Call for inputs on Draft Digital Competition Bill, 2024

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Call for inputs on Draft Digital Competition Bill, 2024

Sudipto

@Sudipto

March 26, 2024

Public Policy

144

The Committee on Digital Competition Law (CDCL) submitted its report along with the Draft Bill on Digital Competition Law (available here) and the Ministry of Corporate Affairs (MCA) has invited feedback on the same. In February 2023, the MCA had constituted CDCL to examine the need for a separate law on competition in digital markets.

We have initiated the process of industry consultation. A brief highlight of the report is given below for ready reference.

Brief highlight of the CDCL report

Introduction of a Digital Competition Act with ex-ante measures: The Committee recommends the introduction of an ex-ante legislation specifically applicable to large digital enterprises, to supplement the Competition Act.
Scope and applicability: The Committee proposes that the Draft DCB should apply to a pre-identified list of Core Digital Services that are susceptible to concentration. It is proposed that the Central Government can update this list from time to time. The proposed list includes:
1. online search engines;
2. online social networking services;
3. video-sharing platform services;
4. interpersonal communications services;
5. operating systems;
6. web browsers;
7. cloud services;
8. advertising services; and
9. online intermediation services (Note: Inclusion of this broad category appears to be inconsistent with the idea of a well identified list)

Regulation of digital enterprises with ‘significant presence’: The Committee recommends regulating on those enterprises which have a ‘significant presence’ in the provision of a Core Digital Service in India and the ability to influence the Indian digital market. The Committee recommends designating such enterprises as “Systemically Significant Digital Enterprises” (SSDEs).
Thresholds and criteria for SSDEs: A twin test demonstrating ‘significant presence’ is proposed:
1. the ‘significant financial strength’ test which comprises quantitative proxies of economic power, i.e. India-specific turnover, global turnover, global market capitalisation, and gross merchandise value; and
2. the ‘significant spread’ test which evaluates the extent to which an enterprise has been present in the provision of a Core Digital Service in India on the basis of the number of end-users and business users.
3. The proposal is to obligate enterprises to self-assess their fulfilment of these thresholds and report the same to the CCI. Additionally, the report proposes enabling CCI to designate certain enterprises as SSDEs based on ‘qualitative criteria’ where they may do not meet the quantitative thresholds but nonetheless have the ability to significantly influence the market in which they operate.
Associate Digital Enterprises: The Committee recommends that designation may not be limited to just one enterprise in the group. Depending on the involvement of different enterprises within the group in providing a Core Digital Service, the Committee envisages two scenarios:
1. first, where the holding enterprise is designated as an SSDE and other enterprises within the group, directly or indirectly involved in provision of the same Core Digital Services, are designated as Associate Digital Enterprises to the SSDE (ADEs); and
2. second, a non-holding enterprise most directly involved in providing the Core Digital Service is designated as an SSDE and its holding enterprise and other group entities directly or indirectly involved in providing the same Core Digital Services are designated as its ADEs. In this regard, the Committee recommends that the CCI be given flexibility to identify the appropriate enterprises for SSDE and ADE designations.
Obligations: The specificities of the obligations as applicable to each Core Digital Service would be specified through regulations drafted by the CCI through a consultative process. Not all SSDEs and ADEs providing the same Core Digital Service are expected to have the same degree of influence on the market within which they operate. Therefore, the regulations may provide for differential obligations upon different SSDEs and ADEs depending on factors such as their business models and size of their user base.
Exemptions: The grounds for exemption from complying with the ex-ante obligations should be provided for in the statute itself. The features of such exemptions should be specified through regulations framed by the CCI, considering the particular Core Digital Service and related business models of SSDEs and their ADEs. The Committee also recommends power exempting certain classes of enterprises from the applicability of the statute.
Enforcement: The enforcement is to be entrusted with the CCI. The Committee advises the CCI to strengthen the capacity of its Digital Markets and Data Unit with experts from the field of technology. Further, the Committee recommends instituting a separate bench within the National Company Law Appellate Tribunal to ensure timely disposal of appeals filed against the CCI’s orders, particularly those relating to digital markets.
Remedies: The monetary penalty for noncompliance with ex-ante obligations can go upto a maximum of 10% of the global turnover of the SSDE. Additionally, 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. The Committee recommends that the precise quantum of penalty be determined by the CCI with due regard to the penalty guidelines under the Draft DCB. Separate penalties have been provided for contraventions resulting from incorrect reporting and vicarious liability of key managerial persons.

For any feedback on the above, please write to sudipto@nasscom.in or garima@nasscom.in with a copy to policy@nasscom.in.

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