E-commerce policy to crack down on counterfeit makers, resellers

A decade ago, online sellers like Flipkart, Snapdeal and Amazon arguably had immunity when it came to liability for the authenticity of products sold on their platforms.

Counterfeit electronic goods, knock-offs of apparel, cosmetics and over-the-counter pharmaceutical products were common-place online. 

However, the tide started to first turn after a judgment against dotcom seller Baazee.com in 2004 for selling a sleazy clip of students on its site. 

That set the stage for how laws were to apply for intermediaries, who neither customers nor original equipment manufacturers (OEMs) could earlier take on. This is because of the enormous customer reach and influence they possessed. 

Today, that’s a thing of the past given the way the e-commerce draft guidelines are shaping up, according to professionals tracking it. 

Spurring it is a growing number of lawsuits between both original manufacturers and copycats as well as manufacturers and online retailers, also referred to as the “intermediary” in the e-commerce world.  One e-commerce expert said policymakers are actually “gunning for large online intermediaries on the subject of counterfeiting.” Counterfeiting is a real and serious problem. According to the Authentication Solution Providers’ Association (ASPA), India suffers a loss of over Rs 1 trillion a year owing to the sale and purchase of counterfeit goods by consumers. 

Historically, intermediaries have enjoyed a level of protection because of the Information Technology Act (2000) that gave it ‘safe harbour’ provisions, which are still part of related statutes. However, Nandan Pendsey, partner at law firm AZB & Partners, said that “an intermediary is meant to be someone that merely acts as a ‘conduit’ and does nothing to influence or alter the content of the communication.” 

The government’s new e-commerce policy being drafted is expected to zoom in on four broad areas. They include data access, anti-counterfeiting, regulations around market-place and inventory models, and consumer protection measures.

“The decision of the Delhi High Court in Christian Louboutin SAS vs Nakul Bajaj & others indicates whether an online marketplace may be construed as an ‘intermediary’ depends on its involvement in one or more of the activities as stated in that case. They include providing transport, warehousing and quality assurance for products listed on the platform, re-packaging the product using its own packaging, advertising the products on the platform and providing authenticity guarantees,” said Pendsey.  

Pendsey added, “The court also underscored the importance of observing the necessary due diligence as prescribed in the Intermediaries Guidelines under the IT Act.” 

In recent times, laws have come into place, requiring a seller to offer certificates of authenticity, identification details that allow tracing and create an overall platform that is much more consumer-friendly and transparent. The House of Anita Dongre, a top fashion manufacturer has been on the receiving end of having its designs ripped off. “The problem became so rampant that we had to take the legal route against a few prominent offline retailers in New Delhi,” said Kavindra Mishra chief executive officer (CEO) of the fashion house. “It’s common to see our designs from brands like Global Desi copied blatantly by smaller fly-by-night operators and we pursue all possible means to restrain them.

We work with all leading online players to ensure our brands are represented correctly on their portals,” said Mishra.

The fight around authenticity is reflected in the growing number of lawsuits between both OEMs and copycats as well as manufacturers and online retailers. Mishra, who was earlier CEO of Pepe Jeans India, said it’s not uncommon for the total counterfeit sales or value of a product to be the same or even higher than the original.

Ganesh Prasad, partner who specialises in technology at law firm Khaitan and Co., said a stronger regulatory framework is required to check counterfeit products. “A centralised state body which only checks on the issue of counterfeits is one way to do it,” he said. 

“Today, in America also, there is a law that strikes down counterfeiting and to my mind that is highly prescriptive. An intermediary must of course do diligence and checks when onboarding a seller.”  Prasad added that in addition to e-commerce, there is an urgent need for a separate regulator for counterfeits. This is because it’s important to remember “that copycats may be sold online but are made offline.”