Who is liable in platform business?

Cooperative approaches between the government and players in the e-commerce space will help improve self-governance and ease regulatory pressures

Who is liable in platform business?

While the central and state governments are grappling with the issue of regulating taxi aggregators after the unfortunate Uber incident in Delhi, it is time we conceptualise the appropriate taxonomy of e-commerce companies and build regulatory and governance guidelines accordingly, so that we can avoid broad-brush reactions such as a total ban on such services.

E-commerce companies provide a clear value to consumers, and have an important role to play in leveraging new technologies to enable broader economic development, and hence it is in the interests of all stakeholders to evolve approaches that can enable the growth of such enterprises.

A taxonomy of e-commerce companies needs to take into account their public positioning, their legal articulation, as well as the perceptions and expectations of their customers. First, there are e-commerce companies who mimic their brick-and-mortar business models. They act as retailers in the internet space, selling goods much the same way as they sell through their physical stores. The examples include SapnaOnline (books), UniverCell (mobile), (movie tickets), (sweets) and (bus services). Since they have the brick-and-mortar brand, consumers trust these e-stores and, in case of a problem, they have the solace that they could possibly walk into any of their physical stores and lodge complaints, return products and follow them up. There is an associated face to these e-commerce stores. Though their physical stores are governed by extant rules such as the Food Safety and Standards regulation, the Motor Vehicles Act and associated state regulations, should these rules be equally applicable to their e-stores as well? Common sense indicates it should be so, as the products or services offered through their e-stores are no different from those offered in their physical stores.

Second, there are essentially directory services that enable customers to get information about products or services. The examples include: (directory listing), (price comparison), Zomato (restaurants), ThinkVidya (tutors and schools), (maids, plumbers and alike), (hospitals and doctors). These firms enable buyers and sellers to meet and complete the transactions.

Though these platform providers do some due diligence to select whom to list and also provide rating services, the onus on successful partnership between buyers and sellers is normally not that of the platform provider. Given the low barriers to entry in such a service, and associated competition in this market, the good and reliable ones survive.

Third type is a mediation platform (also called the marketplace) that connects buyers with a seller that has associated brand and possibly a physical brick-and-mortar business. The examples include (bus tickets), (movie tickets), (airline tickets), (hotels), Flipkart (merchandise). These are often niches in that each serves a specific industry vertical and often has a finite number of brands and sellers enrolled in the platform. The platforms do more due diligence in selecting the sellers compared to the second type. For example, your local run down theatre is not listed in and an unknown dingy lodge is not present in Quality of products or services is taken seriously and the platform providers do provide enough information to the buyers including ratings and facilities offered so that buyers make informed decisions. However, the payments for products and services are handled by the platform provider and the platform acts as a one-point contact for the customer. Moreover, these platform firms build brands through advertising and other means to attract both buyers and sellers and gain their trust. Due to the above role, these platforms should bear limited liability and responsibility for any errors in the completion of any transaction that passed through their platforms. For example, these platform providers should have a customer grievance cell and toll-free numbers for the same. They should also clearly state cancellation and refund policies for the placed orders. Hence, a subset of regulations that is applicable for the brick-and-mortar stores should be applicable for these e-stores as well.

The last is the trickier set. These are aggregators and platforms which sell goods and services under their e-brand, which do not have physical counterparts, which act as one-point contact for the customer, and which source their products and services both from recognised sellers/brands as well as from individuals and aggregators who may not have any brand or even physical presence. These are pure e-retailers and examples include (food), (groceries),, and (taxis). This is the set which is under much scrutiny nowadays. However, these platforms are the ones which promise to bring sanity and economic prosperity to the unorganised and informal sector workforce in India. These platforms enable products and services to be made available which otherwise would not have been noticeable, and provide business opportunities for micro-entrepreneurs. Examples include the taxi driver in your locality; a cook preparing food out of home in your neighbourhood, and, the Silicon Valley start-up that enables home-stays for travellers around the world. The platforms through their reach of potential buyers provide a unique opportunity to the seller to scale up and reap the associated economic benefits. This results in sellers multi-homing onto platforms such as a taxi driver can provide his services to both olacabs and taxiforsure; home-stays can be provided to multiple parties, separated temporally, allowing them to seize opportunities for additional or higher value business.

The responsibilities and liabilities of these platforms are still evolving. For example, if one gets a spoilt food delivered by a platform provider, who should be liable—the one who delivered it (the platform) or the one who produced it (the seller)? Today, most e-commerce companies provide reasonable options for returns and refunds in the case of deficient products or poor delivery service, but there are situations where the liability could and should extend beyond just a refund. While the platforms may take a “caveat emptor” approach in their legal position on their website, this may not be tenable in the eyes of the consumer and even the government. This is somewhat similar to the many cases where infringement of copyrighted material makes not only infringer culpable but even the platform that facilitated the infringement to be culpable. The answer to this question is not very obvious. However, use of the “tort law” to delineate between (1) intentional wrongdoing, and (2) careless and negligence in causing loss financially or otherwise to the victims is essential in propounding strict or limited liability to the platform providers.

In all the above types of e-commerce platforms, the main advantage is of dis-intermediation through technology and hence the associated cost arbitrage. While the e-commerce platforms in general bring down prices of products and services and hence enable quick scale-up on the downward sloping demand curve, they also pose certain risks to consumers or third parties associated with their business operations. The case for negligence is strong if the firm can take simple, inexpensive precautions to minimise wrongdoing. On the other hand, the case for negligence is weak when the precaution is difficult or expensive and the benefits of platform use are much larger than the cost of risks. Needless to say, the cost of actions to minimise these risks could be high, and could threaten the economics of the business models of some of the companies, but that could well be the “cost of doing business”, and managing that may separate the winners from the rest. As an example, precautionary steps such as driver credential verification should not be very expensive and time-consuming for the platform providers to neglect, and should be a reasonable expectation for a taxi service.

Companies shedding risks and never admitting culpability through simple postings on their websites is not the solution. So, what is the solution?

First, the laws and regulations should support the platform economy due to the massive social benefits that these tend to provide. For example, while many countries are banning sharing services such as Airbnb, the City of Amsterdam promotes it; enabling home owners to rent their premise, earn income and pay additional tax! On the other hand, these platform firms should not be negligent and should, in fact, help lawmakers and regulators with useful data due to having their feet on the ground. For example, in some cities, health inspectors are using Yelp ratings to identify restaurants that may be sources of food poisoning. Taxi sharing companies could help government create a public and dynamic database of drivers’ credentials (and ratings) for the benefit of not only the industry but also the police and security agencies. Such cooperative approaches, which are motivated by improved self-governance, can actually help reduce regulatory pressures.

Let us make it a win-win for all.

The authors are professors at the International Institute of Information Technology, Bangalore

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