A Committee chaired by the Corporate Affairs Secretary recently released its report recommending changes to the Competition Act, 2002. The Committee, constituted last year, was tasked with reviewing the competition law framework in view of the changing business environment. A whole host of its proposed recommendations relate to ironing out competition issues in the digital market.

In the last few years, the technology sector in India has seen significant development, with the advent of new business models. The CCI has also dealt with cases involving tech companies, such as the Ola-Uber pricing issue, the Google antitrust allegations, etc. Globally too, policymakers are looking towards antitrust laws to control market capture by tech giants. Therefore, it is not surprising that the Committee’s report discusses some of the pressing competition law issues facing the digital economy. In doing so, the Committee has explored whether these developments necessitate a renewed competition law or if the existing framework is sufficient to deal with these issues.

Merger value

Perhaps one of the most substantive recommendations of the Committee is the introduction of a deal-value threshold for merger regulation. The current merger control framework obligates parties to seek approval from the CCI if they cross certain asset and turnover thresholds. However, business models in digital markets are typically asset-light and may fail to generate significant revenue for years, since the initial focus of such businesses is user growth. Accordingly, there is a possibility that the current asset-and-turnover-based merger thresholds may allow high-value transactions in digital markets to escape the radar of the competition law authorities, despite being anti-competitive.

Many commentators argue that it is common in the digital markets for incumbent tech giants to acquire small innovative companies engaged in similar or complementary businesses, which has the potential to lessen competition in such markets. Notably, this issue is not exclusive to India. Other jurisdictions have sought to address this issue either by enabling the competition regulator to open non-notifiable transactions (Brazil, Canada) or by introducing merger thresholds based on the deal value or size of transaction (Austria, Germany, the US). In light of this, the Committee has reviewed recent mergers in the Indian digital sector and opined that there is currently an enforcement gap in capturing combinations in this sector. Accordingly, the Committee has recommended the introduction of an enabling provision in the Competition Act empowering the Government to introduce ‘deal value’ as a threshold for merger notification.

Experience with Austria and Germany indicates that the implementation of such a threshold will require the consideration of several nuanced issues that will require detailed deliberation. For instance, issues such as accounting for fluctuations in the value of listed shares while calculating the deal value, computing the deal value in case of earn-outs and deferred consideration, and introducing an appropriate local nexus test to avoid catching deals that may not have an impact in India will be key to the effectiveness of a deal value threshold in practice.

While calculation of the deal value itself requires some analysis, a significant challenge for policymakers will also be to strike a balance between capturing transactions and managing the consequential regulatory burden. Due to the complexity of these issues, policymakers may consider holding detailed consultations with affected stakeholders. Some other jurisdictions that are contemplating introducing a deal value threshold, like the EU, the UK, and Italy, have conducted or are conducting such consultations.

Emerging problems

Interestingly, the report also discusses and clarifies the legal position on several emerging issues. For instance, the report suggests broadening the scope of anti-competitive agreements to include all agreements irrespective of ‘horizontal’ or ‘vertical’ links with a view to accommodate for new business models in the digital sector. Further, it also clarifies that access to data can be a factor to assess dominance of an enterprise. Additionally, it discusses the treatment of algorithmic collusion and vertical restraints in digital markets in the form of MFN clauses under the existing Competition Act.

While the report recommends some forward-looking suggestions, it essentially concludes that the provisions of the existing Competition Act are otherwise broad enough to deal with the emerging issues in the digital sector. The recommendations of the Committee have not only clarified the position of law, but has also hopefully paved the way for deeper discussions on regulating technological developments in evolving markets.

Ahmed is a Senior Resident Fellow and Satija is a Research Fellow at the Vidhi Centre for Legal Policy. They are part of a team that assisted the Competition Law Review Committee for the report. Views are personal

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