With the Internet playing a central role in determining how humans live and work, a few big technology companies have gathered remarkable clout. The clout is a result of the fact that users depend heavily on a few companies for most of their needs. The major players have harnessed technologies that permit synchronicity between devices and people in a manner that is often superficially described as “brand loyalty”. Thus, one can now watch movies over X’s streaming platform while ordering groceries from X’s virtual marketplace operating X’s branded device, and paying with X’s very own payment platform. This has been incentivised and packaged as an all-in-one deal. Critically, customers are now tied to brands in ways that was not previously possible.
This veneer of a seamless world, which offers transitions between products and sectors, has arisen from innovative, location-specific modifications made in business models. This has been hastened and facilitated by strategic mergers and acquisitions by the larger companies. Crucially, the process of concentration that has incubated this extreme dominance by a few has happened faster than regulatory authorities could have anticipated or thwarted. Remarkably, 20 years into the new millennium, the tech landscape continues to be fluid and unpredictable. As a result, regulators are only able to react, not be in readiness. Efforts by competition regulators in the European Union, the United States and India have not conclusively settled issues that have emerged as a direct result of the dominance of big tech players.
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Regulation in this space is slow and tech companies are able to flourish in the interim. Governments and regulators in the two major markets, the U.S. and the E.U., have made attempts, even if only in fits and starts, to break up the vice-like grip that big tech has enjoyed. Competition watchdogs are working to ensure that anti-competitive behaviour is punished with record-setting fines and ordering changes in business models and structuring. Whether this is sufficient in terms of regulation remains to be seen. What is absent in these inquiries is the simple fact that market power is built at the expense of individuals either through the erosion of basic labour rights or through the unscrupulous collection and processing of user data and forcing certain products on consumers, owing to the sheer size and impact of these companies in the market.
Importance of the Indian market
As these competition concerns arrive in India for adjudication before the Competition Commission of India (CCI), the same regulatory concerns before the E.U. and the U.S. take on a new colour because of the sheer volume of users and the untapped potential that big tech companies see in the Indian market. The core issue, therefore, is not just a narrow focus on anti-competitive business dealings but a comprehensive regulatory overhaul that focuses on issues that tech companies have been able to successfully sidestep in many other jurisdictions.
Popular opinion has already taken note of the complete lack of transparency in the way tech companies process user data; this has raised serious and pressing privacy concerns. Other issues that need consideration includes intellectual property rights and licencing, international taxation and a user-centric data security regime. Recent inquiries conducted by the CCI and the courts indicate a willingness to prioritise consumer interest.
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Given the size and impact of the Indian market, all regulatory action in India is bound to be closely monitored and can have a far-reaching impact elsewhere in the world. There is a good chance that the close scrutiny of major tech players by Indian regulators will lead to reform in the other regions and provide some heft to the growing concerns around their dominance. Given the importance of the Indian market, companies themselves will be inclined to ensure that the local regulators are satisfied.
The Microsoft case
An anti-trust law based on a traditional understanding of markets, manufacture/production and consumption was determined to be entirely insufficient in checking the behaviour of Microsoft over two decades ago. In the early 1990s, Microsoft began bundling Windows Media Player with the Windows Operating System (OS) it sold. Other software companies complained to the E.U. regulator that Microsoft was abusing its dominant position by forcing its own proprietary software on users. The E.U. Competition Commission (ECC) investigated the issue and imposed a record amount as a fine on Microsoft and ordered that the software in question be separated from the OS and that customers be allowed the choice to use or reject Windows Media Player.
The case determined the legality of “tying” certain products together. Microsoft was found to have bundled certain programs with the OS, that is, certain softwares were pre-loaded with the OS and there was no option available to users to use other alternatives. One product is tied to another in this way; users who purchase Windows are forced to purchase the bundled program along with it.
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The ECC investigation into Microsoft’s tying of Windows Media Player and its subsequent inquiries into Windows and Microsoft’s proprietary browser Internet Explorer and word processing software MS Word in 2009 and 2012, respectively, looked at the issue from the perspective of consumers’ access to choice. The rationale of the court in finding Microsoft guilty was that the bundling was forced upon consumers and enabled Microsoft to enjoy a complete monopoly in the media player and web browser categories and therefore, abuse of dominance in the sector.
When Microsoft was litigating this issue before the ECC, its dominance in the sectors it operated in was an undeniable fact. The ECC was unable to adequately punish Microsoft, so to speak; the fine imposed on it paled in comparison to the significant profits Microsoft made year upon year. The regulator was also unable to account for Microsoft’s popularity among users, evidenced by the fact that there were not many takers for the unbundled version of the OS that the company was ordered to create as part of the settlement.
New players with new technologies
In the decades since, our use of software and the devices available to us have changed the tech ecosystem in new and unprecedented ways. Innovations and technological advancements have meant that unlikely giants have emerged in an extremely short span of time. Around the time that the ECC was deciding the fate of Microsoft and its product bundling practice, the first smartphones were being developed. Apple’s iPhone range, which ran exclusively on iOS, and Google’s Android OS, which is licenced to a number of phone manufacturers, dominate the market today. They were launched in 2009 in the shadow of the ECC’s conclusion into Microsoft’s alleged abuse of dominance by way of tying.
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Smartphones have been a major driver of the astronomical growth that tech companies have experienced in the last decade. Everyday life is inextricably linked to dependence on a range of apps and technology made possible through smartphones and desktop computers—from remote working and studying, shopping, telemedicine, public transport and cabs to on-demand music and video streaming services.
A combination of factors has created the perfect environment for this, not in the least the lower cost of production of hardware and individual parts and the expansion of cellular networks to the remotest towns and cities across the world. This has facilitated the meteoric rise of entities such as Google and Facebook, both being companies that entered one market and then successfully built their presence across a range of sectors and product markets.
The gap between the tech giants and their closest competitors is wide and has naturally given rise to a slew of complaints of abuse of dominance, illegal mergers and acquisitions and anti-competitive business practices such as bundling, predatory pricing and deep discounting, exclusive arrangements and cartelisation and others.
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The ECC’s investigation into Google’s abuse of dominance in multiple markets, namely advertising, search, and phone operating system, since 2010 was based on complaints filed by other companies in these segments, including Microsoft itself. Appeals are under way and it appears that Google has the financial backing and determination to challenge the decision in its entirety. This raises serious questions as to the ability of the regulator to maintain a level playing field: when companies grow too large to feel the sting or indeed any negative effect of punishment, the strategy of exerting control through anti-trust litigation should be reconsidered.
Another key takeaway is that in the years since the ECC’s engagement with Microsoft, the approach taken by the regulator and the impact to the company in question has been identical. In fact, while Microsoft was taken by surprise by the changes ordered by the regulator, Google has been able to comfortably appeal the decision while continuing to enjoy a staggering market share in all the product areas being investigated.
The concept of what constitutes anti-competitive behaviour—price fixing, cartelisation, and so on —might be as relevant to the market today as it was when they were first being litigated, but the regulator has yet to take note of the fundamental differences that prevent the convenient transposing and application of settled legal principles and precedents. The changing landscape of the tech sector and markets in general and the fact that these entities have unimaginable wealth and power has meant that traditional methods will be insufficient to arrive at any long-term, concrete solutions. At a point in time where data is the new gold standard and can be used to piece together intimate biographies and create profiles of potential customers, competition law concerns around big tech become much clearer.
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An approach that is blind to these privacy and data security concerns and other key regulatory issues outside a traditional understanding of competition is sure to fail in the intended objective.
Data privacy and security issues
The regulation of how tech companies use consumers’ personal data to establish dominance and make inroads in different markets should be a major preliminary focus point. It will make the process of regulation easier, allowing for a comprehensive regulatory framework minimising all gaps and ensuring that blind spots are adequately covered. The popularity of social media across the world in a multiplicity of languages has underscored the value of data to companies looking to advertise on social media websites and the convenience of tapping into an existing database of user data to grow one’s own business.
Governments across the world have introduced stringent laws to ensure users’ right to privacy by requiring tech companies (and any other entity that utilises user data) to adhere to certain basic and essential data security and privacy measures. The E.U. introduced the General Data Protection Regulation (GDPR) to function as a consolidated set of data protection laws for Europe and Europeans, with a focus on certain basic principles of privacy which all entities handling user data must adhere to.
GDPR has been regarded as an important piece of law in the global fight to identify and protect privacy rights in a digital age and it contains key provisions such as obligations to protect, secure and safeguard user data, granting individuals the right to be forgotten and their data deleted and imposing heavy penalties for non-compliance with any provision in the law. With provisions on cross-border data transfers and storage, GDPR compliance is of particular relevance to big tech companies with a global presence and servers scattered all across the world.
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Cross-platform connectivity, the use of Facebook and Google accounts as tokens to sign in and access services over the Internet such as food and grocery delivery and the convenience of allowing companies to mine these accounts to remember preferences and information has created an interconnected network of data usage and sharing that no regulation could have possibly anticipated.
This has also meant that power is measured in terms of access to data and a few key firms, namely Apple, Google, Facebook and Amazon, have acquired immense power and sway over the sector, influencing major shifts in technology and therefore, regulation.
These four big tech companies are setting their sights on the Global South, particularly the Indian subcontinent, for the untapped potential it holds. The region has seen a massive growth in smartphone use and Internet access and a growing population of users coming online for the first time.
Social media regulation is also becoming a key issue across the world. Global concerns about social media’s power to influence the outcome of elections and polarise people are very tangible in India. This is because WhatsApp and other messaging platforms have penetrated every layer of society and hundreds of millions of people receive news and information for the first time as messages from friends and acquaintances. The hurdles of illiteracy and language barriers are also overcome with the easy sharing of videos. The influence of social media in the spread of false information, hate speech and fomenting violence is concerning. In India, social media companies are able to absolve themselves of any liability by citing the Information Technology (IT) Act’s provisions protecting intermediaries from any legal action for user-generated content.
As comfort with online payment platforms grows, so does e-commerce even in tier-2 and tier-3 towns coupled with a concomitant increase in the employment of delivery persons and warehousing staff, customer support and other back-end operations.
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The profit margins and potential for continued growth are immense as the number of sellers and buyers using e-retail platforms and app-based products and services increases by the day. Tech companies are, therefore, directly and indirectly responsible for the creation of millions of jobs across skill levels. However, they are able to avoid labour laws by taking careful advantage of outdated definitions of workmen, workplaces and industry.
It is also pertinent to note that regional considerations have resulted in a small, but important, deviation in how these business models adapt in India. For example, app-based taxi services are operated in a traditional taxi company model and not as supplementary income through one’s own personal car as in Western markets.
The use of ambiguous phrasing to define “employees” has also meant that delivery persons attached to Zomato and Swiggy and drivers on Uber and Ola are denied basic employment benefits, timely breaks, overtime, etc. The phenomenon of app-specific gig economy employment and partnership agreements exist in a regulatory vacuum to the exclusive benefit of the company and not the employee, now carefully rechristened “partner”. These business practices have translated to immense profits to tech companies and can definitely be classified as anti-competitive actions facilitating wrongful gain.
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CCI probe into Google
In 2018, the CCI concluded its investigation into Google’s advertising policies. Consim Info, which owns the immensely popular Matrimony.com, filed complaints accusing Google of abusing its dominance in the Web search market to make significant inroads into ancillary products and services. After registering a prima facie case of abuse of dominance, the CCI directed its Director General (D.G.) to investigate the matter. The D.G. identified a number of anti-competitive practices and in a 4:2 majority, the CCI declared that Google had abused its dominant position and fined it Rs.136 crore.
One of the D.G.’s findings was that Google imposed unfair conditions on trademark owners by permitting competitors to bid on trademarked terms. The D.G. submitted that this created confusion among consumers and that companies were forced to exceed their advertising budgets in order to bid on these terms themselves so as to ensure that their results remained visible when searched. The D.G. alleged that Google did this not in the interest of fair competition but in order to further its own commercial interests.
The CCI’s observations regarding Google’s abuse of dominance and methods of increasing commercial interest offers some insight into the Indian regulator’s attitude towards big tech companies despite the latter’s best efforts to engage with the government to form working relationships. Facebook sought to do this through the much-criticised Free Basics project, which resulted in nationwide protests in support of network neutrality in 2016. The project was abandoned but Facebook cemented its dominance by its acquisition of WhatsApp, which has its largest user base in India.
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Since the 2018 decision, the CCI has actively investigated transactions in the tech space; other regulatory bodies are also looking into international tech giants and their businesses in India. Over the last decade, there have been significant changes in foreign direct investment (FDI) law, taxation law and consumer protection law. A dedicated data protection law—the Personal Data Protection (PDP) Bill—is undergoing final stages of review by the legislature. In addition to this, tech companies are held accountable under provisions of the IT Act and accompanying rules and regulations for violations affecting data security and user privacy.
In 2019, the Enforcement Directorate (E.D.) commenced its investigation into alleged violations by Amazon and Flipkart of the Ministry of Trade and Commerce’s prohibition of FDI in business-to-consumer (B2C) enterprises except where specific conditions are met.
In 2020, the CCI admitted a complaint by the Delhi Vyapar Mahasangh (DVM), a consortium of electronics retailers, regarding the exclusive online sale of certain smartphones on Amazon and Flipkart. The D.G. found merit in allegations of preferential listing, deep discounting and exclusivity made possible through abuse of dominance by these entities in the e-commerce sector. Soon afterwards, the Karnataka High Court stayed the CCI’s ongoing investigation into Amazon and Flipkart, ordering that the E.D. investigation into these companies and their FDI violations be concluded first. Recently, the Supreme Court refused the CCI’s application before it to vacate this stay and proceed with their investigation into the DVM’s complaint.
Multiplicity of proceedings and overlapping issues are preventing the timely conclusion of investigations. In an area that is evolving and changing so fast, these delays only hinder regulation and create an endless loop of reactionary law-making instead of creating necessary frameworks to curb anti-competitive behaviour before they can take root.
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There is an undeniable monopoly that big tech companies enjoy across sectors and regulatory gaps and consumer loyalty has enabled this unique situation to thrive. The consumer is not going to easily give up the convenience that this offers her; therefore, there is a need to create a network of regulatory measures and safeguards centred around the consumer. Regulation should be mindful of region-specific issues and adopt a mutli-disciplinary approach in order to have the most impact.
Tech companies are able to operate in a regulatory vacuum in India and are able to avoid any negative repercussions for their continued violations regarding the adequate compensation of labour, local incorporation and taxation laws and maintaining reasonable and adequate standards of data protection. They are able to acquire and control market power by slipping through the cracks as far as these basic aspects are concerned. The CCI has been carefully considering complaints brought to it but there is simply no time to take on detailed inquiries when what is most necessary is stringent regulation as far as basic operational aspects are concerned.
A comprehensive regulatory framework is the need of the hour, especially in the aftermath of the COVID-19 pandemic which has caused a wide-scale adoption of technology and an increase in the use of app-based products and services. This has also revealed the privacy issues in big tech and even first-time users are insisting on transparent processing and effective safeguards to preserve their data.
Comprehensive regulation needed
The Joint Parliamentary Committee set up to review the Personal Data Protection Bill has called upon major tech players of Indian and international origin to appear before it and answer questions about their funding and management, obligations towards users, compliance with local and international law on free speech and data security, amongst others.
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It is a welcome move, indicating a serious effort to understand the tech ecosystem and devise future-proof suggestions to improve supportive frameworks and regulations and protect the market and consumers from anti-competitive behaviour. Questions on social media regulation covering content moderation, advertising guidelines and storage and processing of data are also a positive indication amid reports of Facebook India’s opaque and politically motivated policies.
The U.S. has now set its sights on big tech. After the announcement of anti-trust litigation against Google, a major overhaul of how these companies operate in nearly every possible arena is likely. There is also a bipartisan effort to investigate censorship policies on Facebook and Twitter and also, relatedly, into the issues of ethical journalism and fake news.
India has been forging a strategic embrace with the U.S., in opposition to China. This is ironical because it blunts the Indian state’s ability to take on the tech giants even as Indian startups depend significantly on Chinese investment. Eventually this would prove to be a lose-lose situation, one in which neither tighter regulation of monopolies nor the pursuit of self-reliance would be possible.
Shrinidhi Rao is a lawyer and practising before the Supreme Court and the Delhi High Court.