Ink hasn’t yet dried on copious write-ups on the new rules of the game from 1 February, 2019 for foreign direct investment (FDI) in marketplace e-commerce, yet tinkering and doublespeak already started sadly from the same officialdom that read the riot act to foreign e-commerce platforms operating in India.
One of the clarifications was that marketplace model of e-commerce and exclusive dealings were contradiction in terms. Ergo, exclusive sale via a marketplace portal operating through the 51 percent automatic FDI route was prohibited from 1 February, 2019.
In other words, it would not be kosher for Xiaomi (used as metaphor) to sell its new improved version of smartphone exclusively through Flipkart (again used as metaphor) in which Walmart owns a 77 percent stake. Sole selling agencies have always been looked with suspicion as fostering anti-competitive practices to the detriment of competitors like multi-national company (MNC) Amazon or desi Snapdeal as well as to consumer interest.
While this is the new rule of the game, the draft e-commerce policy put up for comments by Department of Industrial Policy and Promotion (DIPP) contains the following rules that could and would amount to the government blowing hot and cold on the issue:
3.11) Trade mark owners shall be given the option to register themselves with e-commerce platforms. Whenever a trade-marked product is uploaded for sale on the platform, the platform shall notify the respective trade mark owner. This facility shall be put in place by platforms and made available for interested trade mark owners.
3.12) In case trade mark owners so desire, e-commerce platforms shall not list/offer for sale, any of the owners’ products without prior concurrence. However, in case trade mark owners choose to opt for this, they would have to undertake to respond to platforms within a certain time limit.
Should the above draft be made operational, Xiaomi will have to register itself with all e-commerce portals operating in India desi as well as foreign-owned, more to warn them with a caveat — if any seller wants to sell our brand through your portal, you should not allow him to do so unless we give our express permission within the prescribed time. This seemingly simple if not innocuous regime has the following implications:
1) Xiaomi and Flipkart can revert back to the earlier practice of exclusive flash sale which was stopped as recently as from 1 February 2019 through a simple expedient of Xiaomi registering itself with Amazon which though willing to sell Xiaomi’s products would not be able to in the absence of express consent from the brand owner Xiaomi.
Thus by cutting off all competitors, only one seller i.e., Flipkart would remain thus restoring the practice of exclusive sale this time round not through explicit arrangement but through fait accompli — frustrating the rival portals.
2) Marketplace by definition is a portal offering sellers without discrimination the facility to sell through it on same terms in the matter of logistics like warehousing and transportation as well as fee or commission. It would be a travesty now to shut out competition this time round among portals or e-commerce platforms all of which swear by the marketplace model.
3) E-commerce portals will have to be on their toes all the time — ensure that no seller, existing or new, sells a brand for which the brand owner has issued it a caveat. It is one thing for the Supreme Court not to hear a matter unless the one who has obtained caveat is also heard but quite another for an e-commerce platform to keep note of thousands of brands and hold a wannabe seller on his tracks till the brand owner gives its consent.
How on earth can Flipkart register all the brands which it would be flooded with? After all it is not an international repository of all brand related information. How would it sift the grain from the chaff i.e., determine the true owner of the brand in case of a dispute?
DIPP has not only undermined and contradicted its own rule so soon after making it but also has made life difficult for e-commerce portals. Furthermore, it is unfair to expose an e-commerce portal to the intricacies involved in the thicket of brand legalities and what is more expose it to charges of violation of one’s brand rights it is ill-equipped to ensure.
An online portal swearing by marketplace model cannot be made responsible for the shenanigans of one or more of its sellers
(The writer is a senior columnist and tweets @smurlidharan)
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Updated Date: Feb 25, 2019 18:57:24 IST