Digital markets comprise of internet based (digital) companies with millions of users. Such markets may be dominated with a few leading players emerging over a short period of time. The Standing Committee on Finance (“Committee“) submitted its report on ‘Anti-Competitive Practices by Big Tech Companies’ on December 22, 2022 (“Report“).1 This Report discusses 10 major anti-competitive practices by Big Tech companies and puts forth the Committee’s observations and recommendations for each issue. The Report discusses that as the Indian digital ecosystem expands, monopolistic practices will prevent fair competition, restrict customer choice and growth of new entities, in the absence of regulation.
Ex Ante Measures and Systematically Important Digital Intermediaries
The prevailing Competition Act, 2002 is ex post, meaning companies are penalised for anti-competitive behaviour after occurrence of the practice/harm. The Committee discussed that such measures may be too delayed to prevent irreparable harm to affected parties. The Committee recommended that ex-ante provisions are required for digital markets and particularly for Big Tech companies.
The Committee noted that there is an emerging global consensus that it is necessary to identify the Big Tech players or Systematically Important Digital Intermediaries (“SIDI“) that can negatively influence competitive conduct in the digital ecosystem, and subject them to ex-ante provisions to ensure fair competition in digital markets. They should be categorised as SIDIs based on their revenue, market capitalisation, and the number of active business and end users. It was recommended that the Competition Commission of India (“CCI“) and Central Government should collaborate to arrive at a reasonable definition. These SIDIs should annually submit a report to the CCI detailing the measures taken to comply with mandatory obligations.
Digital Competition Act
The Committee observed that India needs to enhance its competition law to address the unique needs of the digital market. The Committee recommended that the government should introduce a Digital Competition Act to ensure a fair, transparent, and contestable digital ecosystem. Further, the Committee opined that role of the CCI should be strengthened to address anti-competitive behaviour in digital markets. It suggested the establishment of a specialised digital markets unit within the CCI. This unit would: (i) monitor established and emerging SIDIs; (ii) give recommendations to the central government on designating SIDIs; (iii) review compliance; and (iv) adjudicate on cases related to digital markets.
The following are certain anti-competitive practices discussed in the Report:
- Acquisitions and Mergers: Killer acquisitions, or large firms buying highly valued start-ups without the transaction being subject to merge control rules that focus upon turnover, is a recurrent issue in digital markets. The Committee noted that CCI is not able to capture certain merges and acquisitions because they do not meet the thresholds of assets and turnover required for combinations. It recommends that a deal value based system should be introduced since digital markets are asset light and do not have a turnover. It further recommends that a SIDI should inform the CCI of any intended concentration, prior to its implementation, where the merging entities or the target of concentration provide services in the digital sector or enable the collection of data, irrespective of whether it is notifiable to the CCI.
- Platform Neutrality/Self-preferencing: Self-preferencing occurs when a company favours its own services or the services of its subsidiaries on its platform directly or indirectly, in situations when it has a dual role of providing the platform and competing on the same platform. For instance, companies misusing their position as operators of application stores and giving an advantage in rankings to their own applications over those of their competitors. The Committee noted that a lack of platform neutrality can lead to a negative effect on downstream markets as an unfair advantage is provided to the platform and the profits of downstream markets decline. It recommended that SIDIs must not favour their own services over those of their competitors when mediating access to supply and sales markets.
- Data Usage:Digital firms collect massive amounts of customer data. Due to network effects, as more users subscribe to a platform, more data is collected, and such companies tend to get bigger. Such data may be misused for tracking and profiling end customers. Organisations may also cross utilise such data for other services provided by them. While this provides advantages to Big Tech companies and their market position is entrenched, it creates barriers to entry and expansion of small and new companies. The Committee recommended that SIDIs should not process, for the purpose of providing online advertising services, the personal data of end users who use services of third parties, if such parties use the core services of the SIDI. They should also not combine personal data from the relevant core service of the platform with personal data from any other core services of the platform or with personal data from third-party services. Personal data from the relevant core service of the SIDI should not be cross utilised in other services provided by the platform. End users should not be signed into other services of the platform, in order to combine personal data, unless the end user has been presented with a specific choice and has consented to the same.
- Restricting Third-Party Applications: The Committee noted that entities have been found to restrict the installation or operation of third-party applications. For instance, an operating system may prevent users from utilising services of an application other than its own, such as Apple not allowing any third-party applications to be installed on the I-phone. The Committee observed that SIDIs should allow and technically enable the installation and use of third-party software applications.
- Adjacency/Bundling and Tying: Such practices occur when digital firms force their consumers to buy related services through linking their main product or services to other complementary products or services. For instance, a mobile OS encouraging its users to use its own search engine. It was discussed that by bundling these services into one take it or leave it package, application stores make it difficult for developers to establish fair fee for each service and reduce their ability to pursue alternatives. The Committee noted that this creates asymmetry in pricing and leads to the removal of competition from the market. It also enables leading players to leverage their market power in one core platform to another. It recommended that SIDIs should not force businesses or end users to subscribe to or register with, any further services for being able to use, access, sign up or register for their core platform service.
- Anti-steering:Anti-steering provisions by entities are used to prevent business users from moving out of the platform and using other alternatives, thereby stifling choice. For instance, application stores mandating the use of their own payments systems for application purchases. These practices result in anti-competitive exclusionary practices. The Committee discussed that anti-steering should be specifically declared as anti-competitive. It recommended that SIDIs should not make access to their platform conditional on preferred status or the purchase/use of other products or services that are not part of or intrinsic to the platform.
While development of specific regulations incorporating the above recommendations of the Committee may take some time, it will be interesting to see the steps taken by Big Tech companies towards curbing the alleged anti-competitive practices.