Draft E-Commerce Policy: A problematic revision of intermediary rules for trademark and copyright liability

Asheeta RegidiFeb 28, 2019 17:08:09 IST

The Department for Promotion of Industry and Internal Trade released a new draft National E-commerce Policy for stakeholder comments on 23 February, 2019. While past policies on e-commerce dealt primarily with the FDI rules, the new Policy covers a much wider range of activities, including on infrastructure development, new rules for imports, suggesting online customs clearance, rules for consumer protection, requiring business entities to be established in India and so on.

In addition to rules of this nature, which are more specific to the commercial functioning of an e-commerce site, the policy also proposes rules that affect intermediary liability for such sites, in their dealing with counterfeit goods, piracy and prohibited goods.

The proposed rules are problematic, however, since firstly, they impose rules that effectively remove the protection e-commerce sites have as intermediaries, by requiring all such sites to play a more active role.

Secondly, they go against the Supreme Court and other judgments including the Shreya Singhal judgment, by requiring intermediaries to exercise their own judgment as to identifying content that infringes another’s copyright or trademark, removing it and even blacklisting the concerned sellers for a period. The rules completely omit the fact that such determinations require the judgment of the courts and not the intermediaries.

Representational image. Reuters

How copyright and trademark intermediary liability works

Intermediary liabilities and the need to revisit them have been a subject of contention for a while, giving the changing nature of the internet and technology. The draft Intermediary Guidelines released last December reflect this change, and the new rules proposed under the e-commerce policy take the next step, both albeit in a problematic manner.

Existing laws on intermediary liability, in general, are well-known, where Section 79 of the Information Technology Act, 2000, protects intermediaries like social media companies, e-commerce sites, etc. from liability for any content they host. Intermediaries are obligated to exercise due diligence for the content uploaded and must take down illegal content within 36 hours on receiving a court direction or government order to do so (as laid down in the Shreya Singhal judgement).

While these same rules form the foundation of liability for intellectual property right infringement as well (such as trademarks and copyright), the rules in relation to this are more nuanced and are laid down under the Indian Copyright Act, 1957, as well as various judgments, as discussed below.

On trademark infringement under the draft e-commerce policy

First, turning to the new rules for anti-counterfeiting measures or products infringing trademarks under the new e-commerce policy.

In order to enable trademark owners to exercise their rights, the policy includes requirements to:

• allow trademark owners to register themselves with a platform, and any trademarked product uploaded there must be notified by the platform to the trademark owner;
• give trademark owners the option to require their authorisation before the listing of their products by sellers, while compulsorily requiring such authorisation for high value (luxury) goods, cosmetics and others;
• require trademark owners to be informed of complaints of counterfeit products, and if the seller is unable to prove authenticity, have it taken down; and
• require platforms to cease hosting products that were found to be counterfeit, impose financial disincentives on the sellers and even blacklist them.

In relation to sellers, the new rules also require that:

• platforms make seller names and contact details available; and
• platforms enter into agreements with sellers to provide guarantees of authenticity and validity of brand warranties for their products, without which they cannot be listed.

It also includes new rules on reviews as well as customer support.  It includes similar rules for prohibited products- requiring their removal, blacklisting of the sellers concerned and notification of authorities.

A problematic adaption of a Delhi HC judgment

These rules are adapted from directions given by the Delhi High Court in 2018 in Christian Louboutin Sas v. Nakul Bajaj. The proposed rules, however, omit some key factors of the judgment.

First, the judgment differentiates between e-commerce sites that are mere intermediaries and thus protected under intermediary law, and those which are more active participants, and thus not. The judgment lists a number of factors to help make this determination, such as platforms identifying sellers, providing transportation  facilities, providing quality assurances and authenticity guarantees, providing or uploading reviews, promoting products and giving specific discounts, providing customer support,  booking ad-space on search engines, using trademarks through metatags, deep-linking to the owner’s website, etc.

Based on this, one can consider (going by general perceptions of these sites) OLX and eBay as examples of mere intermediaries, and Amazon and Myntra as examples of more active participants.

Despite this list, the judgment requires facts and circumstances to be taken into account, including the terms and conditions of the site.

Assessing the nature of e-commerce sites

The new policy, however, completely omits the requirement to make this determination. Additionally, the rules the policy adopts, as listed previously, are derived from the directions given in this case. However, the directions, in this case, were given specifically for the e-commerce site in question (Darveys.com) and were not general rules for all intermediaries. The adoption of the same directions as rules for all e-commerce sites under the new policy, without any consideration of the facts and circumstances, results in rules that require all e-commerce sites to perform various acts, such as identifying sellers, monitoring products, requiring guarantees, etc., which in turn will make them lose their mere intermediary status, and thus their protection under the law.

Further, the judgment makes no mention of blacklisting of sellers, which again, is something that should need an evaluation of facts and circumstances by a Court, instead of the e-commerce site. The rules, instead, completely omit the requirement of a Court order.

Actual facts and circumstances can make a big difference, for instance, the determination of whether the seller made a bona fide effort to ascertain whether the goods were genuine before blacklisting him. Similarly, the sale of used goods is a factor, since they may be genuine, branded products, but may not have a valid original warrantee as required under the new rules. Such resales would be impermissible under the new rules.

Representational image: Reuters

On copyright infringement under the new policy

Turning to copyright infringement and the anti-piracy measures under the new Policy, e-commerce sites are to put in place measures to deal with online distribution of pirated content, and to identify ‘trusted entities’ whose complaints are resolved on a priority. Upon being notified by a copyright owner of the distribution of content without his permission, the e-commerce platform must expeditiously remove or disable access to the content.

This requirement to remove content on being notified is in keeping with intermediary rules for copyright under Section 52(1)(c) of the Copyright Act. This provision requires potentially infringing content to be taken down temporarily upon receiving such notice for 21 days, until a Court order is received to take it down permanently. The need for specific knowledge through a notice of copyright infringement has been upheld in Myspace Inc v. Super Cassettes Industries Ltd (Delhi High Court, 2016).

On monitoring content for IPR infringement

However, if the requirement of having measures to deal with piracy refers to a monitoring requirement, this goes against a Supreme Court ruling in 2017, Kent RO Systems v. Amit Kotak, where while dealing with eBay, it was ruled that an intermediary is not required to be in a place where it needs to judge whether content infringes intellectual property rights or not. The law, it was held, only requires intermediaries to take down content on being notified, and an intermediary cannot be expected to monitor all its content for infringement.

A requirement to monitor is justified when the website is not a mere intermediary, for instance, in the case of Unacademy, where the Madras High Court in 2018, found that Unacademy was not protected as an intermediary from the upload of content that infringed copyright. Unacademy was found to be more than a mere intermediary on considering its terms of service, which stated that it approved the content uploaded, paid users for the content provided, and required exclusivity for the content, it was not a mere intermediary.

Blocking of websites

An additional rule is in relation to the blocking of websites, and it is unclear why such a rule is placed in an e-commerce policy. A body of industry stakeholders, as per the Policy, is to list ‘rogue websites’ which predominantly host pirated content. For websites placed on this ‘Infringing Websites’ List, internet service providers are to remove or disable access within time limits, payment gateways are not to allow payments to such websites, search engines must take steps to remove such websites from search lists, and advertisers cannot host advertisements on such websites.

The inclusion of this rule, which would normally be within the powers of say, the Ministry of Electronics and Information Technology, appears to be a result of the wide net that the Policy has cast in dealing with e-commerce. It appears to have included any activity on the internet which involves payment in some form, be it even the providing of content. While the overlap of traditional regulatory jurisdictions when dealing with the internet is inevitable, this can lead to conflicting regulations for the industry.

Misinterpretation of judgment rulings

A misadaptation of the Supreme Court rulings, as seen with the draft e-commerce policy, was recently seen with the draft Intermediary Guidelines as well, where requirements in the Tehseen Poonawalla case to address fake news and in the Prajwala Letter case for automated monitoring and deletion of content in relation to child pornography, rape and gang rape, were misinterpreted to include a general requirement to share information, censor content and automatically monitor all content for lawfulness (a more detailed discussion is here).

While giving an intermediary absolute immunity for the content it hosts is no longer justified and intermediary liabilities do need to take on greater responsibility, this adaptation of rules without a proper understanding of the ruling that they are based on is problematic.

The current set of rules, as seen, are problematic on many accounts — that they fail to take the actual nature of an e-commerce site into account, require an intermediary to pass judgment on the content it hosts, and do not provide any recourse or appeal to the parties that are affected. The nuances of the underlying jurisprudence, be it the laws or judgments, constitutional rights as well as the principles of natural justice (like the right to be heard) cannot be overlooked.

In any case, the invite of stakeholder comments to the proposed policy is welcome, so that issues of this nature can be addressed. Further, perhaps in the age of technology, regulatory roles need to be re-determined, and maybe regulations issued jointly by concerned departments can lead to a more wholesome view of the picture.

The author is a lawyer specialising in technology, privacy and cyber laws