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Curbing Online Counterfeiting in India: Need of the Hour

March 7, 2020

By Lucy Rana and Isheta Srivastava

Introduction

From the internet savvy younger generation to the older generation with health problems to a 10-year-old children who cannot be sent to shop alone, everyone has their own taste in shopping for simplest things. Newer e-commerce websites are popping up every other day in a fertile marketplace like India to tap into the huge number of eager consumers being regularly introduced for the convenience of shopping over the Internet. However, this unprecedented growth, has nurtured the problem of counterfeit/fake products, which, under the guise of anonymity provided by the online market interface, can easily be passed off to the lay consumer.

Online Counterfeiting- Statistics

Selling of counterfeits is a big business –  The trade in counterfeited goods is worth a whopping $462 billion (£321bn) a year, according to the most recent figures from the OECD and the EU’s Intellectual Property Office, with a 2017 report predicting it could hit an astonishing $2.3 trillion (£1.7 trillion) by 2022.[1] Further as per the Authentication Solution Providers’ Association or ASPA India suffers a loss of over one lakh crore rupees per annum owing to the sale/purchase of counterfeit goods by consumers across all sectors.[2] This, naturally, is a great concern for genuine brand-owners, looking to protect the reputation of their brands and their sources of revenue.

In the ‘one click technological’ world of today, sale of counterfeit products is not just a menace for the real world but is also an alarming peril for online world especially for online shoppers. The e-commerce world is an oyster of opportunity for the  sellers of counterfeit products online, as the online shoppers usually have limited options of checking the product before actually buying it.

There are various surveys done by different authorities that has unleashed an increasing torrent of counterfeit products taking over the online market.

A survey conducted by LocalCircles shows that 38% consumers out of 6,923 respondents have received a counterfeit product from an e-commerce site in the past one year. Also, among the leading ecommerce sites, consumers said they had received counterfeit products on Snapdeal at 12%, while 11% said Amazon and 6% cited Flipkart, the survey showed.[3]

Another survey conducted by market research platform Velocity MR showed that every one out of three online shoppers has received fake products while shopping online in the past six months. The survey was conducted among 3,000 respondents.[4]

A rise in number of cases and complaints by the customers against E-commerce sites has compelled the Government as well as some individuals to take some stringent actions against the menace of sale of counterfeit goods online. For instance, there are innovators who are taking help of Artificial Intelligence and innovating technology to crack down on fake products. One such technology provides algorithmically coupled tags, one is open and the other protected. The open tag is visible on the product and can be scanned by anyone with a smartphone to get the information about the product and its authenticity. Once a product is purchased, the buyer has access to the protected tag, which is kept inside the product seal. After scanning the protected tag, the user gets the authenticity information with certainty and the product is registered to the customer. The tags are connected, monitored and protected by algorithms and artificial intelligence on the cloud in such a way that if anyone tries to replicate the tags, it is recorded, and the copied product gets invalidated.[5]

Curbing Online Counterfeiting and Role of E-commerce

The need of the hour for subtracting the number of fake products from the online market is that, the e-commerce firms should take a step forward and focus on adopting a holistic approach to their anti-counterfeiting strategy which combines the use of technology as well as standards. Based on various factors like, cost and ease of adoption across product categories, the need for harmonious linkage between product and information flow in the supply chain across trading partners, can be considered as the best possible solution.

Further, to keep an eye and check on the sites selling fake products the E-commerce portal should build a good review mechanism to keep a regular check on the quality of the products sold on their platforms. The e-commerce marketplaces need to put in place processes to ensure quality goods and monitor those sites selling fake products. They should also take down sites selling such fake products. The fake manufacturers and bogus sellers are using loopholes in Information Technology Act to their favour and making unaccounted money from the same.

Recently, in US the Department of Homeland Security released an action plan aimed at cracking down on counterfeit goods. The action plan mentions that the government will apply increased scrutiny of e-commerce, including the third-party sellers who sell goods on the major online sites as well as shippers and operators of warehouses where merchandised is stored.[6]

In India, also various steps have been taken by various government bodies to define the responsibility of e-commerce in fighting fakes. The current regulatory regime with regards to e-commerce entities in India can be found under:

S. No. Relevant Provision Relevant Act
(1) Section 79: Exemption from liability of intermediary in certain cases–

(1)    Notwithstanding anything contained in any law for the time being in force but subject to the provisions of sub-sections (2) and (3), an intermediary shall not be liable for any third party information, data, or communication link made available or hosted by him.

(2)    The provisions of sub-section (1) shall apply if–

(a)     the function of the intermediary is limited to providing access to a communication system over which information made available by third parties is transmitted or temporarily stored or hosted; or

(b) the intermediary does not–

(i) initiate the transmission,

(ii) select the receiver of the transmission, and

(iii) select or modify the information contained in the transmission;

(c) the intermediary observes due diligence while discharging his duties under this Act and also observes such other guidelines as the Central Government may prescribe in this behalf.

(2) The provisions of sub-section (1) shall not apply if–

(a) the intermediary has conspired or abetted or aided or induced, whether by threats or promise or otherwise in the commission of the unlawful act;

(b) upon receiving actual knowledge, or on being notified by the appropriate Government or its agency that any information, data or communication link residing in or connected to a computer resource controlled by the intermediary is being used to commit the unlawful act, the intermediary fails to expeditiously remove or disable access to that material on that resource without vitiating the evidence in any manner.

Explanation. –For the purposes of this section, the expression ―third party information‖ means any information dealt with by an intermediary in his capacity as an intermediary

Information Technology Act, 2000
(2) Rule 3: Due diligence to be observed by intermediary — The intermediary shall observe following due diligence while discharging his duties, namely : —

(1)       The intermediary shall publish the rules and regulations, privacy policy and user agreement for access-or usage of the intermediary’s computer resource by any person.

(2)       Such rules and regulations, terms and conditions or user agreement shall inform the users of computer resource not to host, display, upload, modify, publish, transmit, update or share any information that —

a)      belongs to another person and to which the user does not have any right to;

b)      is grossly harmful, harassing, blasphemous defamatory, obscene, pornographic, pedophilic, libelous, invasive of another’s privacy, hateful, or racially, ethnically objectionable, disparaging, relating or encouraging money laundering or gambling, or otherwise unlawful in any manner whatever;

c)      harm minors in any way;

d)      infringes any patent, trademark, copyright or other proprietary rights;

e)      violates any law for the time being in force;

f)       deceives or misleads the addressee about the origin of such messages or communicates any information which is grossly offensive or menacing in nature;

g)      impersonate another person;

h)      contains software viruses or any other computer code, files or programs designed to interrupt, destroy or limit the functionality of any computer resource;

i)       threatens the unity, integrity, defence, security or sovereignty of India, friendly relations with foreign states, or public order or causes incitement to the commission of any cognizable offence or prevents investigation of any offence or is insulting any other nation

(3)       The intermediary shall not knowingly host or publish any information or shall not initiate the transmission, select the receiver of transmission, and select or modify the information contained in the transmission as specified in sub-rule (2):

provided that the following actions by an intermediary shall not amount to hosing, publishing, editing or storing of any such information as specified in sub-rule: (2) —

a.       temporary or transient or intermediate storage of information automatically within the computer resource as an intrinsic feature of such computer resource, involving no exercise of any human editorial control, for onward transmission or communication to another computer resource;

b.      removal of access to any information, data or communication link by an intermediary after such information, data or communication link comes to the actual knowledge of a person authorized by the intermediary pursuant to any order or direction as per the provisions of the Act;

(4)       The intermediary, on whose computer system the information is stored or hosted or published, upon obtaining knowledge by itself or been brought to actual knowledge by an affected person in writing or through email signed with electronic signature about any such information as mentioned in sub-rule (2) above, shall act within thirty six hours and where applicable, work with user or owner of such information to disable such information that is in contravention of sub-rule (2). Further the intermediary shall preserve such information and associated records for at least ninety days for investigation purposes,

(5)       The Intermediary shall inform its users that in case of non-compliance with rules and regulations, user agreement and privacy policy for access or usage of intermediary computer resource, the Intermediary has the right to immediately terminate the access or usage lights of the users to the computer resource of Intermediary and remove noncompliant information.

(6)       The intermediary shall strictly follow the provisions of the Act or any other laws for the time being in force.

(7)       When required by lawful order, the intermediary shall provide information or any such assistance to Government Agencies who are lawfully authorised for investigative, protective, cyber security activity. The information or any such assistance shall be provided for the purpose of verification of identity, or for prevention, detection, investigation, prosecution, cyber security incidents and punishment of offences under any law for the time being in force, on a request in writing staling clearly the purpose of seeking such information or any such assistance.

(8)       The intermediary shall take all reasonable measures to secure its computer resource and information contained therein following the reasonable security practices and procedures as prescribed in the Information Technology (Reasonable security practices and procedures and sensitive personal Information) Rules, 2011.

(9)       The intermediary shall report cyber security incidents and also share cyber security incidents related information with the Indian Computer Emergency Response Team.

(10)   The intermediary shall not knowingly deploy or install or modify the technical configuration of computer resource or become party to any such act which may change or has the potential to change the normal course of operation of the computer resource than what it is supposed to “perform thereby circumventing any law for the time being in force:

provided that the intermediary may develop, produce, distribute or employ technological means for the sole purpose of performing the acts of securing the computer resource and information contained therein.

(11)                       The intermediary shall publish on its website the name of the Grievance Officer and his contact details as well as mechanism by which users or any victim who suffers as a result of access or usage of computer resource by any person in violation of rule 3 can notify their complaints against such access or usage of computer resource of the intermediary or other matters pertaining to the computer resources made available by it. The Grievance Officer shall redress the complaints within one month from the date of receipt of complaint.

 

Intermediary Liability Guidelines 2011

Additionally, steps are now been taken to amend old regulations and also to bring in regulations that would specifically regulate the e-commerce entities in India. Some of these are:

Act Year Passed by Department Ministry In force from Scope of Law

 

Draft Information Technology [Intermediaries Guidelines (Amendment) Rules] 2018 Department of Information Technology Ministry of Electronics & Information Technology Currently not in force The rules propose certain changes in the 2011 Rules and it further expand the liabilities and functions of the Intermediaries and to oversee that the social media platform is not misused.
Draft E-Commerce Guidelines for Consumer Protection 2019 Department of Consumer Affairs Ministry of Consumer Affairs, Food & Public Distribution Currently not in force It deals with and lays down the guidelines an E-Commerce business needs to follow, such as ‘when intermediaries have to incorporate a company’, ‘deployment of automated tools for removing unlawful content’. Once finalized, the Draft Guidelines will regulate the E-Commerce sector from the point of view of curbing sale of counterfeit goods, unfair trade practices, safeguarding consumer interest and preventing fraud in India. All E-Commerce players in India will have to adhere to the new guidelines, when they come into effect.
Draft National E-Commerce Policy 2019 Department of  Industrial Policy & Promotion Ministry of Commerce & Industry Currently not in force Its aim is to realize the potential growth of the E-Commerce industry and is a framework drafted by taking due input from the players in the E- Commerce market. This policy aims at devising investment, infrastructure, regulation strategies to promote the growth of the E-Commerce industry and not lay guidelines and conform the E-Commerce sector to it. The legal responsibilities of Intermediaries are dealt with in the draft policy under the following heads:

  1. Anti – Counterfeiting Measures (Part III. C of the draft National E-commerce Policy, 2019)
  2. Anti-piracy measures (Part III. D of the Draft National E-commerce Policy, 2019)
  3. Data protection and privacy (Part 1.1, 1.2.1.3 and 1.4 of the draft National E-commerce Policy, 2019)

Conclusion

Basis the case of Kent Ro Systems Ltd & Anr v Amit Kotak & Ors, the measure that e-commerce entities follow is that they have procedures in place to keep a tab on the genuineness of products, however, the problem still persists because of the large number of sellers currently associated with it.

However, focusing on the immense growth that e-commerce industry has shown in India, it is important to realize that e-commerce sites are now playing an essential part of virtual shopping market and are constantly expanding their intermediary wings by becoming a part of commercial transaction happening on their online portal. Therefore, it is imperative that they take it as their responsibility to fight online counterfeiting, as numerous shoppers have incorporated their faith in them. The large number of sellers can be considered but there are lot of options to curb this problem with the help of Artificial intelligence and technology.

At the same time, it is also important to mention that the e-commerce also has some legal rights as an intermediary. Hence, it is important to know and understand their rights and balance it out with the need to combat the menace of counterfeiting on the internet.

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[1] https://www.oecd.org/newsroom/trade-in-fake-goods-is-now-33-of-world-trade-and-rising.htm

[2] https://www.mondaq.com/india/Intellectual-Property/845040/India-Loses-1-Lakh-Crore-Rupees-Annually-Due-To-Counterfeit-Market-ASPA

[3] https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/a-third-of-ecommerce-buyers-get-counterfeit-products/articleshow/63889378.cms

[4] https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/a-third-of-ecommerce-buyers-get-counterfeit-products/articleshow/63889378.cms

[5] https://timesofindia.indiatimes.com/people/this-startup-uses-ai-algorithms-to-crack-down-on-fake-products/articleshow/67000983.cms

[6] https://apnews.com/e71e366c8fd1f65d98a7dc9685d66462

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