Understanding the limitations of Draft Digital Competition Bill, 2024

9th July, 2024 - 9:02 am Categories: Competition Law 0 Comments

Although India seems to have drawn an example from the European Union in proposing the Draft Digital Competition Bill, 2024, it is self-explanatory in its provisions that it has not learned much from Europe’s implementation of the said law. The bill provides to set up pre-emptive or ex-ante provisions to curb anti-competitive practices and imposes heavy penalties that would amount to billions of dollars in case of violation of the same. The author seeks to elucidate several limitations inherent within the proposed bill.

A parliamentary standing committee was formulated in order to examine various aspects of the Draft Digital Competition Bill, including its implementation in India’s digital media markets. While the committee absolutely endorses the bill through its report, the basis of the said decision is unclear. From a rather opaque consultation with the stakeholders at its best to a complete lack of empirical evidence in supporting the conclusion of the report, the report is not occupied to serve as the basis for significant changes to be implemented in the digital markets.

Moreover, the bill applies exclusively to “Systematically Significant Digital Enterprises” (SSDE’). Under the EU’ Digital Markets Act, the threshold for such enterprises is fixed at 1/10^th of the population which is significantly higher than the threshold set by the Indian government at 10 million or 1 crore. Such a threshold would encompass any moderately successful digital enterprise. Consequently, startups that initially backed the bill are now calling for an increase in the threshold for SSDE’ considering it could potentially impede their growth.

Data usage and protection is a major concern when it comes to digital enterprises. Section 12 of the bill provides for provisions related to data usage. It restricts certain types of data from being used, while prohibiting data combination and cross using of data. Essentially this hinders the platforms from giving targeted advertisements. According to a survey conducted on 300 MSMEs, it was found that an overwhelming majority of them are heavily dependent on such advertisements. Additionally, 61% of them believe this section’s provisions will affect them negatively. Moreover, 75% of 37000 consumers who were surveyed agreed that targeted advertisements have proven beneficial to them. So, the question to consider here is, apart from placing restrictions on these digital enterprises, how are these provisions helping? Are these provisions proportionate to their goal? The bill fails to consider the synergy between these entities and understand the benefits they derive from one another.

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The act mandates digital enterprises to report themselves to the CCI if they fall under the criteria of SSDEs, post which the commission will lay down certain regulations in accordance with the provisions of the bill. The Competition Commission is a body that has already undertaken the responsibility of adjudicating on competition disputes, which is a herculean task. Adding the task of formulating guidelines may exceed the commission’s capacity to perform efficiently.

Ideally, if digital enterprises are restricted from doing something, it must be to ensure the welfare of some targeted audience. However, the provisions of the bill prove to be against the interest of the digital enterprise, small businesses availing their services as well as their customers. So, whom does it benefit? What is the rationale behind the bill? A magnified study of the impact of the bill makes it clear that it is beneficial only to those large digital entities competing against one another. Even in this case, it won’t be beneficial to them for a long time.

• One primary concern raised by the enterprises includes the requirement to pay a commission for their apps being downloaded from the app store.
• Additionally, Anti-steering has been prohibited according to the bill. Anti-steering refers to regulations or policies that ensure that consumers are not unfairly influenced or coerced into choosing certain options over others, thereby preserving fair competition and consumer autonomy. In simple terms, “anti-steering” means rules or laws that stop businesses from unfairly pushing you toward specific choices. For example, it stops an insurance company from making you use a particular doctor or hospital just because it’s cheaper for them, even if it’s not the best option for you.

Looking from the perspective of the prohibition placed on anti-steering, it essentially allows users to complete transactions using third parties, for example, third parties that give them a higher discount, instead of completing it with the original enterprise. This places the digital enterprise in a position wherein they will not be able to protect the consumers from the chances of being defrauded. According to a consumer survey, people are willing to pay between 5-20% more if they are assured of greater security. Therefore, these provisions may not align with the interests of the targeted audience.

• The bill also places a ban on self-preferencing wherein the enterprises are not allowed to promote their own products or give their products an additional preference over the others. Considering that self-preferencing is still allowed in offline markets, such as supermarkets, what is the harm that comes from doing the same online? What is the normative basis that informs these decisions made by the legislators?

From the above-mentioned provisions, we can already see that the changes have been brought by companies such as Apple.inc wherein they have allowed for third-party installation of apps. However, they prove to be much more expensive for the consumer.  An appropriate study must be conducted with proper empirical study and transparency wherein the public will be able to evaluate the basis that informs such provisions. Additionally, the commission must be strengthened in such a way that it will not be burdened in handling its current duties along with the responsibilities entrusted on them by the bill, or a separate body must be made for the same.

In the author’s opinion, the draft digital competition bill as it currently stands must be withdrawn. The fundamental test of whether a law must be implemented is whether the impact of its provision is proportional to its aim. Considering many of the provisions currently leave a lacunae as to whom it benefits or rather, does not even benefit the target audience, the bill must either be scrapped or entirely re-drafted following appropriate research.

Author: Naira Sunil, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

References

• The Hindu, “Is the Draft Digital Competition Bill too restrictive?”, Podcast, 2024
• The Indian Express, “What the draft Digital Competition Bill proposes, why Big Tech opposes it”, Explained, 2024.
• PRS Legislative Research, “Digital Competition Law”, Report Summary, 2024