Why Are Big Tech Companies Jittery About Digital Competition Bill? How Different It Is From The EU Law

Big tech companies, including Google, Facebook, Microsoft and Amazon will come under scrutiny as the Digital Competition Bill takes shape, which would stop them from self-preferencing their own services.

The draft law, called the Digital Competition Bill, 2024, has provisions to set presumptive norms to curb anti-competitive practices before they actually take place, and promises to impose heavy penalties for violations. Once this becomes a law, it could require big tech companies to make fundamental changes to their various platforms.

The Ministry of Corporate Affairs (MCA) sought public comments on the proposed legislation that has called for regulating Systemically Significant Digital Enterprises (SSDEs) that provide core digital services in India and have a significant presence and significant financial strength in the country.

The draft Bill, that was released on March 12, along with the report of the Report of Committee on Digital Competition Law.

What are Key Aspects of Digital Competition Bill?

The Bill proposes to designate certain enterprises as SSDE if they are engaged in certain “core digital services” (CDS) and meet the threshold criteria outlined under the bill. The list of core digital services has been mentioned under Schedule I of the DCB, which consists of “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 (includes web-hosting, service providers, payment sites, auction sites, app stores, e-commerce marketplaces and aggregators, etc.).”

If an enterprise is engaged in a CDS, the Bill proposes two tests – the financial strength test and spread test (user base test) to determine whether the enterprise may be designated as SSDE.

The core parameters of an SSDE are:

• If in the last 3 financial years, its turnover in India is not less than Rs 4,000 crore; or its global turnover is not less than $30 billion; or

• Its gross merchandise value in India is not less than Rs 16,000 crore; or

• Its global market capitalisation is not less than $75 billion; or

• The core digital service provided by these companies should also have at least 1 crore end users, or 10,000 business users.

The Competition Commission of India (CCI) can designate an enterprise an SSDE if it feels the firm has presence in any given core digital service.

At present, India follows an ex post antitrust framework under the Competition Act, 2002. The law criticised that incidence of market abuse involves delays. By the time the offending company has been penalised, the market dynamics change, as per The Indian Express report.

The Bill proposes to designate associate digital enterprises (ADEs) to understand the role that collected by one company of a major technology group can play in benefiting other group companies.

If an entity of a group is determined to be an associate entity, they would have the same obligations as SSDEs depending on the level of their involvement with the core digital service offered by the main company. For example, if one were to look at Google Search and how it steers direction data to Google Maps, the latter can theoretically be deemed an ADE. Same would apply to YouTube.

What are the Pitfalls?

One notable aspect is the Committee’s adoption of a broad principle-based approach, where the law sets forth general principles and delegates the task of detailing specific requirements to subordinate legislation, reflecting a model akin to the UK’s Digital Markets, Competition and Consumers Bill (DMCC). Similarly, the idea of identifying a list of CDS echoes the approach seen in the EU’s.

The tech giants are calling for the current competition law to be strengthened rather than moving towards an ex ante framework, which are preemptive measures that aim to disallow or discourage certain practices.

If the law goes into effect, it would mean that Apple will have to allow iPhone users to download apps from third-party app store over App Store. Google has also advocated against the ‘sideloading’ of apps claiming that it can potentially have security implications.

Unlike European Union’s Digital Markets Act, which specifically names the ‘gatekeeper’ entities, that decision in India’s draft law has been left to the discretion of the CCI. Companies believe that could lead to arbitrary decision making, which could potentially also impact start-ups.

Industry’s Interpretation of the Bill

The Internet and Mobile Association of India (IAMAI), a significant trade body representing numerous digital entities, including Big Tech firms, has expressed reservations. They argue that the proposed regulations have the potential to stifle venture investments in technology startups.

“The current ex-post framework is well-tested and relies on evidence of abuse thereby avoiding the risk of false positives. The proposed ex-ante regulations can dry up venture investments in tech start-ups, as the thresholds under the draft bill would act as a ceiling to the potential scalability of businesses,” said a submission made by the trade body.

It further said the criteria for designating enterprises as Systemically Significant Digital Enterprises are “subjective, all-encompassing, and self-contradictory”, and could cover the entirety of India’s digital sector.

What is EU’s Digital Markets Act?

The European law aims to prevent big online platforms selling content, goods and services from abuse of power. The EU believes that “strict regulation of big technology companies, the so-called gatekeepers of the digital economy, will lead to more competition and choice, greater innovation, better quality, and lower prices”.

DMA was first proposed in December 2020 and became applicable on May 2, 2023. Failure to comply with the law would result in hefty fines and being forced to offload assets or being banned from operating within European borders.

The law primarily targets search engine companies, messaging services, web browsers, online marketplaces, social networks that have at least 45 million monthly active users.

The law will stop these Big Tech companies from forcing users to use only their platforms, and will make it harder for them to track users’ internet activity.