1 April 2023

Table of Content

Competition (Amendment) Bill passed in Lok Sabha: How it affects Big Tech

GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

As the National Company Law Appellate Tribunal upheld the competition regulator's findings of Google's market dominance abuse in the Android ecosystem, the Lok Sabha passed the Competition (Amendment) Bill, 2023, which could create new challenges for Google and other global tech firms.

The bill amends the Competition Act, 2022, and enables the Competition Commission of India (CCI) to penalize entities for anti-competitive behavior based on their global turnover, a significant modification from the previous practice of deciding penalties as a percentage of the entities' domestic turnover.

Competition Act 2002

• The Competition Act of 2002 was established with the goal of safeguarding consumers from anti-competitive conduct, ensuring their interests are protected, and allowing other market participants to engage in free trade.
• Its enactment replaced the Monopolies and Restrictive Trade Practices (MRTP) Act and was intended to promote competition in the marketplace, providing consumers with a wider range of goods at reasonable prices.
• The Act aims to prevent harmful practices, protect consumer interests, and ensure freedom of trade.
• In 2022, a bill was proposed, and later in 2023, certain provisions were amended based on the recommendations of the standing committee report.
• The 2023 amendment focuses on expediting procedures, imposing hefty fines, and limiting the Director General's powers.

Key Features of the Bill

• The Competition Amendment Bill (2023) introduces a major change in the law, giving the CCI the power to penalize companies engaged in anti-competitive behavior based on their global turnover.

• Previously, penalties were determined as a percentage of a company's "relevant" turnover, which referred to their annual domestic turnover.
• Though the provision on global turnover applies to all companies, it may disproportionately affect tech companies with global operations.

• In the EU, penalties for anti-competitive behaviour are capped at 10% of a company's overall annual turnover, with exceptions made for cases where a parent company exercises significant control over a subsidiary.
• The determination of "turnover" has been a much-debated topic in the competition law landscape. In 2017, the Supreme Court provided clarity on how it should be determined in such cases. The court upheld the principle of "relevant turnover" for determining penalties in competition law contraventions, in a landmark judgment on May 8, 2017.
• However, in a case related to alleged contravention of the Competition Act, 2002, the Competition Appellate Tribunal (COMPAT) later ruled that turnover should be "relevant turnover," derived from the sales of goods or services. 
• In this case, the CCI had imposed a penalty on Excel Corp. Care Limited, United Phosphorus Limited, and Sandhya Organic Chemicals Private Limited at the rate of 9% of their total turnover for their alleged contravention of the Competition Act, 2002 in the public procurement of Aluminium Phosphide tablets by the Food Corporation of India.
• The Supreme Court ultimately ruled that adopting the "relevant turnover" criteria for imposing penalties is more aligned with the principles of the Competition Act and penalty imposition principles.
• The Competition (Amendment) Bill, 2023 brings about significant changes in the way mergers and acquisitions are approved, requiring entities to seek approval from the CCI if the deal value is over Rs 2,000 crore and both parties have significant business operations in India.
• The CCI may also incentivize parties in ongoing cartel investigations by offering a lesser penalty in exchange for information about other cartels.
• The bill reduces the time limit for mergers and acquisitions approval from 210 to 150 days, broadens the scope of anti-competitive agreements, and introduces a deal value threshold as an additional criterion for notifying M&As to capture killer acquisitions in digital markets that may have previously fallen below the notification criteria due to asset and revenue-light business models of new age companies.
• The proposed changes in the Competition (Amendment) Bill, 2023 include several measures such as a three-year limitation period for filing cases related to anti-competitive agreements and abuse of dominant position.
• Additionally, a settlement and commitment framework will be introduced.
• The bill aims to expand the scope of inter-regulatory consultations and incentivize parties involved in ongoing cartel investigations by offering a lesser penalty if they disclose information about other cartels (known as leniency plus).

Competition Commission of India (CCI)

• The Competition Commission of India (CCI) is a statutory body established in March 2009 under the Competition Act, 2002.
• The Commission is comprised of a Chairperson and six members who are appointed by the Central Government.

Objectives

• To eradicate practices that harm competition,
• Foster and maintain competition,
• Safeguard consumer interests, and
• Ensure freedom of trade in India's markets.

Functions

• The CCI is responsible for both quasi-judicial functions and providing opinions to statutory authorities.
• Additionally, it is required to engage in competition advocacy, raise public awareness, and provide training on competition matters.
• To achieve its objectives –

• The commission can investigate certain types of agreements and dominant positions held by enterprises.
• It can also determine whether an agreement has a significant impact on competition (referred to as appreciable adverse effects on competition (AAEC)).

Powers

• The CCI has the authority to investigate any merger or acquisition that it deems could negatively impact competition in the Indian market.
• Additionally, it can establish and enforce its own procedures and impose financial penalties for violations of the Competition Act, 2002.
• Moreover, it can issue interim orders to prevent any activity that may harm competition in the market due to anti-competitive agreements or the abuse of dominant positions.

[Ref- IE] 

Fact File