-Vallari Dronamraju*
Abstract
The Draft Digital Competition Bill is an agile legislation for digital markets that provides a means of creating a flexible over-arching principled framework for fast-paced digital markets. The Draft Digital Competition Bill has also envisaged subordinate legislation-making powers like regulations by the CCI on the specificities of the obligations to carry out the purpose of the parent legislation. It also provides for an inclusive list of Core Digital Services for large digital intermediaries under Schedule I that may be altered as digital markets progress. The author argues that these qualities make the Draft DCB a flexible framework, suitable for ever-evolving digital markets.
Dynamic Digital Markets
Digital markets are by nature dynamic and constantly evolving. Newer technologies like the Internet of Things, Generative AI, Big data, are coming to the fore and will continue to evolve. Digital markets are influenced by network effects, data usage and number of users for a digital service that impacts concentration in a market. Regulating such markets is a challenge in the hands of a regulator that has to take into consideration its changing needs and dimensions. The regulator will have to take into account these developments and prepare the market by including legislative provisions that are responsive to changing digital markets. In India, the Draft Digital Competition Bill (“Draft DCB”) has endeavoured to take steps towards a future-proofed legislation for regulation of digital markets. This legislation is meant to complement the existing competition law regime under the Competition Act, 2002.
In a recent speech, the Deputy Governor of the Reserve Bank of India (“RBI”) stated that the RBI as a matter of policy, will be providing better operational freedom for business operations within overarching principle-based regulatory frameworks. As a regulator in the dynamic financial world, a more forward-looking approach would be prudent.
For the digital markets, the Draft DCB is an attempt towards creating an agile framework for the regulation of competition in digital markets that is nimble enough. At the outset, it provides for principle-based obligations that form the over-arching standards for large digital enterprises. The Draft DCB also facilitates regulation-making by the CCI from time to time, with the specifics of these obligations. Finally, the author explores the importance of Schedule I under the Draft DCB that gives a list of Core Digital Services that can be altered in accordance with the needs of evolving digital markets. Through this piece, the author will iterate the qualities of the Draft DCB that make it a nimble framework, suitable to the needs of digital markets.
Principles-based Regulation under the Draft DCB
Any principle-based regulation moves away from reliance on prescriptive rules and provides broadly stated principles to set standards for enterprises. They are overarching requirements that can be applied flexibly to a rapidly changing industry where each enterprise is treated differently depending on the kind of activity it undertakes. Principle-based regulations also emphasise on an outcome-based framework, where the legislation making body is able to foresee the application of a nimble framework for a desired outcome.
The Draft DCB is a legislation that provides for principle-based obligations to ensure timely intervention against large digital enterprises engaging in anti-competitive practices and this, before the market is affected by their practices i.e., intervening ex-ante. A principle-based approach is best suited for a legislation that is regulating digital markets, as it is able to address changes in the digital markets promptly while also giving overarching principles. It is less rigid and codified, while also providing for additional regulatory power through delegated legislation making it flexible to changing digital markets. By formulating the objectives of the legislation into principles, evolutions in the technology will not mandate reform in the core structure of the regulation. By making more room for interpretation in different ways, discretion exercised is also limited.
A report on the regulatory framework for the online gaming sector suggested a light-touch regulatory framework for the online gaming industry. It has recommended the inclusion of over-arching principles for the parent legislation and rules as delegated legislation. Most technology based legislations are being thought of as principle-based or light touch regulations to improve flexibility while giving room for reasonable regulation. The simplicity in these regulations improves supervision and implies willingness to allow some discretion.
The Draft DCB primarily regulates practices of enterprises that have a significant presence in the provision of a Core Digital Service and the ability to influence the Indian digital market. Core Digital Services are types of online digital services provided by enterprises that exhibit features unique to digital markets and act as the connection between users and the enterprise. These enterprises are identified as Systemically Significant Digital Enterprises (“SSDEs”) and Associate Digital Enterprises (“ADEs”) that provide Core Digital Services. SSDEs have a significant presence and will be identified as an SSDE if it passes a twin test demonstrating significant presence through financial strength and the number of end users and business users it attracts. For an ADE, where the enterprise providing the Core Digital Service is part of a group, its identification will depend on the level of involvement of the enterprise in the group.
The Draft DCB maintains the principles of contestability and fairness along with innovation and competition. It bears in mind the dynamism of digital markets and ensures certainty and flexibility in the promotion of competition. For instance, it envisages the inclusion of principle-based ex-ante obligations for SSDEs and ADEs within the legislation itself. Over this, the specific conduct requirements for each Core Digital Service will be provided through regulations. Additionally, the thresholds for turnover, global turnover, global market capitalisation and gross merchandise value, and the number of users have been provided in the legislation while the manner of calculation of these will be introduced through regulations.
The Digital Personal Data Protection Act, 2023 is a principle-based legislation formulated with overarching principles including lawful, fair, and transparent use of personal data, data minimisation, data accuracy and storage limitation, among others. Internationally, in Australia, the Privacy Act, 1988 provides for 13 Australian Privacy Principles that govern standards around the collection and use of personal information. Such principles will provide an organisation with the flexibility to modify personal information management practices in accordance with business models.
Agility with delegated legislation under the Draft DCB
Under the Draft DCB, it has been envisaged that subordinate legislation making powers will be implemented through delegated legislation like rules and regulations to carry out the purposes of the parent legislation. They provide for well-defined procedures and additional details that will supplement existing legislative provisions under the Draft DCB. For digital markets, implementing subordinate legislations will provide flexibility to the legislative framework to include provisions that are in tune with the rapidly changing dynamics of digital markets.
Subordinate legislation in the form of regulations by the Competition Commission of India (“CCI”) are to be implemented for the manner of calculation of the number of end users and business users, differential obligations for SSDEs based on each Core Digital Service, differential obligations for SSDEs and ADEs and complaint handling mechanisms. As a competition regulator and a delegated legislation making body, the CCI is empowered to bring forth regulations that are concerned with swiftly changing digital markets.
The Draft DCB has envisaged principle-based obligations for SSDEs and ADEs. It also provides that specific conduct requirements will be brought to fore through regulations for each Core Digital Service in relation to these obligations. Within these sets of regulations, differential obligations for SSDEs based on each Core Digital Service are provided on the basis of the nature of the market, number of users and other such factors. Differential obligations have also been provided separately for SSDEs and ADEs, where the ADEs will comply with a different set of obligations as specified in the regulations. This method ensures that the obligations imposed are in tune with changing market dynamics. The CCI is also empowered to delineate regulations for the manner of calculation of turnover, global turnover, gross merchandise value, and global market capitalization. The CCI is also enabled to identify and calculate the number of end users and business users for each Core Digital Service.
The CCI as a regulator, will be constantly apprised of evolving market reality in the digital space and will have a better position to delineate regulations with advancing digital markets. To be apprised of changing market dynamics, the CCI has also envisaged a Digital Markets and Data Unit that is a specialized interdisciplinary centre of expertise for digital markets. Experts on this body will perform advisory roles with respect to both enforcement and regulation-making under the Draft DCB. It will assist the CCI in keeping abreast with the changes in digital markets and ensure timely intervention.
An iterative process for identifying Core Digital Services under the Draft DCB
To draw a balance between certainty and flexibility, the Draft DCB provides for an inclusive and pre-identified list of Core Digital Services provided by large digital intermediaries under Schedule I. This has been envisaged as an open-ended schedule to be inclusive of newer digital activities occurring in digital markets and to provide for their regulation.
The list of Core Digital Services has been provided as a ‘Schedule’ enabling the Central Government in consultation with the CCI to add, alter or delete services as digital markets progress. Such a mechanism enables agility in the regulation of Core Digital Services that are constantly evolving in swiftly changing digital markets. The schedule will make it easier to make revisions or updates to the provisions without disturbing the structure of the primary legislation. The schedule also contains a provision for ‘online intermediation services’ that will cater to any other Core Digital Service that does not fall within the ambit of the specifics mentioned in the Schedule. With the development and increased usage of novel technology like artificial intelligence and cloud computing, this schedule will be instrumental in opening avenues for their inclusive regulation in the years to come.
It is also observed that under the Mediation Act, 2023, under Section 6, the Central Government can by notification amend the first schedule that contains the list of disputes or matters that shall not be mediated upon. The schedule also contains a provision that will allow for any other subject matter of dispute to be added to the list as notified by the Central Government. Additionally, the SEBI Act, 1992 empowers the SEBI to form regulations under Section 30, and schedules within these regulations, to govern various aspects of evolving securities markets.
The Way Forward for Digital Markets
In the UK, the Digital Markets, Competition and Consumers Bill, 2023 (“DMCC”) regulates large undertakings in the digital market that are engaged in digital activities. The DMCC is based on principles such as fair trading, open choices, and transparency. The Digital Markets Unit has powers to develop binding requirements based on these principles. Under Section 2 of the DMCC undertakings are required to meet three criteria with respect to a digital activity that includes having a UK nexus, having substantial and entrenched market power and having a position of strategic significance. It is agile in its regulation, as digital activities are inclusive of the provision of a service or digital content through the internet. To evaluate an undertaking’s market power, the Competition Market Authority is also to undertake a forward-looking assessment of the undertaking’s current and potential market power for at least five years. The UK has thus also taken steps towards creating a dynamic and forward-looking regulatory framework for the regulation of digital markets.
In India, the Draft DCB has been envisioned as a principles-based legislation that includes provisions that are agile, making it a right fit for changing digital market conditions. However, the Draft DCB may be criticised by stakeholders on the grounds of providing excessive power to the CCI as a delegated legislation making body. For instance, under the obligation of anti-steering, business users may be restricted from communicating with or promoting offers with end users if a restriction is integral to the provision of the Core Digital Service of the SSDE. Here, the CCI can specify through regulations the nature of restrictions that may be considered as ‘integral’. However, it is imperative to note that this power to determine the nature of restrictions is crucial as first, the CCI is the regulatory body closest to market realities and second, the nature of these restrictions may change in accordance with changing technology and market dynamics.
The Draft DCB has been crafted to create a level playing field for digital intermediaries while aspiring to ensure fair contestability in the digital markets, as a final outcome. By making it principle-based, law makers have envisioned a future for digital markets in India, that will include market players internationally and domestically. Subordinate making powers will allow the legislation to be adept with the rapidly evolving digital marketplace while being governed by principles under the parent legislation.
The Draft DCB is the first time that an ex-ante legislation has been envisaged to regulate competition in digital markets. Noting the nature of the Draft DCB and its flexibility, it will be interesting to note how the Indian markets respond to the implementation of the Draft DCB and the simultaneous rapid growth of technology in digital markets.
*Vallari Dronamraju is a Research Fellow with Vidhi Centre for Legal Policy in Corporate Law and Financial Regulations team. Her interest areas are law and technology, competition law, and financial regulation. Vallari was part of the team from Vidhi Centre for Legal Policy which had assisted the Committee on Digital Competition Law with legal research and deliberation on the Draft Digital Competition Bill.