Tech giants breaking digital market rules may face fines

Two parliamentary standing committees have looked into the need for such ‘dos ​​and don’ts’ for digital economy firms, and discussions for a Digital Markets Act are on, which would prescribe the behavioral norms, said a person familiar with discussions in government.

These norms, which would prohibit practices like ‘self-preferencing’ by e-commerce platforms (promoting their private labels) and using business user data in the e-commerce platform to compete in the market, are likely to entail penalty for breaching them, the person said, requesting anonymity. The penalty is likely to be linked to the revenue of the company for the years in default.

Currently, CCI can impose a penalty of up to 10% of the revenue of a business found guilty of anti-competitive agreements or abuse of dominance. The ministries of corporate affairs and electronics and information technology and the Competition Commission of India (CCI) have held talks on the subject, said the person. However, the broad contours of the proposed legislation are yet to be finalized.

The proposed ‘dos ​​and don’ts’ marks a big shift in competition regulation in the country as it would give the regulator an upper hand in market oversight, with forward-looking regulation on Big Tech (the ex-ante approach) rather than initiating an investigation based on anti-competitive behavior that has already been committed.

The proposed code of conduct is also expected to specify what digital economy firms must do in terms of their business practices. This is likely to include the interoperability of systems.

The norms are unlikely to apply universally and are expected to cover only large businesses, to be called ‘digital market gatekeepers’, in segments like search engines, social media platforms and e-commerce to be identified based on their market reach.

The proposals would be finalized based on reports of two Parliamentary Standing Committees. The Standing Committee on Commerce, led by YSR Congress party leader Vijayasai Reddy had in June said in its report that the existing statutory instruments were inadequate to effectively monitor and regulate the competition dynamics at play in e-marketplaces which are different from traditional brick-and -mortar retail competition. The committee had recommended the ex-ante approach citing the practices in developed markets. The standing committee on finance, chaired by BJP leader Jayant Sinha, examined the issue, but the committee’s report is not yet public.

Sinha had said in an interview published on 5 September that digital markets often result in ‘winner take all’ monopolistic outcomes due to the network effect. He said the ex-ante approach to competition regulation could pre-empt the natural tendency of the digital economy to move towards anti-competitive practices. Digital markets tip very quickly and result in monopolistic outcomes, and one needs to look at them ahead of the market tipping, not afterwards, because once the market tips, you cannot do much about it, Sinha said then.

An e-mail sent to the spokesperson for the corporate affairs ministry on Wednesday remained unanswered. The ministry of electronics and information technology sought more time to respond to queries.