Neelambera Sandeepan & Rohan Zaveri

Abstract: This article examines Apple’s Delhi High Court challenge to India’s global-turnover penalty framework, tracing tension with Excel Crop Care’s proportionality doctrine in digital markets, and proposes a “Nexus Test” to structure the CCI’s proportionate use of global turnover for penalties.

1. The manner of determination of monetary penalties for enterprises found to be in contravention of the Competition Act, 2002 (“Competition Act”) by the Competition Commission of India (“CCI”) has long been a contentious subject of debate. Recently, Apple’s challenge to the constitutionality of India’s revised penalty framework before the Delhi High Court (Delhi HC) has drawn attention to the core concerns underlying the CCI’s use of global turnover as the basis for penalty determination. The Competition Act provides for imposition of penalty based on the average turnover of the enterprise in the preceding three years, and accordingly, all references to the term “turnover” herein after must be read as the “average turnover” of the enterprise.
   
2. This article explores whether the amended penalty determination framework is at divergence with the proportionality constraints previously propounded for the CCI by the Supreme Court of India (“Supreme Court”), or does it account for them, while at the same time allowing the CCI flexibility while dealing with antitrust violations in digital markets. The article first outlines Apple’s recent challenge and the contemporary issues with assessing proportionality in digital markets, then provides an overview of the amended penalty determination framework and presents a critical analysis thereof. Further, the article proposes a practical approach for proportionate penalty determination in digital ecosystem cases where the CCI intends to consider global turnover as the base penalty amount. In doing so, this piece contributes to the existing jurisprudence by advancing a distinct analytical lens that bridges traditional proportionality doctrine with the structural and economic complexities of digital markets.

Apple’s writ against the amended penalty determination framework

3. In the course of the ongoing CCI inquiry into potential anti-competitive conduct in the market for app stores in iOS devices, the CCI sought financial information relating to Apple’s global revenues for the purpose of penalty determination. Apple challenged the CCI’s notice seeking global financial information before the Delhi HC. It contended that the amended penalty determination framework exposes Apple to a disproportionately large penalty (~USD 38 billion) since it permits the CCI to impose penalties on the global turnover generated from all of Apple’s goods and services. Apple purports that any such imposition would be violative of the doctrine of proportionality and effectively overturn Supreme Court’s judgment in Excel Crop Care Ltd. v. CCI (“Excel Crop Care”) (discussed below). The case is currently pending before the Delhi HC.

The confines of the doctrine of proportionality

4. Excel Crop Care is a historic judgement in Indian competition jurisprudence as it marked a decisive shift in the manner of determination of penalties. The Supreme Court held that imposition of penalties on the basis of the total turnover of the enterprise could lead to disproportionate results in case of multi-product companies.  Accordingly, it mandated the CCI to consider the relevant turnover attributable to the market in which the anti-competitive conduct has been established, for the purpose of penalty determination.
   
5. Prior to this ruling, penalty determination was characterised by a broad discretion with the CCI to impose penalties based on the turnover of the enterprise. The Competition Act did not specify whether the turnover to be considered should be the relevant turnover or total turnover. The Supreme Court’s judgment clarified that penalties should be based on revenue earned from the relevant product/ service which is the subject matter of the anti-competitive practice in order to reflect the gravity and duration of the contravention and the extent of harm caused to competition. It also emphasised on the fact that in the absence of any guidance document on penalty determination, the CCI must adhere to the doctrine of proportionality while imposing penalties as the same is constitutionally protected under Articles 14 and 21 of the Constitution of India.
   
6. It is pertinent to note that this reasoning was developed in the context of conventional markets, where market structures are relatively stable and product/ service-wise revenues are clearly measurable. Its application, however, becomes more complex in digital markets, which are characterised by network effects, inter-connected services, and benefits accruing across markets, thereby raising important questions about how proportionality assessment ought to be recalibrated in such a context.

The problem with market-specific revenue attribution in digital markets

7. The Supreme Court’s mandate of requiring the penalty to be attributable to the enterprise’s turnover from the market which is affected from the anti-competitive conduct proceeds on the presupposition that one can neatly or definitively identify and attribute revenues to a specific relevant product in the context of the relevant geography. While it may still largely hold true in conventional markets and two-sided digital markets (where regulators are able to identify and attribute revenues from the product or service provided in the relevant side(s) of the market), the same becomes significantly more complex in the context of several multi-sided markets forming part of digital ecosystems.
   
8. Certain digital markets present a qualitatively different challenge as they are generally part of a larger suite of integrated/ inter-connected apps and services with diffused revenue streams. Typically, anti-competitive conduct in one market often generates direct and indirect gains across different markets forming part of the enterprise’s broader ecosystem (through cross-platform data aggregation and processing, cross market subsidisation, and network effects, etc). This renders relevant market-specific revenue attribution as an unreliable proxy for the complete economic advantage derived from anti-competitive conduct. Further, when one of the revenue streams is seen in isolation (which is the case if only “relevant” turnover is considered), the turnover from that one revenue stream appears to be disproportionately low in comparison to the net harm caused by the anti-competitive conduct across several markets.
   
9. Given the CCI is a quasi-judicial body vested with inquisitorial, investigative, regulatory, adjudicatory and advisory jurisdiction, it must necessarily adhere to the doctrine of proportionality, however, such adherence must not be evaluated strictly based on the financial records pointing to formally attributable market-specific revenues if it results in penalties that do not have any deterrent effect. This might be why the Indian government deemed it fit to allow for imposition of penalties based on global turnovers and accordingly, updated the relevant legislative framework on penalty determination as part of the broader overhaul of the Competition Act in 2023-24.

The amended penalty determination framework

10. In 2024, the Government of India expanded the definition of “turnover” in the penalty provision of the Competition Act to mean “global turnover” which in effect allowed for imposition of penalties on the global turnover of enterprises. Concurrently, the CCI also issued a non-binding guidance in the form of the CCI (Determination of Monetary Penalty) Guidelines, 2024 (“Penalty Guidelines”) laying down a detailed criteria to be considered by the CCI for the determination of penalties. The Penalty Guidelines, inter alia, clarified that the CCI would generally consider the relevant turnover of the enterprise (of up to 30%) as the base penalty amount (Clause 3(1) of the Penalty Guidelines), however, the CCI would have the discretion to consider the global turnover as the base penalty amount where determination of relevant turnover in India is “not feasible” (Clause 3(6) of the Penalty Guidelines). Further, the CCI would then make adjustments to the penalty amount to account for the case-specific mitigating and aggravating factors. Thereafter, the CCI may also exercise its overarching discretion to further increase the amount of penalty to the legal maximum (10% of global turnover) if the penalty amount so arrived at based on the relevant turnover from India is disproportionately low in comparison to the effects of the anti-competitive conduct (Clause 3(7) of the Penalty Guidelines).
    
11. With these legislative amendments, the Indian competition regime intended to converge with other mature jurisdictions (such as the European Union (“EU”)) in permitting penalties which go up to 10% of the global turnover. In fact, the Penalty Guidelines would have been in complete alignment with other jurisdictions but for an important divergence – it gave the CCI the additional discretion to straight away consider the global turnover as the base penalty amount (unlike the other competition regimes), instead of reserving it as only the legally permissible cap on the final penalty amount (i.e., post-adjustments for mitigating and aggravating factors) – thereby adopting a functionally different approach than most jurisdictions. While these legislative developments certainly laid the groundwork for increasing deterrence by enabling the CCI to consider global turnover in determination of penalties, they stopped short of laying out an implementable roadmap for the CCI to consider the global turnover as the base penalty amount in a proportionate manner, which now appears to be a much murkier territory to chart for the CCI.
    
12. Till now, there has been only one (bid rigging cartel) case where the CCI has imposed penalties based on global turnover of the parties. The primary ground for this approach was that the relevant turnover (i.e., turnover from the cartel activity) was nil (as the parties had submitted proxy bids and did not actually operate in the service for which the tender was floated and determination of penalty on the basis of relevant turnover would lead to an inequitable result. The case was rather inconsequential for the purpose of assessing the CCI’s penalty determination regime since the parties’ global turnover was the same as their India turnover. Hence, Apple’s case appears to be first in which CCI may have to decisively demonstrate proportionality in its penalty imposition based on global turnover, in view of the stark difference between the India turnover, and the global turnover of the enterprise, and the impending judicial scrutiny.

Rethinking proportionality assessment in digital markets

13. Given the Supreme Court’s judgment in Excel Crop Care Case explicitly subjects the CCI’s penalties to the test of proportionality, the CCI’s use of global turnover as the base penalty amount under the amended penalty framework, without demonstrable justifications, could be viewed as going against the principles of proportionality. Hence, the amended penalty determination framework gives rise to an implementational ambiguity for the CCI: how to balance its power to consider global turnover of the enterprise for penalty imposition with its duty of proportionality?
    
14. Interestingly, Apple’s writ challenge before the Delhi HC strikes at precisely this dilemma.
    
15. Therefore, the authors suggest that a simpliciter demarcation of product/ segment-wise revenue in certain digital ecosystems would not achieve the objective of imposition of penalties under the Competition Act. In such cases, penalty determination may be understood as a staged exercise, beginning with determination of the base penalty amount wherein the CCI establishes a demonstrable nexus between the anti-competitive conduct and its adverse effects/ economic benefits in other closely linked/ interconnected/ complementary market(s) while arriving at the base penalty amount, which can be followed by adjustments and, where necessary, deterrence-based enhancement to arrive at the final penalty amount. The following section presents a novel methodology which could be adopted to achieve that end.

The Proposed Nexus Test

16. The CCI’s decisional practice reflects that it already considers factors such as cross-market externalities, network effects, business models, ecosystem level competition and incentives of the enterprise while determining the relevant turnover in relation to technology platforms. In cases where the CCI intends to base penalties on global turnover, the said factors must be assessed in a more structured manner to focus on the establishing the nexus between the contravening conduct, the competitive harm, and the economic benefits of the anti-competitive conduct which have accrued or are likely to accrue across several inter-connected markets (see for instance, XYZ (Confidential) v. Alphabet Inc. & Anr., and Umar Javeed v. Google LLC & Anr.). Towards that end, once the anti-competitive conduct in a digital market has been conclusively established and the CCI intends to proceed with considering global turnovers as the base penalty amount, it is suggested that the CCI may, in its decisional practice, consider adopting a nexus test (“Nexus Test”) for determining the base amount of penalty to be considered. This constitutes only the first stage of penalty determination, following which the CCI may proceed with fact-specific adjustments and deterrence-based enhancements as envisaged under the Penalty Guidelines such as increasing the penalty for an enterprise found to have engaged in repeated contravention or taking recourse to retaliatory measures to enforce its anti-competitive conduct.  It is suggested that the Nexus Test may be operationalised by adopting the following three-tier approach:
    
    1. Conduct Nexus: The CCI must record how the established anti-competitive conduct in the relevant market contributes to or enhances the market power and revenues in closely linked/ interconnected/ ancillary markets where the enterprise operates. This assessment should be grounded in verifiable indicators pointing to common linkages and competitive advantages in other markets emanating from the anti-competitive conduct through inter-dependent contractual lock-ins/ restrictions, platform design choices, preferential ranking or access conditions, integration of services, or documented cross subsidisation strategies.
    2. Harm Nexus: The CCI must assess the direct and indirect competitive harm in the identified closely linked/ interconnected/ ancillary markets flowing from the contravening conduct. This can be assessed through quantifiable data sets/ information which demonstrates: (a) loss of visibility/ access, reduced choice, increased dependency, input foreclosure for downstream partners/ competitors, and exit or marginalisation of competitors; or (b) exploitation of customers on non-price terms (such as by imposing unfair data sharing and processing terms as a mandatory condition for use of the product or service or of an updated version thereof) in the other closely linked/ interconnected/ complementary market(s).
    3. Economic Nexus: The CCI must demonstrate how the enterprise derives a measurable economic advantage (whether monetary or data-driven) across the identified closely linked/ interconnected/ ancillary market(s). Quantified cross-market monetary gains, data-driven advantages, monetary losses suffered by competitors, demonstrable supra-competitive prices charged to customers, or lost consumer savings in other markets, could constitute the strongest indicators of a clear economic nexus between the infringing conduct and ecosystem wide advantages accrued in favour of the contravening enterprise. Further, quantification of data-driven benefits need not involve precise monetisation formulae but must, at least, rely on reasoned statistical proxies such as changes in user engagement, data accumulation, advertising yields, monetisation rates, or downstream revenues in the other closely linked/ interconnected/ complementary market(s), which is demonstrably attributable to the contravening conduct.
       
17. The use of global turnover as the base penalty amount is likely to be relatively more acceptable if the CCI establishes a demonstrable conduct, harm, and benefit nexus to the anti-competitive conduct. Conversely, where revenues are directly attributable to identifiable relevant markets, or where the CCI is unable to demonstrate a clear nexus, penalty determination must remain confined to turnover attributable to the relevant market(s) where anti-competitive conduct is found. In this manner, basing penalties on global turnover would exist as a contingent option deployed only when justified by the Nexus Test. Once the base penalty amount is determined using the Nexus Test, the CCI can proceed to the next stage(s) of penalty determination, namely, making adjustments to the penalty amount based on mitigating and aggravating factors, and where necessary, making further enhancements to the penalty to ensure adequate deterrence, subject to the statutory cap.
    
18. This approach would also allow for a meaningful judicial review of the CCI’s penalty determination without requiring the court to substitute its own assessment of proportionality for that of the CCI. This structured approach would inherently imbibe the three-pronged test of proportionality that is extensively used in common law jurisdictions by ensuring that: (i) the base penalty amount is rationally connected to the anti-competitive conduct through the Nexus Test (rational connection); (ii) adjustments to the base penalty amount are made to reflect case-specific mitigating/ aggravating factors (necessity); and (iii) penalty imposition based on global turnover is kept as the last resort and any further enhancement by the CCI for deterrence remains within statutory limits (proportional balance).
    
19. In the authors’ opinion, Apple’s litigation presents a timely opportunity for India’s competition regime to adopt a more structured approach for penalty determination in alignment with the updated legislative framework. The apparent implementational ambiguity arising from the amended penalty framework and the Supreme Court’s mandate in Excel Crop Care Case (which rests at the heart of Apple’s writ challenge) naturally calls for greater analytical clarity at the stage of the CCI’s penalty determination. By treating global turnover as a contingent option for certain digital market cases and retaining the relevant turnover as the default where appropriate, the Nexus Test aligns with the objective of ensuring proportionality in the CCI’s decisions. In any case, the outcome of Apple’s writ is likely to have lasting implications on the CCI’s current practice of penalty determination, making it an interesting watch in the coming months.

The views expressed are personal.

Neelambera Sandeepan and Rohan Zaveri are Partner and Senior Associate at LKS Attorneys.