shift in antitrust policy. Bills like The American Innovation and Choice Online Act and The Open App Markets Act demonstrate an effort to address specific anticompetitive practices, such as self-preferencing and limiting app developers' options. These legislative measures indicate a growing awareness that traditional antitrust frameworks may need adaptation to regulate the digital landscape effectively.²⁰

Moreover, the discourse around potential remedies has expanded to include data portability, interoperability, and non-discrimination mandates. The emphasis on promoting competition through these mechanisms reflects an acknowledgment of the unique dynamics of digital markets, where network effects and data play crucial roles.

However, the efficacy of these changes remains a subject of debate. Skepticism exists regarding the practicality of implementing remedies such as data portability and interoperability. Furthermore, concerns persist about potential unintended consequences and the ability of regulatory bodies to keep pace with the rapid evolution of technology.

The current status of digital competition law in the United States is marked by a proactive response to the challenges posed by major digital platforms. The focus on legislative adjustments and the exploration of novel remedies reflects an evolving understanding of the intricacies of digital markets, aiming to strike a balance between fostering innovation and ensuring fair competition.²¹

EUROPEAN UNION (EU) AND UNITED KINGDOM

In 2022, European countries developeda new Digital Competition Law, aimed at facilitating the entry of small tech companies into a market dominated by big tech firms. Nonetheless, the fundamental principles of consumer protection andcompetition law remain relevant even in the digital world, and the EU made efforts to ensure that fair and transparent market practices will continue to benefit consumers.²²

The Digital Market Act and Treaty on the Functioning of the European Union are the regulations and laws to curb the unilateral abuse of the dominant position of the big tech giants. The act defines these big tech giants as “gatekeepers”- large online platforms having a significant market holding, such as app stores, search engines, and social media.²³

These regulations seek to ensure a fair and open digital market, promoting innovation and technological advancement in Europe. The primary regulation of the above two acts is to prohibit these gatekeepers from unfairly self-preferencing their services. Additionally, these actsrequire these gatekeepers to be transparent in their algorithms and data usage. These ex-ante regulations will empower the European Commission to investigate these gatekeepers and, impose hefty fines if they fail to comply with the regulations.²⁴ The EU and the UK will soon enforce these acts all over their territories.

INDIA

India's digital competition landscape is on the cusp of significant change. While the Competition Act, 2002, has been used to address anti-competitive practices, concerns remain about its effectiveness in the fast-paced digital world. In February 2023, the Committee on Digital Competition Law (CDCL) was formed to examine this issue. The CDCL submitted its report in March 2024, recommending a shift towards an ex-ante regulatory framework. This means the government would be able to intervene and regulate certain large digital enterprises (designated as Systemically Significant Digital Enterprises or SSDEs) before any anti-competitive practices occur. The draft Digital Competition Act proposed by the CDCL empowers the Competition Commission of India (CCI) to identify SSDEs based on their market presence and influence. The Act would also outline specific prohibitions on SSDEs, such as self-preferencing or unfair conditions for businesses, to promote a fairer digital marketplace. Though the report has been submitted, it's still in its early stages, and the final form of India's digital competition law is yet to be determined.

The Competition Commission of India should be prepared with its reforms to address the steadily growing digital economy and protect consumers from the harm caused by anti-competitive conduct.The effectiveness of these reforms in practice remains to be seen, but it is a welcome development that could promote competition and innovation in the digital market.

Although the parliamentary committee submitted its report, no desired results came from it. The committee relied on the concept formed by the EU digital competition law and, in the same vein, developed the idea of SIDIs and SSDEs in India to address issues of self-preferencing, illegal data usage, etc. At the BRICS Competition Law Summit, the government of India acknowledged its intention to formulate a new digital competition law. Despite their efforts, the government of India is lagging in implementing these measures, as there was no fruitful outcome from the committee formed by the parliament. Recently, the government of India announced that the term of the committee had ended. There is a higher chance that in the coming year, the government of India will establish another committee to frame the digital competition law.

CONCLUSION

Digital competition law is a complex and rapidly evolving area of law that seeks to promote competition and prevent anticompetitive conduct in digital markets. In a country like India, creating new laws is a lengthy and complicated process that involves updating legislation to reflect the realities of the digital economy. To ensure competitive digital markets and consumer benefits, parliament and policymakers must continuously adapt and develop new tools as the digital economy transforms the way we live and do business.

One of the challenges in enforcing digital competition law is the difficulty in identifying and proving anticompetitive conduct. In the digital economy, tracking and monitoring transactions and market behavior can be challenging. This is especially true in the case of online platforms, which collect and use vast amounts of data from users and competitors without their knowledge.

Another challenge is the increasing power of big tech companies. These companies have a significant amount of market power, allowing them to extract higher prices from consumers and stifle competition. This is a particular concern in the case of online platforms, which have become essential for many businesses and consumers.

To address these challenges, authorities and policymakers are developing new tools to enforce digital competition law. These tools include:

• Increased scrutiny of mergers and acquisitions involving big tech companies.
• More aggressive enforcement of antitrust laws against big tech companies.
• New regulations to address anticompetitive conduct in digital markets.
• Formation of SIDIs is also helps to curb the anti-competitive activities by the big tech companies.

These new tools ensure that the digital economy remains competitive and benefits consumers. The digital economy is constantly evolving, and it will be necessary for authorities and policymakers to adapt their enforcement strategies accordingly.

In addition to the above, educating consumers about digital competition law and their consumer rights is essential. Consumers must know the potential for anticompetitive conduct in digital markets and how to protect themselves. By working together, authorities, policymakers, and consumers can help to ensure that the digital economy remains competitive and benefits everyone.