New Rules To Govern Amazon, Google, Facebook In Europe: Should India Borrow From It?

When the All India Online Vendors Association complained to the competition regulator about Flipkart’s preferential treatment to certain sellers, the Competition Commission of India dismissed the allegations saying the marketplace isn’t dominant. And since it isn’t dominant, the question of abuse of dominance doesn’t arise. The regulator came to this conclusion for Amazon as well. Similar concerns have been raised by the restaurants’ association against food delivery apps Zomato and Swiggy who have been accused of giving preferential treatment to their in-house cloud kitchens. Drivers of Ola and Uber too have complained in courts of unreasonable commission cuts and sudden termination.

While online platforms and their relationship with vendors continues to exist in a regulatory vacuum in India, Europe has taken the first step to govern the trading practices of online platforms.

Rules For EU’s Online Economy: Intent

Nearly 50 percent of the businesses operating through online platforms face problems—38 percent of issues regarding contractual relations remain unsolved, and 26 percent are solved but with difficulties, as per the European Commission’s estimates.

And so, the European Union has agreed to a set of rules which will apply to the entire online platform economy—approximately 7,000 online platforms or marketplaces operating in Europe. There are specific provisions which will apply to search engines to ensure transparency in rankings.

As digital intermediaries, online platforms occupy a crucial position between traders and their customers. And increasingly, they take the role of “gatekeepers” who control market access, Christoph Busch, professor of European Business Law at the University of Osnabrueck, told BloombergQuint. He is a member of the EU Expert Group on the Online Platform Economy.

There is increasing evidence of unfair practices by some platforms. In particular, businesses have been complaining about sudden changes in platforms’ terms and conditions, delisting of goods or services, suspension or deletion of accounts without notice, lack of transparency of rankings, and unclear conditions for access to customer data. The new rules address exactly these problems.

Christoph Busch, professor - European Business Law, University of Osnabrueck, Germany

Scope Of EU’s Rules

The new rules will apply to online platform intermediaries with turnover above €10 million and more than 50 staff members. The intermediaries will include:

Third-party e-commerce marketplaces like Amazon Marketplace, eBay, Fnac Marketplace
App stores like Google Play, Apple App Store, Microsoft Store
Social media for business like Facebook pages, Instagram used by makers, artists
Price comparison tools like Skyscanner, Google Shopping

Broadly, the rules aim to achieve the following objectives:

Ban On Certain Unfair Practices: Digital platforms won’t be allowed to suspend or terminate a seller’s account without reasons. A process for appeal will need to be laid down and sellers will need to be reinstated if suspension was made in error. Change in any terms and conditions will require a prior notice of 15 days.

Transparent Ranking: Parameters used by search engines to rank goods and services will need to be disclosed. They will also need to assist sellers to optimise their presence.

Mandatory Disclosures: Online platforms will need to disclose if they are selling their own goods and if their in-house brands are being given any specific advantage that’s not available to other sellers. The nature of data collected, its use and business partners it’s being shared with will also need to be disclosed.

Dispute Resolution: All platforms will need to set up an internal complaints-handling system to assist business users. In case of non-compliance, business associations will be able to take platforms to court.

The regulations will apply to online intermediation services and online search engines, irrespective of the place of establishment or residence of the platform operator, Busch explained. The only requirement is that the intermediation service or the search engine services are targeted at business users located in the EU who offer their goods or services to customers in the EU via the platform, he said.

Online Platforms: Regulatory Vacuum In India

There is no one set of rules that govern the conduct and relationship of online platforms with their vendors in India.

And so, in some cases, aggrieved businesses have had to approach the competition regulator. But since these online platforms, as per the CCI, aren’t dominant in the market, their conduct can’t be called abusive. The vendors’ association has now knocked at the doors of the appellate tribunal arguing that businesses who sell to Flipkart or Amazon’s associated entities—Cloudtail, WS Retail, Retailnet, Appario Retail—have to pay lower commission compared to those who sell their goods directly on these marketplaces. As a result, smaller sellers are finding it hard to compete.

The issue is unfair and discriminatory conduct by online platforms, Chanakya Basa, a lawyer practicing competition law told BloombergQuint. Basa is representing the vendors’ association. He pointed out that Flipkart and Amazon have a direct conflict with other manufacturers selling on their platform—for instance, it’s not clear if their own brands, namely Smartbuy and Billion, are getting better placement and if their associated entities are paying a lower platform fee.

The final price that a consumer sees is cost price plus the platform charges. The moment the platform fee is reduced for the preferred sellers, the selling price comes down. So, the non-preferred sellers are unable to compete with those who are selling to the associated entities of these marketplaces.

Chanakya Basa, lawyer representing All India Online Vendors Association

The restaurants’ association too is facing similar issues with food aggregators like Zomato, Swiggy, FoodPanda and UberEats. Given there is no holistic regulatory framework, they approached the Department of Industrial Policy and Promotion last week to voice their concerns.

Food aggregators force bundling of services on small restaurant—for instance, they have to sign-up for the delivery service of aggregators despite having their own delivery capabilities, Rahul Singh, president of National Restaurant Association of India told BloombergQuint.

Aggregators switch off outlets when they run out of delivery boys. So, they stop sending orders even though restaurants can deliver it themselves. Further, participating restaurants are not aware of where the food is being delivered, to whom, and in how much time. If sellers are to be held accountable for consumer satisfaction, they need to have visibility on the buyer’s details.

Rahul Singh, president, National Restaurant Association of India

Some food aggregators, according to Singh, engage in inventory control by having their own cloud kitchens or, their affiliated companies sell products on their platform. And then, they provide preferential treatment to their inventory brands, he said.

The government has partly attempted to regulate this space through the foreign direct investment policy but an independent framework for e-commerce platforms is the right way to go about it, Rahul Matthan, technology practice head at Trilegal said.

Matthan added that if India decides to borrow from the EU framework, two areas will need deliberation. One, the internal dispute-handling mechanism which may not inspire trust from vendors and two, the requirement to disclose parameters for rankings by search engines.

I don’t think an internal committee for handling complaints will give vendors the level of trust they look for. Given that most of these platforms have their own vendors, there would be some conflict in case of a dispute. So, they will need a third-party solution. And two, if search engines disclose the parameters for rankings, businesses may find ways to game the system. And this may lead to businesses who are not genuinely the best answer to a search query coming up on the top of the page.

Rahul Matthan, partner, Trilegal

But until India gets its own framework, some of the benefits of the EU rules may flow to it. The EU rules will apply to Indian online platforms which cater to European consumers. Also, Indian vendors selling on European-based platforms will get the benefit of these regulations, Matthan pointed out.

On Saturday, the Indian government released a draft national e-commerce policy but the proposed framework doesn’t address the concerns raised by experts here or the ones being tackled by the E.U. The draft policy, however, hints at addressing some of the issues through the Standing Group of Secretaries on E-commerce.

Given the inter-disciplinary nature of e-commerce, the tackling of specific issues that emerge may be the subject matter of different statutes the Information Technology Act and Rules, the Competition Act, the Consumer Protection Act etc. The Standing Group of Secretaries on ecommerce shall give recommendations to address policy challenges.

Draft E-Commerce Policy