Vaibhav Choukse

Partner & Head - Competition Law at JSA.

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Embracing Openness Over Preconceptions In The Face Of Digital Competition Law: Assessing The Need Of An Ex-Ante Based Framework

While the ex-ante regime may seem like an attractive solution to level the playing field in digital markets, its efficacy remains unproven

The competition law seeks to curb anti-competitive practices and operates on an ex-post basis, which means it intervenes and takes corrective action after anti-competitive conduct has already occurred. Many believe that this approach can have limitations, especially in digital markets, where the dynamics and pace of innovation can lead to rapid market changes and potential harm to competition. 

Last year, the Parliamentary Standing Committee on Finance (Committee) presented its report on ‘Anti-competitive Practices by Big Tech Companies’ (Report). It recommended the introduction of an ex-ante regime for companies operating in digital markets through a new ‘Digital Competition Act’ (DCA) to ensure that their conduct is evaluated ‘ex-ante’ and where companies will have the onus of preventing any anti-competitive practices before serious lapses. Following this, the Government has set up a Committee on Digital Competition Law (CDCL) to examine the need for a separate law on competition in digital markets and the Committee is expected to submit its report by October end. 

However, the question that arises is whether such a framework can truly address the complexities of the digital ecosystem of a developing economy like India without unintended consequences and if the existing competition law adequately addresses competition-related issues in the digital ecosystem?

While the ex-ante regime may seem like an attractive solution to level the playing field in digital markets, its efficacy remains unproven. The European Union (EU)’s Digital Markets Act (DMA), a prominent example of ex-ante regulation, is yet to be fully implemented, making it difficult to assess its impact. Moreover, similar legislations in the United States have faced widespread opposition, with concerns ranging from potential adverse effects on consumers to stifling innovation.

The Committee recommended that India must identify leading companies that can negatively influence competition in digital markets based on their revenue, market capitalisation and the number of active businesses and end users. Such companies should be classified as ‘Systemically Important Digital Intermediaries’ (SIDIs) like the concept of ‘gatekeepers’ in the EU’s DMA. 

One of the key objectives of the DCA would be to impose ex-ante obligations on SIDIs to deter bundling and tying of services, as the Committee believes that many digital companies force consumers to buy extra products or applications that aren't related to the main service the user wanted and the SIDIs should not force businesses or end users to subscribe to any further services to be able to use their core platform service. However, a critical aspect to consider is how ex-ante rules might affect the bundling and tying of services by digital companies and consumers?

Deciphering Ex-Ante for Bundling and Tying of Services

The existing competition law farmwork [Sections 3(4) and 4] addresses competition law concerns that may arise from bundling and tying in digital markets. [As an example, in 2021, CCI started investigation against Apple for allegedly forcing app developers to use Apple’s proprietary in-app payment service if they want to distribute their apps to users through Apple’s App Store, and even pay a 30 per cent fee for in-app sales.]

Introducing an ex-ante framework alongside the existing provisions could hinder the functioning of bundling and tying services that are not necessarily harmful or anti-competitive. Two examples illustrate this point. In the Baglekar Akash Kumar vs. Google LLC, the CCI dismissed a case filed against Google that integration of its video-conferencing service Meet with the Gmail App amounted to anti-competitive behavior. However, the CCI ruled that users can choose between either of the apps with all functions, without having to use the other, are not coerced to use Meet exclusively, and are free to use any other video conferencing app. Similarly, in the Harshita Chawla v. WhatsApp case, the CCI rejected claims of tying and noted that while the WhatsApp Pay app is embedded in the WhatsApp messenger app when it is downloaded by users on their smartphones, the consumers are free to use WhatsApp Pay or any other payments application. 

Ex-Ante's Repercussions through the Lens of Big Tech

Imposing an ex-ante obligations may compel tech giants like Apple, Google and Facebook to make significant modifications to their service offerings, even when such changes may not be anti-competitive and raise several concerns. 

Firstly, many of these big-tech companies are of Indian origin, such as TCS, Infosys, and Wipro. Imposing pre-emptive restrictions based on perceived "abuse of dominance" could limit their products, services, and market growth, ultimately impacting users' experiences.

Secondly, adopting an ex-ante approach might delay Indian consumers' access to products and offerings from major tech companies, due to increased compliance steps and customization for the Indian market. These companies might shift their focus to markets with less regulatory friction. This is similar to Meta's recent decision to exclude the EU from its Threads app launch due to stricter privacy and competition laws.

Thirdly, startups in India have benefitted from established players, not only through product usage but also through advertising and app distribution. Introducing ex-ante provisions could have a trickle-down effect on the country's startup ecosystem.

Suggestive Alternates

Rather than rushing into ex-ante regulation, a more effective approach involves leveraging ex-post remedies. In this model, regulators monitor digital markets, allowing innovations to unfold while addressing issues as they arise. This approach is more adaptable, responsive, and less prone to stifling creativity. For instance, the European Commission's recent antitrust investigations into tech giants have resulted in substantial fines and corrective measures. This ex-post approach enables regulators to target specific anticompetitive practices without impeding broader innovation.

The Government has recently amended the Competition Act, which allows parties under investigation (for market abuse or vertical restraints) to offer commitments or settle their matter with the CCI. This will offer a possible lifeline to big tech companies under investigation to address allegations in a way that is less adversarial and time-consuming compared to traditional legal proceedings. At the same time, the desired market correction will be expediently achieved.

In the evolving landscape of digital markets, it is crucial to remember that regulation should encourage technological advancement, not constrain it. Ex-ante provisions may promise quick fixes, but their long-term costs could stifle the very essence of digital dynamism. The Digital India future should be open, not preconceived.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house

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