This article, authored by our competition team, explores how the measures proposed to be undertaken for increased regulation of big-tech entities need to strike a fair balance between regulation and innovation.
Big-Tech Regulation: Biting Off More Than We Can Chew?
A. The status quo
Recent years have witnessed an increased scrutiny by competition authorities worldwide with respect to alleged anti-competitive practices in digital markets. In the Indian context, this has resulted in investigations being initiated against tech giants such as Google and Facebook, e-commerce platforms such as Amazon and Flipkart, online food delivery platforms such as Zomato and Swiggy and online travel aggregators such as MakeMyTrip, amongst others.
In order to address the alleged anti-competitive harm associated with digital markets, the Indian government has proposed certain measures. This includes the introduction of a deal value threshold under the Competition (Amendment) Bill, 2022, as amended, and having the Parliamentary Standing Committee on Finance (SCF) examine anti-competitive practices by big-tech companies and provide its recommendations. In December 2022, the SCF submitted its report where it recommended ex-ante evaluation of digital markets, discussed various types of anti-competitive harm that could potentially arise in digital markets and provided several recommendations for regulating leading entities who would have the power to engage in such anti-competitive harm (termed as ‘systemically important digital intermediaries’). The SCF also recommended the introduction of a separate digital competition legislation and the creation of a specialised digital markets unit within the Competition Commission of India (the CCI).
Interestingly, in June 2022, the Parliamentary Standing Committee on Commerce in its report on promotion and regulation of e-commerce in India opined that ‘prompt action’ must be undertaken to carry out appropriate changes to the (antitrust) regulatory framework in order to address challenges arising from digital markets.
Whilst these increasing efforts to regulate digital markets in India are understandable, a question that this approach gives rise to is whether there needs to be a more gradual, systematic, and evidence-based implementation of solutions in order to strike a fair balance between regulation and innovation?
B. Key considerations
The alleged anti-competitive theories of harm associated with digital markets primarily relate to self-preferencing, deep discounting, exclusive tie-ups, tying and bundling, and price parity provisions. However, since none of these practices can be ruled as being anti-competitive per-se, it creates the need to undertake an assessment on a case-to-case basis by the CCI.
Also, whilst it is important to address these issues, and efforts are accordingly being made towards developing a specific law in this regard, the question as to whether a separate antitrust legislation is even required at this stage needs more careful consideration. Would it be more prudent instead to keep an eye on the market situation post the implementation of the deal value threshold as well as initiate in-depth market studies to monitor the evolution of digital markets / technology and the extent and impact of the alleged anti-competitive practies by big-tech entities? We believe this is particularly necessary in the backdrop of rapid technological advancements (including up-and-coming artificial intelligence tools).
However, based on media reports, it seems that the committee on digital competition law (CDCL) appointed by the Indian government pursuant to the SCF’s recommendations (in order to review the adequacy of the existing law to address anti-competitive conduct in digital markets) has already completed stakeholder consultations with big-tech entities, digital start-ups, digital news publishers and the relevant industry associations, and is now likely to begin deliberations on the drafting of the digital competition legislation. We hope that these deliberations would continue to involve wide-ranging stakeholder consultations as the draft progresses.
Another important consideration for the CDCL would be to ensure that the digital competition legislation (if indeed adopted) does not entirely rely on the European Commission (the EC) for precedents. This is primarily on account of the socio-economic and infrastructure-related differences (including the extent of penetration of technology) between the Indian economy and the European Union (the EU).
If we consider the position in the EU, it is interesting to note that the EC appears to have followed a transparent and collaborative approach before officially introducing a regulatory framework to target digital markets. For instance, the EC, inter alia, undertook over several years public and expert consultations and conducted market / impact assessment to obtain an adequate and substantive basis for enacting the Digital Markets Act and Digital Services Act. We are of the view that a similar in-depth consultative approach should be adopted in India as well, rather than in haste, enact a similar legislation merely because there is one in the EU.
Another connected aspect is the lack of clarity on whether the CCI has the adequate expertise to assess the business practices of entities operating in the digital space at present. The setting up of an in-house digital markets and data unit by the regulator (which according to media reports is already underway) would help contribute towards building expertise on this front.
In any case, we believe that the current regime coupled with the proposed deal value threshold is likely to broadly address potential antitrust concerns that may arise from digital markets. This is evident from the increasing scrutiny as well as the outcome of investigations against big-tech giants, which seem to be keeping everyone on their toes. As the ripple effect of the CCI orders against big-tech companies sets in, other entities would take greater care to avoid practices that might breach the competition law.
C. The Way Forward
Whilst there are valid concerns about potential anti-competitive practices in digital markets, we believe that given India is a developing economy, any regulatory intervention in digital markets should be targeted, proportionate and nuanced so as to not stifle innovation. Lest we forget, technology and digital platforms have benefitted consumers in India in several ways via the growth of e-commerce, digital payments, telemedicine, etc. Not only have big-tech entities brought us convenience and accessibility but have also increased economic opportunities. Enforcement action that might dilute such benefits need careful consideration.
It will be interesting to see the process followed by the government in the next few months in terms of increasing regulation over digital markets. Needless to say, our overall focus should be on promoting competition whilst also not stifling innovation by new or existing digital market entities.
This material is for general information only and is not intended to provide legal advice. For further information, please contact: