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E-commerce not just e-retail, new consumer rules must properly define digital products too

The govt must remove ambiguities from e-commerce definitions and liabilities & ensure there is harmony between Consumer Protection Rules, 2020 and other policies.

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The Narendra Modi government notified last month new rules under the Consumer Protection Act, 2019 that will govern the sale and purchase of goods and services, over electronic networks. In four distinct parts, these regulations list out duties and liabilities of marketplace e-commerce entities, duties of sellers on a marketplace, and the duties and liabilities of inventory-owning e-commerce entities.

A Central Consumer Protection Authority (CCPA) has also been established to preserve the rights of customers. The Consumer Protection (e-commerce) Rules 2020 will apply to all e-commerce entities, whether they are registered in India or abroad.

Consumer markets for goods and services have undergone a profound transformation since the enactment of the Consumer Protection Act (COPRA), 1986. The 2019 Act repeals and replaces the old legislation. The modern marketplace now comprises a plethora of complex products and services. The emergence of global supply chains, rise in international trade, and the rapid development of e-commerce have led to new delivery systems for goods and services, while providing new opportunities for consumers. But these developments have rendered the consumer equally vulnerable to new forms of unfair trade and unethical business practices.

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Evolution of Indian e-commerce

The growth of India’s e-commerce ecosystem became prominent in 2010, due to the unprecedented penetration of smartphones in the country, coupled with growing affordability to access internet services and technological devices. Today, consumers use their tablets and phones to leisurely navigate digital marketplaces that fulfill all their needs — material, medicinal, luxury, and even spiritual. Tapping on a few icons, receiving a one-time password, and, in the case of physical goods, a willing delivery person is all it took to unleash a Gatsby-esque consumerism in India, which has powered the growth of the country’s e-commerce sector. The industry’s revenues are expected to increase from $39 billion in 2017 to $120 billion in 2020 — an annual growth rate of 51 per cent — according to a Competition Commission of India report.

However, legislative and regulatory frameworks have stood as silent spectators, watching online commerce weave its magic into the fabrics of Indian lives. In this context, the Indian Parliament passed the Consumer Protection Act, 2019, replacing a three-decade-old legal framework in order to enhance consumer trust in new businesses and services.

Also read: Google is missing out on the Covid e-commerce revolution Facebook, Amazon are enjoying

Lack of a cogent definition of digital products

The inclusion of ‘digital products’ is an important aspect of the new consumer protection framework. However, there is no clarity on the goods or services that fall under this category. Even current legal frameworks, like the Information Technology Act, 2000, and the Foreign Direct Investment (FDI) policy, do not clearly define ‘digital products’.

International trade agreements such as the Comprehensive and Progressive Trans-Pacific Partnership (CPTT), and the India-Singapore Comprehensive Economic Cooperation Agreement (CECA) provide useful guidance in the absence of a domestic framework. Both these agreements define the term expansively to include all services or products that can be delivered electronically. The universe of ‘digital products’ also includes online applications, media, and entertainment products, personalised services and cloud services, to name a few.

Moreover, the 2020 Rules are applicable to inventory-based and marketplace-based e-commerce businesses. The former allows an e-commerce entity to own stock, but in the latter, the e-commerce firm facilitates a transaction between a retailer and a buyer. However, while the rules list do’s and don’ts for e-commerce businesses, they do not define the term ‘e-commerce’. At present, the term simply refers to buying or selling goods or services, including digital products, over digital or electronic networks, as per the Consumer Protection Act.

Consumer protection rules for digital products

The transaction-centric definition of e-commerce indicates that the framework is limited to e-retail, which is the purchase of physical goods over an electronic network. Therefore, the application of the consumer protection framework is a challenge. In most online transactions, a consumer gets a licence to access a digital product.

For instance, in the case of audio streaming services such as Spotify, Saavn etc, consumers only get a licence to listen to music and other audio content available on a platform during a particular subscription period. Users don’t have the right to transfer or sub-license the music or podcasts they listen to on these platforms. This is in contrast to the e-retail model, where a legal title is transferred upon purchase. The present consumer protection framework, meant for traditional brick-and-mortar marketplaces, can’t be applied to products consumed electronically. That’s because online products are complex, because of how multiple aspects like internet, telecom service providers and electronic devices come into play. Policymakers will need to interact with industry and civil society, as well as conduct market studies to frame consumer protection frameworks for them. They might want to borrow the Competition Commission of India’s approach to rulemaking, which conducted a market study to “understand the functioning of e-commerce in India”.

The identification and affixation of liability are other key challenges. As mentioned above, digital products need to cross multiple levels to reach consumers, from personal electronic devices, internet, to telecom and digital services providers. The quality of services at each layer shapes consumer experiences. For instance, if a consumer has a patchy internet connection, it is unfair to blame the mobile phone if videos don’t stream smoothly. Therefore, the rules should be framed in a manner that affix liability to the appropriate layers.

The overlap of consumer protection frameworks with other legislations exacerbate these challenges. The Consumer Protection Act allows the CCPA to investigate if an entity has disclosed personal information in contravention of privacy laws. However, the Data Protection Authority, proposed in the Draft Personal Data Protection Bill, 2019, also has the power to investigate breaches of privacy.

This interplay between consumer protection rules and other legislation necessitates the need for a mechanism that ensures effective coordination between sectoral regulators and the CCPA. The United Kingdom and Australia’s approach to this issue can serve as a handy guide for India.

The UK’s Enterprise and Reform Act, 2013 explicitly spells out a mechanism in case there is concurrent jurisdiction between regulators. Under this law, the Competition and Market Authority, UK’s antitrust regulator, and Office of Communications (Ofcom), the country’s communication regulator, inked a Memorandum of Understanding (MOU), which detailed the working arrangement between the two bodies.

Similarly, the Australian Competition and Consumer Commission, and Reserve Bank of Australia have also created a formal working arrangement to coordinate policies and share information.

Also read: Indian govt took first step to unlock value of non-personal data, must now bring in nuance

Going forward

The phenomenal growth of streaming services, cloud computing, messaging platforms and virtual payments methods is clear evidence that digital products will power the next phase of growth of e-commerce in India.

However, the nature of digital products demands that different regulations, which can often work at cross-purposes, need to work in harmony to ensure their unencumbered growth. Now is the time when regulatory authorities must come together and create a framework that recognises the true value of digital products. This will act as the fuel that powers the engines of the digital economy.

The authors work at Koan Advisory Group, a technology policy consulting firm. Views are personal.

This article is part of ThePrint-Koan Advisory series that analyses emerging policies, laws and regulations in India’s technology sector. Read all the articles here.

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