Legal Update | Overview of the Digital Competition Bill
Co-authored by Anju Jain Kumar and Zenia Cassinath
On 12th March 2024, the Ministry of Corporate Affairs published the report of the Committee on Digital Competition Law (“CDCL”), which includes a draft of the proposed Digital Competition Bill, 2024 (“DC Bill”), and has invited comments on the same up to 15th April 2024.
By way of a brief background, it may be noted that the CDCL was formed on 6th February 2023 with the primary objective of determining whether the existing provisions of the Competition Act, 2002 (“Competition Act”) could efficiently deal with the digital markets or whether a separate law was needed to regulate the same. At the end of its deliberations, the CDCL concluded that (i) the ex-post framework of the Competition Act may not be sufficient to address competition concerns in digital markets since these markets were propelled by strong network effects and tended to ‘tip’ quickly, which often resulted in a ‘winner-takes-most’ outcome; and (ii) the existing legal framework pertaining to digital enterprises such as the Foreign Direct Investment Policy and Foreign Exchange Management (Non-debt Instruments) Rules 2019, Digital Personal Data Protection Act 2023, Consumer Protection Act 2019, Consumer Protection (E-commerce) Rules; Consumer Protection (Direct Selling) Rules,2021 Reserve Bank of India Master Directions on Prepaid Payment Instruments 2021 etc., regulated such entities in a piecemeal fashion and did not consider challenges to digital markets from a competition law perspective.
To allay these concerns and after considering the global best practices in jurisdictions such as the EU, UK, Germany, USA, Australia, Japan, South Korea and China, the draft DC Bill was formulated. Through this bill, it is envisaged that if an entity provides any of the 9 identified ‘Core Digital Services’ (“CD Service(s)”) (i.e., (i) online search engines; (ii) online social networking services; (iii) video-sharing platform services; (iv) interpersonal communications services; (v) operating systems; (vi) web browsers; (vii) cloud services; (viii) advertising services; and (ix) online intermediation services) and if it meets certain financial and user thresholds, it would be designated as a ‘Systematically Significant Digital Enterprise’ (“SSD Enterprise”). If so designated, then it, along with its group enterprises that provide CD Services (“Associate Digital Enterprise /AD Enterprise”), will be subjected to certain ex-ante obligations which are aimed to regulate such entity’s market facing conduct. Set out below is a brief overview of the key features of the draft DC Bill.
Identifying Systematically Significant Digital Enterprises
General Principle: As per the DC Bill, an entity that provides CD Services will be designated a SSD Enterprise status if it meets certain identified Financial and User Thresholds (discussed below). However, if an enterprise does not maintain or fails to furnish the data to determine if the Thresholds are met, then it shall be deemed to be a SSD Enterprise if any Threshold is met.
The Thresholds: The financial thresholds (“Financial Thresholds”) prescribed under the DC Bill are (i) turnover in India of not less than INR 4000 crore; (ii) global turnover of not less than USD 30 billion; (iii) gross merchandise value in India of not less than INR 16000 crore; or (iv) a global market capitalization of not less than USD 75 billion, or its equivalent fair value of not less than USD 75 billion. Further the user thresholds (“User Thresholds”) mentioned are (i) the CD Services provided by the enterprise has at least 1 crore end users; or (ii) the CD Services provided by the enterprise has at least 10,000 business users. Financial Thresholds and User Thresholds shall hereinafter be collectively referred to as “Thresholds”. That said, it may be noted that the Central Government, in consultation with the CCI, can update the Thresholds every three years.
CCI Discretion: That said, the Competition Commission of India (“CCI”) may designate an enterprise as a SSD Enterprise even if the Financial and User Thresholds are not met provided that the CCI is of the opinion that such enterprise has significant presence in respect of a CD Service based on factors including but not limited to (i) volume of commerce, size, resources, and scale and scope of the activities of the enterprise; (ii) number of business or end users and their dependence on the enterprise; (iii) economic power, degree of integration or inter-linkages of the enterprise qua the multiple sides of the market; (iv) monopoly position whether acquired as a result of any statute or otherwise; (v) barriers to entry or expansion including regulatory barriers, financial risk, high cost of entry, marketing costs, technical entry barriers, barriers related to data leveraging, economies of scale and scope etc.; (vi) extent of user lock in, including switching costs and behavioral bias impacting their ability to switch or multi-home; (vii) network effects and data driven advantages; (viii) countervailing buying power; (ix) market structure and size of the market etc.
Circumventing SSD Enterprise Designation: An enterprise is barred from undertaking any activity to evade meeting the Thresholds and thus circumvent being designated as a SSD Enterprise. In the event of non-compliances in this regard, the CCI along with imposing a penalty also has the power to disregard any structuring and designate the said enterprise as a SSD Enterprise
Grant and Revocation of SSD Enterprise status
Once an enterprise meets the SSD Enterprise designation criteria, it must notify the CCI of the same within 90 days along with the details of its Associate Digital Enterprises. Thereafter the CCI may designate the said enterprise as a SSD Enterprise while also identifying its CD Services. Notably, a ‘SSD Enterprise designation’ will be granted for a period of 3 years and be deemed automatically renewed on the expiry of the said 3 year period unless specifically revoked. Further, it may also be noted that the DC Bill provides that after a period of 90 days has elapsed from the date on which the relevant provisions become effective, the CCI can suo moto requisition information from an enterprise in order to ascertain whether it is a SSD Enterprise.
That said, a SSD Enterprise designation can be revoked by the CCI if the SSD Enterprise (i) makes an application with the details of how it no longer meets the SSD Enterprise designation criteria, 6 months prior to the expiry of the 3 year SSD Enterprise designation; or (ii) after the expiry of 1 year from being designated a SSD Enterprise, requests the CCI to revoke its designation in respect of all or any CD Services provided there has been a significant change in market dynamics.
Obligations of a SSD Enterprise
As per the DC Bill, SSD Enterprises will be required to conduct their activities in accordance with the following behavioural obligations and the specific rules and regulations framed for the different CD Services:
Self Preferencing: A SSD Enterprise cannot directly or indirectly favour its own products, services over those offered by third party business users on the CD Service, in any manner. Notably, this restriction also extends to the products and services of the SSD Enterprise’s (i) related parties; and (ii) third-parties with whom the SSD Enterprise has arrangements for the manufacture and sale of products or provision of services.
Data Usage: In relation to usage of data it may be noted that SSD Enterprises:
- Are restricted from using or relying on the data generated through commercial activities of business users (including their end users) on a CD Service, to compete with such business user on its CD Service.
- Are restricted form (i) intermixing or cross using the personal data of its users collected from different services including its CD Services; or (ii) permitting the usage of such data by any third party, without the consent of such user
- Must allow its CD Service users to be able to easily port their data in a format and manner as may be specified.
Third Party Applications: SSD Enterprises (i) cannot limit or impede the ability of users to download, install, operate or use third-party applications or other software on its CD Services; and (ii) must allow users to choose, set and change default settings.
Anti-Steering:: SSD Enterprises cannot not restrict business users from (i) communicating with; or (ii) promoting offers to; or (iii) directing their end users to their own or third-party services, unless such restrictions are integral to the provision of the CD Service by the SSD Enterprise.
Tying and Bundling: A SSD Enterprise cannot require or incentivise its CD Service users to use one or more of SSD Enterprise’s other products / services, alongside the use of the identified CD Service, unless the use of such products / services is integral to the provision of the CD Service. Notably, this restriction also extends to the products and services of the SSD Enterprise’s (i) related parties; and (ii) third-parties with whom the SSD Enterprise has arrangements for the manufacture and sale of products or provision of services.
Reporting and Compliance: SSD Enterprises are required to (i) operate in a fair, non-discriminatory and transparent manner with end users and business users; (ii) institute transparent and effective complaint handling and compliance mechanisms; and (iii) report the measures taken to comply with the obligations mentioned above to the CCI.
Circumventing Behavioural Obligations: SSD Enterprises cannot not (i) engage in any activities that undermine the effective compliance with the behavioural obligations set out under the DC Bill and (ii) prevent or restrict its users from raising any concerns related to non-compliance of the SSD Enterprise’s obligations.
CD Service Specific Regulations
As per the DC Bill, the CCI is to frame regulations for each CD Service. These CD Service regulations are to act as a framework within which SSD Enterprises /AD Enterprises must conduct their business qua the obligations discussed above. Further the CCI has been given the discretion to set out different compliance thresholds for different categories of SSD Enterprises and AD Enterprises based on factors such as market characteristics and the number of users in India.
That said while framing these regulations, the CCI has been provided with the flexibility to create carveouts to an enterprises’ conduct requirements based on factors such as (i) economic viability of operations; (ii) prevention of fraud; (iii) cybersecurity; (iv) prevention of unlawful infringement of pre-existing IPRs; (v) requirement of any other law in force etc.
Penalties
After providing a reasonable opportunity of being heard, the CCI may impose penalties on enterprises found to be in violation of the provisions of the DC Bil in the manner set out in the table below:
| Penalty | Nature of Default |
| Up to 10% of the SSD / AD Enterprises’ global turnover in the preceding financial year | Failure to comply with the behavioral obligations |
| Undertaking activities to circumvent a SSD Enterprise designation | |
| Up to 10% of the global turnover of the erring enterprise | Failure to notify the CCI that SSD / AD Enterprise Thresholds are met |
| Providing incorrect, incomplete or misleading information or no information with respect to (i) self-reporting obligations; (ii) show cause notices issued by the CCI; (iii) a revocation application; (iv) compliance reporting to the CCI. | |
| Providing incorrect, incomplete or misleading information, or failing to or refusing to provide complete information or cooperate with the CCI or DG in the course of their exercise of powers. | |
| 1 lakh for each day of non-compliance, subject to a maximum if INR 10 crore | Failure to comply with CCI’s orders relating to (i)findings of contravention; (ii) interim relief; (iii) its findings on acts taking place outside India (if any); and (iv) other penalty orders that may be passed |
Adjudication Process
The framework proposed under the DC Bill with respect to the inquiry and adjudication process of the CCI and the Director General (“DG”) is analogous to the provisions of the Competition Act, 2002. As such under the DC Bill, the CCI (and/or DG) will inter-alia be empowered to (i) investigate contraventions; (ii) conduct search and seizure operations; (iii) requisition documents; (iv) enter into settlement or commitment arrangements; (v) pass interim and final orders etc. Similarly, claims for compensation by aggrieved persons and appeals against orders passed under the provisions of this bill are to be heard by the National Company Appellate Law Tribunal and thereafter with the Supreme Court.
That said, it may be noted that these inquiries can be instituted by the CCI on (i) its own knowledge; (ii) receipt of an information from third parties; or (iii) receipt of a reference from a statutory authority or the Indian Government. Provided that, such information or reference has been made within the limitation period of three years from the date on which the cause of action arose, however if there is sufficient cause the CCI has the discretion to extend the limitation period.