Associate Digital Enterprises (ADEs)

The concept of Associate Digital Enterprises (ADEs) has emerged within the framework of India’s proposed Digital Competition Bill (DCB) 2024, which aims to regulate large technology companies and ensure fair competition in digital markets. ADEs refer to entities that are linked to a major digital company designated as a Systemically Significant Digital Enterprise (SSDE) and that play a role in providing or supporting the same Core Digital Service (CDS). This classification seeks to capture the complex corporate structures of digital conglomerates and prevent regulatory evasion through subsidiary or affiliate arrangements.

Background

The rapid expansion of digital markets in India, alongside growing dominance by a few global technology platforms, prompted the government to introduce an ex-ante regulatory framework through the Digital Competition Bill. Traditional competition law under the Competition Act, 2002, operated ex-post, meaning it acted after anti-competitive conduct occurred. However, digital markets require proactive measures to prevent unfair practices before they cause harm.
To address this, the Committee on Digital Competition Law (CDCL) recommended that enterprises with systemic significance in digital markets should be designated as SSDEs and made subject to special obligations. Recognising that such enterprises often operate through complex corporate groups, the Committee introduced the category of ADEs to include related entities that share control, resources, or data relevant to the same digital service.

Definition and Designation

A Core Digital Service (CDS) includes categories such as search engines, social networking services, app stores, operating systems, online intermediation services, digital advertising, cloud computing, and video-sharing platforms.
An enterprise may be designated as an SSDE if it meets certain quantitative thresholds — such as turnover, market share, or number of active users — or if the regulator determines that it wields significant influence in a CDS, even without meeting those thresholds.
An Associate Digital Enterprise (ADE) is an enterprise associated with an SSDE that is directly or indirectly involved in the provision of the same CDS. This could include holding companies, subsidiaries, or sister concerns within a corporate group. In practice, the following structures are common:

• The parent company is designated as the SSDE, and its subsidiaries providing the CDS are designated as ADEs.
• Alternatively, the subsidiary that operates the digital service is designated as the SSDE, and the parent or related entities that contribute to the service become ADEs.

This ensures that regulatory obligations apply not only to the principal entity but also to all associated entities that are part of the same digital ecosystem.

Scope and Purpose

The concept of ADEs serves to close regulatory loopholes that might otherwise allow companies to split operations across multiple legal entities to avoid compliance. It ensures that all relevant parts of a corporate group are held accountable for conduct relating to the same CDS.
Key objectives include:

• Extending accountability across entire corporate groups providing digital services.
• Promoting transparency and fairness in digital markets.
• Preventing data misuse and self-preferencing across group entities.
• Protecting consumers and business users from anti-competitive practices.

In essence, ADEs reflect the group-wide responsibility of digital corporations, acknowledging that digital ecosystems function across interdependent entities rather than through a single company.

Obligations and Compliance

Once designated, ADEs are subject to many of the same obligations as SSDEs, although the degree of compliance may depend on their level of involvement in the CDS. Core obligations typically include:

• Prohibition of self-preferencing: Neither SSDEs nor ADEs may unfairly favour their own products or services over those of independent business users on their platforms.
• Data-use restrictions: ADEs must not use non-public data from business users to compete against them. They are also restricted from combining or cross-using personal user data across different services without explicit consent.
• Freedom of choice for users: Users must have the freedom to install, uninstall, and set defaults for applications and services without restriction.
• Ban on tying or bundling: ADEs must not condition the use of one service on the mandatory use of another service provided by the same group unless it is technically necessary for functionality.

These obligations aim to ensure a level playing field in digital markets and prevent practices that could harm innovation or consumer welfare.

Implications and Significance

The inclusion of ADEs broadens the regulatory reach of the Digital Competition Bill, ensuring that group-wide conduct is examined holistically rather than entity by entity. It allows the Competition Commission of India (CCI) to impose conduct requirements on all related entities that play a role in the provision of a CDS.
Key implications include:

• Enhanced regulatory oversight: ADEs enable regulators to address cross-entity behaviours, such as coordinated data sharing or preference systems.
• Compliance accountability: Digital groups must ensure that all affiliates engaged in the same CDS follow regulatory obligations, not only the main platform operator.
• Fairer competition: By restricting self-preferencing and unfair data use, smaller businesses can compete more effectively with dominant platforms.
• Consumer benefit: The regime supports user autonomy, privacy, and choice by preventing forced integrations or restricted access to third-party services.

Criticism and Challenges

While the ADE concept enhances regulatory effectiveness, it also raises challenges and concerns within the industry. Critics argue that the definition of “associate” is broad and open to interpretation, which could lead to uncertainty for firms operating across multiple markets. The compliance burden on affiliated entities may also increase, especially for those with limited involvement in a CDS.
Further, the determination of which entities qualify as ADEs will depend heavily on the regulator’s discretion. Clearer guidance on thresholds and levels of involvement will be necessary to ensure predictability and proportionality in enforcement. There are also concerns that strict obligations could discourage innovation or deter investment in India’s growing digital economy if smaller or emerging firms are inadvertently caught under the regulatory framework.