A CRITICAL ANALYSIS ON

E-CONSUMER PROTECTION

Torts II | II Trimester.

Swastika Thourwal
I.D. No. 2343

Tenzing Namgyal Bhutia

I.D. No. 2344

I Year B.A. L.L.B. (Hons.)

NATIONAL LAW SCHOOL OF INDIA UNIVERSITY

BANGALORE

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TABLE OF CONTENTS

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 RESEARCH METHODOLOGY

AIMS AND OBJECTIVES

The aim of this research paper is to understand the need for protection of consumers in e-
commerce marketplace as well as understand various consumer issues, and how they can be
addressed through modifications in the existing legislations.

The objective of the research paper is to analyse the drawbacks of e-commerce industry and its
repercussions on consumer rights, and obtain a greater understanding of the

SCOPE AND LIMITATIONS

The scope of the project includes the current scenario of the existing legislations and guidelines
for consumer protection at the global and Indian level.

RESEARCH QUESTIONS
o What is e-commerce?
o What are features, advantages and disadvantages of e-commerce?
o What is the need for consumer protection?
o What are the existing legislations for addressing consumer concerns?
o What measures and modifications need to be made?

SOURCES OF DATA
The researchers have primarily relied on secondary sources such as books and scholarly articles
in writing this paper. Certain primary sources such as judgments and digest notes of case laws
have also been used.

MODE OF CITATION
The NLS Guide to Uniform Legal Citation has been used throughout the project.

CHAPTERISATION

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 INTRODUCTION

Modern business has witnessed a paradigm change in the past few years, which is of amplitude
never experienced in the past. This new paradigm is called e-commerce. Rapid growth of
Internet technology over the past decade, combined with simple access devices such as
smartphones, laptops, and tablets, caused a major surge in the sale and purchase of goods and
services online. This has caused the world to move from a traditional economy and enter into the
era of e-commerce.

More consumer demand occurs on the Internet than any other medium. In a short span of about a
decade, the Internet as succeeded in capturing a major share of consumers. One of the prime
causes to which e-commerce owes its success is the relative convenience of making cross-border
transactions right from your home at the click of a button. Such ease in making complicated
transactions within a short period of time gives e-commerce an edge over traditional brick and
mortar commerce. This is a clear indication of the huge potential and influence that the Internet
holds in changing the economy.

However, the e-commerce marketplace has evolved dramatically in recent years and consumer
trust in such a complex and interactive environment has become crucial. With the emergence of
e-commerce have emerged to new and complicates problems for e-consumers. There has been a
dissonance between consumers expectations of what they can do with their growing purchasing
power, and their knowledge and awareness of their rights. Therefore, it becomes imperative that
consumer protection issues be adapted to the current circumstances, and a proper framework
must exist for the same to fortify fair business methods, consumer education, protection of digital
information, and alternate dispute resolution.

The current legislation in India, which primarily deals with the aforementioned issues, is the
Consumer Protection Act, 1986. However, the Act being a relatively old piece of legislation,
largely fails when it comes to addressing the problems in the e-commerce industry.

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This paper aims to discuss the concerns that consumers are facing as they interact online and try
to understand how to best protect consumers when serious issues arise. The researchers start by
laying down the basics of the e-commerce industry, discussing its nature and key features. They
continue by illustrating the advantages, which have led to the popularity-surge of e-commerce
among consumers. The researchers would then contextualise the problem at hand, by discussing
the recent ethical lag in e-commerce. They proceed by listing down the flaws and
disadvantages of e-commerce, and how they lead to the need for consumer protection.

The paper further talks about the various models and guidelines followed globally. The
researchers conclude by suggesting appropriate measures and modifications.

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I. E-COMMERCE AND ITS DEVELOPMENT IN THE GLOBAL MARKETPLACE

The speed and degree to which e-commerce has infiltrated the very fabric of our nicety, faster
and more pervasively than any other entity, makes it critical than its various dimensions be
examined. In 1993 when the first commercial websites on the World Wide Web began to appear,
business analysts considered e-commerce to be a new, possibly interesting paradigm that might
develop to a point that it would impact business practices. By 1998 business were scrambling to
develop and operationalise their own e-commerce strategies.1 A reflection of the extent to which
business has embraced e-commerce today is the startling statistic that the e-commerce market in
India is expected to cross Rs. 2,11,005 crore by December, as per the Internet and Mobile
Association of India (IAMAI) and IMRB.2

A. What is E-Commerce?

E-commerce can most simply be defined as doing business electronically. 3 As a general concept,
it includes any form of business transaction in which the parties interact electronically rather
than by physical exchanges or direct physical contact. 4 A pure definition of electronic
commerce is one by Roger Clarke, who has been working electronic commerce related topics
since the late 1980s. He claims that e-commerce is usefully defined as, the conduct of
commerce in good and services with the assistance of telecommunications and
telecommunications-based tools. A very useful definition is the one of A.R. Lodder, in which he
stated that e-commerce refers to the commercial activities concerning goods and services as well
as any business transaction, where participants are not necessarily at the same physical location

1
B. Kracher and C.L. Corritore, Is There a Special E-Commerce Ethics?, 14(1) BUSINESS ETHICS QUARTERLY
72, (2004),
2
N. Alawadhi, Indias e-commerce market expected to cross Rs 2 lakh crore in 2016: IAMAI, of THE ECONOMIC
TIMES (June 7, 2016) available at http://economictimes.indiatimes.com/industry/services/retail/indias-e-commerce-
market-expected-to-cross-rs-2-lakh-crore-in-2016-iamai/articleshow/52638082.cms (Last visited on Nov 27, 2016).
3
B. Kracher and C.L. Corritore, Supra note 1, at 74.
4
K. Alboukrek, Adapting To A New World Of E-Commerce: The Need For Uniform Consumer Protection In The
International Electronic Marketplace, 20(3) THE GEORGE WASHINGTON UNIVERITY INTERNATIONAL
LAW REVIEW 425, (2002).

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and therefore do apply telecommunication means.5

There are several categories of e-commerce. The primary ones are business-to-business (B2B),
consumer-to-consumer (C2C), and business-to-consumer (B2C). While B2B is by far the largest
of the three, B2C is typically the category most people think of when discussing e-commerce.6
An example of a B2C website is amazon.com. In B2C e-commerce, a business sells directly to a
consumer. This model is most like direct sales or traditional retail sales. The least extensive is
consumer-to-consumer (C2C), which refers to online consumers selling to other online
consumers. Online auction houses such as eBay or eShopBid employ this model.

B. Features of E-Commerce

While there are a multitude of characteristics one could identify as defining of e-commerce, it is
contended that all of them are subsumed by a foundational set of five. These five are directly
related to the medium over which e-commerce occurs, that is, the Internet. They drive the new e-
commerce model of business and make it an environment unlike that of traditional commerce.
The five features are interconnectedness, simplicity, speed, virtuality, and cost.7 In the rest of this
section we describe the special features of e-commerce.

Interconnectedness. The medium of e-commerce being the internet, therefore the vast
interconnectedness provides a rich nexus of paths businesses can use to connect to their vendors,
suppliers, consumers, and strategic partners and so extended their ability to provide their
products and services. From consumers perspectives, the extensive interconnectedness opens
virtually unlimited access to all types of e-commerce businesses on a global scale, reliably and at
a low cost. Not only are products and information available, but consumers can also come
together in focused communities to share ideas, insights, and common experiences regardless of
their physical location. Hence, the more interconnected the network the more valuable the

5
H. Huffman, Consumer Protection in E-Commerce of (D. of Master of Laws, University of Cape Town, 2004)
[unpublished].
6
M. Budnitz, Privacy Protection for Consumer Transactions in Electronic Commerce: Why Self-Regulation Is
Inadequate, 49(4) SOUTH CAROLINA LAW REVIEW 848, (1998).
7
J.P. Neuenburg, MARKET-DRIVING BEHAVIOUR IN EMERGING FIRMS, 57 (2010).

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network for conducting e-commerce.8

Simplicity. With respect to business, e-commerce provides an unprecedented low barrier to entry.
Since it can be relatively simple and inexpensive to construct a commercial website versus
starting a global business in the brick and mortar world, small start up businesses can compete on
a more level playing field with larder, more established companies. Hence, in the e-commerce
environment we see small businesses conducting e-commerce alongside industry giants.9

Speed. While all businesses have to contend with keeping up with the competition, speed in the
e-commerce world has special significance. The implications of speed are major. For example,
consider competition in e-commerce, which is referred to as hypercompetition. 10 This term
reflects the competitive environment created by the high-speed nature of online business.
Incredibly short product cycles make development and time to market a frantic race. Decision
timeframes are extremely short, and thus competition proceeds at breakneck speeds as
consumers compare competitors that are only a click away.

Virtuality. As e-commerce takes place in an online, virtual environment, the importance of time
and location face since the services and products are made available on a 24 our basis seven days
a week in a global marketplace.11 Brick and mortar storefronts are no longer a requirement for
business, and indeed many e-commerce companies have no physical presence beyond an office
or a warehouse. Virtuality also facilitates a blurring of the traditional lines between businesses as
they connect to their vendors, suppliers, and others to create virtual enterprises. These strategic
partnerships and electronic marriages in which business resources are interlocked extend the
ability of businesses to provide their products or services and maximise their effectiveness and
competitive value. Additionally, virtual communities created among the consumers of e-
commerce businesses strengthen the bond between consumers and suppliers by providing extra
value to the purchasing experience.12

8
B. Kracher and C.L. Corritore, Supra note 1, at 74.
9
M.D. Maury and D.S. Kleiner, E-Commerce, Ethical Commerce?, 36(2) JOURNAL OF BUSINESS ETHICS 24,
(2002).
10
Id.
11
B. Kracher and C.L. Corritore, Supra note 1, at 76.
12
B. Kracher and C.L. Corritore, Supra note 1, at 77.

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Cost. The potential for substantial savings is another significant characteristic of e-commerce.
This is primarily related to cost and time savings due to automation of processes, lower
overheads, and large economics of scale. Automation of processes and seamless, automated
communication with suppliers can cut costs significantly as well as reduce product development
time. Add to that the convenience when customer can access products and services at any time,
and one begins to see the financial appeal of e-commerce.13 The focus of e-retail websites, like
most others, is on accumulating critical masses of consumers. This requires relentless marketing
on an enormous scale, as well as employing strategies to bring customers to websites and keep
them coming back. This is particularly challenging since the simplicity and interconnectedness
of the Internet make competition just a click away.14

C. Benefits of E-Commerce

Electronic commerce provides unparalleled opportunities for business and exchange. The OECD
has said that there is great potential for tis new commercial tool to change he economic
landscape, allowing goods and services to be delivered to a market that largely ignores political
and geographic barriers improving productivity and communication and providing global
market access to business and consumers worldwide. 15 This commercial tool offers many
opportunities to businesses and corresponding benefits to consumers.

Worldwide Access and Greater Choice

The boundaries of electronic commerce are geographically indeterminate. Through global data
communications networks, both businesses and consumers are able to transcend global barriers.16
The Internet frees businesses from the cost of physical location, allowing even the smallest

13
K. Alboukrek, supra note 4, at 428.
14
A. Carr, Is Business Bluffing Ethical?, 46(1) HARVARD BUSINESS REVIEW 146, (2002).
15
The Organisation for Economic Co-operation and Development, Guidelines for Consumer Protection in the
Context of Electronic Commerce, (2001), available at https://www.oecd.org/sti/consumer/34023811.pdf (Last
visited on Nov 26, 2016).
16
H.A. Haloush, Jurisdictional Dilemma in Online Disputes: Rethinking Traditional Approaches, 42(3) THE
INTERNATIONAL LAWYER 1130, (2008).

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businesses to attain a worldwide presence and conduct business on an international level.17 THE
Corresponding benefit to consumers is global choice. Consumers have the opportunity to
purchase products and services literally around the clock from vendors locate around the globe.18

Enhanced Competitiveness and Quality of Service

By eliminating the limitations of distance and time zones.19 E-Commerce empowers business to
improve competitiveness. It frees business from many of the costly requirements and limitations
of conducting business (e.g., infrastructure, physical advertisement) in the non-electronic
environment. These savings enable business to offer improved levels of sales support, better
product information and guidance on its use, and prompt response to consumer inquiries. Such
information is also more likely to be current, given the relatively low cost of updating electronic
information.20 The benefit to consumers is enhances quality of service. Not only do consumers
receive better discriminatory treatment (based, for example, on race, ethnicity, religion, or
gender preference) is less likely to be a relevant problem because business have no physical
contact with consumers.21

Mass Customisation and Personalised Products and Services

Improved consumer communication with businesses created the potential for mass
customisation and personalised products and services. 22 With electronic communication
businesses can collect detailed information on the specific needs of each consumer and adjust the
features of products based on those individual needs. The result is customised products to those
offered by specialised suppliers but at mass market prices. A good example of mass
customisation is. Consumers visiting this site can sign up for an electronic mail newsletter that is
tailored to each individual consumers specific interests.23

17
R. Weber, Digital Trade and E-Commerce: Challenges and Opportunities of the Asia-Pacific Regionalism,
ASIAN JOURNAL OF WTO AND INTERNATIONAL HEALTH LAW AND POLICY 323, (2015)
18
J. Maher et al, CONSUMER PROTECTION LAW IN AUSTRALIA, 109 (2004).
19
M. Budnitz, supra note 6, at 850.
20
M.D. Maury and D.S. Kleiner, supra note 9, at 25.
21
C. Satapathy, WTO Work Programme on E-Commerce Strategy for Further Negotiations, 36(39) ECONOMIC
AND POLITICAL WEEKLY 3667, (2001)
22
R.W. Weber, Digital Trade and E-Commerce: Challenges and Opportunities of the Asia-Pacific Regionalism,
10(2) ASIAN JOURNAL OF WTO AND INTERNATIONAL HEALTH LAW AND POLICY 334, (2015).
23
C. Satapathy, supra note 20, at 3670.

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Elimination of Intermediaries and Product Availability
In the non-electronic realm, manufacturers typically rely on conventional distribution (e.g.,
wholesalers and retailers) for disbursing their products in mass volumes. 24 This form of
distribution focuses on getting the physical product within convenient reach of the consumer so
that a sale can and will occur. Such a method is no longer required to make a sale. Electronic
commerce reduces the need for conventional intermediaries, including retailers and wholesalers.
With electronic interaction, manufacturers can bypass traditional supply chains and connect
directly with consumers. Physical location of the consumer no longer determines from whom and
where the consumer purchases a good. The Internet makes it possible for products to be sent
directly from the manufacturer to the end consumer without having to go through a wholesalers
warehouse, retailers warehouse, and retail outlet. Eliminating such staging posts allows the
manufacture to enjoy greater profits.25

At the same time, shortening traditional supply chains also benefits consumers. Direct
connection gives consumers the ability to rapidly obtain the precise product that is required,
without being limited to those currently in stock at local suppliers. At least in theory, consumers
will also experience lower process since bypassing traditional supply chains enables the
manufacturer to reduce its costs.26

Greater Efficiency and Lower Costs

Electronic commerce provides for greater efficiency in the global marketplace in part because
the lower cost communication information electronically and for processing transactions allows
this marketplace to include smaller as well as more geographically dispersed vendors.27 Not
only does electronic commerce increase vendor competition, but it also reduces transaction costs
for online businesses. While the cost of a transaction that requires human interaction might be
measured in dollar, the cost of similar electronic transaction might be few cents or less.
Electronic commerce thus offers online businesses the potential for real cost savings, which van

24
M.D. Maury and D.S. Kleiner, supra note 9, at 28.
25
J. Mooney and W. Pittman, A Guide To Electronic Commerce, 78(3) MANAGEMENT ACCOUNTING 47,
(2006).
26
K.P. Marshall, Has Technology Introduced New Ethical Problems?, 19(1) JOURNAL OF BUSINESS ETHICS
84, (1999).
27
R.W. Weber, supra note 21, at 362.

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be passed on to consumers.28

New Business Opportunities and New Products and Services

Although the role of conventional intermediaries has diminished, novel business opportunities
have arisen in their place. Electronic commerce provides the opportunity for entirely new
intermediaries. 29 Consumers lacking the time or knowledge to surf the Internet may contact
brokers, aggregators, and directories for help navigating trough the maze of global marketplace
suppliers. Other new services that may arise include payment intermediaries (e.g., establishing
universal payment procedures for electronic transaction), technical support services, and online
delivery (e.g., establishing coordinated delivery routes).30

Not only does electronic commerce present for new business opportunities, but it also created the
possibility for new products. Through improved communication, consumers may increasingly
enter into symbiotic relationships with producers, becoming quasi-collaborators in product
development and improvement. A publisher, for example could make it possible for consumers
to customise selected books by offering a selection of plots and characters from which to choose.
Such consumer interactions allows for new kinds of products to evolve.31

28
H. Huffman, supra note 5, at 11.
29
K. Alboukrek, supra note 4, at 430.
30
A. Carr, supra note 13, at 151.
31
C. Ruppel et al, E-Commerce: The Roles of Trust, Security, and Type of E-commerce Involvement, 2(2) E-
SERVICE JOURNAL 29, (2003).

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 II. ETHICS IN E-COMMERCE

A. Ethical Lag and E-Commerce Ethics

The importance of ethics has been clearly acknowledged in the commercial world. Established
business practices traditionally support values such as trust, fairness, honesty, and integrity.
These values have also come to be expected by customer. The ethical foundation of e-commerce,
focuses on the question, is there a special e-commerce ethics? Though it might be contended
that the current issues in e-commerce ethics and brick-and-mortar business are fundamentally the
same, but the e-commerce issues have different manifestations and scope.32

In spite of the pervasiveness of the changes e-commerce is enabling, the high speed of its
diffusion, and its differentiation from traditional commerce, there has been little exploration of
the ethics in e-commerce. This is partly due to a phenomenon many like to refer to as ethical
lag.33

Ethical lag occurs when the speed of technological change far exceeds that of ethical
development. The basis for this lag is primarily inherent in the differing natures of culture and
technology. With respect to technology, advances tend to follow the technical imperative, which
is what can be developed is developed and implemented.34 In addition costs tends to drive the
development of technology in a very single-minded manner, with promises of profit adding to
the speed of development. In contrast, culture, including ethics, advances more slowly. Several
contribute to this situation. First, ethics by its very nature is deliberate and reflective, a time
consuming proposition. Additionally, cultural forces are more complex and difficult to control
than technological advancement, and so proceed more slowly. Last, there is no direct
profitability attached to the development of ethical guidelines. Consequently, the development of

32
S. DeCovny, The Electronic Commerce Comes of Age, 19(6) THE JOURNAL OF BUSINESS STRATEGY 41,
(1998).
33
B. Kracher and C.L. Corritore, Supra note 1, at 77.
34
C. Ruppel et al, supra note 30, at 31.

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ethical guidelines is slowed, along with subsequent culture change. 35 Ethical lag is a serious
phenomenon that can lead to breakdown in social systems or increases in social conflict. In the
context of e-commerce, this can wreak havoc on global business systems and create harmful
vacuums in our agreement about what is acceptable behaviour. The potential implications in the
context of e-commerce are particularly significant due to the unprecedented adoption rates and
widespread diffusion of e-commerce. We maintain that an e-commerce ethical lag is occurring
today. More specifically, the examination of e-commerce ethics has lagged behind the
development of e-commerce and its technologies. An ethically focused public discussion about
e-commerce at this made will help to circumvent ethical lag-related problems resulting from the
rapid technology development supporting e-commerce. Ethical dialogue can also help to
elucidate the ethical dimensions that are truly present in e-commerce. It is thus time for a
dialogue on the ethics of e-commerce to occur.36

B. The Nature of E-Commerce Ethics

E-commerce ethics is a practical ethics about real moral problems that arise when conducting
business on the Web. A foundational question in e-commerce ethics is, Is there a special e-
commerce ethics distinct from brick-and-mortar business ethics? We proceed in his section by
discussing the five primary issues in e-commerce ethics: Access, Intellectual Property, Privacy
and Informed Consent, Security of Information, and Trust.37

Access refers to the difference in computer access between he rich and the poor, often called the
Digital Divide. Currently, there is a difference in computer access. Many people predict that this
can lead to the society getting splintered into information haves and have-nots. In the case of
computers, potential consumers without computer access cannot take advantage of e-commerce
opportunities such as obtaining deeply discounted airline fares offered on the e-commerce sites
of many airlines. Since airline consumers reside in countries around the world, this perpetuates a
market difference between the computer access haves and have-nots which has a global, rather

35
R. DeGeorge, Business Ethics and the Information Age, 28(7) BUSINESS COMMUNICATIONS REVIEW 45,
(2001).
36
Id.
37
B. Kracher and C.L. Corritore, Supra note 1, at 81.

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than a merely national, scope. So the issue of access, while not a new issue, has a different scope
in the context of e-commerce.38 Intellectual property is an issue both in e-commerce and in brick-
and-mortar business. However, like access, intellectual property also has a different
manifestation and scope in e-commerce. For example, the manifestation of easily sharing
original electronic media differs from previous intellectual property issues in the brick-and-
mortar world that typically deal with copies of less than original fidelity and non-electronic
media and sharing channels.39

The e-commerce issue of privacy and informed consent, the third issue, differs in scope and
manifestation from its instantiation in the brick-and-mortar world. To illustrate, consider an
example. If we are at a brick-and-mortar store and give out information about ourselves, we do
not expect a store representative to follow us out the door and monitor the shopping we do in
other locations. But this can be the case in e-commerce. When we visit a retail website typically
identifying information, i.e., a cookie file, is placed on our computers hard drive without our
informed consent. These cookie files are typically used to store information such as what website
we were on previously, and where we go when we leave the site. This information can be later
combined with cookie files from other e-commerce sites to provide marketers with a detailed
description of entire sessions of multi-site web shopping. In addition, when we provide personal
information at a website, it can be linked to offline personal information.40

Security is the fifth ethical issue listed. Like the previous three issues, we maintained that its
manifestation and scope is different in e-commerce. To illustrate the difference, consider an
activity that people in brick and mortar settings commonly conduct without giving them a second
thought but that has an element of security risk. People regularly give their credit card to waiters
in restaurants to pay for their meals even though a waiter could easily make a copy of the card
before returning it. However, the act of providing credit card information on a website for a
purchase is considered to be so risky by many that they avoid conducting any online

38
Issues for Developing Countries, 36(16) ECONOMIC AND POLITICAL WEEKLY, 1274, (2002).
39
Id.
40
L. Nash, Good Intentions Aside: A Managers Guide to Resolving Ethical Problems, 15(3) HARVARD
BUSINESS SCHOOL PRESS 79, (2003).

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transactions. 41 The primary problem is that their credit card number must travel along
communication lines to reach the e-commerce computer. During this trip, it can be invisibly
intercepted and copied by someone not associated with the e-commerce business. With respect to
scope, due to the extensive reach of the Internet, a breach in the security software installed on
networks, which an leave companies and their clients vulnerable to criminal attacks. The scope
of the consequences of security flaws often makes security a top priority for e-commerce
businesses.42

Trust, the last e-commerce ethical issue listed, is the basis of nearly every business decision and
transaction. The implicit cues that people in brick and mortar settings use to evaluate
trustworthiness and so place trust, such as face-to face voice and body signals, are absent in the
global online experience.43 With respect to scope, the issue of trust is global as the reach of e-
commerce is global. An Australian consumer could purchase products from a small Indonesia
business se has never seen or herd of before, In fact, the global nature of trust in e-commerce
brings with it new problems related to establishing trust in a virtual environment, across different
cultures.44

41
G.R. Milne and A.J. Rohm, Consumer Privacy: Exploring Opt-In and Opt-Out Alternatives, 19(2) JOURNAL OF
PUBLIC POLICY 244, (2008).
42
Id.
43
J. Mooney and W. Pittman, supra note 24, at 49.
44
K.S. Han and M.H. Noh, Failure Factors That Discourage the Growth of Electronic Commerce, 4(2)
INTERNATIONAL JOURNAL OF ELECTRONIC COMMERCE 28, (2000).

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III. CONSUMER CONCERN

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