JOIN USDraft e-commerce rules: One size cannot fit all
The recent draft amendments to the Consumer Protection (E-Commerce) Rules, 2020, put out by the Department of Consumer Affairs attempt to be egalitarian but will misfire to a large extent. This Is because of two key failings in the rules— a ‘one size fits all’ approach to e-commerce companies and a regulatory overlap with the functioning of the Competition Commission of India.
The foremost issue with the draft amendments is their applicability. The fact that the proposed amendments will significantly increase compliance costs, as well as the potential liability of e-commerce platforms, is not as surprising as is the fact that they have been made applicable in equal measure to all e-commerce companies. The ‘one size fits all’ approach is surprising because the view that digital companies of a certain size need specialised targeted regulation has gained global acceptance now. For example, the Digital Services Act Package proposed by the EU in February 2020 targets platforms that are designated as ‘gatekeepers’. Designation as a gatekeeper is based on well-defined criteria and reviewed periodically. Similarly, in the UK, the new regime for digital businesses will be applicable to companies with ‘Strategic Market Status’. A similar approach is being adopted by Germany. In the US, the Federal Trade Commission, the US antitrust regulator, has been extremely vocal about Big Tech and the need for nuanced regulation to ensure a level playing field, especially under the new chairperson Lina Khan.
Even within India, the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, serve as a useful example of distinction in scale of regulation based on size. The Intermediary Guidelines distinguish between social media companies by designating certain companies as a ‘significant social media intermediary’, based on the number of registered users, and imposing certain obligations only on such social media companies.
The proposed amendments, such as those on mandatory registration for all e-commerce companies, will certainly increase the compliance burden, including costs and possibly red tape for setting up new e-commerce ventures. So will the requirement to mandatorily appoint a Chief Compliance Officer, Nodal Contact Person, and Resident Grievance Officer. More importantly, the increased liability regime — making the Chief Compliance Officer personally liable, introducing fall-back liability of the platform where a seller fails to deliver the goods or services — are extremely onerous. Larger e-commerce companies may have deep pockets, scale and the wherewithal to subsume such liability but smaller start-ups will be driven away if their existence becomes so onerous. Therefore, a calibrated approach is the need of the hour. One of the stated objectives of the proposed amendment is to “encourage free and fair competition in the market”. This objective will certainly suffer if new innovative ventures which could emerge as potential competitors are subjected to such harsh compliance and liability regimes at a nascent stage.
Another significant problem with the draft amendments is the overlap with the mandate of the Competition Commission of India. For example, Rule 5(17) states that no e-commerce entity which holds a dominant position in any market shall be allowed to abuse its position. This is the exact mandate of the Competition Commission of India under Section 4 of the Competition Act. In fact, the explanation to Rule 5(17) goes on to state that “abuse of dominance” will have the same meaning under the rules as under Section 4 of the Competition Act. Such an obvious overlap of jurisdiction amongst authorities provides an opportunity for forum-shopping. Once again, bigger companies which have the money and manpower to devote to multiple legal proceedings will get an advantage as they can delay conclusion of legal proceedings and enforcement of orders endlessly. Lack of nuance and expertise in decision-making and alternatively wastage of public resources due to duplicity are larger issues resulting from the flagrant overlap of mandate.
Since the time the draft amendments were put out for public comments, several other issues such as lack of clarity on permissible flash sales, confusion regarding the applicability of Rules 5 and 6, complete ban on platforms selling goods from related party sellers, have been highlighted by various stakeholders. However, these issues can be rectified given that this is only a draft of the rules for public comments. The bigger issue here is the ‘one size fits all’ approach. Introducing nuanced regulation based on size is a broader policy call and one that must not be ignored.
Once at an ideological level there is consensus on adopting a calibrated approach to regulating platforms, attributes for such calibration can be devised based on factors such as the number of active users, extent of reliance of consumers and business users on the service provided by the platform, market capitalisation of the platform or its parent company, and so on. While undertaking this exercise, another broad policy call that needs to be put to rest once and for all is whether we want to entrust regulation of platforms to a single regulator or divide this responsibility amongst existing regulators.
Each of the options has its pros and cons. For example, a new specialised regulator may have better expertise but may be highly susceptible to regulatory capture by Big Tech given how niche and rapidly evolving the sector is. Moreover, this will entail considerable additional expenditure by the public exchequer. Relying on existing regulators will require thoughtful and clear demarcation of mandates to avoid forum-shopping and conflicting decisions. This option will also require aggressive capacity-building efforts on the part of the government. And all of this must happen very quickly.
(The writer is Senior Resident Fellow and Team Lead, Competition Law, Vidhi Centre for Legal Policy)