Ex-Ante Overreach? Unpacking India's Regulatory Crossroads in Light of NCLAT's Ruling in Alphabet INC. v. CCI

Vishnu Sharma *

INTRODUCTION

With the rise of new technologies and digital applications, the landscape of digital markets is registering an astronomical rise both nationally and globally. To deal with the unique challenges posed by mushrooming digital markets, the Report of the Committee on Digital Competition, 2024 has proposed a Draft Digital Competition Bill (“DCB”). DCB provides an ex-ante regime for the designation of digital enterprises as Systemically Significant Digital Enterprises (“SSDEs”) and performance of their obligations. On the other end, the Competition Act, 2002 (the “Act”) provides for an ex-post factoregime. As DCB has not yet taken the shape of a statute, uncertainty exists over whether the ex-post or ex-ante model governs the realm of digital markets in India. The legislative uncertainty got settled through the judgment of the National Company Law Appellate Tribunal (“NCLAT”) in Alphabet Inc. & Ors. v. Competition Commission of India (“CCI"). The instant ruling not only spotlights the need for a strengthened legal framework to regulate digital markets but also raises doubts regarding the viability of the ex-ante regime as envisaged under DCB. It also attains crucial significance in light of CCI v. Schott Glass, wherein the Supreme Court cautioned that heavy-handed enforcement of competition lawmay stifle growth in India’s growing economy.

The scope of this article is to undertake a comparative analysis of the ex-ante model under DCB with the European Union's (“EU”) Digital Markets Act (“DMA”) and examine its viability. It begins with, firstly, exploring the NCLAT’s observations in Alphabet Inc. v. CCI, with a special focus on its cautionary tale regarding CCI’s overreach of powers. Secondly, it delves into the ex-ante regime envisaged under the DMA. Thirdly, it analyses the suitability of ex-anteapproach in India as envisaged under DCB and in light of the provisions of DMA. Here, the author has critiqued several provisions of DCB, including the criteria for designation of enterprises as SSDEs, self-preferencing, tying and bundling, etc. Fourthly, it provides a way forward, wherein the author has argued that merely enacting over-broad provisions in DCB fails to serve the objective of regulation; instead, a balanced approach has to be adopted.

WHEN OVERSIGHT BECAME OVERREACH: NCLAT’S CAUTION ON CCI’s SCOPE OF POWER

The instant case involved conflict over Google’s alleged abuse of its dominant position in the market of Android app distribution and in-app payment processing. Google launched its payment app called ‘Tez’, which got rebranded as Google Pay, and mandated the use of Google Play’s Billing System for app purchases and in-app transactions on its Play store. On the basis of several complaints, the CCI ordered an investigation and held Google liable for abuse of dominant position under Section 4 of the Act. Furthermore, considering Google as a gatekeeper, the CCI also issued an array of ex-ante directions to it. This led to the filing of instant appeal before the NCLAT by Alphabet and Google.

While NCLAT granted partial relief to Alphabet and Google over claims relating to abuse of dominant position, it found the CCI’s ex-ante directions, in the nature of obligations imposed upon gatekeepers, ultra vires its powers under Sections 4 and 27 of the Act. The NCLAT also observed that in the absence of a specific statutory regime providing for ex-anteregulation in digital markets, the CCI must operate within the sphere of ex-post facto model. Such adherence to an ex-post facto mechanism is needed to facilitate business, as abruptly mandating adherence to an ex-ante mechanism without prior consultations will be challenging for digital enterprises to comply with. This may ultimately defeat the very objective behind regulation, thereby stalling rather than promoting the growth of emerging digital market in India.

GETTING AHEAD OF THE GAME: EX-ANTE REGIME UNDER THE EU’s DIGITAL MARKETS ACT- 

The DMA is the first legislation to introduce an ex-ante regime specifically designed to regulate the activities of Gatekeepers in the digital markets. Gatekeepers are significant digital enterprises offering specific “Core Platform Services” in the Digital Market. While Article 3 of DMA provides for the fulfilment of both quantitative and qualitative parameters for designation as a gatekeeper, Article 3(8) also grants discretionary powers to the European Commission (“EC”) if an undertaking fails to satisfy the quantitative requirements under Article 3(2).

Further, Article 5 of DMA imposes prohibitions on the following acts, including self-preferencing, the combination of personal data of users, and preventing developers from using third-party payment platforms. Alongside, certain obligations include- allowing third-party services to operate seamlessly, providing business users access to the data generated by interactions with customers on the gatekeeper’s platform, allowing business users to promote offerings and contracts with customers outside the gatekeeper’s platform, and providing advertisers with tools for independent verification.

VIABILITY OF EX-ANTE REGULATORY APPROACH IN INDIA: REGULATION OR OVER-REGULATION-

Section 3(1) of DCB provides for the designation of an enterprise, having a significant presence in the digital market, as an SSDE in respect of a particular core digital service. While DMA provides for the fulfilment of both quantitative and qualitative attributes, DCB merely requires the satisfaction of either of the attributes. Further, under DMA, the EC’s discretionary powers become operative only upon non-fulfilment of quantitative requirements and in addition to the fulfilment of qualitative parameters provided under Article 3(1), if it meets some or all of the qualitative factors provided under Article 3(8). This mandate, providing for the fulfilment of specific factors at several stages, effectively limits EC’s powers for designation purposes and leaves a narrow scope for misuse of discretion.

On the other flank, Section 3(2) of DCB provides certain quantitative parameters for designation as an SSDE, and upon non-fulfilment of such parameters, Section 3(3) empowers the CCI to designate an enterprise as an SSDE upon satisfaction of all or any of the sixteen qualitative parameters. Additionally, such qualitative parameters are also highly vague and loosely worded, as opposed to the specific qualitative parameters in DMA. For instance, some of the wide and generic qualitative parameters include- volume of commerce of the enterprise, size and resources of the enterprise, social obligations and costs, etc. At the end, the sixteenth qualitative requirement is “any other factor which the Commission may consider relevant”, which is nothing but the discretionary powers of the CCI itself. This clearly demonstrates that the DCB grants enormous regulatory authority to the CCI in a manner that, instead of ensuring free competition in the market, it becomes a case of regulatory overreach.

Furthermore, such overbroad powers do not stop with the designation and extend even to the ex-ante obligations imposed upon SSDEs. One such instance of over-regulation is  Section 11 of DCB, which puts an absolute prohibition on self-preferencing by SSDE. Self-preferencing refers to a practice where an undertaking favours its own products and services over its competitors and third parties. Self-preferencing is not per se abusive as it also has certain pro-competitive effectssuch as enhanced product quality, consumer benefit, incentive for innovation, etc. Recently, in United States v. Google LLC, the Court held that as Google’s promotion of its own shopping site benefited the consumer, it cannot be deemed to be competitively abusive. Similarly, in Google LLC and Alphabet Inc. v. European Commission, the General Court held that merely favouring its own services by Google through special display does not amount to competitive abuse, as it led to qualitative improvements. In light of the potential pro-competitive effects of self-preferencing, a blanket ban on the same under DCB unreasonably interferes with the functioning of digital enterprises. It also has the effect of stifling innovation and growth of such digital applications at a very nascent stage.

Subsequently, imposition of an unqualified restriction on tying and bundling under Section 15 of DCB is illustrative of yet another attempt towards excessive regulation under DCB. While tying and bundling are also provided under the Act in the form of “tie-in arrangement”, there is no per se prohibition on the same, and a rule of reason approach is used to assess their anti-competitive effects. This is simply because, similar to self-preferencing, tying and bundling may also have certain pro-competitive benefits, including reduced prices for consumers owing to lower cost of production, improved product quality, increased efficiency, etc. As tying and bundling is not per se abusive, in Microsoft Corp. v Commission, the Court laid down certain factors to determine abuse, including the dominant position of the undertaking in the market of tying or bundled products, coercing customers to obtain tied or bundled products together, the foreclosure effect, etc. Hence, in light of absolute restriction, it becomes apparent that DCB unnecessarily widens the scope of regulation.

WAY FORWARD-

Currently, India does not have a dedicated specialised legislation to regulate the competitive dynamics in the digital market. An attempt has been made through the proposal of DCB; however, a careful examination reveals that its ex-anteregime is a clear case of overbroad and excessive regulation. While it derives significantly from the DMA, which rather adopts a balanced approach by providing specific parameters regarding designation and obligations, DCB fails to maintain such a balance between regulation and market freedom. The loosely worded and wide provisions regarding designation are particularly concerning as they virtually grant CCI the powers to bring almost every entity within the definition of gatekeeper and thereby subject it to unduly excessive obligations. While adversely impacting the growth of startups and existing businesses, such over-widened provisions are especially concerning for Micro, Small and Medium Enterprises (“MSMEs”) as they rely on an array of digital services for their operation. A recent survey, which had 96% respondents as MSMEs, found that 71.16 % of respondents anticipated a negative impact on their functioning with absolute restriction on bundled services such as an integrated payment system or promotional deals.

While taking inspiration from foreign legislations and adopting an ex-ante approach in DCB is a welcome step, merely enacting overbroad and vague provisions has the effect of defeating the very purpose behind regulation. As enshrined under its introductory clause, DCB aims at fostering innovation and promoting competition; however, the wide provisions regarding designation and overbroad obligations have the effect of putting an embargo on innovation and creativity in the market. The need of the hour is not to steer away from the ex-ante model, but to reform it in a manner that provides for effective regulation while leaving sufficient leeway for the efficient functioning of digital enterprises. This can be done through limiting the powers of CCI and bringing specificity to the provisions regarding designation and obligations under the DCB.

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Vishnu Sharma is a third year student at Symbiosis Law School, Pune.

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