Indian start-ups back Digital Competition Bill, while Big Tech continues to oppose

Around 40 Indian start-ups pledged their support to draft Digital Competition Bill calling it a ‘game changer’, yesterday. However, the likes of Google, Amazon, and Microsoft continue to oppose it- but why?

By  Storyboard18May 17, 2024 8:23 AM
Indian start-ups back Digital Competition Bill, while Big Tech continues to oppose
The proposed draft bill, which has taken a cue from the European regulatory handbook, has provisions to set presumptive norms to curb anti-competitive practices before they take place, and promises to impose heavy penalties for violations— which could go in billions of dollars. (Representative Image: Markus Spiske via Unsplash)

Nearly 40 Indian start-ups joined forces to pledge support to the draft Digital Competition Bill, yesterday while describing its proposed 'ex-ante' regulations as potential 'game-changer' in tackling the anti-competitive practices of big tech companies. Prominent names including Matrimony.com, TrulyMadly, Innov8, QuackQuack, Magicbricks, Hoichoi, and Medibuddy wrote to the Ministry of Corporate Affairs (MCA) on the issue. The companies have urged the MCA to move forward with the bill at the earliest even as they accused the big tech players of often indulging in delay tactics.

This draws the battle line within the industry over provisions of the draft bill. The draft has rattled the big tech including Google, Facebook, Microsoft, and Amazon— who are said to come under scrutiny as the DCB takes shape and could stop them from self-preferencing their services. These companies, globally, have been accused of anti-competitive practices for a long time. The proposed draft bill, which has taken a cue from the European regulatory handbook, has provisions to set presumptive norms to curb anti-competitive practices before they take place, and promises to impose heavy penalties for violations— which could go in billions of dollars. So, if this were to go into force, it could require these tech companies to make fundamental changes to their various platforms. Similar to the EU’s Digital Markets Act (DMA)— which went into complete effect earlier this year—requires large tech firms to open their services, and not favour their own at the expense of rivals.

The draft DCB was released on March 12, along with the report of the Report of Committee on Digital Competition Law. Several stakeholders who would probably be impacted by the DCB had earlier asked for an extension of two to six months to submit their feedback on the law, as the deadline for doing so ended on May 15, 2024.

Key aspects of the draft DCB:

The Bill proposes to designate certain enterprises as Systemically Significant Digital Enterprises (SSDEs) if they are engaged in certain ‘core digital services’ (CDS) and meet the threshold criteria outlined under the bill. The list of CDS 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 (including web-hosting, service providers, payment sites, auction sites, app stores, e-commerce marketplaces, and aggregators, etc.). So, if an enterprise is engaged in a CDS, the draft proposes two tests – the financial strength test and the 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 CDS 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 a presence in any given core digital service. Unlike the 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— which some believe could lead to arbitrary decision-making.

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. 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.

However, the tech giants are calling for the current competition law to be strengthened rather than moving towards an ex-ante framework, which are pre-emptive 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 stores over the App Store. Google has also advocated against the ‘sideloading’ of apps claiming that it can potentially have security implications.

In the past, the Internet and Mobile Association of India (IAMAI), the trade body that represents numerous digital entities, including tech firms, has expressed reservations. “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 SSDEs are ‘subjective, all-encompassing, and self-contradictory’ and could cover the entirety of India’s digital sector.

First Published on May 17, 2024 8:23 AM

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