[This post has been authored by Ujjawal Bhargava, a fourth-year student at the Institute of Law, Nirma University, Ahmedabad.]
[This post has been authored by Ujjawal Bhargava, a fourth-year student at the Institute of Law, Nirma University, Ahmedabad.]
Welcome to our fortnightly newsletter, where our reporters Kruttika Lokesh and Dhananjay Dhonchak put together handpicked stories from the world of tech law! You can find other issues here.
In an increasingly globalised world, major retail companies like Amazon have reached even the most inaccessible places. The consumers that are exposed to e-commerce companies can only be protected in the presence of increased accountability. The newly issued E-Commerce Rules set up a Central Consumer Protection Authority to police companies that violate consumer rights. Misleading ads and unfair trade practices are prevented as e-retailers have to mandatorily disclose return, refund, warranty, exchange, guarantee, delivery and grievance redressal details. Henceforth, prices of products cannot be manipulated to produce unreasonable profits for companies. These rules apply to retailers either registered in India or abroad.
[This post has been authored by Jalaj Jain of the Gujarat National Law University (GNLU), Gandhinagar.]
[This post has been authored by Urmil Shah and Vishwa Mukhtyar, 3rd year students at Auro University, Surat.]
With the growth in economic activities in digital space, the e-commerce industry has gained traction in the last decade and revenue from the sector is expected to shoot USD 120 billion by 2020. Realizing the anti-competitive concerns arising out of the inventory model of e-commerce, whereby the platforms can hold inventory and sell directly to consumers, the DPIIT has disallowed FDI and permitted 100% FDI under automatic route for marketplace model. The Indian anti-trust regulator CCI, in January 2020, released a detailed report on understanding the modus operandi of e-commerce operations in India and the anti-trust ramifications in the market. The focus of the study was on e-commerce marketplace platforms in sector of goods food delivery and accommodation service. Certain competition issues are akin to this sector, which creates a novel groundwork for regulatory supervision for competition authorities includes:
[This post has been authored by Harshit Goyal, currently in his 3rd year at National Law School of India University, Bangalore.]
Unlike the traditional market, the digital economy does not have any geographical limits. Thus, there is fierce competition among all the players. However, due to the unequal availability of resources, it is becoming increasingly difficult for new aspirants to join the market. The use of pricing algorithms, presently adversely affects the present landscape of online retail.
An algorithm is an established computational procedure that takes a set of values, as input and produces another set of values as output. A catena of algorithms is used in the market to create artificial transparency. These algorithms are called pricing algorithms because competitors in the market use them to set prices after gauging market behavior and competitors. They help competitors to outlive others through optimum pricing. Such a scenario creates artificial algorithmic transparency in the market. However, with an increase in such algorithms in the market, it becomes easy to predict the change in the market. An increase in the accuracy of such predictions, not only strengthens the dominance of certain competitors but also eliminates small competitors altogether, hindering consumer welfare.
Unilateral decision making, the right to make intelligent decisions is a fundamental right of any business, since they aim at maximizing profit. The exercise of such a right effectuates conscious parallelism which is a legitimate and obvious factor in any market. However, the artificial transparency that continues to exist due to algorithms enables competitors to control the market.
Further, the increasing transparency in the market creates interdependency among the competitors, thereby incentivizing collusion. Algorithms create a god’s eye view, enabling competitors to monitor activities in the market in real time. Market players are less likely to deviate because of the instantaneous fear of retaliation.
Hence, the algorithms become a cloak to escape liabilities under competition law. Such tacit collusion has not been considered not barred by the law.
The primary question is, does traditional competition law accommodate the recent trends in the market such as pricing algorithms and if so, how? The challenge before competition law authorities is to detect whether tacit collusion exists among competitors, and whether it negatively impacts consumer welfare.
Additionally, questions about communication and liability arise. The absence of explicit communication is a major issue when considering collusion, because in order to prove collusion, there must be an existence of communication. Algorithms have enabled companies to escape the necessity of explicit communication.
Another issue associated with such algorithms is that of liability, because there is no human intervention which facilitates such tacit collusion. Thus, it becomes difficult for authorities to ascertain the liability of the final wrongdoer. The three possible assertions with respect to liability are; the liability of the person who invents such algorithms; the liability of the person who deploys them; the liability of the person who gains from such algorithms.
None of the above acts are explicitly prohibited by law unless a mala fide intention [intentional cartelization] to cause harm is proved. Competition law only outlaws bilateral or multilateral decision making by the competitors because it implies the existence of cartelization. By contrast, the adoption of pricing algorithms through undertakings merely enables them to attain dynamic pricing. The issue arises when competitors maximize their profit by colluding with each other, by entering into automatized virtual agreements. As per the current debate on algorithmic collusion, algorithms are used to facilitate an existing price agreement between the competitors. They simply act as intermediaries, as an extension of the human will. Alternatively, the algorithms are designed to result in a tacitly collusive result. Here, unilaterally designed algorithms learn to tacitly understand each other due to limited market characteristics. Presently, two scenarios emerge when considering algorithms that could cause collusion.
The first is the ‘messenger scenario’, since here algorithms acts as an instrument of collusion, including the implementation of agreed price adjustments as well as the monitoring of such agreements. An example of this is the US Department of Justice and UK Competition and Markets Authority’s proceedings regarding the distribution of posters through the Amazon Marketplace. Here, the companies involved initially agreed via e-mail that they would not underbid each other. After an attempt at the manual adjustment of prices had proved too complex, both companies used (different) repricing software. Pertinently, this software made it possible to monitor competitors’ prices and dynamically adjust one’s own prices according to those of competitors. The software was set so that the products were offered at the same price as long as no third (uninvolved) dealer with a lower price was active on the market.
In the second scenario, a collusive market comes about because the behavior of companies is canonically harmonized by using similar algorithms or by using algorithms which adapt to change in the others. Such agreements do not come under the general definition agreement, however there exists a tacit ‘meeting of mind’ among the competitors. Hence, the traditional definition of a contract under competition law needs to revisited in order to include such collusion. Notably, the definitions of an anti-competitive agreement under Section 3 of the Competition Act, 2002, Section 1 of the Sherman Antitrust Act, 1890, and Article 101 of the Treaty on the Functioning of the European Union do not cover mere ‘meeting of mind’ which exists due to such virtual agreements.
The use of algorithms in the market cannot be curbed altogether, since it would tremble the pillar of the digital economy. However, there is a need for regulatory policies to accommodate for the status quo. Pertinently, mutual price monitoring—the crux of tacit collusion which is not prohibited by Competition Law—must be addressed again.
The meaning of communication, a pre-requisite for constituting anti-competitive behavior also needs to be revisited to prevent ‘algorithm driven cartelization’. Pricing algorithms create a barrier for new entrants which in the long run affects market efficiency. Such a barrier is likely to impede the innovation in the market, which has direct nexus with consumer welfare.
There have been a lot of cases where e-commerce platforms and social media websites have been cleped as intermediaries, however, it is largely connected with the content uploading. Similarly, Section 2 of the recent Motor Vehicles (Amendment) Act, 2019 defined aggregators such as Uber and Ola as digital intermediaries or marketplaces which can be used by passengers to connect with cabs. The question of intermediary liability primarily deals with content uploading or verification, and attracts the applicability of IP laws or other criminal laws.
However, the competition in the market is so fierce today, that independent firms like Feedvisor and Intelligence Node have started offering algorithmic pricing as a service. Here, the question arises whether such firms are intermediaries under section 2(w) of Information Technology Act, 2000 and do not attract liability (see Section 79 of the Act) because they are a link that collects the information of various competitors and compares them to produce the best results for a third party. Thus, the applicability of the safe harbor provision on algorithm deploying companies also needs to be considered, since they are aware about the effects and utilization of these algorithms.
[The above diagram demonstrates a scenario where a common algorithm (Algo P) is used by two different business entities(Firm A & Firm B).]
There have been four approaches to solving the above problems so far:-
The underlying assumption of all the above approaches is that algorithms are inherently perilous to the market and pose threats to the fair competition in markets. The heart of the entire pricing algorithms debate revolves around the term ‘contract’ which needs to be revisited and interpreted. The term contract/agreement connotes ‘meeting of mind’ and the meeting of mind suggest the intention of the parties to agree on something. The most strenuous task before the competition law agencies is to ascertain such intention even when such explicit agreement is lacking.In order to curb the above challenges, the intervention can either be in the form of making big legal changes (e.g. Expanding the scope of major offenses like cartelization and abuse of dominant position) or to come up with small interventions (such putting a cap on the price change for more than a certain number of times in a day).
Therefore, competition law authorities can retaliate to such changes by bringing enforcement algorithms which can detect deviant or anomalous behavior in the market and thwart them timely.
 See Virtual Competition by Ariel Ezrachi and Maurice E. Stucke.
 See Virtual Competition by Ariel Ezrachi and Maurice E. Stucke.
Figure taken from here.
The previous post analysed the laws applicable to e-pharmacies in India. The present post looks at the draft e-pharmacy rules and its implications and suggests ways to ensure the smooth application of the law in India.
On August 28, 2018, the government came out with the Sale of Drugs by E-Pharmacy (Draft Rules) for regulating the sale of drugs through e-pharmacies. These Rules aim to put in place an extensive regulatory regime for e-pharmacies and are important in light of the concerns that e-pharmacies pose. Given below are the salient features of the Rules:
Firstly, it will fill the regulation gap that currently exists and will put into place a robust framework to deal with e-pharmacies. Existing laws are inadequate when it comes to addressing the requirements of e-pharmacies, however, the Rules will resolve the issue and prevent misuse of medicines and data.
Secondly, sales of conventional brick and mortar outlets will be adversely affected due to competitive pricing offered by e-pharmacies. Conventional stores may fail to compete with online pharmacies which provide substantial discounts as a result of which offline stores will suffer due to loss of business.
Thirdly, the question of jurisdictional conflicts remains unaddressed as it remains to be seen which law holds the field in case of legal inconsistencies. Several inconsistencies may be spotted in the Draft Rules which need to be resolved if a solution to this issue is to be found.
Privacy forms an important concern for consumers. There need to be adequate safeguards regarding how the data given by a customer is protected and this warrants heavy regulatory compliances in addition to strict penalties in cases of violations. The recent Aadhar judgment also brought to light numerous concerns regarding privacy which need to be kept in mind when implementing a regulatory framework for e-pharmacies.
The Draft Rules prescribe that e-pharmacies would keep data confidential and localized, however, state and central governments can secure access to the data for “public health purposes”. No criterion is prescribed for what would constitute such a purpose and the Rules also fail to mention which authority can compel e-pharmacies to share health information. Such ambiguities pose a threat of misuse of data by government.
Further, the Draft Rules come in direct conflict with the draft of the Personal Data Protection Bill, 2018, which allows for the transfer of data outside India where the patient has expressed his/her consent or where the transfer is necessary for prompt action. The conflict between the two needs to be resolved before the Draft Rules can be implemented.
In conclusion, it can be said that the e-pharmacy regime is changing slowly but steadily. The government has taken cognizance of the fact that there are many health concerns surrounding the sale of medicines online and accordingly has formulated a policy which address these concerns. India is taking a step forward in terms of drafting a full-fledged policy exclusively for e-pharmacies; this is sure to make the lives of a lot of citizens easier.
There is no doubt that the proposed Rules are progressive in nature. By making regulations that stand in conformity with global best practices the government is providing impetus to the continued growth of the e-pharmacy industry. However, there exist issues that need to be resolved sooner rather than later, such as the tendency of the government to misuse data and the conflicting nature of its provisions with those of the IT Act, 2000.
India has a long way to go in governing e-pharmacies and there are a lot of loopholes that need to be plugged. Currently, there is no law governing the actions of drug companies and as a result they are operating with little regard to the consequences of their actions. There is a need to bring the Rules into force as quickly as possible, and despite the government’s promise to implement them within 100 days of the elections they are yet to act in this matter.
It is hoped that concerns about consumer privacy are addressed in a more stringent manner by the government and that provisions are put in place which ensure that misuse of the data of the customers is strictly prohibited. The government should address loopholes in the policy and examine how they come into conflict with existing rules and amend them to resolve such contentious issues.
The growth of the Internet and rise of companies like Amazon and Flipkart has meant that e-commerce is rapidly gaining traction in India. A notable emergence in this regard has been that of e-pharmacies, which provide heft discounts and hassle-free deliveries to attract consumers. Their arrival on the scene has been acknowledged by the government which has tried to bring in a draft policy in order to regulate these entities, however it is yet to be implemented. The existing laws are inadequate when it comes to dealing with e-pharmacies and there is an urgent need for new legislation governing the issue which is precisely what the Sale of Drugs by E-Pharmacy (Draft Rules) aim to do.
The present post aims to analyse the laws currently applicable to e-pharmacies in India, and Part II will look at the consequences of implementing the proposed policy. The focus is on highlighting the lacunae in existing laws and providing suggestions with a view to implementing a better solution.
India does not have a special law dedicated to governing e-pharmacies. Most of the laws which are applicable to e-pharmacies were made at a time when computers did not exist and consequently, they are incapable of addressing the issues faced by e-pharmacies.
The Drugs and Cosmetics Act, 1940 and the Drugs and Cosmetics Rules, 1945 regulate the sale, distribution and storage of drugs and other pharmaceutical products in India. According to the law pharmacies need to necessarily comply with two conditions: first, they need to acquire a license from the state food and drugs authority, and secondly, specified medicines can only be sold on the basis of a prescription provided by a medical practitioner. Recently, a notification passed by the Office of Drugs Controller General clarified that the present law did not distinguish between online and offline pharmacies; which implies that the present Act would govern e-pharmacies as well.
The Information Technology Act, 2000, does not contain specific references to e-pharmacies. In general, any transaction happening on the internet falls within the ambit of the Act and as a result e-pharmacies will be governed by its provisions.
Firstly, the current laws are inadequate when it comes to governing the functioning of e-pharmacies. For instance, the Drugs and Cosmetics Act and Rules mandate that a physical pharmacy have proper storage facilities for the medicines with special requirements pertaining to hygiene etc. However, in the case of e-pharmacies it becomes very difficult to assess where the medicines are stored or obtained from, which increases the possibility of the medicine being of below the required quality.
Secondly, the possibility of repeated use of prescriptions gives rise to the risk drug misuse and addiction. There is a need to regulate the manner in which e-pharmacies sell these drugs as restrictions applicable to conventional drug stores cannot be applied in the case of e-pharmacies.
Thirdly, there exist pertinent concerns regarding the privacy of online customers and the confidentiality of their data which need to be addressed. This aspect is not governed by any law and storage of customers’ data by e-pharmacies could prove to be problematic in the long run.
Fourthly, accountability of e-pharmacies is an increasing concern as some pharmacies claim that by virtue of their position as “intermediaries” they should not be held accountable for any problems that may arise in the future. Intermediaries are governed by the IT Act and Section 2(w) classifies online market places like Amazon and Flipkart as intermediaries. Section 79 provides them with immunity from liability for third party information provided they conform to the requirements of Section 79(2). Rule 3 of the Information Technology (Intermediaries Guidelines) Rules 2011 makes intermediaries responsible for informing the users about its policies and provides for a redressal mechanism. However, it fails to impose a high enough burden on information uploaded to the portal, as a result of which serious liability cannot be imposed on e-pharmacies.
The picture that emerges is that of inadequate laws governing the functioning of e-pharmacies, with the varied approaches taken by courts posing another problem. The Madras High Court had earlier imposed an interim ban on e-pharmacies, which was later reversed by a division bench order. Similarly, the Delhi High Court had also banned e-pharmacies however this was overturned by the government’s legislation which was upheld in a later order.
It was to deal with the confusion existing over e-pharmacies that the government came up with draft policy, however this is yet to be implemented. The next part will analyse the draft rules and highlight some concerns surrounding the legislation and will attempt to show the way forward for the regulation of e-pharmacies in India.