Is ‘Efficient Law’ a Misnomer? A Look at the Draft Digital Competition Bill

The Committee of Digital Competition Law (CDCL), formed by the Ministry of Corporate Affairs, GOI has recently recommended the enactment of a Digital Competition Act (DCA).

The Committee, after conducting exhaustive research, has held that the proceedings under the extant framework, ie, the Competition Act, 2002, are time-consuming and there is merit in enacting additional legislation to address competition concerns arising out of the digital markets. This has been done in line with global practices and the DCA seeks to further incorporate the ex-ante rule under the Indian legal framework.

The CDCL was formed by the Indian government following the recommendation given by the Standing Committee on Finance on anti-competitive practices of Big Tech.

The Standing Committee further acted upon various orders passed by competition authorities across the globe, including in India, where it has been alleged that Big Tech companies such as Google, Amazon, Meta (Facebook), Microsoft and Apple (‘GAMMA’) strategically ensure barriers to entry and lock-in effects to leverage their position.

This ultimately results in consolidation of the market, resulting in a virtual monopoly. The competition authorities on multiple instances have held that harmful effects of practices such as bundling, tying, self-preferencing and cross-utilisation of data outdo the pro-efficiency effects of it, thereby necessitating remedies under competition laws. In some cases, the authorities have further pointed out the lack of interoperability in the technologies involved, underlining the competition dynamics behind it.

Based on the research conducted by the Centre for Competition Law and Economics, it is found that the extant legislative framework is sufficient as far as identifying competition aspects of digital markets is concerned. The Indian Competition Commission has developed three detailed orders where it has held Big Tech companies in violation of competition law.

In the matrimony.com case, the Commission has held that lack of transparency and self-preferencing by the tech company is abusive under the law. In the Google Android case, it has held that bundling and tying are impermissible as per the legal framework. Last, but not least, in Google Pay's case, it has held that anti-steering on the part of the company would invoke reprimand from the authorities.

The distinction, however, lies in what may be legally ‘sufficient’ and may not be economically ‘efficient’. While the dominant purpose of law is to regulate, economics seeks to facilitate market development. This dichotomy between ‘law and economics’ is something that is untackled and remains unanswered in the research.

The proponents of economic laws further suggest that the objective of the law should be in line with the economic requirements of the country and thus, a ‘light touch’ approach should be adopted towards regulation. The contrast couldn't be starker in the context of digital markets where there is vocal criticism of the DCA by industry players and researchers alike who have highlighted efficiency aspects of the digital economy. The criticism further emphasises some fundamental flaws associated with the ex-ante regulatory framework and why it may be detrimental to the growth of digital markets.

Given this conflict, the importance of underlying public policies has also gained prominence. On one hand, it is fully coherent to suggest that private entities are autonomous and the role of the government should be to ensure that they play a prosperous role in the economy. On the other, there may be theories of harm applicable even in the private domain and the government cannot simply pander over the same.

The first case would mean that the realm of regulation would be restricted to a social domain where it ensures that technology isn't utilised to discriminate based on age, caste or gender, while the second would suggest fairness on the principle of level play between various business entities. There would be further differences between government approaches to redistribution as in the first case it is mostly through taxation, while in the second case, a commitment to larger principles of transparency and contestability remains sacrosanct.

There is a larger conflict between the realm of ‘public’ and ‘private’ itself before even ‘law and economics’ comes into play. New age competition law is also a bearing of the second case.

The task before the government in this case lies in forging a consensus. This would require some sort of certainty in terms of the policy framework so that it is convenient for the businesses to comply. Application of ex-ante rules could be just one model to ensure this among many others. The overarching dichotomy between ‘law and economics' remains and it is suggested that it is resolved sooner than later. This would potentially be in favour of all the relevant stakeholders and allow the fine-tuning of the Indian growth trajectory.

‘Efficient law’ remains a misnomer. The dominant understanding of ‘law’ is that it seeks to curtail some form of illness. As such, the purpose is to be ‘sufficient’ like that of a medical practitioner. Efficiency, on the contrary, is mostly understood in economic terms. This would mean ensuring growth and unlocking the underlying potential available within industries and systems. It is high time that legislators and economists recognise this gap. This could allow a better conceptualisation of economic laws and policies.

[Sumit Jain is Founding Director at the Centre for Competition Law and Economics (CCLE) and Dr Nandita S Jha is Assistant Professor at Chanakya National Law University, Patna.]