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Case 1: On January 18, 2022, Microsoft announced its plans to acquire leading game development firm Activision Blizzard, focusing on accelerating growth in the gaming business. The company called the deal a ‘building block for the metaverse’.
The deal stood at $95 per share in an all-cash transaction valued at $68.7 billion. Once closed, Microsoft would become the world’s third-largest gaming company in terms of revenue, tailing Tencent and Sony. Activision has studios globally that own popular franchises such as ‘Candy Crush’, ‘Call of Duty, and ‘Warcraft’.
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Case 2: Recently, the US Federal Trade Commission probed Meta’s virtual reality unit Oculus over anti-competitive practices and the acquisitions of VR apps, scrutinising small acquisitions.
Case 3: The NVIDIA-Arm deal got scrapped due to “significant regulatory challenges”. Nevertheless, the takeover was announced in September 2020, aiming to create “the world’s premier computing company for the age of AI”.
Victory for one, blunder for the other two. Why is it that Microsoft’s deal with multiple large companies remains unseen by regulators?
Antitrust authorities worldwide have constantly adopted frameworks to tackle competition among big-tech companies. Though major shifts in competition policy issues are at their peak due to the evolving trends, regulations still stand insignificant.
Escaping the antitrust scrutiny
In September 2021, The Federal Trade Commission (FTC) published a report on M&As of five top companies in the US that have escaped the antitrust laws. These were Alphabet/Google, Amazon, Apple, Facebook, and Microsoft.
(FTC Study, 2021)
Chairman of FTC, Lina Khan, said that the report aims to regulate the big companies.
”It captures the extent to which these firms have devoted tremendous resources to acquiring start-ups, patent portfolios, and entire teams of technologists—and how they could do so largely outside our purview,” she said.
Since the report came out, the antitrust crackdown on internet companies continued, with ongoing investigations to examine the mismanagement of user data. US internet giants have been put through several rounds of questioning, along with lawsuits that leave them with no option but to amend their business strategies. An example would be the shutting down of ‘Sold By Amazon’, which faced allegations of price fixing. Such regulations will limit enterprises from monopolising the market.
India’s role in policymaking
In July 2019, the Competition Law Review Committee (CLRC) recommended the government to introduce necessary measures and a deal-valued threshold for merger notification, which would be considered for the Competition (Amendment) Bill, 2020.
Policymakers have turned their backs on the laissez-faire approach to regulation to bring limitations and regulate the corporations. The Competition Act was established in 2002 but implemented only in 2009. The CA02 framework aims to sustain competition, seeking to protect consumer interest.
It empowers the Competition Commission of India (CCI) to screen a select set of M&As before they take effect. In addition, the law ensures that the CCI can impose sanctions if it finds any enterprise restricting competition by abusing power.
The Competition Act, 2002 (Competition Commission of India)
In a draft law, India recently proposed to mandate antitrust scrutiny for M&As valued above Rs 2,000 crore (&250 million). Under the current law, the CCI reviews mergers and acquisitions surpassing asset size or turnover thresholds.
Lawyers allege that Facebook acquired WhatsApp in 2014 for $19 billion, which required no CCI clearance, despite being a major player in the Indian market.
Calling the proposed amendments to the merger control regime positive and progressive, Saksham Malik, programme manager, The Dialogue, said, “The 2020 Bill empowered the central government to prescribe additional criteria for notifying transactions in ‘public interest’.
This has caused uncertainty about potential criteria that may be notified. The latest 2022 amendments resolve this issue. A clear deal value threshold of Rs. 2,000 crore has now been provided. This has two benefits: It removes the uncertainty of the 2020 Bill and ensures that global transactions, which often did not meet the existing asset and turnover-based thresholds but still had an impact on competition, would be notified to the CCI.
While global transactions may be a part of these, policymakers have been prudent about including a local nexus test to ensure that only transactions wherein the party have ‘substantial operations in India’ are required to be notified. Malik emphasised that the CCI can scrutinise combinations in other parts of the world that are relevant to Indian markets.
While these are welcome changes, it would be beneficial if the CCI came out with literature on how these thresholds will be implemented. An explanation of the term ‘substantial business operations in India’ would help apply the local nexus test efficiently.
As gatekeepers for consumers and markets, tech companies have significant power that also invites possible risks, manipulating communication and transactions. Competition law and policy should be regulated in time, allowing innovative business enterprises to be competitive, yet in fine fettle.