Competition Law For Digital Giants: The Big Miss
In an attempt to check abuse by market leaders in the digital space, the Committee has surprisingly chosen to exclude a tool often used to eliminate competition.
Amazon, Flipkart, Google, Apple, Uber, Ola, Zomato, and Swiggy—digital giants of e-marketplaces, food aggregators, cab aggregators, search engines, and travel portals—will soon have to deal with a new law in India. And that’s the Digital Competition Law proposed to check abuse in the digital world.
The committee on digital competition law submitted its report and a draft bill last week, saying India needs an ex-ante regime, i.e., a pre-determined framework to check anti-competitive conduct.
The behaviour that this proposed law aims to check includes anti-steering, which is hindering consumers from switching to third-party service providers; self-preferencing, where platforms favour their own products; using personal data for consumer profiling to offer targeted ads; and controlling search rankings, among others.
But one area that the committee has chosen to keep out of the purview of the proposed law is mergers and acquisitions. Its argument is that concerns on the M&A front are sufficiently addressed by the Competition Act, 2002, which was amended last year to include a deal value threshold. As per the amendment, a transaction having a deal value greater than Rs 2,000 crore will need the approval of the Competition Commission of India.
This is surprising given that both the Parliamentary Standing Committee and Competition Law Review Committee identified killer acquisitions as a tool used by market leaders to eliminate potential threats.
An enabling provision should exist, says Avaantika Kakkar, partner at Cyril Amarchand Mangaldas. But perhaps the committee believes that the deal value threshold provision will catch acquisitions that may lead to a possible monopoly under the law.
"That said, I agree that the deal value threshold that has been set by the ministry at Rs 2,000 crore is not really appropriate. But India has always had very high thresholds under merger control. It's been well acknowledged that our thresholds are among the highest in the world," Kakkar opined.
Higher thresholds imply that perhaps deals that can lead to monopolies don't get vetted by the regulator.
The Catch-All Provision
For obvious reasons, it's not the exclusion of M&A that has the digital majors perturbed. It's a catch-all inclusion that is drawing significant criticism.
The draft bill says the law will apply to systemically significant digital enterprises. A dual test of significant financial strength and significant spread will be used to identify SSDEs. To elaborate:
Financial Strength Criteria:
India turnover: Rs 4,000 crore.
Global turnover: $30 billion.
Gross merchandise value (for e-marketplaces): $1.95 billion.
Global market cap (for listed companies): $75 billion.
Significant Spread Test:
At least one crore end users, or at least 10,000 business users, of the Core Digital Service in India.
But even if an entity doesn't meet these thresholds, it can be designated as an SSDE based on a variety of factors, including volume, size, dependence of end users, economic power, integration with multiple sides of a market, etc. Curiously, social obligations and social costs are also factors, according to the proposed bill.
There are 16 factors on which an entity can be designated as an SSDE. The last one being 'any factor', which the CCI may consider, highlighted Nisha Uberoi, partner at Trilegal.
Once designated as an SSDE based on these broad parameters, certain obligations will apply to you, irrespective of whether you do something or don't. An SSDE has to ensure you don't do self-preferencing; you've got to ensure you have the relevant consent to use consumer data; and you don't do tying or bundling, Uberoi explained.
Every aspect of doing business digitally will pretty much fall within the gamut of Core Digital Services. While the bill defines Core Digital Service, there's a residuary power proposed to include more services in the list.Nisha Uberoi, Partner, Trilegal
All these activities are proposed to be core digital services, which the CCI will regulate. Here, the committee has moved away from a principle-based approach, according to Uberoi.
"There could be an SSDE that offers more than one core service. Similarly, there could be more than one player in the market for a particular core service. So, the CCI will now tailor, or customise, what compliance an SSDE for a particular service needs to undertake," she said.
