Regulating the Honchos of the Online World – Big Tech Dominance

[Nityesh Dadhich is a IV year B.A., LL.B(Hons.) student at National Law University Delhi]

On 20 January 2022, the U.S. Senate approved the American Innovation and Choice Online Bill. The Bill aims to control the abuse of dominance by ‘covered platforms’ operating over the internet. Section 2(h)(3) of the Bill defines ‘covered platform’ as the online platform having at least fifty million US-based monthly active users, or one hundred thousand US-based business users. Section 2(a) makes it unlawful for any person operating such ‘covered platform’ from giving unfair preference to the platform operator’s own product or services over the product and services offered by other business users on the covered platform if such preference would ‘materially harm competition on the covered platform’. For instance, assuming that the Google search engine qualifies as a covered platform, then unfair promotion of its mobile phone ‘Google Pixel’ in its search results over other products, resulting in material harm to the competition, would be unlawful conduct punishable under the proposed law.

Similarly, the covered platform operators cannot unfairly limit the ability of the competing businesses or discriminate in the enforcement of the platform’s terms and conditions in a manner that raises antitrust concerns. Certain exceptions are carved out under section 2(d), for instance when the preferred status offered on its own products by the platform is ‘intrinsic to the covered platform itself’, or when it is necessary for ‘functioning or security of the covered platform’, or to protect user privacy, or enhance platform functionality, among others. Thus, if this Bill becomes a law, it would prevent Google from offering search preference to YouTube or Google Maps over other similar programs. If Windows or iOS qualifies as a covered platform, then Microsoft or Apple would not be able to offer preinstalled applications such as Microsoft Edge in windows or FaceTime in iOS. It has been alleged that the Google search engine’s codes give preference to YouTube search results over other competing platforms such as Facebook or Dailymotion. Similarly, in April 2021, European Commission warned Apple against forcing app developers to necessarily use the in-app payment system of ‘App Store’ (developed by Apple) for listing applications on Apple’s platform. The in-app purchase system charged up to 30 percent amount on sales, and the app developers were not offered other purchasing options. The Commission found Apple to be a dominant entity distorting the competition. Thus, the Bill proposed in the US would prohibit such abuse of dominance by very large online platforms.

India’s Competition Act: A Panacea in the Online World?

India has witnessed several allegations against Big Tech companies abusing their dominance to favour their business and gain monopolistic powers. Last year, the Competition Commission of India (CCI) initiated a probe against Google for allegedly ‘favoring Google Pay application over other competing apps’ through Google’s control over the Play Store (See paragraphs 5, 12, 13, and 46). The informant alleged that Google Pay was promoted as the ‘Top Free App’, ‘Editor’s Choice’, ‘User’s Choice App’ which demonstrated a bias in favor of Google’s own products on its own platform. The application was offered pre-installed in several Android phones resulting in a ‘status-quo bias’ in favor of Google’s own products. Google also charges a 30 percent commission from app developers for payments made on apps offered on Play Store platform.

The CCI in its prima facie observations (see paragraphs 51, 52) found that the high fees charged by Google reduced the app developers’ ability to compete with the products offered by Google. Google’s conduct was prima facie found anti-competitive and violative of section 4(2)(a) of the Competition Act. Similarly, in December 2021, the CCI found Apple’s App Store abusing its monopoly through unfair conditions violating section 4(2)(a) of the Competition Act. Along with the above two, the CCI has also ordered its Director-General to initiate investigations against anti-competitive practices adopted by the e-commerce giants, Amazon and Flipkart. In its prima facie order, the CCI found Amazon and Flipkart discriminating between its ‘preferred sellers’ and other regular sellers (See paragraphs 23, 24, 27, and 28). The Director General’s report for all these three investigations is pending and can be expected in the next few months (see here, here, and here).

Section 4 of the Competition Act prohibits the abuse of dominance. ‘Dominant position’ is defined as a position of strength enjoyed by an enterprise within its ‘relevant market’. Section 4(2)(a) prohibits the imposition of unfair or discriminatory conditions or price on purchase or sale of goods or services. Section 4(2)(e) prohibits the abuse of dominance within one relevant market to enter into another relevant market. The courts similarly use provisions against the denial of market access (section 4(2)(c)) and unilateral conclusion of contracts (section 4(2)(d)) to tackle the abusive dominance of big tech companies. These provisions are broadly defined, and courts can use purposive interpretation to bring justice against these Big Tech companies. So, does India need a dedicated provision to control the big tech companies, as we see emerging in the United States? I answer this in the affirmative for the reasons I mention below.

Regulatory Amendments to Prevent Abuse of Dominance over the Online Platforms

Section 4 of the Competition Act has been drafted broadly, enabling the judges to creatively deal with each situation. However, this comes at the cost of certainty as Big Tech companies then actively look for loopholes within the statute to escape their liability. Firstly, a section 4 violation arises only when an entity abuses its ‘dominance’ within the ‘relevant market’. The determination of relevant market involves evaluation of various factors such as physical characteristics of the goods offered (paragraphs 7.3 to 7.12), price substitutability of goods (paragraph 53 onwards), consumer preferences (paragraph 152), and the like.

Once the relevant market is determined, the court then evaluates whether the enterprise is ‘dominant’ within the delineated relevant market (see Section 19(4)). If the enterprise is found to be dominant, and if it is settled that it had performed any of the acts prohibited under section 4(2), then it would be anti-competitive conduct. Thus, the process to establish abuse of dominance in itself becomes lengthy and tedious. This clearly emerges as the DG’s investigation report on abuse of dominance by Flipkart and Amazon, which was initiated in January 2020, is yet to be released. The Bill proposed in the United States minimizes this complexity as the Bill extends to any online platform that has at least 50 million US-based active users, or 100,000  US-based active business users. The US Trade Commission can inform in the official gazette if the Bill would extend to any other online platform.

Secondly, specific legislation dealing with Big Tech’s abusive conduct can streamline the available remedies. Section 2(g) of the Bill proposed in the U.S. empowers the court to award injunction orders, and impose a penalty of up to 15 percent of the revenues earned within the United States during the period of such violation. The Bill also permits stringent penalties over repeat offenders and the corporate officers responsible.  Similarly, the European Commission has proposed to regulate ‘very large online platforms’ by mandating them to provide requested information, permit on-site inspections and impose a high standard of transparency. Compared to this, the provisions under Indian Competition Act are broad. For instance, section 27 permits the court to ‘impose such penalty, as it may deem fit…’ up to 10 percent of average ‘relevant turnover’ earned in the preceding three financial years (See paragraphs 73, 74 in Excel Corp Care v. CCI). The courts have the power to grant injunction orders, or ‘pass such order as it may deem fit’. However, the legislature can, by introducing specific provisions, guide the court to award appropriate remedies against such unfair dominance over the online platforms.

Thirdly, assuming that the remedies under India’s Competition Act are specific, they only address ex-post concerns. There is a need to impose greater ex-ante restrictions over such very large online platforms to mitigate possible anti-competitive conduct. Ex-ante restrictions include setting up a compliance mechanism, establishing a code of conduct to ensure non-discriminatory accessibility of online platforms, regular data sharing with public authorities and greater transparency within its functioning (for instance, see articles 31, 32, 33, and 34 of the Digital Services Act). Big Tech has assumed the central and substantive role within our online marketplace and, therefore, along with the ex-postcontrols such as penalties and injunction orders, there is also a necessity to impose greater ex-ante controls to mitigate the possibility of anti-competitive conduct by Big Tech companies.

Finally, several jurisdictions have realized the necessity to ensure the neutral and transparent functioning of such very large online platforms. The European Commission has proposed the Digital Services Act, which is likely to be adopted in 2023 to control ‘very large online platforms’. Similar steps against abuse of dominance on online platforms by Big Tech have been taken in Poland and Hungary. India has over 800 million internet users and the userbase is only bound to increase. Considering the dominance of Big Tech companies over India’s online marketplace, specific antitrust regulations are necessary to prevent Big Tech’s abuse of dominance over online platforms. There is a case for adopting such legislation sooner rather than later.

Nityesh Dadhich

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