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Intermediary Liability

Intermediary Liability
INTRODUCTION

The Hon’ble Karnataka High Court, on 7th January 2021, passed a landmark judgement in two separate Criminal Petitions filed by Snapdeal Private Limited1 (“Snapdeal”) and its directors2 inter alia, in relation to liability of an intermediary. (“Snapdeal Case”)

The Court was hearing the issue of violation of Section 18(c) of the Drugs and Cosmetics Act, 1940 (“Act”) punishable under Section 27(b)(ii) of the Act. The Inspector appointed under Section 21 of the Act filed a complaint based on an allegation that M/s. Adept Biocare had created a seller’s account on Snapdeal’s online marketplace www.snapdeal.com (“Website”) and unauthorizedly listed and sold its product “Suhagra Tablets” on the Website. Snapdeal had warned Adept Biocare not to sell the said product on its Website as it held a wholesale license and the product being sold by Adept Biocare was banned for sale on Snapdeal, in accordance with the Seller Agreement signed with Adept Biocare. Cognizance of offence under Section 27(b)(ii) of the Act was taken and Summons were issued which was challenged before the Hon’ble Karnataka High Court. The Hon’ble Court has prior to assessing the issue thoroughly detailed the process followed by Snapdeal which is an intermediary3 platform to arrive at a conclusion that Snapdeal has a robust mechanism in place (such as its Terms of Use, Terms of Offer of Sale, Privacy and Data Collection Policy and Seller Agreement) to inform the sellers of their responsibilities and obligations under the applicable laws, and therefore, is in compliance with its roles and obligations as an intermediary. The roles and obligations of an intermediary to qualify for the safe harbor exemptions has been detailed in Section 79 of the Information Technology Act, 2000 (“IT Act”).

ORIGIN OF SAFE HARBOR EXEMPTIONS

The origin of the safe harbor exemptions to intermediaries can be traced to the enactment of the Digital Millennium Copyright Act, 1998 (“DMCA”) by the United States. The provisions of the DMCA protect online service providers from copyright infringement due to user – generated content on their platforms, provided such online service providers do not actively engage in infringing activities. The “safe harbor” provisions in the DMCA create a balance between the rights of the copyright holders and the rights of the internet service provider.

This law proved to be the backbone for online copyright protection and has been used as a template for the development of intermediary liability and safe harbor laws in several jurisdictions

CHALLENGES WITH THE INTERMEDIARY LIABILITY PROVISIONS / SAFE HABOR CONCEPT IN INDIA
Active Versus Passive Control

The nature of ‘intermediaries’ is consistently in a state of flux and has developed considerably from their initial iterations of being simple hosts of user generated content. Presently, while the services and control exercised by the intermediaries over the user-generated content have morphed drastically, it is still ‘work in progress’ in India. The question on the passivity (i.e. the control the platform has over the content that is being hosted, stored or shared on it) of an “intermediary” stems from section 79 (2)(c) of the IT Act which requires the platforms to observe “due diligence” however, the IT Act has not been defined or detailed as to what constitutes “due diligence”. It is in this context that the Snapdeal Case (Supra) shall provide certain guidelines in terms of the due diligence requirements.

E-commerce guidelines and Intermediary Liability

In furtherance to the Consumer Protection Act, 2019, the Government of India notified the Consumer Protection (E-Commerce) Rules, 2020 (“E-Commerce Rules”) on 20th July 2020. The E-commerce Rules have created a statutory distinction between the different models of operation of the e-commerce entities viz. an “inventory based model”4 and a “marketplace based model”5 . The “marketplace” e-commerce entity falls within the ambit of ‘intermediary’ in accordance with the IT Act, whereas an “inventory” e-commerce entity squarely falls outside the ambit of an ‘intermediary’ due to the absolute control the entity has over the products and the ensuing transactions with consumers.

The E-commerce Rules in a way disrupts an earlier settled position of law as it requires additional compliances and impose new liabilities on marketplace e-commerce entities who are otherwise exempted by the IT Act. It is stimulating that the E-commerce Rules state that the provisions of the Consumer Protection Act, 2019 would be applicable upon the violations of any of the E – Commerce Rules and this will certainly lead to ambiguity in relation to the applicability of IT Act over such marketplace e-commerce model.6 Additionally, with the clear demarcation of different models it shall be thought-provoking to see how a hybrid version which is a combination of both inventory and marketplace model will be treated.

Section 52 (1)(C) of the copyright act

The Copyright Act, 1957 as amended in 2012 (“Copyright Act”) introduced, what could be reflected to be safe harbor provisions, for the benefit of intermediaries. These provisions have not specifically been referred to as safe harbors although that is precisely what Section 52(1)(b) and Section 52(1)(c) of the amended Copyright Act suggests.

In order to avail of the Section 52 (1)(c) safe harbor, apart from transient or incidental storage (which is an undefined term in the Copyright Act), three conditions have to be met. The first condition requires that the storage should be for the “purpose of providing electronic links, access or integration”. While condition (ii) expands the scope of protection since it imposes the burden on copyright holder to expressly prohibit the activity under question, and condition (iii) embodies the fault requirement and is essentially the same as the condition for satisfying the infringement requirement under Section 51(a)(ii). Even if these three criteria are satisfied, the intermediary has to follow the notice and takedown procedure. The notice and takedown mechanism as detailed in Section 52(1)(c) of the Copyright Act shows that there is no scope for the intermediary to exercise its own discretion in removal of the content after the receipt of the notice. However, Rule 75 to the Copyright Rules 2013 (“Copyright Rules”) expects the intermediary to exercise certain level of discretion while removing the content and thus, there is a clear contradiction between the Copyright Rules and provisions of the main statute (i.e., the Copyright Act). The hierarchy of laws requires that the primary legislation should override a subordinate legislation. Accordingly, Section 52(1)(c) of the Copyright Act shall override Rule 75 of the Copyright Rules and therefore, it shall be safe to proceed on the basis that an intermediary is liable to take down content on receipt of a notice

SOCIAL MEDIA PLATFORMS AS E-COMMERCE INTERMEDIARIES

Social media platforms have expanded their operations to function as a platform for e-commerce business wherein these platforms are intermediaries who connect producers with consumers by sharing information with and recommending products to their real-world social contacts. Social media platforms offer extensive business potential accentuated by the supreme analytics employed by these platforms to target consumers with advertisements.

Social media platforms, which were limited to the display of user generated content at a point, have morphed into e-commerce platforms which offer services similar to the giants of the e-commerce industry. It is pertinent to note that WhatsApp has been termed as an intermediary in accordance with the provisions of the IT Act.

RECOMMENDATIONS

The online world has undergone a drastic change in the last 10 years since the enactment of the Intermediary Guidelines in 2011. Platforms do not restrict their functions to act as simple forums for posting third-party content, but instead are utilizing sophisticated algorithms to promote content and connect users. The integration of new services within the intermediaries have pushed the definition of intermediaries in its extant form. Intermediaries today are acting as an e-commerce platform, a social media platform, payment systems, accommodation booking agents and are even in the process of unifying these services. Given the plethora of intermediary entities, it appears to be impractical for the legislators to form statutory guidelines for every innovation which is or will happen in the operations of intermediaries. Accordingly, it is the need of the hour to create a lightly regulated framework for the governance of intermediaries which could be adapted to the innovations in the industry.

About Author

Anushree Yewale

Anushree Yewale is an Associate Partner at TMT Law Practice and has over five years of work experience in the media and entertainment field, and has been actively involved in providing advisory and transactional support to various production houses, broadcasters, talent management agencies and individual artists, in relation to development and production of content, acquisition and distribution of content, talent management, etc.

Siddhant Gupta

Siddhant Gupta is a legal Associate at TMT Law Practice and is a graduate of Symbiosis Law School, Pune and his core areas of interest are Intellectual Property Laws, Media and Entertainment Laws. He has internship experience of working in Telemedicine, Data Privacy and Corporate Laws.