Ranak Banerji
I. Introduction
Online gaming, as defined, involves only those games that are accessible via the Internet and require the player to make a deposit, in cash or kind, with an expectation of winning earnings.[1] This mainly involves online card games such as rummy, poker, fantasy sports, etc. The definition of such online games is a fine line between legal “games of skill” and illegal “games of chance”. Such a distinction is crucial as it differentiates a legitimate business from an illegal activity. The current unregulated online gaming industry is expected to grow to INR 25,000 crore by FY 2025. This figure will become important when we look deeper into the possible impact of a self-regulatory body on an expanding industry of sizeable magnitude.
An SRO is essentially a private body formed of participants in a particular industry with the power to set standards, rules and regulations for that industry or profession. It has many advantages over traditional governmental regulation as it simplifies laws, makes them more adaptive, reduces the legislative burden, and induces a share of shared responsibility among its member companies. India has implemented self-regulatory bodies before to regulate other industries. It has done so in the case of Media, Microfinance, and OTT Platforms (grievance redressal only), among others. Such bodies have had some intended effects and some unintended ones.[2] The scope of this paper is not to evaluate the self-regulatory bodies in other industries but to draw from their experience and consequences to support the arguments made and conclusions drawn in the following sections.
Any self-regulatory body, due to the profit motive of its members and lack of concrete governmental intervention, can turn into an anti-competitive conglomerate. It can engage in cartel-like activities, seriously dampen competition, corner essential information, and even bully or exclude competing firms. The various freedoms of a competitive market which anti-trust laws aim to protect, might be gravely affected by a wayward SRO.[3] Thus, there has to be a careful consideration of the extent of freedom given to SROs to balance the benefits of self-regulation with its potential harms.
Part II of this paper will generally look at the confluence of self-regulatory systems and competition in the market using an international perspective. Part III will juxtapose these global concerns with India’s specific environment of online gaming, SROs, and competition jurisprudence. Part IV will suggest possible solutions to the issues highlighted in the previous part. Part V will provide a concluding analysis while looking towards the future.
II. Self-Regulation and Competition- A Detrimental Impact?
Multiple jurisdictions have a well-developed anti-trust regime and have introduced self-regulatory mechanisms. Numerous other jurisdictions have a nascent anti-trust regime and have introduced self-regulatory mechanisms. This part shall take an example from each jurisdiction to analyse the competition concerns caused by SROs.
First, let’s look at Allied Tube & Conduit Corp. v. Indian Head, Inc. (‘Allied Tube’), where the US Supreme Court (‘SC’) entered into a discussion of the powers of a “standard-setting body” and how this power could be abused. In this case, a self-regulated body in charge of setting standards and declaring products as safe to include them in the National Electricity Code resisted the inclusion of plastic-based conduit. Such resistance came from a dedicated lobbying effort by the steel conduit manufacturers to scuttle any potential competition the plastic conduit manufacturers could have produced. The US SC recognised that such private bodies have incentives to suppress competition. It also recognised that bodies like SROs having the power to set “industry standards”, have to do so in a fair, unbiased manner. This means that an SRO with any rule-making power that can influence the market can use it to produce anti-competitive effects for their gain. It also shows that an SRO can restrict market access to potential competitors by creating rules or setting standards.
Second, the case of F.T.C. v. Indiana Federation of Dentists (‘Indiana Dentists’) provides an example of a self-regulatory body creating rules that restrict the transfer of information by its members. The member dentists of the Federation were not allowed to share specific X-rays with insurance companies, which raised the prices for dental surgeries for the consumers. This was held to be an unreasonable restraint of trade by the US SC. Moreover, the US SC laid down three questions when adjudicating the anti-competitive effect of an SRO. First, are the economic and other interests of the members aligned or divergent? Second, are the measures in question mandatory? Third, do the members of the body collectively have any market power? These questions will be asked of the online gaming industry in India in the following section.
Next, let us look at Indonesia’s competition law regime and its effect on SROs. Indonesia established its competition regulator, the Komisi Pengawas Persaingan Usaha (‘KPPU’), in 1999.[4] India established the Competition Commission of India (‘CCI’) at almost the same time in 2002.[5] The KPPU formulated guidelines and a checklist-based test to judge whether a particular regulation or policy has any anti-competitive effects. The scope of the term “regulation” extends to private bodies and thus covers SROs. The mentioned guidelines recognise reducing incentives to compete and impairing innovation by SROs as anti-competitive behaviour. The KPPU recommends analysing the policies of SROs carefully, as they might lead to exclusionary behaviour and abuse of dominance while also promoting innovation and benefitting the market. The presence of a KPPU member or someone associated with the body on the board of the SRO, or some other form of oversight is also recommended.
From the US cases and Indonesian guidelines, the view is clear that SROs can have and have had severe anti-competitive effects on the market. The impact of such anti-competitive behaviour may be irreversible and non-remediable by the post-facto actions of the competition regulator or courts. This is so as innovation and ideas of smaller firms, once repressed, might not be able to re-emerge. This would mean that preventive measures must be preferred over remedial measures to address the effects of anti-competitive behaviour. Before implementing such measures, we must look deeper into the online gaming industry and the history of SROs and competition law in India. This is done in the following section.
II. The Position in India- Potential Effects
The online gaming industry in India is of substantial size and is projected to keep expanding and reach 50 crore users by the end of 2024. Fantasy sports form a significant part of this online gaming industry and are to be regulated by the previously mentioned provisions. India has the biggest fantasy sports market in the world, with thirteen crore users. A cursory glance at these figures would imply that a self-regulatory model would be beneficial to boost its growth further and allow innovation in the industry. However, a deeper market analysis is required before we draw any such conclusions.
A unicorn is a privately owned start-up that has reached a valuation of over USD one billion. They are named so because of their statistical improbability. A combination of factors, including the increase in the consumption of online services due to COVID-19 have spawned three such unicorns in the online gaming sector in India. These unicorns are Dream 11, Mobile Premier League (‘MPL’), and Games24x7. The mentioned statistical improbability, along with the fact that they are privately owned, are essential to keep in mind as we go forward in this discussion.
India has put in place self-regulatory mechanisms before. One such instance is for regulating traditional media. This self-regulatory body has been criticised due to its lack of efficiency or its lack of impartiality. Most of its inefficiencies, such as sensationalism, privacy violation, and publicity stunts, among others, arise from the profit motive of the participating firms and various market pressures on them. These issues are not specific to traditional media as they have been identified even for digital platforms.[6] Then, any SRO in the online gaming industry would be susceptible to each firm’s profit-motive and general market pressures.
As highlighted above, Dream11, MPL, and Games24x7 are outliers in the industry regarding their valuation. Additionally, they are all private, unlisted companies. This means they do not need to share the same amount of financial data as publicly listed companies. Firms in the digital economy collect humungous piles of data due to their trackers and transactions on their websites. The bigger the firm, the more data is collected. Being outliers, Dream 11, MPL, and Games24x7 have more data at their disposal than their competitors. There is, thus, a massive discrepancy in market influence and data between the three unicorns and their competitors. This would allow the unicorns to form rules as a member of an SRO, which, on the face of it, seem unbiased but might be beneficial for them or harmful for their competitors. The cases of Allied Tube and Indiana Dentists are evidence that SROs in charge of rule formation and possessing valuable information can have anti-competitive effects. A SRO in the online gaming industry involving the three unicorns fulfils both these requirements.
Next, we come to the issue of defining SROs under the Competition Act. They could be considered as a single enterprise under the Competition Act.[7] However, the jurisprudence developed on what constitutes a Single Economic Entity (‘SEE’) suggests otherwise. This creates ambiguity. One would assume that if an SRO is not considered an SEE, it might be regarded as an agreement. An Agreement is defined widely under the Competition Act,[8] and could, by extension, cover SROs. If SROs are recognised as an Agreement, then it would be a horizontal one, as the firms are on the same level in the supply chain. Any agreement hindering technical development is recognised to be anti-competitive.[9] A horizontal agreement like this could be exempt from being considered anti-competitive if they are an efficiency-enhancing joint venture. SROs cannot be considered joint ventures but could increase the efficiency of the market. Additionally, in India, there are no cartel-specific regulations for specific sectors. There is, thus, a lack of decisions and legislative clarity as to the status of SROs vis-à-vis the Competition Act. Without such clarity, it would not be possible to apply the law with certainty. This lack of clarity needs to be specifically addressed.
An additional anti-trust problem to the proposed SRO system is posed by gambling being a subject in the State List.[10] This means that each State can define the legality of online gaming by altering the line drawn between a game of chance and a game of skill. Despite the Madras High Court striking down its previous ban, Tamil Nadu has passed an Ordinance to ban online gaming platforms. Other States have differing laws for online gaming. An SRO system for the online gaming industry would have to implement rules and regulations keeping in mind these various State laws. This might lead to allocating markets based on state lines between the member firms. A geographic allocation of markets is anti-competitive under the Competition Act.[11] It has also been recognised generally as an anti-competitive effect of SROs. Therefore, any SRO in the online gaming industry in India can and will have anti-competitive effects. The following section will suggest solutions to this.
IV. The Way Forward
Even though technology-based platforms find it easier to indulge in anti-competitive behaviour, there are preventive steps that can be taken for the same. The first is introducing CCI oversight. Such oversight is recommended by the KPPU too. This could take the shape of placing a member or representative of the CCI on the board of the SRO. Currently, there are five mandated persons on the Board of Directors of the SRO,[12] and the above addition should be made to this. In November, the CCI opened a new wing to deal with anti-profiteering cases under the CGST Act. A similar wing could be opened to deal with the anti-competitive activities of an SRO specifically or the digital economy broadly. Recently, a draft digital competition bill has also been introduced. CCI oversight over SROs in the online gaming industry could be specifically addressed by it.
Next, the Centre should introduce legislative clarity. The current amendment to the Rules does not address any potential anti-competitive effects. This can be addressed by the Rules themselves or the draft digital competition bill mentioned above. There is also no clarity about how an SRO would be defined under the current Competition Act. Ideally, it should be defined as an agreement, but it needs to be specifically stated.[1] There is also confusion regarding the confluence of State gambling laws and an SRO formed by firms operating on a national or global level. The Centre should unionise laws governing online gaming, if not gambling, to prevent any possible market allocation by SROs.
To facilitate all this, the Centre needs to increase the strength of the CCI. They are currently understaffed. The CCI only consists of six members and a chairperson. To regulate a fluid digital economy adequately and, by extension, an expanding online gaming industry, the strength of the CCI must be increased. As a whole, the CCI can take these highlighted steps to regulate the growing online gaming industry and prevent any harmful effects it might have on competition.
V. Conclusion
The growing world of online gaming can provide the impetus for the Indian digital economy to become one of the biggest in the world. A self-regulatory mechanism can further boost this growth. But, as pointed out, an SRO could have the opposite effect of promoting growth by stifling competition in the market. This is a serious issue and a real possibility which needs to be addressed explicitly by the government. If not addressed, it could cause irreparable harm to the online gaming industry specifically and the digital market generally. The government can do so by introducing oversight, clarity and sufficiently staffing our competition regulator. The specifics of these measures should be discussed and debated by the Parliament. The technical solution would require an intensive data collection exercise to understand the nuances of the private firms currently dominating the online gaming market. Such measures would go a long way in ensuring a healthy and efficient digital market and not stifling India’s growth.
[1] Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules (Draft Amendment) 2023 R.2(qa).
[2] Meera Mathew, ‘Media Self-Regulation in India: A Critical Analysis’ [2016] 3 ILI Law Review 25.
[3] Sih Yuliana Wahyuningtyas, ‘Self-regulation of online platform and competition policy challenges: A case study on Go-Jek’ [2019] 20(1) CRNI 33.
[4] Prohibition of Monopolistic Practices and Unfair Competition 1999 (Indonesia).
[5] The Competition Act 2002 §7.
[6] Micheal Cusumano & Anabelle Gawer & David Yoffie, ‘Can Self-Regulation Save Digital Platforms?’ [2021] 30 Industrial and Corporate Change 5.
[7] The Competition Act 2002 s 2(h).
[8] The Competition Act 2002 s 2(b).
[9] The Competition Act 2002 s 3(3)(b).
[10] The Constitution of India 1950 Schedule VII List II State List Item 34.
[11] The Competition Act 2002 s 3(3)(c).
[12] Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules (Draft Amendment) 2023 r 4B(d).
The author is a third-year student at West Bengal National University of Juridical Sciences, Kolkata.
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