[Analysis] Draft Digital Competition Bill 2024 – A New Era of Regulation for Systematically Significant Digital Enterprises

Table of Contents

1. Background
2. Qualitative and quantitative criteria for identifying ‘Systematically Significant Digital Enterprises’
3. Period of 90 days to notify CCI to qualify as ‘Systematically Significant Digital Enterprises’
4. Measures preventing service segmentation to avoid thresholds
5. Prescribes obligations for ‘Systematically Significant Digital Enterprises’ and their ‘Associate Digital Enterprises’
6. Measures against circumvention of compliance obligations
7. Establishing transparent and effective complaint handling and compliance mechanisms
8. Avoidance of favouritism in product offerings by Systematically Significant Digital Enterprises
9. Prohibiting use of Non-Public data by Systematically Significant Digital Enterprises
10. Ensuring freedom for users to use third-party apps on Core Digital Services
11. Preventing enterprises from restricting user communication
12. Power to inquiry into non-compliance of obligations by Systemically Significant Digital Enterprises
13. Settlement and Commitment Procedure for inquiries initiated against enterprises
14. Power of Commission to regulate its own procedures and conduct studies
15. Power of Director General to investigate contraventions
16. Power of Central Government to exempt enterprises
17. Penalty for failure to comply with orders or directions of Commission
18. Limitation Period for initiation of inquiry
19. Execution of orders of Commission imposing monetary penalty
20. Confidentiality of information obtained by Commission or Appellate Tribunal

Background

The Ministry of Corporate Affairs (MCA) vide press release dated March 12, 2024 has released the draft report of the Committee on Digital Competition Law (CDCL) and a draft bill on Digital Competition Law. The draft bill is a part of the report that CDCL submitted to the MCA on February 27, 2024. The comments on the same may be submitted by 15.04.2024.

The MCA constituted a Committee based on the recommendations of 53 report of the Parliamentary Standing Committee on Finance on the subject titled ‘Anti-Competitive Practices by Big Tech Companies’ under the chairmanship of Secretary, MCA, to examine the need for a separate law on competition in digital markets.

This move comes in the wake of increasing scrutiny and discussions around the anti-competitive practices of big tech companies. For example – recently, Google delisted (then eventually restored) several Indian apps for non-compliance with the company’s app billing policies for an extended period.

Further, the committee observed that the current ex-post framework under the Competition Act, 2002 needs to be supplemented to better address concerns related to alleged anti-competitive practices of large digital enterprises.

The Committee recommends introducing ex-ante measures to complement the current ex-post framework by identifying large digital enterprises with a ‘significant presence’ in India in selected ‘core digital services’ and setting pre-determined rules for their conduct.

The bill aims to bring in regulations for bigger companies based on their turnover, gross merchandise value, number of users and other factors. The key takeaways of the draft Digital Competition Bill, 2024 are as follows –

1. Qualitative and quantitative criteria for identifying ‘Systematically Significant Digital Enterprises’

The Bill has proposed both qualitative and quantitative criteria to qualify enterprises as ‘Systematically Significant Digital Enterprises’. An enterprise shall be deemed to be a ‘Systematically Significant Digital Enterprise’ in respect of a Core Digital Service, if it meets any of the specified thresholds specified below –

• It meets any of the following financial thresholds in each of the immediately preceding three financial years –

1. 1. Turnover in India of not less than Rs 4000 crore, or
   2. Global turnover of not less than USD 30 billion, or
   3. Gross merchandise value in India of not less than Rs 16000 crore, or
   4. Global market capitalisation of not less than USD 75 billion or its equivalent fair value of not less than USD 75 billion calculated in a prescribed manner.

• It meets any of the following user thresholds in each of the immediately preceding three financial years in India-

1. 1. The core digital service provided by the enterprise has at least 1 crore end users, or
   2. The core digital service provided by the enterprise has at least 10,000 business users.

Further, the Commission may designate an enterprise as a ‘Systematically Significant Digital Enterprise’ in respect of a Core Digital Service even if it does not meet the prescribed criteria. This designation may be based on factors such as the size and resources of an enterprise, number of business or end users, market structure and size, scale and scope of activities of an enterprise and any other relevant factor.

2. Period of 90 days to notify CCI to qualify as ‘Systematically Significant Digital Enterprises’

The Bill has proposed a period of 90 days for enterprises to notify CCI in the specified form that they meet the criteria to qualify as ‘Systematically Significant Digital Enterprises’ in respect of one or more of their Core Digital Services.

Additionally, the enterprise must also notify the Commission of such other enterprises within the group that is directly or indirectly involved in the provision of Core Digital Services, as Associate Digital Enterprises.

Upon receiving the information, the CCI may pass an order designating the enterprise as a ‘Systematically Significant Digital Enterprise’ and identifying its Core Digital Services. Such an enterprise shall be designated for a period of 3 years.

3. Measures preventing service segmentation to avoid thresholds

The Bill has proposed measures to prevent service segmentation to avoid specified thresholds. It states that an enterprise shall not directly or indirectly segment, divide, subdivide, fragment or split services through contractual, commercial, technical or any other means to circumvent i.e. to avoid the specified thresholds.

4. Prescribes obligations for ‘Systematically Significant Digital Enterprises’ and their ‘Associate Digital Enterprises’

The Bill has prescribed obligations for ‘Systematically Significant Digital Enterprises’ and their ‘Associate Digital Enterprises’. It states that upon designation as a Systematically Significant Digital Enterprise, the enterprise must comply with certain obligations regarding Core Digital Services.

The Associate Digital Enterprise must also comply with all the obligations that the Systematically Significant Digital Enterprise is required to comply with, and non-compliance with the same shall result in penalties.

5. Measures against circumvention of compliance obligations

The bill has proposed measures against the circumvention of compliance obligations.

It states that a ‘Systemically Significant Digital Enterprise’ shall not engage in any behaviour that undermines effective compliance with the obligations regardless of whether that behaviour is of a contractual, commercial or technical nature, or any other nature, or consists of the use of behavioural techniques or interface design.

Further, enterprises must not directly or indirectly prevent or restrict business users or end users from raising any issue of non-compliance with the enterprise’s obligations under the Act.

6. Establishing transparent and effective complaint handling and compliance mechanisms

The bill has proposed establishing transparent and effective complaint handling and compliance mechanisms. It states that a ‘Systemically Significant Digital Enterprise’ must establish transparent and effective complaint handling and compliance mechanisms as may be specified.

The enterprise must report to the CCI on the measures taken to comply with the obligations and rules and regulations framed in the specified form.

Further, a Systemically Significant Digital Enterprise must operate in a fair, non-discriminatory, and transparent manner with end users and business users.

7. Avoidance of favouritism in product offerings by Systematically Significant Digital Enterprises

A Systematically Significant Digital Enterprise must not directly or indirectly favour its own products, services or lines of business or those of –

• Related parties, or
• Third parties with whom Systematically Significant Digital Enterprise has arrangements for the manufacture and sale of products or provision of services over those offered by third-party business users on the Core Digital Service in any manner.

8. Prohibiting use of Non-Public data by Systematically Significant Digital Enterprises

A Systemically Significant Digital Enterprise must not directly or indirectly, use or rely on non-public data¹ of business users operating on its Core Digital Service to compete with such business users on the identified Core Digital Service of the Systemically Significant Digital Enterprise.

Further, such an enterprise must not without the consent of end users or business users permit usage of such data by any third party. Also, the enterprise must allow business users and end users of its core digital service to easily port their data in a specified format.

9. Ensuring freedom for users to use third-party apps on Core Digital Services

A Systemically Significant Digital Enterprise must not restrict or impede the ability of end users and business users to download, install, operate or use third-party applications or other software on its Core Digital Services and allow end users and business users to choose, set and change default settings.

10. Preventing enterprises from restricting user communication

A Systemically Significant Digital Enterprise must not restrict business users from directly or indirectly communicating with or promoting offers to their end users or directing end users to their own or third-party services. Such restrictions are only permissible if they are integral to the provision of the Core Digital Service of the Systemically Significant Digital Enterprise.

11. Power to inquiry into non-compliance of obligations by Systemically Significant Digital Enterprises

The Bill has proposed provisions regarding the powers of CCI to inquire into non-compliance of obligations by Systemically Significant Digital Enterprises and Associate Digital Enterprises. It states that if the CCI is of the opinion that there exists prima facie evidence, it shall direct the Director General to investigate to examine whether a Systemically Significant Digital Enterprise or an Associate Digital Enterprise is in breach of obligations or regulations.

If the CCI, upon receiving a reference from the Central Government, a State Government or a statutory authority, determines that there exists no prima facie case, it shall close the matter and pass such orders as it deems fit. Further, a copy of the order must be sent to the Central Government, the State Government or the statutory authority or the parties concerned.

12. Settlement and Commitment Procedure for inquiries initiated against enterprises

The Bill states that any enterprise, against whom an inquiry has been initiated under Section 16 for contravention of this Act, may for settlement of the proceeding initiated for the alleged contraventions, submit an application in writing to the Commission in such form and upon payment of such fee as may be specified.

The Commission may, after taking into consideration the nature, gravity and impact of the contraventions, agree to the proposal for settlement, upon payment of such amount by the applicant or on such other terms and manner of implementation of settlement and monitoring as may be specified. Further, no appeal shall lie against any order passed by the Commission.

Similarly, an enterprise, against whom any inquiry has been initiated under Section 16 for contravention of Chapter III and the rules and regulations framed thereunder, may apply in writing to the Commission, in such form and on payment of such fee as may be specified, offering commitments in respect of the alleged contraventions stated in the Commission’s order initiating an inquiry.

13. Power of Commission to regulate its own procedures and conduct studies

The Bill has proposed to grant the Commission, the power to regulate its own procedures and conduct studies. The Commission shall have the same powers as are vested in a Civil Court under the Code of Civil Procedure, 1908 while trying a suit.

Further, the Commission may direct any person to produce before the Director General or the Secretary or an officer authorised by it, such books, or other documents in the custody or under the control of such person as may be specified.

14. Power of Director General to investigate contraventions

The Director General shall, when directed by the Commission, assist in investigating any contravention of the provisions of this Act or any rules or regulations made thereunder.

Further, the Director General may examine on oath, any of the officers, employees and agents of the party being investigated and with the prior approval of the Commission, any other person in relation to the affairs of the party being investigated.

15. Power of Central Government to exempt enterprises

The Central Government may, by notification, exempt an enterprise from the application of one or more provisions of the Act, the rules or regulations framed or any provision thereof, and for such period as it may specify in the notification.

16. Penalty for failure to comply with orders or directions of Commission

If any person without reasonable cause, fails to comply with the orders or directions of the Commission, then he shall be liable to a penalty which may extend to Rs 1 lakh for each day during which such non-compliance occurs, subject to a maximum of Rs 10 crore as the Commission may determine.

Further, if any person does not comply with the orders or directions or fails to pay the penalty imposed, he shall be punishable with imprisonment for a term which may extend to 3 years or with a fine which may extend to Rs 25 crore or with both as the Chief Metropolitan Magistrate, Delhi may deem fit.

The Commission may also pass an order imposing a penalty on an enterprise, which shall not exceed 1% of the global turnover of the enterprise, in cases where it provides incorrect, incomplete, misleading information or fails to provide information. However, the enterprise must be provided with a reasonable opportunity to be heard.

17. Limitation Period for initiation of inquiry

The bill proposes that the Commission shall not entertain any information or reference under section 16, which pertains to the powers of the CCI to inquire into non-compliance of obligations by enterprises unless it is filed within 3 years from the date on which the cause of action has arisen.

18. Execution of orders of Commission imposing monetary penalty

If an enterprise or a person fails to pay any monetary penalty imposed on him, the Commission shall proceed to recover such penalty in a specified manner.

In cases, where the CCI is of the opinion that it would be expedient to recover the penalty imposed as per provisions of the Income Tax Act, 1961, it may make a reference to the concerned income-tax authority for recovery of the penalty as tax due under the said Act.

19. Confidentiality of information obtained by Commission or Appellate Tribunal

No information relating to any enterprise or person, which has been obtained by or on behalf of the Commission or Appellate Tribunal for this Act, must be disclosed without the previous written permission of the concerned enterprise or person, except in compliance with or for the purpose of this act.

1. “non-public data” shall include any aggregated and non-aggregated data generated by business users that can be collected through the commercial activities of business users or their end users, on the identified Core Digital Service of the Systemically Significant Digital Enterprise.