Safe Harbour Protection and Challenges for Businesses in the Era of Online Intermediaries
By Manvee (Convenor-CIILE; Final Year, CNLU Patna)
Image Credits: https://fpf.org/blog/indias-new-intermediary-digital-media-rules-expanding-the-boundaries-of-executive-power-in-digital-regulation/
INTRODUCTION
In today’s contemporary world intermediaries have assumed tremendous importance. Intermediaries have existed since ancient times. However, the role of intermediaries has also advanced with time. Initially what used to be offline now is also available online. On 9th March 2023, MeitY came up with a draft presentation on the proposed Digital India Act, 2023. Under this presentation, the government dealt with Intermediaries from a broader perspective. The government came up with a concept of intermediaries as a spectrum where it presented that under the proposed act intermediaries will be further categorized into eCommerce, Digital Media, Gaming, Search Engines, AI, OTT Platforms (Over the Top), TSPs, SSMIs, AdTech, etc. “Everything that sits on the internet will be an intermediary. There will be different types of intermediaries, e-commerce intermediaries or social media intermediaries. There will be multiple intermediaries defined.” Says Union Minister of Information Technology.
Lately, the central government felt the need to regulate Online Intermediaries robustly. So, it came up with a spectrum of intermediaries in its proposal draft. However, the present legislations provide some protections to intermediaries but fail to regulate them robustly. Currently, Intermediaries are governed under Informational Technology Act, 2000 (IT Act) and the Intermediary Guidelines 2021.
In this article, we shall be discussing Safe Harbour Protection for the Intermediaries and the evolution of intermediaries actively and passively. We shall be also pondering upon the challenges and solutions for the business which rely heavily on intermediaries for their businesses.
ACTIVE INTERMEDIARY vs. PASSIVE INTERMEDIARY
Section 79 of the IT Act deals with Intermediaries. As per sub-clause 1, Intermediaries are protected from the liability of the third-party content whereas sub-clause 3(a) recognizes that intermediaries shall not participate actively or indulge in the facilitation of committing an unlawful act. If the intermediaries have abetted, conspired, aided, or induced any of the unlawful acts via threats, promises, or any other means then they cannot be granted immunity under this section. However, in Christian Louboutin v. Nakul Bajaj Court made segregation for intermediaries. It categorized it into two types – Active Intermediary and Passive Intermediary.
An active intermediary is actively involved in influencing and facilitating the transactions between the parties. It plays an active role in connecting the buyers-sellers. Active intermediaries are also the ones who frequently engage in promotional activities, marketing, and customer support. Whereas Passive Intermediaries are the one who acts as neutral facilitator without actively influencing the interaction between the parties. A passive intermediary serves as a primary channel for transactions. They provide parties to engage with each other directly and do not control or curate the products and services offered by the parties using their platform.
In Skull Candy Inc. v. Shri Shyam Telecom, the court held that section 79 of the IT Act protects genuine intermediaries, and it cannot be abused by extending protection to those intermediaries who have actively participated in the commission of an unlawful act.
SAFE HARBOUR PROTECTION – WHEN IT CAN BE & CAN NOT BE CLAIMED BY INTERMEDIARIES
Earlier this year, MeitY came up with the draft presentation of the Digital India Act, 2023 where it pondered upon some questions about intermediaries and their liabilities. MeitY emphasized a separate rule for each class of intermediaries and it also came up with an important question Should there be a “Safe Harbour” at all for intermediaries? Before moving further, we need to first know what is this ‘Safe Harbour’ protection and secondly why there is need for a safe harbor protection for the intermediaries.
Safe Harbour provision grant exemptions to the intermediaries from being prosecuted against unlawful or criminal activities of third parties. But they are subject to certain requirements under the IT Act. Section 79(2) of the act provides for Safe Harbour protection to the intermediaries. Even though much of the data on the internet is encrypted but intermediaries run the risk of being held liable for the content or information that they haven’t generated, reviewed, or modified. Since intermediaries are mere channels, it would be unfair to hold them accountable for false and offensive content posted by third parties.
Coming to the most important question, why do we need safe harbor protection for the intermediaries? It has several aspects: It promotes economic growth and innovation by facilitating online activities, Intermediaries help in facilitating and fostering an environment conducive to investments, entrepreneurial activities, and technological advancements, Intermediaries like Twitter, Instagram, and Facebook provide a platform to express freedom of speech & expression to the public; they act as a host of the vast amount of user-generated content so practically its impossible for them to actively control and monitor all the contents uploaded by the users, so they encourage self-regulatory mechanism such as takedown notices to address the malicious or infringing content. Thus, Safe Harbor protection recognizes the limitations of the intermediaries and provides them with protection from the liability of third-party content.
When intermediary can be granted Safe Harbour Protection
If an intermediary wants to claim Safe Harbour Protection, then they can only claim it if they can demonstrate that they complied with Section 79(2) of the IT act which deals with 3 major things (i) limited role as a communication system provider (ii) lack of active involvement in transmission and content (iii) Due Diligence. The intermediary shall be a mere facilitator in the transmission and hosting of the information made available by third parties. Moreover, they shall not be initiating the transmission of the information nor do they select the receiver of the transmission. They should be avoiding the modification of the information contained in the transmission. The intermediary is expected to observe due diligence which means they shall exercise reasonable care and preventive measures to prevent any illegal or harmful activities occurring via their platforms. This shows the passiveness of the intermediaries and they can claim Safe Harbor protection.
In Amazon Seller Service Pvt. Ltd. v. Amway India Enterprise Pvt. Ltd., the court rejected the distinction between active and passive intermediaries for providing safe harbor protection. The court emphasized that as long as intermediaries comply with the condition specified in Section 79(2) and 79(3) of the IT act, they are eligible for the safe harbor provision regardless of their level of activity of value-added services.
When an intermediary cannot be granted Safe Harbour Protection
An intermediary can’t be granted safe harbor protection if it is found actively indulging in content modification or content creation of the content posted by its users. In that case, they may be considered more than a service provider as they actively contributed to the content. If the intermediary fails to observe due diligence and compliance with the laws of the central government on its platform then it can lead to loss of safe harbor protection. If an intermediary is found indulged in abetting or inducing any unlawful or illegal activity then also it leads to the loss of Safe Harbour Protection. Section 79(3)(a) of the IT Act[PL1] as an exemption to the Safe Harbour Protection. The provision reflects the understanding that intermediaries should not be granted complete immunity when they are directly involved in unlawful acts or even fail to take corrective measures and actions when it comes to their knowledge that an unlawful act is being committed.
The Delhi High Court in Christian Louboutin SAS v. Nakul Bajaj and Ors. held that e-commerce platforms that go beyond the role of passive intermediaries and actively participate in the transactional process may be held liable for trademark infringement. And the Safe Harbour provision will be inapplicable to the intermediaries in this case. The court also provided the list of the factors to determine whether an e-commerce platform qualifies as an ‘active participant’. Some of the factors include activities like assisting in bookings, creating listings, packaging, transportation, advertising products, delivery of products, identifying sellers, providing quality assurance, etc. So, if an intermediary is found actively indulged in these activities, then it will be exempted from safe harbour protection.
In Skull Candy Inc. v. Shri Shyam Telecom, the court examined the question, of whether e-commerce platforms that use trademarks through meta-tags or in the source code of their website to attract traffic can continue to constitute an intermediary or not and whether such platforms can be considered as having active participation in the trade. It was held that an e-commerce website contributing to the sale of counterfeit products on its platform is said to be crossing the line from being an intermediary to an active participant. In such a case the e-commerce platform could be held liable for the infringement being an active participant and cannot claim safe harbour protection.
POTENTIAL CHALLENGES FOR BUSINESSES HAVING INDULGENCE OF ONLINE INTERMEDIARIES
- Data Privacy and Cybersecurity risks
Businesses face significant challenges regarding data privacy and breaches when working with online intermediaries. Entrusting sensitive data to these platforms exposes businesses to risks such as inadequate data protection and potential misuse, leading to privacy breaches and violations of data protection regulations. Security breaches targeting intermediaries can also result in data breaches for businesses, leading to financial, reputational, and legal consequences. Loss of control over data, difficulty in enforcing data protection measures, and ensuring compliance with regulations further complicate the issue. Any breaches or privacy violations associated with intermediaries can harm a business’s reputation and erode customer trust. To mitigate these challenges, businesses should prioritize robust data protection measures, conduct regular security audits, diversify reliance on intermediaries, and implement strategies to minimize dependency. By taking these steps, businesses can address data privacy and breach challenges associated with online intermediaries.
- Reliance on online intermediaries hampers business autonomy
Intermediaries’ platforms such as Swiggy, Zomato, and Uber Eats often charge substantial fees to restaurants (18-30%) and assert the right to market competing offerings to the restaurants’ customers, potentially compromising their business interests. The limited choice for customers and the difficulty for restaurants to retain their customer base once they have used a particular platform create a dependency on these intermediaries. However, it is important to note that restaurants have alternatives available to them. They can invest in developing their online ordering systems, which can be cost-effective and provide greater control over their operations. By offering lower prices and exclusive benefits on their websites, restaurants can incentivize customers to order directly, thereby reducing their reliance on ordering platforms. Businesses need to explore legal strategies and alternatives to mitigate the challenges posed by intermediaries and regain control over their customer relationships and profitability.
- Negotiating favorable terms and avoiding exploitation by online intermediaries
While intermediaries hold the power to exclude businesses from their services if they do not comply with terms and fees, not all threats of exclusion are credible. For example, Real estate portals rely on agents to provide complete property listings, as an incomplete database diminishes the value of the platform for house hunters. Moreover, reproducing property photos generally requires permission from the agent marketing the property. This necessity gives agents leverage in negotiations, as platforms require their participation to maintain the platform’s value to users. Therefore, by understanding the legal dynamics and leveraging their strengths, businesses can strive to secure favorable agreements with online intermediaries while safeguarding their own competitiveness and market position.
- Balancing self-interest and fair treatment of competitors
Intermediaries, such as Amazon, Google, and eBay, navigate a complex landscape when it comes to favoring their services and discriminating against competitors. While overtly favoring their products or services can lead to significant backlash from competitors and consumers, intermediaries often resort to more subtle forms of discrimination. One example is Amazon’s potential deletion of negative reviews for its house brand products, Amazon Basics. If it were discovered that Amazon was manipulating reviews to maintain a positive image of its products, the company would face severe criticism and potential legal repercussions. Platform providers argue that the costs associated with building and configuring their systems should grant them the freedom to determine how they operate. While online intermediaries often engage in subtle discrimination practices, their actions are contingent on users and competitors noticing and caring about the issue. Public outcry, user complaints, and regulatory scrutiny play a crucial role in curbing brazen instances of favoritism. Consequently, companies should be vigilant in assessing the potential for public concern and backlash when suspected cases of discrimination arise within the realm of online intermediaries.
CONCLUSION
The analysis of Safe Harbour protection for online intermediaries and the challenges faced by businesses relying on them reveals important legal considerations in the evolving digital landscape. The proposed Digital India Act, 2023 aims to address the regulation of intermediaries by categorizing them into various types and recognizing their roles and responsibilities.
The distinction between active and passive intermediaries is crucial in determining the applicability of Safe Harbour protection. Active intermediaries actively participate in facilitating transactions, marketing, and customer support, while passive intermediaries act as neutral facilitators without actively influencing interactions. Courts have held that intermediaries actively involved in unlawful acts cannot claim Safe Harbour protection, emphasizing the importance of compliance with due diligence and avoiding content modification or creation.
Safe Harbour protection is essential to encourage economic growth, innovation, and freedom of expression online. It shields intermediaries from liability for third-party content while recognizing their limitations in actively monitoring and controlling user-generated content. However, intermediaries must comply with certain conditions, including limited involvement in content transmission and hosting, lack of initiation or selection of transmission, and observance of due diligence. Failure to comply with these conditions or active participation in unlawful activities can lead to the loss of Safe Harbour protection.
Businesses relying on intermediary’s face challenges such as data privacy and cybersecurity risks, loss of autonomy, negotiation of favorable terms, and fair treatment of competitors. To address these challenges, businesses should prioritize data protection measures, diversify reliance on intermediaries, explore alternative platforms, and negotiate agreements that safeguard their interests. Balancing self-interest with fair treatment of competitors becomes crucial to maintain a level playing field and prevent antitrust concerns.
Therefore, businesses must navigate the legal complexities surrounding online intermediaries. By understanding the distinctions between active and passive intermediaries and complying with Safe Harbour requirements, businesses can protect their interests while engaging in digital transactions. Adhering to data protection regulations and exploring alternative strategies can help businesses mitigate risks and foster a competitive and secure digital environment.
[PL1]Covered in Nakul Bajaj and Skullcandy
