Regulating eCommerce Marketplaces: Proposals in the National eCommerce Policy Draft

The recently released National eCommerce Policy Draft (“eCommerce Policy”) acknowledges the role of eCommerce marketplaces in building the network and systems to facilitate eCommerce in India. As stated in the policy, many agree that the emergence of eCommerce marketplaces have benefited small sellers and consumers. At some level, eCommerce marketplaces have also played a role in spreading eCommerce knowledge and culture. However, the growth of large eCommerce marketplaces combined with lack of an effective regulatory mechanism has created entry and growth barriers for enterprises, and has given rise to anti-competitive, oppressive, unfair, and discriminatory practices. Acknowledging some of these aspects, the eCommerce Policy draft outlines strategies to regulate marketplaces in order to create level playing field, prevent market distortions and encourage entrepreneurship and growth.

Foreign Direct Investment (FDI) in eCommerce

By permitting FDI in only marketplace model based businesses, and prohibiting price, inventory and vendor control, the policy seeks to achieve level playing field in the market. By prohibiting unfair and discriminatory treatment on the marketplace, the policy seeks to facilitate start-ups, MSMEs, and individuals to compete with large players with deep pockets. During the last five years, ownership, exclusivity, inventory control, price management, and preferential promotion of products have become common place on large marketplaces like Flipkart and Amazon, and by regulating the marketplaces, the policy seeks to maintain their independence by restricting supervision, control and active involvement in products offered on the platform. The obvious belief is that regulation of marketplaces will enable equitable and wide spread business and economic growth.

Regulation of eCommerce in General

The eCommerce Policy seeks to regulate all eCommerce entities in general by prescribing certain basic rules for their operation in India. Some important strategies proposed by the policy are:

a. Local Registration

The eCommerce Policy proposes that every eCommerce entity must be registered in India. In the words of the policy, such registration would achieve the following:
3.4. ” … This is important for ensuring compliance with extant laws and regulations for preventing deceptive and fraudulent practices, protection of privacy, safety and security.”

b. Customs Route

The eCommerce Policy proposes that all imports must go through customs and comply with relevant laws. Integration between customs, RBI and India Post is expected to facilitate the same.

c. Sales and Tax

The eCommerce seeks to impose certain marking and information guidelines with respect to price of a product. It also proposes that GST compliance is important and non-compliant companies cannot operate eCommerce businesses. It also seeks to restrict the gifting route substantially.

d. Data Protection

The eCommerce Policy seeks to restrict data collection of consumers and vendors. It requires marketplaces to provide full information about data collection and its usage, and imposes the requirement of informed consent.

e. Intellectual Property

The eCommerce Policy addresses two forms of IP only, Trade Marks and Copyrights. At a general level, it proposes to mandate marketplaces to remove counterfeit and/or infringing products/content within a given timeline. For trade marks, it requires marketplaces to provide a facility to register trade marks, which can be used to authenticate trade mark protected products and prevent counterfeiting. It places the burden of removing counterfeit products on the marketplace and also provides for blacklisting of counterfeit product sellers. The policy also requires display of warranty and full product information to the consumer, and a system to handle consumer complaints with respect to counterfeit products.
For copyright protected products, the eCommerce Policy proposes voluntary measures to take down content/products and also mandates expeditious take down action. It proposes a system of identifying infringing websites, which may be removed effectively based on proposals of a voluntary organisation comprising of content owners. It includes mandates for delisting to ISPs, search engines, and other intermediaries. It also proposes stoppage of financial transactions   by restricting access to payment gateways, and prohibition of advertising on pirate websites.

f. Ratings and Reviews

Interestingly, the eCommerce Policy proposes to regulate product reviews on marketplaces. It requires marketplaces to ensure that reviews are published in a non-discriminatory manner, and that those that are abusive, promotional or inappropriate in a community setting. The burden of establishing mechanisms to prevent fraudulent reviews is placed on the marketplaces.

g. Consumer Disputes

The eCommerce Policy proposes that marketplaces must resolve consumer complaints within a given timeline of one week. It requires a well-defined complaint resolution mechanism, and mandates that contact number and email address for consumer complaints must be clearly provided.

h. Prohibited Products

The eCommerce Policy requires marketplaces to publish a list of prohibited products on their websites. It also mandates undertakings from sellers with respect to non-sale of prohibited products, and the publication of such an undertaking. On receiving complaints about prohibited products, the marketplaces are required under the policy to remove the products within twenty four hours and inform the appropriate authorities. It also requires blacklisting of sellers of prohibited products.

General Comment

Overall, the eCommerce Policy proposes some important and welcome measures and changes to regulate marketplaces and create a level playing field, and to prevent anticompetitive, unfair and discriminatory practices. The policy places special emphasis on protecting consumer interests and data, and also on protecting the rights and interests of intellectual property owners. It is a good start to create a comprehensive and robust mechanism to regulate eCommerce marketplaces, and to facilitate business growth in the field.

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