This article is written by Millia Dasgupta, from Jindal Global Law School. This article covers the evolution of competition law.
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It seems that nowadays it is impossible to talk about a piece of important news without talking about how big tech firms and media have affected it. It is undeniable that all our lives revolve around new tech. Companies like Google and Facebook seem omnipresent in our lives and it is scary to think that their influence keeps on growing without any such checks and balances. It seems that the government believes in this as well with regards to their presence in the market. New laws with regards to competition seem more geared to deal with the power of big tech firms. In this article, we shall be discussing how competition laws have evolved and how they are being drafted in order to curb the rising power of big tech companies.
MRTP to the Competition Act: historical development
The Monopolies and Restrictive Trade Practices (MRTP) Act in 1969 was passed by the government to provide regulations on monopolistic trade. This Act was socialistic in nature and tried to ensure that the economic system did not lead to the concentration of power amongst a few key players in the state. The Act, however, did not apply to the public sectors and undertakings of the government, undertakings by the state and Central Government corporations, banks and insurance companies under the government, It was due to these shortcomings, the Competition Act was passed in 2002 to deal with anti-competitive agreements, abuse of a dominant position and a combination or an acquisition.
The MRTP Act had become ineffective for many reasons. For example, the Indian government kept changing industrial policy; and the monopoly of the public sector was abolished in 1991. There were also a variety of difficulties which arose for implementing the MRTP Act. There was a lack of clarity on a variety of definitions such as the definition of restrictive trade practices. There was also discrimination of the private sector and it favoured the public sector. Due to liberalization, India accepted the General Agreement on Tariffs and Trade (GATT) and Trade Related Aspects of Intellectual Property Rights (TRIPS). It was due to the entering of more multinational companies into the Indian economy, that the aforementioned agreements gained more importance than MRTP.
Thus, due to these shortcomings, the Raghavan Committee was formed in order to amend the MRTP Act. In the end, the committee felt that they needed to enact a more modern Act which would be more beneficial. They also stated that the MRTP Act should be repealed, the reservation of products should be eliminated, shares and assets of the government in state monopolies should be divested and should be privatized, and the public, as well as the private sector, should be brought under this new mandate.
After receiving the report, the government consulted the various stakeholders and passed the ‘Competition Bill’ which was passed in 2000. Later on, the Competition Act of 2002 was passed which came into existence in 2003.
Impact of globalisation in India and its impact on the related laws
In order to open up its economy and to remove excessive government control on its economy to appease the needs of globalization, India resorted to liberalization. This was done to ensure that the Indian economy would be able to face stiff competition from other countries. The basic principles of trade and competition are closely intertwined with competition law. Thus, in order to ensure a well-running economy which is competent to deal with outside competition, we must have equally efficient laws. This law must be a sound liberal policy which deals effectively with anti-competitive business practices and unnecessary government intervention.
While a healthy competitive market is ideal, it is easier said than done. Globalization and urbanization have turned the market into a world of cut-throat competition. The government knew that they not only had to foster competition in this new global age but also protect the Indian market from these cutthroat practices. Thus, the government of India implemented the Competition Act of 2002. The government has also set up a judicial body called the ‘Competition Commission of India’ which deals with the implementation of such laws on a national level and a Competition Appellate Tribunal which hears matters on competition law.
In short, the Competition Act has been designed to promote competition, protect consumer interest and ensure freedom of trade, all against the backdrop of economic development for the country. The Act can be broadly divided into four compartments which are:
Anti Competition Agreements
They are seen as acts which can adversely affect the competition of the market. An example is creating barriers to enter the market and to drive out existing competitors out of the market.
Abuse of Dominance
A firm may enjoy a certain position of strength over other enterprises in a market. This may enable them to act independently of market forces. The Competition Act makes sure that firms who enjoy this position do not abuse it. Some examples of abuse of dominant position are imposing unfair or discriminatory conditions on other enterprises or somehow limiting or restricting other enterprises.
The Act and the CCI regulate mergers, amalgamations and acquisitions of companies and prohibit combinations of companies that would cause an adverse effect on the competition of the market.
Competition Advocacy creates a culture of competition.
The Act has been criticized by a few scholars. They argue that developing countries such as India do not require laws such as the Competition Act. They state that free trade is enough to protect the competitive process. They also state that due to weak institutions set up in developing economies, setting up complex competition laws would do more harm than good. Another argument they state is that competition law is a luxury for rich countries and developing countries have other more pressing issues to attend to and that adoption of such laws is not appropriate for the first stage of economic development. Finally, they also state that these laws should be tailored to the developing economy and should mainly focus on how to promote economic efficiency. But despite these concerns, there are also powerful arguments on the other side which state that adopting such regimes would be beneficial to the emerging economies.
How competition laws affect tech companies across India
Competition laws are starting to affect tech companies in big ways in order to regulate their size and market dominance. In international news, the US Justice Department filed a lawsuit against Google for being a monopolist. This lawsuit was preceded by a US House Judiciary Committee’s antitrust report which recommended that changes should be made to big tech companies who were facing similar allegations. The CCI has also filed cases against Google and have started investigations on Amazon and Flipkart for their discounting prices. They have also filed cases against Facebook and are reviewing their investment in Reliance Jio. Thus, these lawsuits are aimed at challenging the dominance of big tech firms through traditional antitrust laws.
The government’s new attitude to regulating big tech firms is reflected in the new amendment bill of 2020. It embraces 45 out of 50 recommendations made by The Competition Law Review Committee (CLRC) in 2018. These include changes in the regulatory structure of the CCI in restructuring procedure for regulation of combinations, provisions on penalties and guidelines on the issuance of a penalty, new thresholds for merger control and the expanded definition of the term ‘cartel’ to acknowledge the gap in the current definition, margining. The bill also seeks to expand the Act to include digital markets. An example is to include a hub and spoke arrangement and buyers cartel.
Growing opportunities: is there any need for change in competition laws?
In the past few years, the technology sector has grown by leaps and bounds and there has been significant development with their business models. As mentioned before, due to their dominance in the market, the CCI has been dealing with an increasing number of cases of tech firms such as the ola uber pricing issue and the google antitrust allegations. The committee answered a lot of questions regarding antitrust laws in order to regulate markets captured by tech giants. The committee in the report by the CLRC in 2018 stated the following issues with the law and the digital market.
The Committee wishes to introduce a deal value threshold for merger regulation. The current merger control framework states that parties should seek approval from the CCI, if they cross a certain limit of assets and turnover thresholds. But tech firms are very asset-light and they may not even earn revenue for many years as the main goal of the company is to increase their user base. Due to the traditional merger framework, high-value transactions may be overlooked and escape scrutiny. Many argue that it is common in digital markets for large tech firms to acquire smaller tech firms which engage in work similar to theirs in order to reduce competition.
This problem is not exclusive to India but in many other countries. Other countries have tried to fix this issue by enabling the competition regulator of their country to open non-notifiable transactions or by having merger thresholds based on the value of the deal or the size of the transaction. The committee suggested that the current framework introduce a deal value system. Calculating the deal value requires in-depth analysis and a significant challenge to this new system would be to strike a balance between capturing transactions and managing the regulatory burden.
The report also states that the scope of anti-competition agreements should be broadened to include all agreements, regardless of the horizontal and vertical links. This was done in order to accommodate the business models of the digital sector. It also clarifies that access to data can result in the dominance of a firm in the market. 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.
Despite the recommendations made, big tech can not be regulated by the CCI alone. It must happen in collaboration with other regulating bodies. For example, many violations of competition law by big tech firms may also violate the Personal Data Protection Bill. Enforcement of the Competition Act may also overlap with other authorities such as the Telecom Regulatory Authority of India (TRAI) when framing regulations for OTT platforms.
It has been seen that the government has taken this report into account when drafting the Amendment Bill 2020. The Bill makes changes to the regulatory structure of the CCI, issuing penalty guidance, streamlining the procedure for regulations and combination, providing new threshold for merger control, expands the definition of the cartel and extends protection to holders of intellectual property rights.
Top 5 big tech companies in India
The top big tech companies are stated below:
Tata Consultancy Services
They are a subsidiary of the Tata Group and are one of the most valued technology information brands in India. They are one of the largest IT service providers in the world and are also the largest Indian IT company by revenue.
They provide counselling, service and information technology business and are the second-largest IT company, based in Bengaluru.
Wipro provides information technology business, consulting and services. It is also the first IT company to get ISO certified.
With the headquarters in Noida and being among the first 20 largest publicly traded IT companies in India, HCL operates in different sectors like banking, consumer goods, healthcare and ventured into the software business.
Tech Mahindra has its headquarters in Pune. They are a subsidiary of the Mahindra Group and offer a wide range of services including software, maintenance and engineering design.
Thus, it is evident that there shall be an increase in litigation against these big tech firms and their omnipresence in the market. As a competition lawyer, these new opportunities shall grow only more lucrative in the future.
Globalization and The Competition Act
Competition laws affect the tech companies
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