Recent regulatory developments in the competition law domain have brought to the forefront the quandary surrounding ex-ante and ex-post regulations. The difference between these two mechanisms is relatively straightforward. Simply put, ex-ante regulations are prohibitive in nature and seek to prevent an anti-competitive practice from occurring, while ex-post regulations are curative in nature and seek to rectify the situation post the commission of an anti-competitive practice. Up until recently, competition law around the world had generally involved ex-post obligations. However, with the advent and rising prominence of digital markets, this understanding is also evolving.

Unlike the traditional brick and mortar entities that offer goods and services in the physical world, digital markets are web-based and comprise of online entities that either themselves provide or allow their users to offer or receive goods and services, either online or offline. Digital markets have grown at a rapid pace in recent years, both globally and in India, with a handful of technology companies, viz. the BigTechs, having significantly contribute to such growth. However, these BigTechs have simultaneously also cornered a large share of the markets for themselves. Lately, a global push has emerged for imposition of ex-ante regulations on digital markets. This has been largely driven by heightened concerns surrounding he concentrated structures of digital markets and the potential harms that may ensue from abuse of dominance by BigTechs.

A perusal of the existing and proposed digital competition laws of the EU, USA, UK, Germany, Australia, Japan, South Korea and China reveals a common thread involving categorisation of companies on the basis of certain thresholds, and the imposition of additional ex-ante obligations on such select companies. However, countries such as Singapore have continued to rely on their existing ex-post framework to tackle digital competition by bolstering their current laws.

The Indian Competition Act, 2002, currently only prescribes ex-post mechanism for curbing abuse of dominance. Considering the specialised domain of digital markets and the relatively measured pace of inquiries and enforcement under this Act, India recently unveiled the draft Digital Competition Bill. This draft Bill proposes an ex-ante framework base on certain quantitative and qualitative thresholds to pre-emptively tackle abuse of dominance in digital markets, by placing restrictions on activities such as self-preferencing, the intermixing of personal data and leveraging of non-public data of business users, restricting the use of third-party applications, anti-steering, and tying and bundling.

However, this framework has drawn criticism from various quarters, particularly on the grounds that it stifles innovation, hampers the economic growth of industries and would have an overall negative effect on the customer comfort and experience. It has also been stated that the draft Bill has been heavily influenced by the EU-Digital Markets Act, and its provisions may not be very well suited for India, where the realties of a burgeoning population and rapid economic growth require enhanced room to disrupt and innovate. Impeding these market developments through restrictive ex-ante obligations may potentially do more harm than good.

The need for an ex-ante regulation like the draft Bill largely emanates from the fact that anti-competitive harms continue to occur during the pendency of inquiries under ex-post frameworks such as the Competition Act. The draft Bill seeks to address this lacuna by first of all identifying the ‘Systemically Significant Digital Enterprises’, namely the SSDEs, on the basis of the prescribed thresholds, and thereafter placing restrictions on such enterprises to prevent any scope of abuse of dominance from occurring in the first place. The issue with this approach is that it is prone to causing collateral damage, as it may end up targeting even those enterprises and activities where no actual anti-competitive practices or abuse of dominance may be occurring.

For instance, most payment service providers contain an in-built chat feature. Restrictions on tying and bundling under the draft Bill may require the SSDEs offering such services to also enable users to use third-party messaging services. Similarly, the anti-steering restrictions under the draft DCB may require restaurant and cab-hailing aggregators to enable business users to directly reach out to end-users through their applications. While the draft Bill does contemplate carveouts for ‘integral services’, such entities will be left completely at the mercy of authorities for a positive interpretation. Keeping in mind these factors, a middle path could be considered that addresses the vagrancies of digital markets without overtly stifling growth and innovation.

The first step in this regard can involve bolstering the regime on interim orders under the existing Competition Act and shoring up the administrative appetite for passing such orders. Under Section 33 of this Act, the Competition Commission of India is empowered to pass interim orders, including for instances where there is presumption of occurrence of anti-competitive activity. However, the CCI Annual Report 2022-23 reveals that such orders have been only a handful of times over the past three years. For a dynamic sector such as digital markets, interim orders can be an effective tool in checking anti-competitive practices in digital markets as and when they are identified, so that the scope of damage can be immediately contained. This will reduce the need for a preventive ex-ante framework as a substitute.

It is also to be noted that amendments were made to the Competition Act in 2023, which introduced changes to the settlement and commitment mechanism. This can provide practical solution to bringing about compliance while balancing innovation. India can also borrow from the United Kingdom and consider establishing a dedicated digital markets unit within the CCI which would exclusively deal with competition concerns stemming from this area. This shall signal the strong intent of the Government to tackle digital market issues head on and provide specalised expertise in this regard.

Digital markets necessitate a re-evaluation of traditional competition law mechanisms. By implementing the modified approach, the ex-post and ex-ante mechanisms as suggested herein, the regulator can address competition concerns effectively, and foster a fairer and more innovative digital landscape. This will not only protect consumers from potential exploitation but also ensure a level playing field that encourages health competition and ushers in the next generation of technological advancement.

- Arjun Goswami, Varun Mehta and Ashirbad Nayak. The authors are respectively Director, Principal Associate and Associate in the Public Policy Team of Cyril Amarchand Mangaldas