Web pages of major e-commerce portals in India. (Source: Bloomberg)

Draft E-Commerce Policy: A 101 Guide To Decimating Digital Competition

BloombergQuintOpinion

The draft national e-commerce policy, which was recently released by the Department for Promotion of Industry and Internal Trade, is a worrisome policy document for various reasons. While the declaration of the general election dates and the model code of conduct have ensured that the policy will not be implemented immediately, it is extremely important to initiate more deliberations on it, so that appropriate policy approaches can be taken. While many aspects of the draft policy need reconsideration, two major issues are highlighted here.

Data Ownership And Sharing

One of the most noticeable things about the draft policy is the inordinate focus on ‘data’. The draft policy rightly considers data as an invaluable resource for individuals, firms, and the government.

While the questions of who owns data and how data should be shared are very relevant in the digital context, in its quest to take a protectionist approach the policy fails miserably in understanding some of the basic characteristics of data and data ownership.

We live in an inter-connected world where much of our time is spent interacting with digital products and services that generate valuable data for firms. This guides their decision making process – what to produce, when to produce, and how to produce. Even if firms can guarantee complete privacy protection to consumers whose data is being used, there is growing consensus across the world that it should be consumers who should have the final say in deciding what uses can be permitted with their data.

Unfortunately, under the pretension of protecting individual sovereignty and national economic interests, the draft policy is, in effect, trying to grant rights over such data to the government.

The draft policy takes the position that data should be considered as a collective resource that the government holds in trust.

It argues that while India and Indian citizens would have a sovereign right to data, the same cannot be extended to non-Indians. The draft policy uses the analogy of a coal mine to substantiate this argument. This is problematic, as the comparison fails to understand one of the basic public goods characteristic of data – non-rivalrous character in consumption, i.e., two (or more) people can consume data without negatively affecting the consumption opportunities of the other. This does not exist in the case of natural resources like coal or oil, wherein the use of the resource by one person negatively affects the possibilities of consumption of that resource by another.

It is also too naïve to take the position that the government is the best custodian of data relating to its citizens. Citizens can, and should, be allowed to decide how to manage their data, based on their requirements and preferences. While it is important to ensure that firms allow consumers to take informed decisions, taking away their individual liberty under the disguise of protection is certainly a flawed approach in any democracy. A better approach would have been to lay down clear guidelines on how to communicate the implications of consent to use her data.

The draft policy has also strongly argued for data localisation.

As many scholars have already pointed out, insistence on data localisation may not produce much employment or investment, and it might even be counter-productive. 

While the size of India’s population the resultant potential consumer base makes India an attractive investment destination for many, strong data localisation requirements might drive away many of those potential investors. If the aim is attracting data-related investments to India, what might be required is skill and infrastructure enhancements with regard to data handling, data security, and data analyses.

It is also interesting to observe that though the draft policy talks extensively about the commercial significance of the data produced by firms or individuals, it fails to appreciate the real potential of data sharing by the government. Enormous amounts of invaluable data are generated by many public funded initiatives, including satellites and research centres. As the experience from many other countries has already shown, open access to such data—except those relating to national security—can fuel innovations of startups and established players. Unfortunately, the policy has failed to illustrate any potential steps in this regard.

Finally, it is also important to ask what is an Indian company and what is foreign, in the current economic context. In a globalised world, where firms actively seek and use foreign investment, it is impossible and futile to make such a classification.

For example, there are foreign investors in many startups like Ola and Paytm. Any policy that unduly favours, or discriminates against, them based on initial ownership structure is bound to be anti-competitive and against consumer welfare in the long term.

Also read: Draft E-Commerce Policy: Is It The Government’s Job To Fix Prices?

Intellectual Property Protection

Some of the measures suggested by the policy with regard to intellectual property protection are equally worrisome. While one section of the policy focuses on anti-counterfeiting measures, another one focuses on anti-piracy measures.

  • One of the provisions under the heading ‘anti-counterfeiting measures’ states that an e-commerce platform shall not list or offer for sale products having trademark, without prior concurrence from trademark owners, if the concerned trademark owners desire so.
  • Another provision mandates the market places to take prior authorisation from the trademark owners before listing “specified high value (luxury) goods”, cosmetics, and “goods having impact on public health”.
Both these provisions are against one of the basic principles in trademark law – ‘the doctrine of exhaustion’.

According to this legal doctrine, a trademark holder’s right to control the use and sale of an article will be exhausted when an authorised sale of that article occurs and any purchasers are free to use or resell that article.

While some countries follow the doctrine of international exhaustion (where an authorised sale in any part of the world is sufficient to exhaust the trademark rights over that article), some follow the principle of domestic exhaustion (where the authorised sale has to happen within the country to exhaust the trademark rights over that article).

In a landmark case involving the legality of the import of Samsung printers by a reseller, a Division Bench of the Delhi High Court had clarified that India follows the principle of international exhaustion in the area of trademarks. The inevitable consequence of that decision was more competition between the goods sold by the trademark owner in the Indian market and those imported by the resellers.

But the draft e-commerce policy is, in effect, attempting to defeat the doctrine of exhaustion and the benefits of increased competition by allowing trademark owners to prevent the sale of legitimately procured and imported goods.

Similarly, many of the anti-piracy measures suggested in the draft policy are provisions that can violate the fundamental rights of citizens. For example, the draft policy suggests the creation of a body of industry stakeholders to identify ‘rogue websites’. According to the anti-piracy provisions, identification of a website as a rogue website shall lead to removal of access and search engines too will have to take necessary measures to remove them from search results. As history has shown us through many examples, vesting such censorship powers on private entities without any judicial scrutiny can result in denial of access to legitimate information.

Moreover, these measures are certainly beyond the current multilateral obligations of India, including those under the Agreement on Trade Related Aspects of Intellectual Property Rights.

The remedies provided under different IP laws like copyright law and trademark law are sufficient to deal with cases of piracy and counterfeiting.

More importantly, the judicial adjudication process provided under those laws are necessary for ensuring that anti-piracy or anti-counterfeiting measures do not lead to violation of fundamental rights of citizens. Hence policy makers should reconsider the extrajudicial anti-piracy and anti-counterfeiting measures suggested in the draft policy.

Also read: Draft E-Commerce Policy: Chinese Online Retailers May Have To Register Entities In India 

Need For Adopting A Pro-Competitive Approach

The anti-competitive and protectionist characteristics of the draft policy are perceptible in most parts of the policy text. While some have attributed this to the proposed entry of some Indian conglomerates to the e-commerce sector, it needs to be remembered that these kinds of anti-competitive provisions and discriminatory policy making are against the long-term interests of consumers and the country. Consumer welfare can be enhanced only through better competition in the market and a drafting exercise that focuses only on ‘the other’ is a narrow-minded approach that will destroy the future of the digital economy.

Arul George Scaria is an assistant professor of law and co-director of the Centre for Innovation, IP and Competition at National Law University, Delhi.

The views expressed here are those of the author and do not necessarily represent the views of Bloomberg Quint or its editorial team.