Regulating Digital Commerce: Legal Challenges in Social Media Business, Online Reviews, Influencer Marketing, and Intellectual Property Protection
The rapid growth of e-commerce has revolutionized shopping, making online platforms essential for businesses. However, challenges like fair trade practices, consumer protection, and fake reviews have emerged, impacting trust and sales. Consumers heavily rely on online reviews for purchases and services, while businesses, especially in food delivery, hospitality, and home services, face financial losses due to misleading or fake ratings. Regulatory measures are now addressing these concerns to ensure transparency and credibility in online commerce.
In India, E-commerce is primarily regulated under these below frameworks which aim to ensure transparent trade practices, fair competition, and credible consumer feedback mechanisms.
1. Consumer Protection (E-Commerce) Rules, 2020 to regulate e-commerce businesses.
2. BIS Standards (IS 19000:2022) Online Consumer Reviews – Principles and Requirements for Collection, Moderation, and Publication to ensure transparency in online reviews.
3. Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021.
4. Social Media Influencer Guidelines (2023) to prevent misleading brand endorsements.
5. ASCI Guidelines for Influencer Advertising (2023)
6. Trademark Protection Strategies to safeguard brands from cyber threats and unauthorized use.
The rise of digital commerce has transformed consumer behaviour, making e-commerce platforms, online reviews, and influencer marketing vital in modern trade. However, this shift has also led to challenges such as fake reviews, deceptive advertising, cyber threats, and trademark infringement. Below are real-life problems faced by sellers and customers, along with solutions to address these issues for better understanding.
Page Contents
PROBLEM 1: FAKE REVIEWS DAMAGING BUSINESS REPUTATION
Scenario 1: A well-known restaurant chain on an online food delivery platform noticed a sudden drop in its rating from 4.5 to 2.0 stars within a month. On investigation, they found numerous negative reviews claiming food poisoning, bad service, and delayed delivery. However, these claims were fake and generated by a competitor to damage their reputation. Despite raising complaints, the platform was slow to take action, leading to a decline in customer trust and sales.
Scenario 2: A leading hotel chain noticed a sudden drop in its online rating from 4.6 to 2.3 stars on a popular travel platform. Customers started cancelling bookings due to negative reviews claiming poor hygiene, rude staff, and overpricing. Upon investigation, the hotel discovered that these reviews were fake, likely posted by a competing hotel to damage its reputation. Despite reporting the issue, the platform was slow to respond, causing revenue losses.
Solution:
1.Businesses facing fake or defamatory online reviews should file complaints with Cybercrime departments for digital offences or Consumer Protection Authorities under the Consumer Protection Act, 2019.
2. The review contains false allegations harming reputation, legal action can be taken under defamation laws. If fake reviews involve identity theft or digital impersonation, action can be taken under the Information Technology Act, 2000. Where businesses suffer losses due to malicious fake reviews, they can seek damages under unfair trade practice laws.
3. The Online Review Platforms must implement the BIS Standards (IS 19000:2022) to ensure Mandatory review verification. Transparency in moderation processes to detect fake and malicious reviews. Mandatory Takedown Requests for Fake Reviews. The Businesses should submit takedown requests to review platforms and social media sites, citing legal violations and defamation concerns. The hotel filed a complaint under the Bureau of Indian Standards’ guidelines, which require platforms to verify the authenticity of reviewers.
4. As a raise in fake reviews and unfair trade practices by the competitors the Platforms should implement a verified purchase system and ensure that only genuine buyers can post reviews.
In the case of Mubeen Rauf v. Union of India & Ors, WP(C) No.32733/2023, the Hon’ble Kerala High Court has addressed the growing issue of fake online reviews and defamation, particularly in cases where businesses and individuals face organized attempts to tarnish reputations for monetary gain, blackmail, or extortion.
In this case, the court has emphasized the Freedom of speech under Article 19(1)(a) must be exercised with reasonable restrictions under Article 19(2) to prevent malicious and defamatory content. Fake and motivated reviews, particularly those designed for extortion or blackmail, are akin to attacks on tangible property and should be dealt with under cyber laws and penal statutes. Victims of defamatory online reviews should be able to file complaints with authorities, triggering police investigations and legal actions. The state cybercrime department and regulatory bodies must have robust mechanisms to differentiate between genuine criticism and targeted defamatory attacks.
As the Indian courts have further clarified the balance between free speech and defamation in the context of online reviews. In VP Sarathi v. S Kiruthiga, Crl.Rc.No.445 of 2023, the Hon’ble High court of Madras has recognized that the internet as a vital platform for expression but emphasized that it cannot be used to disseminate false or defamatory content.
Conclusion: In the above two scenarios, the first course of action should be as follows:
1.Collect Evidence– Gather evidence of the fake reviews, including screenshots, timestamps, reviewer profiles, and any other relevant information discovered by the victim. This documentation will be crucial at a later stage.
2. Raise a Formal Complaint with the Online Review Platform– Submit a complaint to the relevant online review platform, requesting the removal of false reviews based on their terms of service. The Bureau of Indian Standards (BIS) mandates the verification and moderation of reviews to prevent fraudulent activity. Additionally, a takedown request can be made under the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, which require platforms to act on such complaints.
3. File a Complaint with Cybercrime Authorities – If the fake reviews involve defamation or impersonation, a complaint can be filed with the cybercrime authorities under Section 66D of the Information Technology Act, 2000, read with relevant provisions of the Bharatiya Nyaya Sanhita, 2023.
4. File a Complaint with the Consumer Protection Authority– A complaint can also be lodged with the relevant consumer protection authority under Rule 6(3) of the E-Commerce Rules, 2020, for engaging in unfair trade practices.
5. Approach the Courts for an Injunction or Compensation– If necessary, a civil suit can be filed in the appropriate court seeking an injunction to prevent further harm or claiming compensation for defamation and loss of business.
PROBLEM 2: INFLUENCER FAILS TO DISCLOSE PAID ENDORSEMENT
As digital media becomes increasingly pervasive and more consumers start to consume advertising on various digital platforms, it has become important to understand the peculiarities of these advertisements and the way consumers view them. With lines between content and advertisements becoming blurry, it is critical that consumers must be able to distinguish when something is being promoted with the intention to influence their opinion or behaviour for an immediate or eventual commercial gain. Consumers may view promotional messages without realising the commercial intent of these, and that becomes inherently misleading, and in violation of misleading by omission and abuse trust of consumers or exploit their lack of experience or knowledge.
Scenario 1: A fitness influencer with 500K followers on You-tube promoted an herbal weight-loss supplement, claiming it burns fat without diet or exercise. The post went viral, leading to high sales. However, users did not see results, and some reported side effects. When complaints surfaced, it was revealed that the influencer was paid for the promotion but did not disclose the sponsorship, violating advertising guidelines.
Scenario 2: An Instagram influencer with 1 million followers promoted a skincare cream, claiming it could remove acne scars in one week. The endorsement was sponsored, but the influencer did not disclose it. Many followers purchased the cream, but after no visible results, they filed complaints with the Central Consumer Protection Authority (CCPA). The brand and influencer faced backlash, and the product was removed from e-commerce platforms.
Solution:
1.As the ASCI Guidelines for Influencer advertising (2023) make it mandatory to disclosure the required if there is any material connection between the advertiser and the influencer. The influencer was required to clearly label sponsored content using ASCI-approved tags like #Ad, #Sponsored, or #PaidPartnership.
2. The disclosure of the sponsored must be upfront and prominent so that it is not missed by an average consumer. The disclosures should be clearly visible and not hidden among hashtags. The CCPA (Central Consumer Protection Authority) fined the influencer and the brand ₹10 lakh for misleading advertising.
3. The Influencers cannot promote products they have not personally used or tested. Platforms implemented a policy requiring influencer disclosures to be prominently displayed in captions, images, and videos.
4. Also, the Influencers were advised to show due diligence and verify product claims before endorsement, ensuring compliance with ethical advertising practices.
The Hon’ble Supreme Court in the case of Indian Medical
Association v. Union of India, Writ Petition (Civil) No. 645/2022, has held that
“21. We are of the firm view that advertisers/advertising agencies and endorsers are equally responsible for issuing false and misleading advertisements. Such endorsements that are routinely made by public figures, influencers, celebrities etc. go a long way in promoting a product. It is imperative for them to act with a sense of responsibility when endorsing any product and take responsibility for the same, as reflected in Guideline No.8 of the Guidelines, 2022 that relates to advertisements that address/target or use children for various purposes and Guideline No.12 that lays down the duties of manufacturers, service providers, advertisers and advertising agencies to ensure that the trust of the consumer is not abused or exploited due to sheer lack of knowledge or inexperience. Guideline No.13 requires a due diligence to be undertaken for endorsement of advertisements and requires a person who endorses a product to have adequate information about, or experience with a specific good, product or service that is proposed to be endorsed and ensure that it must not be deceptive.
22. All the aforesaid provisions including statutory provisions/rules, regulations and guidelines have a salutary object, which is to serve the consumers and ensure that they are made aware of the kind of product that is being offered for purchase, particularly in the food and health sector. We are of the opinion that the aforesaid Ministries ought to set up and promote a mechanism which encourages the consumer to lodge a complaint and for the said complaint to be taken to its logical conclusion, instead of simply being marked/forwarded to the concerned State authority, thus leaving the consumer clueless as to the final outcome of the complaint made.”
Conclusion-
In the above scenarios, the influencer failed to disclose the sponsorship and paid promotion, which is a violation of the Advertising Standards Council of India (ASCI) Guidelines for Influencer Advertising and the Regulation of Social Media Influencers. The apex court has also held in its judgment that advertising agencies have a duty to ensure that consumer trust is not abused or exploited due to a lack of knowledge or inexperience.
Due diligence must be undertaken for endorsements, requiring endorsers to have adequate information about or experience with the product, service, or good they are promoting. Furthermore, endorsements must not be deceptive. However, despite these regulatory guidelines, India currently lacks a clear and structured mechanism that enables consumers to lodge complaints and obtain effective redressal in cases of misleading or undisclosed influencer advertisements.
PROBLEM 3: E-COMMERCE PLATFORM LISTING COUNTERFEIT PRODUCTS
It is a usual practice that the products sold by various sellers on the e-commerce platforms are original articles manufactured by the right holders that have been secured from the open market by unauthorised means or via leakages in the claimant’s supply chains. Establishing the liability of the intermediaries is always a point of concern where there has been a lot of litigation debating on the effect of cease and desist (C&D) notice as well as interpreting the term “actual knowledge” mentioned under Rule 3(1)(d) of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021. Moreover, if the sellers themselves are located on foreign shores and the trade mark owner cannot exercise any remedy against the seller who is selling counterfeits on the e-commerce platform, then the trade mark owner cannot be left remediless.
Scenario 1: A well-known sportswear brand discovered that multiple sellers on a leading e-commerce platform were selling fake copies of its flagship sneakers at half the price. Customers, thinking they were getting a deal, purchased the counterfeit products and left negative reviews on the official store, leading to reputational damage.
Scenario 2: A jewellery company discovered that counterfeit versions of its best-selling jewellery were being sold on a major ecommerce platform at half the price. The Company already have trademark on the original product and ask intermediary to remove the counterfeit product as it causes financial loss to the company.
Solution:
1.The brand filed a formal complaint under Rule 4 of the E-Commerce Rules, requiring platforms to verify and remove counterfeit listings.
2. The platform should introduce mandatory seller authentication and AI-driven fraud detection.
3. The brand partnered with the e-commerce platform to introduce “Verified Seller” badges to assure customers of authenticity.
4. The brand launched an educational campaign teaching buyers how to identify genuine vs. fake products through a video where the brand explains to the Customer for the identify authentic and genuine products.
5. Created guides and social media campaigns to help buyers identify fake vs. original products. They pursued trademark infringement cases against sellers distributing counterfeit goods.
In the case of Kent RO Systems Pvt. Ltd. & Anr. v. Amazon Seller Services Pvt. Ltd. (FAO(OS)(Comm) 81/2017, Delhi High Court reinforces the principle that e-commerce platforms cannot evade responsibility when counterfeit goods are sold on their websites. The court acknowledged that online platforms, even if they function as intermediaries, must take responsibility for removing infringing listings when notified. Amazon, as the defendant, undertook to delist infringing products within 48 hours upon notification by the plaintiff. The court directed Amazon to disclose details of infringing sellers, ensuring greater transparency in addressing counterfeiting. The court did not accept a blanket exemption for Amazon and ensured a fair opportunity for the aggrieved brand to contest the platform’s role in counterfeit sales. Conclusion-
In Scenario 1 (Sportswear Brand) and Scenario 2 (Jewellery Company), counterfeit products adversely impacted both businesses’ financial interests and brand reputation. Despite having registered trademarks, the companies faced challenges in removing infringing listings from e-commerce platforms. Under Section 79 of the IT Act, 2000 and the E-Commerce Rules, 2020 (Rule 4), online platforms can be held liable if they fail to act upon receiving complaints regarding counterfeit products. Legal precedents have reaffirmed that platforms cannot evade responsibility if they knowingly permit the sale of counterfeit goods.
1.File Takedown Requests – Brands should formally request the removal of infringing listings from e-commerce platforms.
2. Engage with Grievance Officers – E-commerce platforms are mandated to appoint grievance officers under the ECommerce Rules, 2020, to address such concerns.
3. Seek Court Injunctions – Legal action can be initiated to obtain injunctions against sellers and platforms enabling counterfeiting.
4. Enhance Consumer Awareness – Running awareness campaigns can educate consumers about identifying counterfeit products and reporting fraudulent sellers.
5. Implement AI-Driven Seller Verification – The use of AI and blockchain technology can help in verifying sellers and preventing the listing of counterfeit goods.
To protect their brand integrity, businesses must actively monitor online marketplaces, enforce their trademark rights, and push for stricter accountability from e-commerce platforms. A strategic combination of legal recourse, regulatory enforcement, and proactive brand protection measures is crucial for maintaining consumer trust and ensuring fair trade practices in the digital marketplace.
PROBLEM 4: CYBERSQUATTING AND TRADEMARK INFRINGEMENT
Cybersquatting is a growing problem in the digital world. To protect yourself from this bad “netiquette” challenge, you should consider trademarking your website domain name. This will put you in a better position to take legal action (and win) against anyone who registers a domain that is similar to yours. Trademarking your domain name will help you stop cyber squatters in their tracks and protect your website from any malicious activities.
Register Different Variations of Your Domain. Although this doesn’t seem a cost-effective method initially, registering different variations of your domain is an effective, proactive measure to prevent cybersquatting. This will ensure that no one else can buy out variations of your domains for malicious purposes. By registering different variations, you can redirect traffic to your main domain name to prevent cybersquatting and protect your online presence.
Scenario 1: An electronics company with a registered trademark in India found that a third-party website (India.com) was selling counterfeit versions of its gadgets. Customers who unknowingly bought these products received poor-quality goods and left negative reviews on the official brand’s page, damaging its reputation. The company attempted to file a complaint, but the infringer was operating from a foreign jurisdiction, making legal action difficult.
Solution:
1.The companies or brands if it is registered under trademark act then on the basis of that they proved trademark ownership and initiated a takedown request under the Trademark Act, 1999.
2. Domain Name Protection – Registered multiple domain variations (.com, .in, .net) to prevent future cybersquatting. They worked with a cyber security firm to monitor and block infringing domains in the future.
3. Public Awareness Campaign – Launched an educational campaign on social media warning consumers about authentic vs. counterfeit websites.
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Author: Aarushi Jain-Founding Partner, Chambers of Jain and Kumar
Author Bio
I would like to thank my associate, Prassant Kumar Sharma – at my law firm- chambers of jain and kumar for his invaluable assistance with this piece and his thoughtful understanding of the situation at hand.