Why blindly emulate Digital Competition Regulations from other countries?

An urgency has been created in India, without meaningful consultation, to table the Digital Competition Bill (DCB), 2024. The aim of this Bill is to regulate Big Tech platforms of a prescribed size on an ex-ante basis, following a global trend.

To go or not go ex-ante way as proposed in the new Bill or to wait and watch the outcome of the Digital Markets Act (DMA) enforced by European Union, is the debate in India during this open consultation process that ends on May 15, 2024. Before blindly following any approach, should the competition regulator not involve Indian stakeholders in an impact-cum-gap analysis of the competition regulatory approach so far?

The Bill outlines quantitative and qualitative criteria for identifying Systemically Significant Digital Enterprises (SSDEs) and their Associate Digital Enterprises (ADEs). These enterprises exceeding specified turnover and user base will be subject to the scrutiny of the Competition Commission of India (CCI). The SSDEs are mandated to adhere to stringent obligations that restrict their business models from engaging in ten anti-competitive practices identified by the Committee for Digital Competition Law (CDCL). These practices include self-preferencing, restricting third-party apps, imposing anti-steering policies, misusing the data of business users, bundling products and services etc.

However, the causal link between these anti-competitive practices and how they harm business users and consumers is not clear. The designation process that focuses on the structure of enterprises, as opposed to market distortion, challenges the paradigm. Competition law protects competitive processes in markets not competitors.

In this article, I answer the question why the cut and paste of DMA (in the form of the proposed DCB) is premature before an extensive digital market study by the CCI. The purpose is to suggest an approach that condemns real harm to competition and/or consumer welfare. Market distortions can be corrected by removing barriers created with the intent to drive out new entrants, not by obligating changes to business structures.

Regulatory and policy approaches that fear the intent of digital platforms are usually not evidence-based, and contribute to ambiguity around rules around various digital platforms. Due to a lack of capacity, for instance, can market regulators identify and regulate business conduct that uses anti-competitive tactics to interfere with market economics and separate the harms that are due to unethical and unfair practices? Far from solutions, blanket rules will only burden all stakeholders, and hamper idea, innovation and the freedom to express.

Some obvious questions that remain unanswered in the report of the CDCL are:

1. How will ex-ante rules be a more efficient approach that has measurable benefits with efficient enforcement or systemic change for a level playing field that can be expected by all stakeholders?

2. How do the rules incentivise business conduct that competes on merits along with innovation and compliance, especially by the entities impacted? And,

3. Without a clear theory of harm, will the new rules accelerate enforcement? Can the recently amended Competition Act not serve the purpose?

It would be crucial to weigh the regulatory barriers due to restrictive frameworks that may result in serious harm to an emerging competitive market space by untimely hurdles, especially those creating value for customers. A regulatory gap is seen between tipped markets and emerging business models. An exhaustive list of nine core services presently does not cover new disruptive tech models like GenAI, ChatGPT and such AI-powered services, which are conspicuously missing in the regulatory discourse in the report.

Risks and rewards

The ten loosely defined anti-competitive practices attack product design and consumer experience that are meant to fiercely compete in a dynamic market - with price and non-price benefits. Applying a ‘rule of reason’ test, they can arguably be ‘competition on merits’. When pro-competitive business justifications are supported with ample evidence in some of the markets examined by the CCI (where multiple platforms or competitors are growing in similar markets like e-commerce, OTT etc), why are leading platforms' market share conflated with market power or seen as anti-competitive without a cogent standard of proof? If there is no evidence of harm to the competitive process of demand and supply economics, who is the law looking to protect?

Do dominant businesses not have a right to promote their own products and services? What is the test of harm to distinguish the anti-competitive (preferencing to drive out rivals) from the benign (promoting based on consumer preferences). Coding a law that applies to all (good and bad business practices) would result in a presumptuous and flawed regulatory approach. To assess appreciable adverse effects on competition under Section 19(3) of the Competition Act, the rules must distinguish between factors like tech innovation (that are pro-competitive) from factors that cause artificial barriers (amounting to exclusionary behavior that are anti-competitive).

For instance, can a finding against Amazon not sharing data with rival sellers on the platform, to drive competitors out, be a reason to restrict all platforms from using algorithmic visibility and promotional campaigns? Jo dikhta hai woh bikta hai, say marketing gurus. Even in the case of Amazon, there is no conclusive finding since the European Commission resolved it by accepting commitments that expire in a few years. With lopsided rules, such positively fast track provisions will then create a cliffhanger, with no jurisprudence on exclusionary conduct. It is also possible that at a later stage, competition authorities may require commitments that do not expire. Can regulators second guess the business strategies of entities and provide mandatory obligations to change their business structures - pandering to the requests of the rivals (protecting competitors not market competition)?

Process is key

According to first principles of administrative law, process is crucial for fair justice and is the cornerstone of the democratic edifice. The initial decisions of the CCI were challenged in courts for not following due process, prompting tremendous efforts over a decade to be made by the CCI to pass reasoned orders. Thus, setting balanced legal principles that inspire compliance would work better than the anti-circumvention provision (Section 5 of DCB). In such an emerging landscape, how do we overcome regulatory blindness, which the anti-trust decisions display in a departure from the established principles of evidence, rule of reason and standard of proof?

A framework of techno-legal principles that collaborates with technology developers and founders of technology businesses is proposed, so that the parameters for ‘fairness’ and ‘contestability’ can be standardised.

The downside of relying on rules

In the ocean of tech policies, the tide of rules has been rising. Rules destroy the capacity to adapt and learn from mistakes. At this stage, when the CCI has been navigating with its own skills, learning and also building capacity, handing over a clone of the DMA would halt its potential improvisation.

In conclusion, there is a need for diversity of views from different stakeholders. A techno-legal principles framework will create greater diversity of decision makers and expand the playing field by making it more representative, thereby reducing the power of entrenched mindsets. 

Thanks to innovation in neuroscience, the ‘one drug for one disorder’ dogma is over. Rules that use design tools to adapt to today's digital world, satisfying the need for speedy resolution, will have viable solutions. Above all, removing unfairness from the process is key. Else, the quest to remove unfairness of one kind will result in unfairness of another.

Anupam Sanghi is a technology and competition lawyer and a mediator.