Draft Competition (Amendment) Bill 2020: How life may change for tech firms

The Competition Act requires any proposed combination meeting the specified threshold of asset or turnover to be approved by CCI.

The Ministry of Corporate Affairs in October 2018 had set up the Competition Law Review Committee (CLRC) to comprehensively review the Competition Act and suggest substantive and procedural amendments for a robust competition regime. The CLRC submitted its report in July 2019, and its recommendations were closely reflected in the recent Draft Competition (Amendment) Bill, 2020.

One key highlight of the Bill was to suggest changes in the Competition Act to increase regulation over the technology sector.
 

Increased scrutiny over mergers

The Competition Act requires any proposed combination meeting the specified threshold of asset or turnover to be approved by the Competition Commission of India (CCI). The report had earlier highlighted that certain high-value transactions, such as the acquisition of Myntra by Flipkart, WhatsApp by Facebook, and Freecharge by Snapdeal escaped the CCI’s scrutiny as they did not meet the threshold requirement.

Avaantika Kakkar, partner & head of competition law at Cyril Amarchand Mangaldas, is of the view that an enforcement gap exists in the current merger regulations and the proposed amendments attempt to bridge the same. “One has to appreciate that the enforcement gap in the merger regulation also exists because of the very broad scope of de minimis (small target) exemption and also because the threshold for reporting mergers is amongst the highest in the world,” she noted.

The Bill proposes to allow the central government, in public interest and consultation with the CCI, to include any other criterion for reviewing proposed combinations. “On a plain reading of the proposed change, the CCI and the Ministry of Corporate Affairs would have the power to specify the deal value threshold for certain sectors,” said Kakkar. Experts are of the view that this will help regulate the acquisition of small firms by tech giants for eliminating competition.

However, Rahul Goel, partner at IndusLaw, is of the view that the proposed amendment is too broad. “The proposed Competition Bill suggests an increase in the scope of power of the central government to prescribe any criterion, other than those prescribed as a jurisdictional threshold. While this is proposed to be done in consultation with the CCI, the proposed amendment is too broad and will necessitate balance,” he said.

Broadened understanding of anti-competitive agreements

Currently, the Competition Act takes a restricted view of anti-competitive agreements by penalising specified horizontal and vertical agreements. The CLRC had taken note of this and recommended widening the ambit of agreement to target agreements in the digital market which may not fall under existing classifications. The committee emphasised that evolving business models are introducing “unanticipated linkages or arrangements” necessitating a change in the understanding of agreements under the Act.
 

Keeping in track, the draft Bill suggests including “any other agreement” to the already existing list within the Act. “The proposed definition of agreement has been broadened to cover all kinds of arrangements, even when companies are not involved in identical trade of goods or provision of services,” said Goel.

The Bill allows for scrutiny in agreements, which do not strictly fall under the existing classifications. Competition law experts have noted this will cover agreements typical to the digital era, such as algorithmic collusion and most-favoured-nation (MFN) clauses.

Impact on tech companies

However, the tech sector does not need to lose its sleep yet. “The idea behind the proposed amendment was to build in some flexibility in the wording of the statute to provide for evolving circumstances. I don’t think it increases the possibility of scrutiny of any particular type of agreement,” said Kakkar.

Kakkar noted regardless of the competition policy, much depends on the regulators’ appetite for commencing investigations at any given point in time. “The history of competition law will show that there are phases or cycles for a certain sector or type of arrangement that one jurisdiction scrutinises and this is then followed across other jurisdictions. The current flavour is the technology and digital markets,” she added.

Experts have said the impact of the Bill on the business models of tech industries remains debatable. “The proposed change should not have much bearing on the functioning of companies, as it only provides enforcement power to the CCI,” noted Goel.