Devansh Malhotra & Ravi Sharma
Introduction
The Competition Commission of India (CCI) has condemned Apple for engaging in ‘abusive conduct and practices’ by leveraging its dominant position in the app store industry on its iOS platform. The CCI investigation emphasizes that software creators are compelled to comply with Apple’s rules, which include the obligatory utilization of its exclusive charging system, through the App Store. The scheme, which enforces a fee of up to 30%, has faced criticism for increasing expenses for both developers and customers.
The findings of the CCI indicate the growing international scrutiny of Apple’s actions in the App Store. In June, Apple was accused by the European Commission of breaching the bloc’s technology standards, namely through its alleged use of ‘steering’ methods that restrict app developers from notifying consumers about more cost-effective purchase alternatives beyond the App Store. In addition, authorities are conducting an investigation into Apple’s newly introduced ‘Core Technology Fee.’ In the event that Apple is proven to be guilty, it may be subject to penalties up to 10% of its worldwide turnover. In the last year, the US Department of Justice filed an antitrust lawsuit against Apple, alleging that the company had illegally attempted to monopolize the US smartphone market. Additionally, Japan is contemplating enacting laws that would require Apple to permit the presence of third-party app shops on iOS devices.
The regulation of digital markets by antitrust regulators has seen significant activity across various jurisdictions, reflecting the complexities and evolving nature of the digital ecosystem. In India, the CCI has been actively addressing anti-competitive practices of major digital platforms.
Notable cases include Alliance of Digital India Foundation v. Google LLC & Others and Umar Javeed & Others v. Google LLC & Google India Private Limited, both highlighting Google’s restrictive Play Store policies and abuse of dominance through its Android operating system. Similarly, All India Online Vendors Association v. Flipkart India Private Limited & Others and Delhi Vyapar Mahasangh v. Flipkart & Amazon underscore concerns over preferential treatment and deep discounting strategies employed by e-commerce giants.
Internationally, the Epic Games, Inc. v. Apple, Inc., case in the United States addresses disputes over Apple’s App Store policies, while the Google Android Antitrust Procedure led by the European Commission examines Google’s practices surrounding its Android OS. These cases indicate a global scrutiny of dominant digital players for practices that may stifle competition.
The CCI has also dealt with allegations against Amazon, as seen in In Re: Allegations pertaining to private label brands related to Amazon sold on Amazon India marketplace, where concerns were raised about Amazon’s promotion of its private label brands. The Match Group, Inc. v. Google LLC & Others and Together We Fight Society v. Apple Inc. & Apple Distribution International Limited cases further exemplify the focus on restrictive policies impacting app developers and consumers alike. These regulatory actions emphasize the need for a nuanced understanding of digital market dynamics.
Proposed Legal Framework: An Analysis
The Competition Act, 2002 (Competition Act), functions as an ex-post mechanism, enabling the CCI to take action after anti-competitive behavior has already taken place. While effective for conventional markets, this framework is increasingly inadequate in today’s rapidly changing digital landscape. Recognizing this, the Parliamentary Committee Report in December 2022 emphasized the need for an ex-ante enforcement mechanism to complement the existing ex-post approach. This led to the release of the Committee on Digital Competition Law (CDCL) Report and the Digital Competition Bill (DCB) in March 2024.
The DCB seeks to regulate digital enterprises with a substantial presence in India, classifying them as Systemically Significant Digital Enterprises (SSDE). These SSDEs, along with their group enterprises offering core digital services, known as Associate Digital Enterprises (ADE), are the primary focus of the DCB. This new framework aims to proactively address anti-competitive practices in the digital sector, ensuring a fair and competitive environment by eliminating competition concerns before they arise. In the dynamic digital market landscape, post-incident regulation is inefficient due to evolving complexities and interconnectedness in companies’ offerings.
An ex-ante regulatory approach, as proposed in the draft Bill, emphasizes proactive measures to prevent market abuses. India’s current antitrust framework under the Competition Act, 2002, operates ex-post and has been criticized for delayed responses, allowing offending companies to exploit market dynamics and disadvantage smaller competitors. Transitioning to an ex-ante framework would enable proactive regulation, safeguarding competition and fostering a fairer digital market environment. By targeting SSDEs and ADEs, the DCB intends to oversee and regulate significant players in the digital market, fostering a level playing field and protecting consumer interests. This shift towards an ex-ante mechanism reflects the growing need for regulatory frameworks that can keep pace with the dynamic nature of the digital economy, addressing potential anti-competitive behavior more effectively and ensuring sustainable competition in the market.
Penalties for non-compliance include fines up to rupees one lakh per day, capped at rupees ten crore. Non-compliance can also lead to imprisonment for up to three years or a fine of up to rupees twenty-five crore. Contraventions involving designated SSDEs or their associates can result in penalties up to ten percent of their global turnover. Entities providing incorrect, incomplete, or misleading information may face fines up to one percent of their global turnover.
Individuals responsible for SSDEs, including directors, managers, or officers, may be penalized up to ten percent of their average income over the last three financial years if the contravention occurred with their consent, connivance, or neglect. The CCI has a three-year limitation period for initiating inquiries, and penalties recovered are credited to the Consolidated Fund of India. If penalties are unpaid, recovery will follow the procedures outlined in the Income Tax Act, 1961 with the CCI having authority to initiate recovery actions.
Till now the ex-post approach, which allows for case-by-case examination, has been preferred over the ex-ante regime, which pre-identifies issues for regulation but risks obsolescence due to the rapid evolution of digital markets.
Critics have argued that the existing framework be strengthened instead of adopting a new ex-ante approach. To prevent anti-competitive practices in Digital markets following an ex-post approach, they argue that the CCI can resort to granting interim relief, pending investigation, and the authority to grant interim relief is under Section 33 of the Competition Act. The Supreme Court ruling in the Competition Commission of India v. Steel Authority of India Limited, established a three-prong test for this: the CCI must be convinced of a prima facie case with a higher degree of satisfaction than under Section 26(1), the necessity of the interim order, and that without it, the applicant would likely suffer irreparable harm or competition would be adversely affected.
Additional procedural guidelines set by the Supreme Court must be followed before granting interim relief. Historically, the CCI has been reluctant to grant interim relief in protracted investigations, as seen in the case of Meru Travel Solutions Private Limited v. ANI Technologies. However, the stance shifted somewhat after the Supreme Court judgment in Uber India Systems Private Limited v. CCI, which emphasized that dominance in digital markets should be viewed differently from traditional markets. The Court highlighted that delays in addressing competitive issues in digital markets could result in irreversible harm to competition.
In the view of CDCL, ex-post investigations, however, often miss recurring anti-competitive behaviors by digital enterprises.[i] The CDCL suggests that an ex-ante digital competition law could improve administrative efficiency by addressing these recurring patterns. Ex-post enforcement struggles to restore competition in fast-paced markets. Resource-intensive and time-consuming investigations can allow markets to tip in favor of incumbents, driving out competitors.[ii] Early detection and intervention in digital markets could provide greater benefits than the costs of over-regulation.[iii]
Strengthening existing frameworks and adopting a flexible, adaptive regulatory stance can better tackle the challenges posed by digital monopolies, fostering a competitive, innovative market environment. Recognizing India’s thriving digital economy, the Committee emphasizes balancing regulation with fostering innovation and suggests the Digital Competition Act should focus on enterprises with significant market influence.[iv]
Global Scenario
An ex-ante legislation in competition law proactively addresses anti-competitive behavior before it occurs, particularly in digital markets.
The European Union’s Digital Markets Act (DMA) exemplifies this approach by imposing specific obligations on “gatekeepers” to ensure fair competition, such as restrictions on self-preferencing and mandatory data sharing. Similarly, the United Kingdom’s Digital Markets Unit (DMU) enforces a code of conduct for companies with Strategic Market Status, promoting competition preemptively.
Germany’s GWB Digitalization Act allows for proactive behavioral and structural remedies for companies with significant market influence. In Australia, the ACCC’s recommendations include measures to address data dominance and transparency in digital advertising, aiming to establish a framework for proactive regulation. The United States, while conventionally relying on ex-post enforcement, has proposed legislation like the American Innovation and Choice Online Act to impose pre-emptive restrictions on dominant digital platforms.
Japan’s Act on Improving Transparency and Fairness of Digital Platforms mandates disclosure of terms and conditions by major platforms, enhancing fairness. South Korea’s amendments to the Monopoly Regulation and Fair-Trade Act introduce ex-ante measures to regulate platform operators with significant market influence.
These global initiatives reflect a trend towards incorporating ex-ante regulations to preemptively address competition issues in evolving digital markets.
Overall, while ex-ante regulations have made strides in addressing digital market challenges, their success is contingent on balancing proactive measures with flexibility to adapt to technological advancements and market dynamics.
Conclusion
In the view of the authors, the proposed Digital Competition Bill in India aims to regulate major technology corporations, address anti-competitive behavior, and foster economic growth. Achieving this balance requires a regulatory framework that is robust yet flexible, with clear definitions of anti-competitive behavior and compliance guidelines to prevent rigid interpretations. Overarching principles allow adaptability to various business models and innovations.
Regular updates to regulations are essential given the digital landscape’s rapid evolution. Periodic reviews, stakeholder engagement, and economic impact assessments ensure regulations remain relevant and practical. Proportionate penalties prevent stifling innovation, are sine qua non given the rapid evolution of technology and the economy.
Supporting innovation-friendly policies involves lighter regulations for small businesses, fostering R&D, and encouraging voluntary codes of conduct. International cooperation is crucial for effective enforcement, aligning local regulations with international best practices to maintain global competitiveness and address digital competition comprehensively.
Despite the above said challenges, the bill’s potential to enhance transparency and accountability in the digital ecosystem marks a significant milestone in India’s regulatory landscape.
[i] Google has been subject to repeated antitrust scrutiny by CCI. See Umar Javeed and Ors v. Google LLC and Ors., CCI; Case no. 39 of 2018 (order dated 20 October 2022), Matrimony.com Limited v. Google LLC and Ors. and Consumer Unity and Trust Society v. Google LLC, CCI; Case no. 7 and 30 of 2012 (order dated 8 February 2018).
[ii]Gary Hewitt, ‘Relationship between Regulators and Competition Authorities’ (OECD, 1998), p. 23<http://www.oecd.org/regreform/sectors/1920556.pdf> accessed 25 July 2024.
[iii]Congressional Research Service, ‘Antitrust Reform and Big-tech firms’ (2023) <https://crsreports.congress.gov/product/pdf/LSB/LSB10889> accessed 25 July 2024.
[iv] Report of the Committee on Digital Competition Law, Ministry of Corporate Affairs, Government of India, dated 27 February 2024, p. 93.