We missed this earlier

The Competition Law Review Committee, which was set up by the government in October 2018 to review the Competition Act, made its report public in August 2019. It examined the entire Comeptition Act, and also dedicated a section to comeptition issues emerging in digital markets. It made recommendations on how price is defined, algorithmic bias, control over data, among other things. The Committee’s approach was “to further the objects of the Competition Act”, including consumer welfare, facilitating entry and growth of new players, and encouraging existing companies to innovate. It examined whether there’s need for a new, separate antitrust dispensation to deal with digital markets, or if the existing Competition Act is flexible enough to deal with it.

At the same time, it noted that:

  • the nuances of this issue will become clearer in the near future
  • global jurisprudence is still evolving, various countries are studying their markets
  • The CCI’s Think Tank may periodically review market trends and policy implications of digital markets in relation to the Competition Act

The Committee’s members

The committee was chaired by Injeti Srinivas, Secretary, Ministry of Corporate Affair, and its members were:

  • Ashok Kumar Gupta, Chairperson, CCI
  • Dr. M.S. Sahoo, Chairperson, Insolvency and Bankruptcy Board of India
  • Haigreve Khaitan, Khaitan & Co.
  • Pallavi Shardul Shroff, Shardul Amarchand Mangaldas & Co.
  • Dr. Harshavardhana Singh, IKDHVAJ Advisors LLP
  • Dr. S. Chakravathy, Retd. IAS
  • Dr. Aditya Bhattacharya, Professor of Economics, Delhi School of Economics
  • KVR Murty, Joint Secretary, MCA & Member Secretary
  • Anand S. Pathak, P&A Law Offices (nominated on November 5, 2018)

The terms of reference for the committee were laid out as:

  1. Review Competition Act, rules, regulations in view of changing business environment and bring necessary changes if required
  2. To look into international best practices
  3. To study other regulatory regimes and policies that overlap with the Competition Act
  4. Any other matters relating to competition issues or considered necessary by the committee

Four working groups were constituted on October 31, 2018, including one of New Age Markets & Big Data, headed by Harsha Vardhana Singh. It’s members were:

  • Aditya Bhattacharya, Professor of Economics, Delhi School of Economics,
  • Kunal Bahl, Co-founder & CEO, Snap Deal
  • Naveen Tiwari, Founder & CEO, InMobi
  • Deepinder Goyal, Founder & CEO, Zomato
  • Bhavish Agarwal, Co-founder & CEO, Ola
  • Vijay Shekhar Sharma, Founder & CEO, PayTM
  • Ramji Srinivasan, Senior Advocate, Supreme Court
  • Samir Gandhi, Partner, AZB & Partners
  • Sohan Mukherjee, Partner, PLR Chambers
  • NASSCOM & IVCA
  • Payal Malik, CCI advisor  (convenor)

Here’s a summary of the Committee’s recommendations relating to digital markets:

The Definition of Price

Users may not pay money for using the services offered in the digital market, but they may ‘pay’ for in the form of their personal data and revealed preferences, which platforms monetize via targeted ads, noted the Committee’s report. The Committee examined whether there’s a need to expand the definition of ‘price’ under the Competition Act to expressly include data, and concluded that the existing provisions is broad enough, noting the following:

  1. The definition of price is an inclusive definition
  2. It refers to every valuable consideration, whether direct or indirect
  3. It also includes any consideration which in effect relates to the performance of any services although ostensibly relating top any other matter or thing

Algorithms

Algorithms might enable firms to achieve the same outcomes of traditional hardcore cartels through tacit collusion, noted the report. It took note of studies around algorithmic collusion and competition law in Germany, UK, and even by the Organisation for Economic Co-operation and Development (OECD). The Committee concluded that the existing framework under Section 3 of the Competition Act – which prohibits anti-competitive agreements – is sufficient to cover algorithmic collusion.

  • The proposed amendments to clarify the inclusion of ‘hub and spoke’ cartels in Section 3(3) by way of adding an explanation to Section 3(3) and to make Section 3(4) inclusive will further strengthen the framework for regulating anti-competitive arrangements by expanding the scope of Section 3.
  • The Committee also took note that no enforcement gap in relation to dealing with cases of algorithmic collusion or digital hub-and-spoke arrangements has been felt so far.
  • It agreed that the existing agreement-based framework in Section 3 is sufficient to deal with cases of collusion in digital markets. This is also in line with the approach of matured jurisdictions like UK and US.
  • Insofar as autonomous algorithmic collusion is concerned, the Committee felt that the absence of credible evidence demonstrating the anti-competitive concerns associated with such collusion and in line with the approach taken by other jurisdictions, it may be premature to warrant a legislative intervention.

Online Vertical Restraints

A ‘most favoured nation’ (MFN) clause or ‘across platforms parity’ agreement is an agreement between a seller and a digital platform, in which the seller charges a lower price for their products on that particular platform. The Committee looked into whether Section 3(4) of the Competition Act is wide enough to capture online vertical restraints in the form of MFN clauses. The committee noted that MFN clauses can potentially give rise to both pro-competitive benefits and anti-competitive effects, and the extent of such effects depends market structure, the form of the MFN clause used, and the characteristics of the sellers and buyers in the market, and so on.

The Committee agreed that such agreements should be analysed under the ‘rule of reason’ or ‘effects’ test under Section 3(4) of the Competition Act. Having said that, the Committee noted that in cases where such clauses seek to facilitate a cartel, fix price or supply terms, it will be hit by the provisions of Section 3(3) of the Competition Act.

  • Based on a review of Section 3(4) of the Competition Act, the Committee noted that such MFN clauses in case of vertical restraints will typically be hit by Section 3(4)(e) which deals with ‘resale price maintenance’. To the limited extent where such clauses are used in the form of ‘agency’ agreements, Section 3(4)(c) which deals with refusal to deal arrangements is wide enough to include any restrictions in terms of sale or purchase. In any event, the Committee noted that under the proposed amendments to Section 3(4), an inclusive list of agreements is sought to be included which is broad enough to include MFN agreements.

Widening the ambit of Section 3

Section 3, which prohibits anti-competitive agreements, makes an explicit distinction between horizontal and vertical  agreements. But digital markets may not fit into such older distinctions, noted the report. The committee recommended that:

  • The scope of Section 3(4) of the Competition Act should be broadened to include ‘other agreements’ that cause or are likely to cause adverse effect on competition (AAEC) in India and which do not strictly get covered under the horizontal and vertical arrangements currently envisaged under Section 3.

Control over data and assessment of market power

Large amount of data existing with online businesses gives them a form of competitive advantage, based on feedback loops and its monetisation. The Committee examined if Section 19(4) of the Competition Act – which lays out the factors in determining dominant position – should be amended to specifically include ‘control over data’ or ‘specialised assets’ as a factor.

  • The Committee further noted that Section 19(4) of the Competition Act is also inclusive in nature and read with Section 19(4)(b) [size and resources of the enterprise] is broad enough to include control over data as a factor for determining the dominant position of an enterprise under the Competition Act.
  • It also discussed if Section 19(4) should be amended to include specific reference to ‘network effects’. The Committee agreed that such factors may be relevant in assessing the dominant position of an enterprise.
  • However, on an examination of Section 19(4), the Committee agreed that Section 19(4) by way of being inclusive in nature provides CCI with enough flexibility to consider such factors while determining the dominant position of an enterprise. Accordingly, the Committee agreed that such an amendment may not be required.

Introduction of new thresholds for notification of combinations

India relies on an asset-and-turnover model for its merger control framework, which means there’s a risk that high value transactions in digital markets may escape the attention of competition authorities, including acquisitions of smaller companies by large players. Though such acquisitions don’t automatically mean anti-competitive practices, the Committee agreed that there’s merit in exploring thresholds beyond the asset-and-turnover model for merger control in India.

  • The Committee recommended adoption of a forward-looking approach by enabling the Government to formulate new thresholds based on certain broad parameters which may be stated in the Act.
  • Further, to address the present concerns regarding jurisdiction to review combinations in digital markets and drawing from international experience, the Committee recommended that a ‘size of transaction’ or ‘deal value’ threshold may be introduced in due course in the merger control framework in the Competition Act.

Other issues deliberated by the Committee

The Committee also discussed the following issues relating competition issues, but also relevant to digital markets:

  • Expanding the scope of the factors for determining relevant geographic market under Section 19(6) and relevant product market under Section 19(7) of the Competition Act
  • Expanding the scope of factors to assess AAEC by widening the scope of Section19(3)
  • Introducing a provision to cover attempt to monopolise as an abuse of dominance

The Committee noted the importance of ensuring interoperability between various platforms and service providers in digital markets. Personal data mobility and systems with open standards have been identified as key tools to increase interoperability and thereby competition and consumer choice by experts, the report noted. The Committee noted the pros and cons of using such tools and said this would need wider consultation with Ministry of Finance, MEITY, DoT, Niti Aayog, etc.