Intermediary Liability in India

Intermediary Liability in India
02 April 2020

Intermediary Liability in India

The Information Technology Act, 2002 defines the term intermediary under section 2(w) as follows- "(w) "Intermediary" with respect to any particular electronic message means any person who on behalf of another person receives, stores or transmits that message or provides any service with respect to that message;"

In December 2018, the Ministry of Electronics and Information Technology (“MeitY”) released the Intermediary Liability Guidelines (Amendment) Rules (“the Guidelines”), which would be significantly altering the intermediary liability regime in the country. While the Guidelines has drawn a considerable amount of attention and criticism, from the perspective of the government, the change has been overdue.

The Indian government has been determined to overhaul the pre-existing safe harbour regime since last year. The draft version of the e-commerce policy, which were leaked last year, also hinted at similar plans. As effects of mass dissemination of disinformation, propaganda and hate speech around the world spill over to offline harms, governments have been increasingly looking to enact interventionist laws that leverage more responsibility on the intermediaries. India has not been an exception.

A major source of these harmful and illegal content in India comes through the popular communications app WhatsApp, despite the company’s enactment of several anti-spam measures over the past few years. Last year, rumours circulated on WhatsApp prompted a series of lynchings. In May, Reuters reported that clones and software tools were available at minimal cost in the market, for politicians and other interested parties to bypass these measures, and continue the trend of bulk messaging.

Information Technology Act

Section 79 of the Information Technology Act exempts network service providers or intermediaries from liability if it is proved that the offence or contravention was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence or contravention.

The explanation to this Section provides that the network service provider is an intermediary. Therefore, when we look at all these provisions, it is clear that the intermediary has received protection from copyright infringement under the statute. However, there is an important caveat to this protection- the intermediary can be protected only if it was not aware that the information hosted by it was copied material.

In order to understand this concept further, we can look at a few cases:

For instance, in the case of Super Cassettes Industries Ltd. v. Myspace Inc. & Anr.1,

A division bench of the Delhi High Court held that that intermediary could be held liable only when-

  1. They have actual or specific knowledge and not constructive knowledge of the existence of infringing content on their website.
  2. They do not take any steps to have such content removed.

Another case that is important in the case of Kent RO Systems Ltd. & Anr. v. Amit Kotak & Ors.2, where the court held that the intermediary is obligated to remove information hosted on its portal only on receipt of an order from the relevant government agency or pursuant to a court order.

Therefore, looking at the above cases and reading them along with the statutory provisions we can see that in India, intermediaries cannot be held liable unless they had proper information and unless proper order is given by the requisite authority.

Hence under amended section 79 of the IT Act, the requirement of knowledge has now been expressly changed to receipt of actual knowledge. This has been combined with notice and takedown duty. There is a time limit of 36 hours to respond to such a request. If an intermediary refuses to do so, it can be dragged to the court as a co-accused. Under the Amendment Act, the safe harbour provisions is available only to an Internet service provider where the function of the intermediary is limited to giving access to a communication network over which information made available by the third party is transmitted or temporarily stored or where the intermediary does not initiate the transmission, does not select the receiver of the transmission and does not select or modify the information contained in the transmission.

Section 79 of the IT (Amendment) Act 2008 thus deals with the immunity of intermediaries. It is purported to be a safe harbour provision modelled on EU Directive 2000/31. The Safe Harbour provisions found in the IT Act are similar to that found in the US Laws which essentially say that the intermediaries who merely provide a forum weren't liable for what users did. The only condition being that they respond promptly to a notice telling them about a violation. If the website took that file off then they were in the clear.

Intermediaries are though, given immunity under section 79, they could still be held liable under section 72A for disclosure of personal information of any person where such disclosures are without consent and with intent to cause wrongful loss or wrongful gain or in breach of a lawful contract. The proviso to section 81 of the IT (Amendment) Act states that nothing contained in the Act shall restrain any person from exercising any right conferred under the Copyright Act 1957 and the Patents Act 1970. This provision has created a lot of confusion as to the extent of liability provided under section 79.

Recently, the Delhi High Court in Amway India Enterprises Pvt. Ltd. v. 1Mg Technologies Pvt. Ltd. & Anr. along with six other suits that were heard together, passed combined orders as part of a detailed decision delivered on July 8, 2019, against several e-commerce players. All of these cases involved overlapping issues. One of the main issues was the conflict between Direct Selling Business and e-commerce platforms. The plaintiff Amway India Enterprises Ltd., a part of Alticor, Inc. which is one of the world's largest direct selling companies, filed suits against a number of defendants (e-commerce companies) to restrain them from selling, offering for sale and advertising the plaintiff's branded products without any consent or authorization. Amway's "Direct Selling" model is based on the sale of products through direct seller members under a contract and is in consonance with the Direct Selling Guidelines, 2016 issued by the Indian Government. Prior to the filing of the suit, Amway had sent cease and desist notices to these e-commerce entities found to be selling its products without permission at prices much cheaper than the market price, which also led to interference with the plaintiff's direct selling agreements with its distributors. In response to the cease and desist notices, the e-commerce entities refused to comply with Amway's requisitions asserting that they were intermediaries entitled to safe harbour provisions under Section 79 of the Information Technology Act, 2000 and were merely facilitators of the transactions between the buyers and the sellers. They also asserted that the sellers were responsible for ensuring that they were authorized to sell the products and the e-commerce platforms required no such authorization from the plaintiff. In the lawsuits, Amway argued that the sale of its products on such e-commerce websites did not guarantee the authenticity or quality of such products. Also, there was tampering with the packaging resulting in inter alia removal of its unique product codes that could affect Amway's reputation, and the terms and conditions of sale, refund and return were also altered all of which exposed it to the risk of losing its license to conduct business in India as a Direct Selling Entity. It was pleaded that such tortious interference by the defendants would also adversely affect Amway's contractual and business relationship with its Direct Sellers as well as the relationship with its consumers; effectively diluting and tarnishing Amway's goodwill and reputation in the market. On the basis of Amway's case, local commissioners were appointed by the Court who visited the premises of the defendants and submitted their reports. Ad-interim injunctions were also granted in Amway's favour. The defendants argued amongst other grounds that since the products sold on their platforms were genuine, the plaintiffs cannot preclude the sellers to sell the products and that such sales do not constitute infringement. Moreover, since they were mere facilitators of such sales as intermediaries, they cannot be made liable. 

Direct Selling Guidelines is Valid or Not:

The Court observed that Direct Selling Guidelines have been formulated for protecting the legitimate rights and interests of the industry and consumers. It was observed that these guidelines were duly gazetted, have been implemented in a large number of states and constitute binding executive instructions. Thus, they are not merely advisory in nature but have the force of law. It was also observed that the entire direct selling business is a regulated trade/business and in the present case, as per these Guidelines, the defendants were merely required to take consent of the plaintiffs (Direct Selling Entity) before offering for sale or selling the plaintiffs' products on their platforms. As the Guidelines would be applicable to "any person who sells or offers for sale any product or service of a Direct Selling Entity" the same would take within its ambit such e-commerce platforms as well who are selling the plaintiffs' products. The Court accordingly held that the Direct Selling Guidelines are binding on e-commerce platforms and the sellers on such platforms.

Sale of Plaintiffs' Products on E-Commerce Platforms Violates its Trademark Rights or Constitutes Misrepresentation:

The sale of genuine goods by e-commerce platforms without brand owners' consent would not ipso facto constitute infringement, however any impairment in the condition of goods through such sales including the condition of packaging or associated after-sales services etc. may constitute infringement. This issue also brings into discussion the principle of 'exhaustion of trademark rights' also known as 'First Sale' doctrine as to whether the plaintiffs can control the sale of their products by the defendants once the goods have been lawfully procured/bought from the plaintiffs. As per the report of the local commissioners, the Court noted that the inner seal of the products was broken, QR codes / unique product codes removed through the use of thinners, re-sealing of products done, new bar codes affixed, all under the control and supervision of the defendants/e-commerce companies. Other kinds of tampering with the products of the plaintiffs were also seen in the warehouses owned by the e-commerce platforms. The Court noted that due to such tampering there were negative customer reviews that caused enormous damage to the reputation and goodwill of the plaintiffs' brands. All the defendants relied on Section 30 of the Trade Marks Act, 1999 ("the Act") that products once sold by the plaintiffs cannot be controlled with respect to subsequent sales. It was held that use of the trademarks by the sellers and the e-commerce platforms is violative of the plaintiff's trademark rights and the defendants are not entitled to the defence under Section 30 of the Act. It was also held that such sales on these platforms constitute passing off, misrepresentation and dilution/ tarnishment of the plaintiffs' marks, products and businesses.

The evolving jurisprudence on intermediary liability significantly impacts all e-commerce players and necessitates them to tread more cautiously. The time has come for e-commerce companies to act with a greater degree of responsibility. This includes showing greater sensitivity towards the intellectual property of the rights holders as well as their other legal rights and obligations arising out of the respective businesses.