Policy making for e-commerce marketplaces
The Indian Business-to-Consumer (B2C) e-commerce market was valued at USD 38.5 billion in 2017 and is estimated to rise to USD 200 billion in 2026. Business-to-Business (B2B) e-commerce was estimated to be around USD 300 billion. Digital marketplaces have become hits nationally as well as globally.
Digital marketplaces are digital platforms on which goods or services are sold. Digital marketplaces are broadly based on two models, Inventory based and Marketplace based. The FDI policy has defined both of these. It defines the former as an e-commerce activity where the inventory of goods and services is owned by the e-commerce entity and sold to consumers directly. Whereas marketplace model has been defined to mean providing of an information technology platform by an e-commerce entity on an electronic network to act as a facilitator between the buyer and the seller.
An e-commerce entity has also been defined by the FDI policy to mean a company incorporated under the Companies Laws (1956/2013) or a foreign company covered under the Section 2(42) of the Companies Act 2013. E-commerce entity is also inclusive of offices, branches or agencies in India per the Section 2(v)(III) of the Foreign Exchange Management Act 1999 as is owned or controlled by a person resident outside India and conducting e-commerce business.
While the extant FDI policy permits up to a 100% FDI in market-based e-commerce companies through the automatic route, it bars FDI to inventory-based e-commerce companies.
Press Note 2 of 2018
The FDI policy also lays down certain conditionalities for these FDI receiving entities. Up until Press Note 2 of 2018 was released these conditions were limited to ensuring the provision of support by the e-commerce entity to the seller, ensuring marketplace does not exercise ownership over the inventory, i.e. goods purported to be sold as such ownership over inventory would render the business into an inventory-based model.
Up until then, an e-commerce entity was not permitted more than 25% of sales value on financial year basis affected through its marketplace from one vendor or their group companies. Press note 2 of 2018 clarified this position by stating that e-commerce entity providing marketplace cannot exercise ownership or control over the inventory i.e. goods purported to be sold.
According to Press Note 2 of 2019, an entity having equity participation by e-commerce marketplace entity or its group companies, on having control on its inventory by e-commerce marketplace entity or its group companies would not be permitted to sell its products on the platform run by such marketplace entity. This is an attempt at seeking to ensure that marketplaces do not end up controlling inventories and monopolizing markets. It was established that retail trading, in any form, by means of e-commerce would not be permissible, for companies with FDI engaged in the activity of multi-brand retail trading.
Press Note 2 of 2018 introduced certain consumer and vendor centric conditions by directing e-commerce entities to maintain a level playing field, an arm’s length and fairness and avoid discriminatory behaviour in contexts of services offered by the platform to vendors as well as buyers. Provision of preferential services of any vendor would be deemed unfair and discriminatory. It also prevents the e-commerce marketplace entity to mandate a seller to sell any product exclusively on its platform only.
The Draft e-commerce policy
The Department of Industrial Policy and Promotion floated the draft of India’s national e-commerce policy which aims to regulate India’s online economy. This draft policy covers a whole range of issues ranging from data sharing cross border data flows, Intellectual property protection to competition and algorithm governance. Notably, Press Note 2 defines e-commerce as ‘buying and selling’ of goods and services. The draft policy includes a whole range of other aspects within it. The Policy seemingly aims to prevent marketplaces with FDI from encroaching into the inventory-based model and competing with Indian providers of similar goods and services. This is done by laying out prospective strategies to tackle various optionalities.
The draft policy brings in (in a way, incorporates) conditionalities from the FDI policy such as including sellers details on the website. Additionally it ensure that prohibited items are not sold by placing liability on the seller and marketplace responsible.
Genuineness of products
Sellers are required to provide an undertaking to the platform about the genuineness of products being sold and this undertaking is to be made accessible to consumers. To this tune, the platform is required to enter into an agreement with each seller wherein it must obtain a guarantee of authenticity and genuineness of the products sold by the seller and also provide for the consequence of violations of the same. Further, the contract would ensure that guarantee and warranties of the brand owner are applicable and honoured. In the absence of this contract, products would not be listed.
Trademark and anti-piracy
Trademark owners are proposed to be given the option to register on these platforms and whenever a trademark product is uploaded, they would be notified. If the TM owner desires, the e-commerce platform would not list/ offer for sale any of his products without prior concurrence. The latter would be made mandatory in case of specified high-value goods, cosmetics or goods having a public health impact. This might cause operational burden being placed on the marketplace entity, better addressable by way of strengthening the Trademark policy.
It places responsibility on marketplaces to address consumer complaints about counterfeiting and places liability on it to return the amount paid by the customer. It should also cease hosting counterfeiting products. Among its strategies, is for marketplaces to create financial disincentives for sellers found selling counterfeiting products and to blacklist such seller for a specified period.
The policy makes it essential for online marketplaces with goods listed from multiple sellers to abide by avoidance of price and inventor control. It also requires all ratings and reviews for verified purchases to be published unabridged and to devise mechanisms to prevent fraudulent reviews and ratings by sellers and its affiliates.