India - Safe Harbour Protection For E-Commerce Platforms.

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India - Safe Harbour Protection For E-Commerce Platforms.

 

16 July 2021

 

Asia Pacific Legal Updates
 

In recent times, the debate around safe harbour protection has grabbed media attention on account of the recently notified Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“2021 Intermediary Rules), and the ensuing spat between the Government and social media heavyweights like Twitter.

 

However, safe harbour protection for e-commerce marketplaces is another aspect that deserves careful consideration. The jurisprudence around standards to be met to avail safe harbour protection by e-commerce entities is still evolving in India.
 

E-commerce entities as ‘intermediaries’
 

A marketplace e-commerce entity, which acts as a third-party facilitator or conduit for transactions between clearly identifiable buyers and sellers, would be considered as an intermediary as per the definition of ‘intermediary’ under the Information Technology Act, 2000 (“IT Act”), but an e-commerce entity operating under the inventory-based model to sell goods/ services owned by it directly to customers will not qualify as an intermediary.
 

‘Active Participant’ and Safe Harbour Protection
 

Section 79(1) of the IT Act states that an intermediary shall not be liable for any third-party information, data, or communication link made available or hosted by it, provided that it fulfils the conditions prescribed in Section 79(2) and Section 79(3) therein. The Delhi High Court (“Delhi HC”) —  in the case of Christian Louboutin SAS v. Nakul Bajaj and Ors.[1] (“Louboutin Case”), while deciding on the liability of the e-commerce platform, darveys.com, in the context of alleged infringement of trademark rights of Christian Louboutin whose products were being sold on the said platform — drew a distinction between ‘active’ and ‘passive’ intermediaries. The Single Judge Bench held that determination of whether an e-commerce platform is entitled to safe harbour protection under Section 79(1) will depend on whether it plays an ‘active’ or a ‘passive’ role while operating such a platform. The Court identified a list of factors, including identification of the seller and providing details of the seller; providing quality assurance, authenticity guarantees or storage facilities; assistance for placing a booking of the product (including call center assistance); creating listing of the product; packaging of th­­e product with its own packing; transportation; delivery; and advertising products on the platform, etc., involvement in which by the e-commerce entity would make such entity an ‘active participant’ and observed that “when an e-commerce website is involved in or conducts its business in such a manner, which would see the presence of a large number of elements enumerated above, it could be said to cross the line from being an intermediary to an active participant”. It further held that, “any active contribution by the platform or online marketplace completely removes the ring of protection or exemption which exists for intermediaries under Section 79.

 

However, the Division Bench of the Delhi HC in the case of Amazon Seller Services Pvt. Ltd. v. Amway India Enterprises Pvt. Ltd. and Ors.[2] (“Amazon Case”), when dealing with the question of whether provision of incidental services such as warehousing, packaging, storage, entering into fresh warranties etc., by Amazon, Cloudtail, Snapdeal could deprive them of the protection under Section 79, observed that Section 79 does not draw any distinction between active and passive intermediaries in so far as the availability of safe harbour provision is concerned, which can be availed so long as the relevant intermediary complies with the conditions laid down in Section 79(2) and Section 79(3) of the IT Act. The Division Bench observed that restricting the protection under Section 79(1) to ‘passive intermediaries’ would be a misinterpretation of Section 79. It further observed that “there is prima facie merit in the contention of the Appellants that the value added services provided by them as online marketplaces as listed out by the Single Judge, do not dilute the safe harbour granted to them under Section 79”. The Amazon Case effectively set aside the concept of categorization of intermediaries as active or passive participants for the purposes of determining availability of safe harbor protection. However, the Division Bench did not go into the merits of the claim stating that the same would be tested and determined in a trial. .
 

Thus, for claiming exemption from liability under Section 79(1), what is required to be assessed is whether an intermediary fulfils the conditions prescribed under Section 79(2) and Section 79(3) of the IT Act.

 

The Karnataka High Court in its judgment in Kunal Bahl and Ors. v. State of Karnataka[3], held that Snapdeal, being a market-place e-commerce entity, could claim protection under Section 79(1) of the IT Act, provided it satisfied the conditions laid down in Section 79(2) and Section 79(3).

 

Compliance with Section 79(2) and Section 79(3) of the IT Act

 

Section 79(2)(a) or Section 79(2)(b) compliance for E-Commerce platforms

 

The Delhi HC in the Amazon Case observed that in order to enjoy protection under Section 79(1), where the e-commerce entity merely provides access, it has to comply with Section 79(2)(a), and accordingly its function should be limited to providing access to a communication system which transmits or temporarily stores or hosts information that is made available by third parties. In cases where the e-commerce entity provides services in addition to access (such as warehousing, packaging, delivery etc.), it has to show compliance with Section 79(2)(b) i.e. it should not (i) initiate the transmission; (ii) select the receiver of the transmission; and (iii) select or modify the information contained in the transmission. However, the scope of these conditions has not been interpreted by the Courts in the context of an e-commerce platform.
 

In case of an e-commerce platform, a customer chooses to access the platform on his or her own volition and has the freedom to select the product and the dealer he or she wishes to purchase the product from. It may therefore be argued that the e-commerce platform neither initiates the transmission of information hosted on its platform nor selects the receiver of such transmission between the customers and the dealers, thus satisfying the requirements under (i) and (ii) above. That said, basis the observations of the Court in the Louboutin Case, the degree of involvement and control exercised by an e-commerce platform in placing the listing of products/ sellers on its website may also have a bearing on determining compliance with (i).

 

As regards compliance with Section 79(2)(b)(iii), in Myspace Inc. v. Super Cassettes Industries Ltd.[4] (“Myspace Case”), the Delhi HC as a preliminary finding, held that Myspace was in compliance with Section 79(2)(b)(iii) since it was only engaged in modifying the format and not the content uploaded by the users on its website and even the process of modifying the format was an automatic process without either Myspace’s tacit or expressed control or knowledge. However, Myspace being a social networking website, the observation may not squarely apply to an e-commerce platform. In the Amazon Case, Amazon argued that it complied with the provisions of Section 79(2)(b)(iii) since it did not alter/ modify the nature, type or number of products purported to be bought by a customer on its platform. However, the Delhi HC did not opine on these submissions of Amazon. It is therefore arguable that where an e-commerce platform does not play any role in modifying any aspect of the sale transaction from the time of its initiation by the customer, it fulfils the criteria of Section 79(2)(b)(iii).
 

Compliance with Section 79(2)(c) and Section 79(3)
 

To claim safe harbour, intermediaries including e-commerce marketplaces should be able to demonstrate compliance with Section 79(2)(c), i.e. observing due diligence while discharging its duties and also observing such other guidelines as the Central Government may prescribe in this behalf, which now include compliance with the requirements of 2021 Intermediary Rules, including observing a minimum level of due diligence and publishing their rules, regulations, policies and user agreements regarding access or usage of its platform, in compliance with the 2021 Intermediary Rules.[5] Each intermediary must put in place a robust system to inform all sellers on its platform of their responsibilities and obligations under applicable laws in order to discharge its role and obligation as an intermediary.[6]
 

In terms of Section 79(3), the intermediary should be able to establish that it has not conspired, abetted, aided in or induced the commission of the unlawful act on its platform. Further, it should have complied with the take down provisions of Section 79(3), read with Rule 3(1)(d) of the 2021 Intermediary Rules.

 

Concluding remarks
 

Courts in India are yet to conclusively lay down the tests to be applied to determine compliance by e-commerce platforms of the conditions under Section 79 of the IT Act for such platforms to successfully claim safe harbor protection.

 

The Delhi HC in the Myspace Case held that “Section 79 is neither an enforcement provision nor does it list out any penal consequences for non-compliance. It only sets up a scheme where intermediaries have to follow certain minimum standards to avoid liability; it provides for an affirmative defence and not a blanket immunity from liability.”

 

Therefore, even though the Delhi HC in the Amazon Case dismissed the distinction between ‘active’ and ‘passive’ intermediaries, the factors specified in the Louboutin Case may still be relevant in determining whether factually the intermediary is controlling the transmission of information or the transactions undertaken or otherwise conspiring, abetting, aiding or inducing the alleged infringing act on its platform, and accordingly, whether such intermediary can seek protection under Section 79(1) of the IT Act.
 

Lastly, it merits a mention that the new draft amendments to the Consumer Protection (E-Commerce) Rules, 2020 seek to impose a fall back liability on a marketplace e-commerce entity for certain acts and omissions of a seller registered on its platform. If these fall back liability provisions do find a way in the final rules, it will be interesting to see how the same will play out against the jurisprudence developed by the courts so far, regarding the liability of marketplace e-commerce entities and the safe harbour contained in Section 79 of the IT Act.

 

 

For further information, please contact:

 

Mukul Sharma, Partner, Cyril Amarchand Mangaldas

[email protected]
 

[1] 253(2018)DLT728

[2] 2020(81)PTC399(Del)

[3] 2021(2)KarLJ254

[4] 236(2017)DLT478

[5] Myspace Inc. v. Super Cassettes Industries Ltd. 236(2017)DLT478; Amazon Seller Services Pvt. Ltd. and Ors. v. Amway India Enterprises Pvt. Ltd. and Ors., 2020(81)PTC399(Del).

[6] Kunal Bahl and Ors. v. State of Karnataka, 2021(2)KarLJ254.