Tailoring the Ex-Ante Tides: Analysing the Digital Competition Bill & Digital Markets Act

The authors are Sarthak Sahoo and Mustafa Topiwala, students at Rajiv Gandhi National University of Law, Punjab.

Introduction

Global antitrust regulation is at a tipping point. With the emergence of restrictive competition in the digital economy space, competition regulators have indicated a marketed shift beyond price-centric models of censure. It is now increasingly accepted that large digital platforms could not be judged by conventional means of ex-post evaluation.

The most notable events in this behalf have been the European Union’s (‘EU’) Digital Markets Act 2022 (‘DMA’) which attempted to entrench an emerging culture of ex-ante antitrust regulations. Further in March 2024, India’s Committee on Digital Competition Law (‘CDCL’) submitted its ‘Report of the Committee on Digital Competition Law’ (‘2024 Report’) proposing a Digital Competition Bill (‘DCB’) along the lines of the DMA. This manuscript attempts to capture the principal differences between the DMA and the DCB (given the former’s deep and pervasive imprint on the latter) and any potential deltas that may be plugged in this behalf.

A Brief History of the DCB and DMA

In 2022, the parliamentary report titled ‘Anti-Competitive Practices by Big Tech Companies’ (‘2022 Report’) documented the emergence of novel anti-competitive practices that affected the digital economy space, and hence proposed the creation of a legal framework for an ex-ante approach – contrasting the Competition Act 2002’s ex-post one – to preemptively eliminate anti-competitive conduct. The Ministry of Corporate Affairs duly constituted the CDCL for the same purpose.

On the other end, the DMA has been in force as a regulatory framework spanning the entirety of the EU as of May 2, 2023. It addresses the adverse ramifications attributed to major digital platforms assuming the role of ‘gatekeepers’ within the digital ecosystem, controlling the flow of information and resources between themselves and end-users. Through its key provisions outlined in Articles 5, 6, and 7, the DMA mandates gatekeepers to seek the consent of end-users for a plethora of actions, facilitate access to third-party applications, and even modify default service settings provided by the gatekeeper.

Legal Differences & Potential Remedies

The DCB, under Section 3, assigns certain enterprises within the digital ecosystem as ‘Systematically Significant Digital Enterprises’ (‘SSDE’), subject to certain provisions of the bill, akin to the ‘gatekeeper’ status assigned by the DMA. Both the terms essentially label large-scale platforms based on certain parameters such as impact on the market, global turnover, number of users, and the like.

The obligations of such labelled platforms laid down under Chapter III of the DCB reflect the detailed regulations enlisted under Articles 5, 6 and 7 of the DMA. Upon contravention of these obligations, both the DMA and the DCB impose a maximum penalty amounting to ten percent of the labelled platform’s global turnover (See DCB Section 28(2); DMA Article 30(1)). Further, both the DMA and DCB allow exempting the large platforms from these obligations under some conditions. Despite these similarities, the following differences emerge between the two, which offer scope for analysis and potential solutions:

The Rules-Principles Distinction

Firstly, whereas the DMA takes a rules-based approach to antitrust regulation, subjecting all gatekeepers to standard and specific obligations, the DCB prefers a ‘broad principles’ model (See Paragraph 3.37 of the 2024 Report). While a rules-based approach has certain merits, the DCB’s model of principle-based legislation is preferable on two counts. The principles approach radically reduces compliance costs for firms- an important competing interest to preserve innovation and a specific priority in the digital economy space. On the other hand, concerns of uncertainty as an inhibiting force on antitrust regulation can always find safeguards in ex-post regulations, if the need so arises. Moreover, the DCB does not eliminate rules-based regulation. This is found, for instance, in Japan where principle-based regulation leaves room for the corporation to operate autonomously in accordance with the law. Instead, the DCB delegates these concerns to specific sector-based regulations (See Paragraph 3.37). Therefore, not only is the desire for certainty preserved, it is further secured as the regulator tailors them in the least restrictive manner.

The Horizontal & Vertical Approaches

The DCB tends to not be as comprehensive as the DMA in imposing obligations on the SSDEs. This is because, unlike the DMA which applies horizontally on all gatekeepers notwithstanding local market realities or sectoral differences, the DCB enables regulations to be made vertically. The regulator can outline specific obligations based on the sector-specific business models and market conditions of platforms providing Core Digital Services (‘CDS’) under Section 2(6).

This horizontal regulation approach by the EU tracks with its regulatory philosophy, predicated on centralisation, analogous to its forthcoming Artificial Intelligence Act, whereas countries like the United Kingdom, along with the United States, take a more pro-innovation approach by allowing for greater decentralisation and decision-making within market sectors. In this behalf, the Indian model allows for more flexibility, albeit with some uncertainty.

Already considered intrusive and anti-competitive by many, ex-ante measures must be employed with great caution. Decisions should especially not be made owing to public outrage when there has been no substantial change in market dynamics. In this behalf, a vertical approach is far preferable, as it is less likely to be affected by public demand or reaction. It can better realise the principle of complementarity the CCI aims for, in an environment where sectoral regulators and the Competition Commission of India (‘CCI’) have concurrent jurisdictional powers with differing views, or simply wish to claim exclusive control to avoid any fragmentation of the law.

Regulatory Discretion and Exemption Powers

The DMA takes a more technocratic approach in exempting designated platforms from their obligations. Under Article 1(1), the European Commission (‘EC’) is allowed to exempt gatekeepers. Such exemptions can be partial or in toto and can be tailored to particular obligations laid out in Articles 5 to 7. They can only be granted on public health and public security grounds, and will warrant written reasons for the same on behalf of the EC.

In contrast, while only the EC has the power to grant exemptions under the DMA and the EU competition law, the DCB – in addition to vertical exemptions in the respective CDS regulations to come – enables the Central Government to grant exemptions under Section 38. The grounds for granting such exemptions are diverse, including, inter alia, the sovereign functions of the State. Troubling further is the idea that vertical exemptions so granted for each CDS, being delegated legislation, will not be subject to legislative checks and balances (See Paragraph 3.45).

It is also pertinent to note that the Central Government of India grants exemptions in the ex-post paradigm under Section 54 of the Competition Act. These exemptions are generally granted on the grounds of public interest, primarily to those entities that have utility, thereby making equitable access a necessity. The DCB assumes that platforms within the digital ecosystem have the same digital ‘utility’ as traditional entities, and therefore must be subject to the same form of exemption authority. Although, the DCB’s subject-matter — digital economy companies — is radically different. They are not utilities that necessitate intervention from the government. Furthermore, these companies in the digital sphere are often criticised for rent-seeking and special-interest lobbying with the government. Therefore, granting such powers to the Central Government is excessive, and CCI’s sector-specific exempting powers should suffice.

Ex-Ante Fact-Finding Units

The 2022 Report recommended the establishment of a Digital Markets Unit (‘DMU’) within the CCI to closely monitor the SSDEs, and provide recommendations regarding their designated status. This was inspired by the UK’s own DMU, established to advise the government and gather evidence on digital markets. In response to this suggestion, the CDCL highlighted that India had recently established a Digital Markets and Data Unit (‘DMDU’) within the CCI, rendering such a request unnecessary (See Paragraph 3.55).

However, the DMDU was instituted to enforce ex-post provisions of the Competition Act in India, whilst the DCB deals with ex-ante provisions (See Paragraph 1.7). While the CDCL contended that it can be ‘strengthened on an urgent basis’ to ensure that it is well-equipped by the time the DCB is enacted (See Paragraph 3.56), it will not prove to be as efficacious as a separate specialised unit, especially given that the Competition Act and the DCB’s legal regimes vary widely, and are not based in, or subject to, the same market considerations.

In contrast, the UK enables the DMU to enforce ex ante measures by three strong tools:

1. To frame tailored rules for each entity (principle-based approach);

2. The powers to formulate targeted interventions and address problems within the digital ecosystem at the grassroots level;

3. Ability to resolve issues informally through dialogue; impose penalties on non-compliance.

Thus, it has ostensible authority to deal with issues of the digital ecosystem in its entirety. Considering that the functions of the DMDU have not been expounded by the CCI with sufficient clarity, the DMU’s mandate can act as a referral source for the DMDU. Allowing it to operate in this way, would make for a healthier digital ecosystem.

Conclusion

As ex-ante measures take the fore as a new regulatory model, markets must make two determinations: whether to preventively regulate or not; and if so, under what modalities. Taking the former for granted, we argue on the latter that emerging market economies must prefer a principle-based, vertical approach with dedicated and specialised institutional capacities. These choices, however, should seek to prioritise technical expertise over political choice. Else, the spectre of an anti-competitive State and market failures shall continue to haunt the economic society.