E-commerce: Policing the portals in India

India’s fast-growing e-commerce markets are facing tougher sanctions to prevent the sale of fakes. Ranjan Narula and Akanksha Kar of RNA outline their obligations.

Internet penetration and widespread use of smartphones are fuelling e-commerce in India. The former in India grew from just 4% in 2007 to 34.42% in 2017. The Indian e-commerce industry is expected to surpass the US to become the second largest e-commerce market in the world by 2034. According to the India Brand Equity Foundation, online shoppers in India are expected to reach 220 million by 2025.

With increases in online purchases of goods and services, complaints related to counterfeit goods are escalating too. Part III of the draft e-Commerce Policy (the Policy) necessitates stricter measures to be undertaken by e-commerce entities to curb the growing menace of sale of counterfeits on online portals and marketplaces.

Liability for selling counterfeit goods

The portals enjoy immunity under safe harbour provisions laid out in the Information Technology (IT) Act, 2000. Section 2(w) of the act defines “intermediary” to include online marketplaces.

Section 79 of the act exempts e-commerce portals from liability if they act as a facilitator, ie, they are merely a reservoir of information that does not initiate, select or modify transmission or information contained in transmission, or select the recipient of transmission.

The intermediary is expected to observe due diligence and should not take part in conspiring/abetting/aiding/inducing the commission of the unlawful act. The intermediary is required to disable or remove unlawful content from its portal upon receipt of actual knowledge within 36 hours of being notified. If the intermediary fails to fulfil these duties, it could no longer take refuge under ‘safe harbour’ provisions.

Why is the government intervening?

The government of India’s Foreign Direct Investment (FDI) Policy demarcates a ‘marketplace model’ from an ‘inventory-based model’ for e-commerce portals. The Policy encourages foreign investment in the marketplace model only.

In a marketplace model, the operator cannot exercise ownership or control over the inventory sold on its platform. This is to ensure interests of brick-and-mortar stores of multi-branded products are protected. The marketplace operators must adopt policies that are fair and non-discriminatory towards all participants—traders, vendors and retailers irrespective of their business size.

This policy ensures that e-commerce portals should not adopt predatory pricing and discounting policy to hamper competition, in turn safeguarding interests of domestic manufacturers/traders/sellers/MSMEs/startups who may not be equipped to set up and maintain complex distribution channels, etc.

What are the threats?

Several Chinese ‘e-tailers’ are known to be accepting orders from consumers in India and sending products marked them as ‘gifts’ or reducing invoice value on shipments (undervaluing imported products) to cut down the import tax and duties.

As an interim measure to avoid misuse of the ‘gifting’ route, the Policy proposes to ban all such parcels with the exception of life-saving drugs. India Post is obliged to conduct due diligence on ‘from and to’ shipping entities and addresses and set a threshold in the shipment booking system.

The Policy mandates all e-commerce sites/apps available to Indian consumers (that display prices in Indian rupees) to have maximum retail price (MRP) on all packaged products, physical products and invoices. All product shipments from other countries to India must be channelled through the customs route. The Policy proposes to develop an integrated system connecting customs, the Reserve Bank of India, and India Post to track imports. If any e-commerce apps or website try to circumvent these regulations, they will be barred from operating in India.

Steps to control sale of counterfeits

The marketplace is mandatorily required to comply with all regulations, which include:

Full name, complete address and contact details of sellers must be made available on the marketplace website for all products.

Platforms will create an option for trademark owners to register with e-commerce platform, so that whenever a trademarked product is uploaded for sale on the platform, the platform will notify the respective trademark owner.

For specified high value (luxury) goods, cosmetics or goods having impact on public health, the platform will be required to seek trademark owner’s authorisation before listing the product.

If a complaint is received about a product being fake/counterfeit, the same shall be conveyed to the trademark owner within 12 hours. If the owner of a trademark confirms its counterfeit nature, the platform shall notify the seller. Unless the seller is able to provide evidence that the product is genuine, the platform shall take down its listing and notify the trademark owner about the takedown.

The platform shall obtain guarantees of authenticity and genuineness of the products sold by the seller which should explicitly state that original warranties and guarantees as provided by the brand owner are honoured.

On being informed, the platform shall stop hosting the counterfeit product on its platform and take down all information related to the product. The platform should blacklist the concerned seller from its platform for a specified period and also enforce financial disincentives.

Curbing online piracy

According to the Policy, in order to prevent online dissemination of pirated content, intermediaries are required to identify ‘trusted entities’, whose complaints are resolved on priority. Identification of a trusted entity and anti-piracy measures are to be done on a voluntary basis.

The website/platform is required to expeditiously remove/disable access to the infringing content upon being notified by the owner of copyright protected content/work that its work is being made available or sold or distributed on such website/platform without their prior permission/authorisation.

Rogue websites are to be identified which host predominantly pirated content and should be included in the Infringing Websites List (IWL).

Thereafter:

(a)  The internet service provider shall remove or disable access to the websites identified in the IWL within set timelines.

(b) Payment gateways shall not permit flow of payments to or from such rogue websites.

(c)  Search engines shall remove websites identified in the IWL in their search results.

(d) Advertisers/advertising agencies shall not host any advertisements on the websites identified in the IWL.

Our view

The draft e-Commerce Policy definitely has pro-consumer and pro-Indian flavour, with the primary objective of safeguarding the interests of consumers. Further, the Policy lays down rules for brand owners and e-commerce portals to work in collaboration to curb sale of counterfeit goods.