E-commerce is not just online retail, new consumer rules also need to properly define digital products

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

A Central Consumer Protection Authority (CCPA) has also been created to safeguard customer rights. The Consumer Protection (E-Commerce) Rules 2020 will apply to all e-commerce entities whether 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) of 1986. The 2019 law repeals and replaces the old legislation. The modern market now includes a plethora of complex products and services. The emergence of global supply chains, the rise of international trade and the rapid development of e-commerce have led to new systems for the delivery of goods and services, while providing new opportunities for consumers. But these developments have made 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 the e-commerce ecosystem in India has become significant in 2010, due to the unprecedented penetration of smartphones in the country coupled with the increasing accessibility of internet services and technological devices. Today, consumers use their tablets and phones to leisurely navigate digital markets that cater to all their needs – material, medicinal, luxury and even spiritual. Tapping a few icons, receiving a one-time password and, in the case of physical goods, a willing delivery person, was all it took to spark a Gatsby-style consumerism in India that fueled the growth of the e-commerce sector. Industry revenue is expected to grow from $39 billion in 2017 to $120 billion in 2020, an annual growth rate of 51%, according to a report by India’s Competition Commission.

However, legislative and regulatory frameworks have remained silent onlookers, watching e-commerce weave its magic into the fabrics of Indian life. Against this backdrop, the Indian Parliament passed the Consumer Protection Act 2019, replacing a three-decade-old legal framework to boost consumer confidence in new businesses and services.

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Lack of a convincing definition of digital products

The inclusion of ‘digital goods’ is an important aspect of the new consumer protection framework. However, there is no clarity on which goods or services fall into this category. Even current legal frameworks, such as 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 national framework. Both of these agreements define the term broadly to include any services or products that can be delivered electronically. The universe of “digital products” also includes online applications, multimedia and entertainment products, personalized services and cloud services, to name a few.

Additionally, the 2020 rules apply to inventory-based and marketplace-based e-commerce businesses. The former allows an e-commerce entity to own inventory, but in the latter, the e-commerce business 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”. Currently, the term simply refers to the purchase or sale of goods or services, including digital products, over digital or electronic networks, in accordance with the Consumer Protection Act.

Consumer protection rules for digital products

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

For example, in the case of audio streaming services such as Spotify, Saavn, etc., consumers are only licensed to listen to music and other audio content available on a platform for a period of particular subscription. Users do not have the right to transfer or sub-license the music or podcasts they listen to on these platforms. This contrasts with the online retail model, where legal title is transferred upon purchase. The current consumer protection framework, intended for traditional physical markets, cannot apply to products consumed electronically. This is because online products are complex, due to how multiple aspects like internet, telecom service providers and electronic devices come into play. Policy makers will need to interact with industry and society civil law, as well as conducting market research to define consumer protection frameworks for them. They may want to borrow the Indian Competition Commission’s approach to rule-making, which conducted market research to “understand how e-commerce works in India.”

Identifying and affixing accountability are other major challenges. As mentioned above, digital products must cross multiple layers to reach consumers, from personal electronic devices, the Internet, to telecommunications and digital service providers. The quality of services at each level shapes consumer experiences. For example, if a consumer has a spotty internet connection, it is unfair to blame the mobile phone if the videos are not streaming smoothly. Therefore, the rules must be formulated in such a way as to assign responsibility to the appropriate levels.

The overlap of consumer protection frameworks with other legislation exacerbates these challenges. The Consumer Protection Act allows the CCPA to investigate whether an entity has disclosed personal information in violation of privacy laws. However, the Data Protection Authority, proposed in the Personal Data Protection Bill 2019, also has powers to investigate privacy breaches.

This interaction between consumer protection rules and other legislation requires the establishment of a mechanism that ensures effective coordination between sector regulators and the CCPA. The approach of the UK and Australia on this issue can serve as a practical guide for India.

The UK Enterprise and Reform Act 2013 explicitly sets out a mechanism in the event of concurrent jurisdiction between regulators. Under this law, the Competition and Markets Authority, the United Kingdom’s antitrust regulator, and the Office of Communications (Ofcom), the country’s communications regulator, signed a Memorandum of Understanding (MOU), which details the working arrangement between the two bodies.

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

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Go forward

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

However, the nature of digital products demands that different regulations, which can often work at cross-purposes, must work in harmony to ensure their unhindered growth. Now is the time when regulators need to come together and create a framework that recognizes 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 consultancy. Views are personal.

This article is part of ThePrint-Koan Advisory series that analyzes emerging policies, laws and regulations in the Indian tech sector. Read all articles here.

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