Draft e-commerce policy puts intermediaries in a fix

By Ashwini Vittalachar and Sanjana Mathur, Samvad Partners
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The Department for Promotion of Industry and Internal Trade released the draft national e-commerce policy for India on 23 February 2019. Given that “data is the new oil”, the principal focus of the draft policy is around data localization, sovereign rights over data collected by private parties and the concept of community rights over data.

However, the draft policy also touches upon a crucial aspect of e-commerce marketplace businesses, i.e. the role of an e-commerce intermediary. While the existing legal framework (both on foreign exchange laws as well as data protection laws) sets out the role of an intermediary to be merely that of a facilitator, policymakers have imposed a number of additional liabilities on intermediaries under the draft policy, which fundamentally changes the nature of their role and operations.

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Ashwini Vittalachar
Partner
Samvad Partners

Some of the crucial liabilities proposed under the draft policy are: 1) a refund mechanism to the customer in case of sale of a counterfeit product by a seller, 2) seeking permission of trademark owners prior to making certain high-value (luxury) goods available on their platforms, 3) taking active measures to prevent online dissemination of pirated content, and 4) responsibility and liability of the platforms or intermediaries to “ensure genuineness” of information posted on their platform. The proposed liabilities show a significant shift from the current jurisprudence under section 79 of the Information Technology Act, 2000, and its judicial precedents, which recognize due diligence requirement and actual knowledge criteria before attributing liability to an intermediary. No intermediary has been subjected to any primary or contributory liability in India so far.

Interestingly, this safe harbor jurisprudence is also changing. The draft Information Technology (Intermediaries Guidelines (Amendment)) Rules, 2018, released by the Ministry of Electronics and Information Technology on 24 December 2018 have similarly sought a more proactive role for the intermediaries, including proactive filtering of content and traceability requirements. The guidelines too have drawn a lot of criticism for the all-pervasive role envisaged for the intermediaries.

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Sanjana Mathur
Associate
Samvad Partners

The draft policy in its current form seeks to further dilute protection for intermediaries. The guidelines and the draft policy, both require pre-screening and monitoring of content, which is an onerous obligation. This is true both from the perspective of the intermediary, given the volume of content posted on the platform, and the lack of control on the party ultimately listing/providing information on its platform, as well as from the perspective of the customer, who may find the requirement intrusive and infringing upon his privacy.

The intermediary who was responsible for facilitation will now end up filtering the content for the customer. For example, an e-commerce marketplace like Flipkart, by virtue of the proposed changes, would now be required to ensure that the information provided by sellers, regarding themselves and their products, is true and accurate. This may cause discontentment among customers considering that a private party may now curtail their freedom to choose.

Some of these obligations, such as ensuring the absence of infringement of intellectual property rights or even online dissemination of pirated content, in their current form are vague and can be misinterpreted with the usage of terms like “ensure genuineness”. These obligations allude to the high exposure of non-compliance risks on intermediaries, especially the younger set-ups, which are not adequately funded enough to have robust legal support for their teams compared with the bigger e-commerce giants, who may have dedicated legal teams for assistance. Also, the cost of compliance will naturally be passed onto the customer, increasing costs for them.

These liabilities also lead to a reduction in the intermediary’s operational flexibility. This could mean a more cautious approach in terms of what they take responsibility for. For example, a marketplace would now be more alert while on-boarding smaller vendors as that may expose them to a higher risk of selling counterfeit products on the platform. This would prove to be counter-intuitive since the principal objective of the draft policy was to create a level playing field for smaller e-commerce businesses with a view to providing an open market and more choices for customers and users.

Policymakers seem to have lost sight of their objectives and may have created a significant dent in this tenderfoot industry. Keeping these aspects in mind, it is advisable that the government aligns the purpose of the draft policy with the result it is likely to yield.

Ashwini Vittalachar is a partner and Sanjana Mathur is an associate at Samvad Partners.

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