How could the Digital Competition Bill affect your business?
5 Minutes
Leela Tarang Krishna
Company Essentials
The draft Digital Competition Bill, submitted by the Committee on Digital Competition Law upon which public comments are now requested by the Ministry of Corporate Affairs (M.C.A.), consists of provisions that fundamentally redefine how businesses with an online presence compete.
Find out how you could be affected by the proposed Bill if and when it comes into force.
The New Bill:
The new Digital Competition Bill (the Bill) applies to companies that act as intermediaries and have significant power while dealing with consumers/businesses and/or labour markets. Moreover, it applies to intermediaries that provide specific services (called core digital services, i.e., web browsing, interpersonal communication services, online search engines, video-sharing platform services, operating systems, cloud services, advertising services, or other intermediation services).
Ex: Dominos is a Pizza provider. It has its proprietary app, which is a digital service that is provided to consumers. The Bill neither applies nor interferes with Dominos’s digital service (the app). This is because it is not an intermediary - it is a food services provider with a digital presence to make sales. On the other hand, Zomato / Swiggy / Uber Eats are dealing with restaurants like Dominos and other food providers while also coping with delivery partners and consumers that are ordering in - they fall under the purview of the Bill.
It only applies to these intermediaries (those with significant power and providing core digital services) because they are in the position to regulate the competition amongst businesses within the ecosystem and their platform. To that extent, it defines certain obligations that these companies must follow.
This article is divided into two chapters. The first one deals with the conditions that must be fulfilled by an intermediary for the Bill and its provisions to apply, and the second one deals with what those intermediaries can and can't do - obligations upon the intermediaries as per the bill.
Do you have significant power?
Intermediaries providing core digital services with significant power are coined as systematically significant digital enterprises (S.S.D.Es). The proposed bill offers two tests (qualitative and quantitative) that will allow any company to determine whether they are an intermediary with significant power (S.S.D.E) to regulate what they can and can’t do.
Quantitative Test:
The bill lays down certain thresholds that allow companies to be considered intermediaries with significant power. These are:
- A company with a turnover of INR 4000 crore or more.
- The total value of goods and services sold by providing all services is more than INR 16000 Crore.
- The revenue derived from selling ALL goods and services is more than USD 30 Billion.
- The capitalisation of an enterprise globally is at least USD 75 Billion.
If any company crosses these thresholds & if they have more than one crore end users and more than 10,000 business users, they are considered S.S.D.E.
Even though the quantitative test focuses on catching big companies (multi-national companies), as per the Bill, a company that doesn't cross any thresholds can still be considered S.S.D.E if it passes the qualitative test.
Qualitative Test:
A company that provides any C.D.S. (Core Digital Service) that doesn't cross the abovementioned thresholds can still be considered an S.S.D.E, provided it has a significant presence in the market.
The Competition Commission of India (CCI) will assess significant presence by observing and analysing the following factors:
- Social obligations and costs associated with the company providing Core Digital Services.
- The advantage that an enterprise providing C.D.S. derives because of the data it collects and because of the reluctance of consumers & businesses to switch to other companies.
- The extent of dependence of companies and consumers on the company involved in providing digital services.
- The ability of a company to act independently of its competitors, i.e., the market power of the company.
- The volume of commerce committed by the company that provides a C.D.S. and the number of consumers and business users using the platform and its services.
- The extent of the company's integration with the consumers and the businesses.
If, by analysis of any of the factors mentioned, the CCI finds a company an S.S.D.E., they must follow the rules mentioned in the Bill about acceptable business strategies.
How you should act:
Every S.S.D.E (Systematically Significant Digital Enterprise) providing a core digital service (C.D.S.) must adhere to two specific sets of conducts - Special regulations about the particular service they offer & general acts that must be followed by every company providing any Core digital service.
Whilst the specific regulations governing each of the core digital services (i.e. web browsing, interpersonal communication services, online search engines, video-sharing platform services, operating systems, cloud services, advertising services, or any other intermediation services) are yet to be created by the CCI when the Bill passes, the general obligations that the S.S.D.E. must follow are laid down in the Bill. They are:
- Intermediaries that are S.S.D.E are prohibited from tying and bundling their services unless such is integral for the proper functioning of the application (Ex, Google tying its applications with the Android Operating System so that users receive the full Google Suit, despite the mobile they use).
- Intermediaries shall not restrict third-party applications from being listed on or downloaded from their applications. (For example, Google Play Store /Apple’s app store cannot limit the number of other app stores developed by different manufacturers, like Samsung, Fortnite, etc., to be downloaded from their applications).
- Intermediaries should allow users to change default settings (Ex, If the Bill passes, Google could be required to allow users to uninstall its proprietary apps on Android mobiles).
- Intermediaries should not prefer their downstream subsidiaries. (Ex, Amazon / any other e-commerce company preferring their producers over other producers who are offering identical/similar products)
- Intermediaries should not use the data that they collect as intermediaries to advance their sales while competing with businesses (MakeMyTrip should not use the data it collects from the users as an Airline ticket service provider to advance its sales in the hotel booking platform involving its preferred line of hotels).
- Intermediaries should not steer customers away from businesses to their products/ services, and they are responsible for transmitting all the advertisements and the information created by companies using their platform to the consumers using their platform.
- Intermediaries should only provide access to the data they collect to other entities by obtaining users' consent.
- Intermediaries should act fairly, non-discriminately, and transparently because of their position inside the ecosystem - which is a competition regulator amongst businesses and a provider of products to consumers.
The Bill proposes some institutional changes in how big tech companies operate and compete with several individual companies present in their ecosystem. If passed, it will fundamentally redefine the idea of competition in big tech companies because of the obligations that these companies are required to follow while competing and providing services.
Of course, there is still a lot to come and a lot to happen before the bill can be implemented. Whatever comes next, one thing is for sure: Indian competition law and how companies compete in India will change forever.
Intermediaries providing core digital services with significant power are coined as systematically significant digital enterprises (S.S.D.Es). The proposed bill offers two tests (qualitative and quantitative) that will allow any company to determine whether they are an intermediary with significant power (S.S.D.E) to regulate what they can and can’t do.
Quantitative Test:
The bill lays down certain thresholds that allow companies to be considered intermediaries with significant power. These are:
- A company with a turnover of INR 4000 crore or more.
- The total value of goods and services sold by providing all services is more than INR 16000 Crore.
- The revenue derived from selling ALL goods and services is more than USD 30 Billion.
- The capitalisation of an enterprise globally is at least USD 75 Billion.
If any company crosses these thresholds & if they have more than one crore end users and more than 10,000 business users, they are considered S.S.D.E.
Even though the quantitative test focuses on catching big companies (multi-national companies), as per the Bill, a company that doesn't cross any thresholds can still be considered S.S.D.E if it passes the qualitative test.
Qualitative Test:
A company that provides any C.D.S. (Core Digital Service) that doesn't cross the abovementioned thresholds can still be considered an S.S.D.E, provided it has a significant presence in the market.
The Competition Commission of India (CCI) will assess significant presence by observing and analysing the following factors:
- Social obligations and costs associated with the company providing Core Digital Services.
- The advantage that an enterprise providing C.D.S. derives because of the data it collects and because of the reluctance of consumers & businesses to switch to other companies.
- The extent of dependence of companies and consumers on the company involved in providing digital services.
- The ability of a company to act independently of its competitors, i.e., the market power of the company.
- The volume of commerce committed by the company that provides a C.D.S. and the number of consumers and business users using the platform and its services.
- The extent of the company's integration with the consumers and the businesses.
If, by analysis of any of the factors mentioned, the CCI finds a company an S.S.D.E., they must follow the rules mentioned in the Bill about acceptable business strategies.