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Ex-ante rules for digital market may become a reality in India, here’s how they work in the rest of the world

Ex-ante regulations from around the world shows why India is going for it despite opposition from several players.

The Committee for Digital Competition Law (CDCL) has released a draft Digital Competition Bill and in its report, the committee has advocated for ex-ante rules to ensure fair competition in digital markets in India. Ex-ante regulations act as preemptive measures that “set the rules of the game” and act to prevent market concentration and monopolies. According to the CDCL, the digital market has certain peculiarities which set it apart from other industries, such as the competitive advantage gained by collecting vast quantities of data, economies of scale and customer preference for platforms with a large user base. Further, current regulation under the Competition Commission of India (CCI) is believed to be time-consuming and resource-intensive.

These characteristics bias the market towards large enterprises and make it harder for smaller or newer players to compete, necessitating a de novo Digital Competition Act with ex-ante regulations. As ex-ante competition rules for digital markets may become a reality in India, we can take a look at how they work in different jurisdictions worldwide.

European Union:

The European Union is cracking down on the market power of large digital platforms like Google, Amazon and Facebook through a new set of ex-ante competition rules called the Digital Markets Act (DMA).

The DMA, which entered into force in November 2022 after extensive public consultation, seeks to identify and selectively regulate the behaviour of the biggest online “gatekeepers” in an ex-ante or preemptive manner. Unlike traditional ex-post antitrust enforcement that punishes anti-competitive practices after they occur, the ex-ante DMA rules aim to prevent unfair business practices by Big Tech firms before any abuse of their gatekeeper position takes place.

Under the DMA, a company must meet certain thresholds like having an annual turnover in each of the last three financial years above €7.5 billion or a market capitalization over €75 billion, as well as qualitative criteria such as having an “entrenched and durable position” and operating a core platform service in at least three EU countries. Services covered include online intermediaries, search engines, social networks, video sharing, communication apps and others.

Once designated as a gatekeeper, firms face a strict set of do’s and don’ts. Key obligations include allowing third-party interoperability with their services, providing effective portability of user data, enabling free choice of apps and app stores by users, and not treating their own products or services more favourably than rivals’.

Sanctions for repeat violations after a series of non-compliance decisions can be severe, including forcing a gatekeeper to take structural measures like selling off parts of its business. A gatekeeper can request a temporary suspension on certain obligations if they endanger its economic viability.

United Kingdom:

The proposed Digital Markets, Competition and Consumers Bill (DMCC), introduced in Parliament in April 2023, aims to designate large digital firms with ‘Strategic Market Status’ (SMS) and then bind them to a stringent code of conduct enforced by the UK’s Competition and Markets Authority (CMA).

To be designated an SMS firm, companies must have substantial revenues, entrenched market power across the UK digital economy, and a strategically significant position enabling influence over other businesses. Quantitative thresholds require global turnover above £25 billion or UK turnover over £1 billion.

Once designated, SMS gatekeepers can face obligatory conduct requirements like fair trading terms, effective user complaint systems, clear communication of policies and advanced notification of major changes impacting users.

Preventive requirements ban SMS firms from practices like self-preferencing their products over rivals, limiting interoperability with competing services, forcing bundling or tying different offerings, and unfairly leveraging user data.

The DMCC gives the CMA investigative and enforcement mechanisms. Penalties for violating conduct rules can go up to 10% of global turnover. For information breaches during probes, fines are capped at 1% of turnover for companies and £30,000 for individuals.

It also contains ‘Pro-Competition Interventions’ enabling the CMA to impose tailored remedies like splitting up parts of an SMS firm’s business if its market dominance risks causing serious anti-competitive harm.

Germany: 

The German Competition Act (ARC) has undergone significant amendments to address anti-competitive practices in digital markets, introducing ex-ante regulations. The 9th Amendment expanded the criteria for assessing market dominance, including factors like data access and network effects. The 10th amendment established an ex-ante regulatory framework for large digital companies, imposing strict prohibitions on conduct like self-preferencing and unfair terms. “Undertakings of paramount significance for competition across markets” (PSCAM) are subject to these obligations, with the FCO empowered to issue interim orders and enforce penalties for violations. The 11th Amendment further empowers the FCO to impose remedies following sector inquiries, including both behavioural and structural measures, and to investigate infringements of the Digital Markets Act (DMA). Additionally, it allows the FCO to seize excess profits from infringements and simplifies private enforcement of the DMA in Germany. These amendments reflect a proactive approach to addressing competition concerns in digital markets, emphasizing prevention and swift enforcement through ex-ante regulations and enhanced FCO powers.

United States:

While the USA does not have a nationwide and comprehensive ex-ante regulatory framework, there are certain applicable laws.

  • Key competition laws in the USA include the Sherman Act, which prohibits every contract, conspiracy, or combination that restrains trade or commerce and monopolisation, the Clayton Act, which regulates the possible harm from actions like mergers and acquisitions and the Federal Trade Commission Act (FTCA), which establishes the FTC to enforce antitrust laws. 
  • The FTC and the Department of Justice (DOJ) had previously conducted investigations against digital platforms. In 2021, FTC accused Meta of possessing monopoly power in the market for personal networking services and the DOJ accused Google of the same in general search services. The Attorney General for the District of Columbia said that Amazon holds monopoly power in online marketplaces.

The House Judiciary Committee and both Houses of Congress have approved twelve bills to regulate large digital enterprises. Three of the most important ones are – 

  • The American Innovation and Choice Online Act (AICO): Prohibits discriminatory practices like self-preferencing and similar practices that create a conflict of interest, anti-competitive tying and bundling, misusing non-public data generated on the platform, creating impediments to data portability, and imposing limitations on user control over pre installed software applications and default settings by designated ‘Covered Platforms’ and imposes penalties up to 15% of total U.S. revenue or 30% of revenue in the affected line of business. It also allows courts to order divestiture of lines of business that create conflicts of interest.
  • The Ending Platform Monopolies Act (EPM): Addresses conflicts of interest when ‘Covered Platforms’ own or control other businesses. Prohibits preferential treatment to a platform’s own products or services. Imposes penalties up to 15% of average daily U.S. revenue or 30% of revenue in the affected line of business.
  • The Open App Markets Act (OAM): Regulates ‘Covered Companies’ that own app stores with over 50 million U.S. users. Prohibits mandating the use of in-app payment systems and imposing unfavourable terms on developers. Grants developers the right to sue for damages or seek injunctive relief.

The nine other bills are:

  • Augmenting Compatibility and Competition by Enabling Service Switching Bill (ACCESS)
  • The Competition and Antitrust Law Enforcement Reform Act
  • The Competition and Transparency in Digital Advertising Act
  • The Consolidation Prevention and Competition Promotion Act
  • The Digital Platform Commission Act
  • The Merger Filing Fee Modernization Act
  • The Platform Competition and Opportunity Act
  • The Prohibiting Anticompetitive Mergers Act
  • The Trust-Busting for the Twenty-First Century Act

Australia:

Australia has traditionally followed an ex-post regulatory framework under the Competition and Consumer Act (CCA). However, the News Media and Digital Platforms Mandatory Bargaining Code (2021) has introduced an ex-ante framework.

Ex-ante framework under the Bargaining Code Act:

  • Imposes standards on digital platforms carrying Australian news content
  • Classifies ‘Designated Digital Platform Corporations’ and ‘Services’. The classification is determined if there is a significant power imbalance between the entity and its related companies and if it is a significant contributor to the sustainability of the Australian news industry.
  • Responsible Corporations must recognize news content, consult news businesses
  • Prohibits differentiation among news businesses
  • Penalties up to AUD 1.8M for corporations, AUD 500K for individuals

Proposed framework under 5th Digital Platform Services Inquiry Report:

  • Targets issues like self-preferencing, tying, exclusivity, impeding switching
  • Suggests service-specific codes of conduct for ‘designated digital platforms’
  • Quantitative thresholds: Australian/global revenue, user reach
  • Qualitative thresholds: intermediary position, market power, multiple services
  • Allows exemptions on a case-by-case basis
  • Recommends significant penalties equivalent to highest under competition law

Japan:

Japan has introduced ex-ante frameworks under two proposed acts.

Act on Improving Transparency and Fairness of Digital Platforms, 2020:

  • The act will classify dominant digital enterprises as Specified Digital Platforms under certain qualitative criteria. 
  • These platforms are required to disclose certain information to users such as fees charged, search rankings and sponsored rankings.

Guidelines on Measures to be taken by Specified Digital Platform Providers to Promote Mutual Understanding in Transactional Relationships with User Providers of Goods, etc., 2021:

  • The SDP Guidelines indicate a set of measures to be undertaken by the designated entities to improve fairness, transparency, dispute resolution, and local reporting norms.
  • It sets out obligations on Specified Digital Platforms in terms of self-preferencing in the advertisement classifications and covers the use of user-provider-generated data

China:

China has proposed to introduce ex-ante obligations through the Draft Classification Guidelines and Draft Responsibility Guidelines. 

  • Under the Draft Classification Guidelines, internet platforms are classified based on functions like online sales, entertainment, information, etc.
  • Internet platforms with at least 500 million active users in China in the preceding year, a core business involving at least two types of platform business, a market value of minimum 1 trillion RMB and a strong ability to restrict merchants from contacting users are termed ‘super platforms.’
  • The Draft Responsibility Guidelines provide ex-ante obligations for such platforms. They are prohibited from using non-public data without legitimate reasons and must promote interoperability of services. They must abide by the principles of fairness and prohibit any self-preferential treatment.

 


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Also Read:

  • Why The Indian Government Is Exploring Ex-Ante Regulations For Digital Markets
  • Uber Opposes Ex-Ante Regulations For Digital Markets In India
  • Government Has Prepared First Draft Of India’s Digital Competition Bill: Report
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