This article has been written by Devang Bansal, Third Year [B.B.A. LL.B. (Hons.)] at National Law University, Jodhpur
With the Ministry of Home Affairs listing e-pharmacies as an essential service during Coronavirus Pandemic induced lockdown and e-commerce giants entering the e-pharmacy market, the question whether e-pharmacies are legal in the country has arisen. The industry has started gaining momentum in India and is expected to grow seven times to $2.7 billion by 2023. Such an unprecedented rise of e-pharmacy is currently facing legal hurdles and opposition from the stakeholders such as the All India Organisation of Chemists and Druggists (AIOCD).
The All India Organisation of Chemists and Druggists (AIOCD) opposed Amazon’s entry into the e-pharmacy business terming the e-pharmacies ‘illegal’. The organisation, representing 8.5 lakh traditional chemists in the country, has consistently opposed the expansion of e-pharmacies and observed nationwide strike. The organisation expressed concerns of drug abuse amid a lack of regulatory framework. Further, the adverse impact of e-pharmacies on the fragmented chemists due to the inherent power of the e-pharmacy players to provide service at a lower cost was also questioned. These concerns of the organisation, to some extent, have found strength in judicial pronouncements discussed later in the article.
Thus, the pertinent question in this scenario is whether the e-pharmacies can be termed illegal amid the lack of regulation. The article attempts to answer the question by analysing the judicial and legislative attitude towards e-pharmacies. The article also deals with the interplay between concerns of anti-competitive practice by way of deep discounting and the regulation of e-pharmacies.
Concerns regarding Lack of regulatory framework
The Drugs and Cosmetics Act, 1940 read with the Drugs and Cosmetics Rules, 1945, and the Pharmacy Act, 1948 [The Acts] governs the sale and distribution of medicines in India. The present regulating framework does not include e-pharmacies in its scope since the legislative framework was enacted when the concept of e-pharmacies was not thought of.
Even though the Acts do not validate e-pharmacies, there is no express provision in the Acts that prohibits their functioning. In such a situation, while the Acts provide regulation for issues common to e-pharmacies and traditional retailers, other issues peculiar to e-pharmacies are not covered creating a state of uncertainty and possible abuse. Such peculiar issues include registration of e-pharmacy web portals, standards for the authenticity of prescription and patient, cross border sales between different states, and disclosure of information generated through web portals. Therefore, in the complete absence of regulation on such standards, an attempt to comprehensively regulate e-pharmacies under the current framework will result in law-making by the court. The current legislative framework ought not to be given such an expansive interpretation and hence the need for a legislation comprehensively regulating the e-pharmacies arises.
Accordingly, the draft Drugs and Cosmetics (Amendment) Rules, 2018 were proposed by the government to bring e-pharmacies into the ambit of the legislation. The Draft E-Pharmacy Rules define an e-pharmacy to mean ‘business of distribution or sale, stock, exhibit or offer for sale of drugs through a web portal or any other electronic mode’, and mandates a registration certificate from the licensing authority for operation through the electronic method. However, as the draft rules are still not notified, existing companies have flourished in absence of adequate safeguards. Meanwhile, e-pharmacies have adopted a voluntary code of conduct issued by the Federation of Indian Chambers of Commerce & Industry. The e-pharmacies have adopted self-imposed standards to process medicines only against valid prescription from a Registered Medical Practitioner, restrict the sale of sensitive habit-forming medicine, and facilitate the sale of drugs only through licensed pharmacies domiciled in India.
The code of conduct is self-regulatory in nature; thereby its violation does not impose any liability on the e-pharmacies. As a consequence, the current liability is limited only to the inadequate provisions stated under the current acts. This leaves the issues peculiar to e-pharmacies, as earlier discussed, unregulated and uncertain. In the absence of clear laws on the subject, the e-pharmacies find themselves in an uncertain legal environment affecting the ease of doing business. Therefore, there is a definite need to notify the draft rules with amendments.
Indian Judiciary’s Interpretation
The question regarding the validity of e-pharmacies has also faced several legal hurdles. Currently, a contradictory stance has been adopted by the Delhi & Madras High Court. The Delhi High Court hearing a Public Interest Litigation granted an interim injunction against the online sale of medicines without a license. The PIL stated drug abuse, use for criminal activity, and lack of awareness and potential of frauds were a consequence of the operation of e-pharmacies without a legal framework. The Delhi High Court relied on a single-judge decision by the Madras High Court. However, as the order relied on was stayed by the division bench of Madras High Court, the validity of the injunction imposed is questionable.
The Division Bench of the Madras High Court stayed the order of the single-judge that prohibited online sales of drugs till the Draft E-Pharmacy Rules are notified stating that “the authorities under the Acts are competent to take action on a violation of relevant statutory provisions and such prohibition on online sales will result in grave hardship.” This interpretation adopted by the court validates the legal status of e-pharmacies under the current framework. While the interpretation is largely justified due to presence of authorities competent to take action, such competence is limited by the legislative silence and inadequacy of the existing provisions as discussed earlier in the article. Consequently, e-pharmacies are operating under the current inadequate framework under uncertainty. Thus, hampering the growth potential and interest of consumers due to scope of abuse on the unregulated issues.
Concerns of Anti-competitive Practices by E-pharmacies
The traditional pharmaceutical sector is highly fragmented. This Inherent challenge of high fragmentation in physical brick and mortar pharmacies makes them vulnerable to dominance by e-pharmacy and gives online counterparts a chance to flourish. Accordingly, chemists’ concerns regarding possible consolidation and predatory pricing due to the ability of E-pharmacies to run in losses cannot be neglected.
In the landmark judgment of All India Online Vendors Association v. Flipkart, the Competition Commission of India considering the still-evolving nature of online platforms in the market refused to hold any single platform to be in a position of dominance. In contrast, the Supreme Court expressed concerns that certain online operators hold a dominant position due to their capacity to operate in losses and offer unfairly low prices to disrupt the industry’s competition.
As e-pharmacies are still in the early stages of development, the realisation of concerns raised by the organisation of chemists regarding dominance by market share seems implausible. Regardless, in the wake of the possible market disruption using below the cost pricing by a handful of e-pharmacy players, the government needs to legislate against such anti-competitive tendencies. Below the cost pricing, preferential treatment, and misuse of user data have anticompetitive effects on relevant markets. The Ministry of Health and Family Welfare should consider precedents while drafting rules on issue of monitoring of e-pharmacy to prevent market disruption by deep discounting.
The way Forward
In light of the above discussion, terming e-pharmacies illegal due to a lack of comprehensive regulatory framework and discouraging their use is a flawed approach. The current status of uncertainty over the status of e-pharmacies has resulted in the underutilisation of their potential benefits. The need at the moment, therefore, is to regulate the issues that are not governed under the existing laws. These issues range from facilitating the smooth registration of e-pharmacies, abuse of a medical prescription by using it more than one time to procure medicines, cross border sales between different states to the protection and storage of personal data. Thus, it is high time that India brings its e-pharmacy policy up to speed with the rapid developments that present a world of opportunities.
The key policy priority should be to accommodate the interests of key stakeholders- the public, government, healthcare industry, and interest groups. An analogy here can be drawn to the release of Guidelines for the practice of Telemedicine which brought certainty regarding the legal status of Telemedicine, the procedure, and the obligations of parties involved. In absence of such a regulatory mechanism, the Indian e-pharmacy sector can be easily abused. Fixing accountability in case of default and abuse is difficult due to the inadequacy of the existing provisions.
E-pharmacies proved to be vital in carrying out deliveries of medicines conveniently amid the restrictions in movement due to Coronavirus. E-pharmacies are hence proving to be an effective tool in the coronavirus pandemic. Given the immense addressable market size, the industry needs increased professional and government oversight. Fixing accountability and bring in certainty by way of standard rules will serve the purpose of establishing the confidence of the public in e-pharmacies. It will also ensure fair growth, investment opportunities and ease of doing business in the industry to all.