This article has been written by Sajan Janardanan, pursuing the Diploma in Cyber Law, FinTech Regulations, and Technology Contracts from LawSikho. This article has been edited by Prashant Baviskar(Associate, Lawsikho) and Smriti Katiyar (Associate, Lawsikho).

Introduction

Do you think it is logically correct to say that an Intermediary is liable for all the torts of its seller or buyer? An intermediary is only an agent who facilitates transactions between buyer and seller through an online e-commerce platform. It is not possible to verify the particulars of each product uploaded by the sellers in an e-commerce site managed by the intermediary. In this article, we shall discuss the role of intermediary with the help of a landmark judgment Kent RO Systems Ltd. & Another v.Amit Kotak & Others of Delhi High Court. 

Before delving into the details of the case let us understand the term ‘intermediary’ from a legal perspective. The Information Technology Act, 2000 defines the term ‘intermediary’ as “any person who on behalf of another person receives, stores or transmits that record or provides any service with respect to that record and includes telecom service providers, internet service providers, online-auction sites, online marketplaces, etc.”

Statutes and provisions involved

• The Information Technology Act, 2000 (Sections 79, 79(1), 79(3))
• The Designs Act, 2000 (Sections 19, 22)
• The International Technology (Intermediaries Guidelines) Rules, 2011 (Rule 3)

Case brief

Kent RO Systems Ltd is a manufacturer of Water Purifiers and they have several copyrights on the aesthetic designs of their products under the provisions of Designs Act 2000. Kent RO System markets its product directly as well as through e-commerce sites including eBay. It is a well-known e-commerce site in which a large number of sellers upload their products for sale. 

Mr. Amit Shabhulal Kotak was also a manufacturer of water purifiers and the shape and designs of his product were also similar to that of the Kent RO Systems for which they have obtained copyright as per the Designs Act 2000. Manufacturing and selling of products using copyrighted design will amount to piracy as per the Designs act. Mr. Amit Kotak regularly showcased all his infringed products on an e-commerce website operated by eBay.

Before instituting the suit, Kent RO Systems informed Mr. Amit and eBay about the infringement caused by Mr. Amit demanded to remove such contents from their website. Upon receipt of such a demand notice, eBay took down the contents which were revealed in the demand letter. The plaintiff, however, alleged that there were 100 more infringing items on their e-commerce site and all such contents should be removed by eBay without specific demands. eBay opposed that demand and stated that it is difficult for them to identify such items without clear intimation and they are only liable to remove items that they are informed about. Thereafter, Kent RO Systems filed a suit against Mr. Amit Shabhulal Kotak and eBay for permanent injunction and for damages.    

The main allegation in the case was that Shabhulal, the first defendant, was using the same design of products of the plaintiff for which the plaintiff company Kent RO Systems Ltd has already obtained copyright. Manufacturing for the purpose of selling any items using the same design which is copyrighted by another person is treated as piracy under the provisions of the Designs Act 2020. It was also alleged by the plaintiff that the second defendant had not taken reasonable care in identifying the copyright in the designs of the product uploaded on its website and thereby had helped the first defendant to showcase their infringed product on the website of the second Defendant. The second defendant being an intermediary is also expected to observe due care while permitting their customers to showcase their products and they failed to inform their customers that customers shall not upload, showcase, modify, publish, update, transmit or share information that infringes the intellectual property rights of any party. They also failed to take steps in avoiding the sale of such infringing articles through their website which is a violation of Information Technology (Intermediaries Guidelines) Rules, 2011. 

Main arguments

In this case, the first Defendant had admitted his infringement and not contested the case. The damages sought were only against the second defendant. When the case came up for hearing the court enquired to the counsel for the plaintiff that what will be the relief against Defendant No.2 and how the recovery of damages can be affected against him. 

Plaintiff’s arguments

Plaintiff contended that eBay is an “intermediary‟ within the scope of the Information Technology Act and is required to comply with the Information Technology (Intermediaries Guidelines) Rules, 2011 (IT Rules). 

“As per Rule 3 of the IT Rules, the intermediaries shall observe following due diligence while discharging their duties.  

(1) The intermediary shall publish the rules and regulations, privacy policy, and user agreement for access or usage of the intermediary’s computer resource by any person. 

(2) Such rules and regulations, terms and conditions or user agreement shall inform the users of computer resources not to host, display, upload, modify, publish, transmit, update or share any information that infringes any patent, trademark, copyright, or other proprietary rights;

(3) The intermediary shall not knowingly host or publish any information or shall not initiate the transmission, select the receiver of the transmission, and select or modify the information contained in the transmission as specified in sub-rule (2):”

The counsel for the plaintiffs also alleged that exemption from liability of intermediary under the provisions of Section 79 of IT Act, will not be applicable if the intermediary has conspired for an unlawful gain with the sellers.

Defendant’s arguments

The counsel for Defendant No.2 eBay stated that eBay had complied with all the regulations and it has no bonafide knowledge as an intermediary about the infringements of the product uploaded by the first Defendant on their website. They have taken down the infringed items from the site when they received the demand from Plaintiff in accordance with the law. The counsel for eBay also submitted a statement before the Court that eBay shall remove all offending products in the future also upon receipt of complaints from the Plaintiff. It is not reasonable to say that the intermediary should closely monitor each and every content uploaded on the website and verify whether any contents of an infringing nature are uploaded. The law says that the intermediary shall warn its users not to upload any contents which infringe the copyright or any other offending contents.   

The counsel further argued that as per Section 79 of the IT Act an intermediary shall not be liable for any third party information, data, or communication link made available or hosted by him, because the role of an intermediary is limited to providing access to a communication system over which information made available by third parties is transmitted or temporarily stored or hosted and does not make any modification or transmission. 

Opinion of the Bench

The provisions of the IT rules clearly define the role of an intermediary as they are liable to remove, disable or deny access to the information hosted on the e-commerce portal within 36 hours of receipt of the complaint. The said rules do not force the intermediary to scrutinise all information uploaded on its website to find out whether such content infringes the copyright of any third parties. The bench also shared its view on the intention of the legislature while enacting such a law. The legislature would have observed that the intermediaries should inform the customers who upload contents in their site that they shall not upload any contents which infringe the right of third parties or any other offending contents and the intermediaries should ensure that their privacy policy and terms of use are provided to its users. Intermediaries should also take down the contents on receipt of written demands from the copyright owners. Court also observed that screening on all contents uploaded by the intermediaries would be an unreasonable interference which would certainly have an adverse effect on their business. 

Judgment 

After a detailed hearing of both sides, the Court held that the argument placed by the plaintiff cannot be fully accepted. As per IT rules an Intermediary shall take down all infringing contents and disable access to the site within 36 hours upon receipt of the knowledge of such infringement. It is also clear from the act that Intermediary shall inform its users of its privacy policy, terms of users, and user agreement, and such user agreement shall clearly inform the user that they shall not host, showcase or publish any content infringing copyright of any other persons.

On verification of the record, the court came to believe that the 2nd defendant had complied with all the regulations mentioned in the Act. Plaintiff also could not prove the conspiracy between intermediary and its customer as alleged by them, hence defendant No. 2 was eligible for the exemption of liability under Section 79 of IT act. 

• The counsel for the defendant no.2 relied on Myspace Inc. Vs. Super Cassettes Industries Ltd. In this case Myspace Inc, an intermediary, was not ready to take down the contents even after getting the actual knowledge of infringements and it led to a continuing infringement. This will definitely constitute a conspiracy between intermediary and its users. But in this case the intermediary has taken down the contents within 36 hours of receipt of written complaint from the plaintiff and the rest of content remaining in the site as alleged by the plaintiff were not included in their written complaint, so it cannot be treated as a violation of rule. 

Hence the Court has disposed of the suit against defendant No. 2 binding them to their statement undertaking that they shall take back any such contents immediately on receipt of knowledge about offending contents. 

Conclusion

The detailed analysis of the case clearly showcases the role of an intermediary. It is not at all possible to scrutinise the entire content uploaded or hosted by the users in their e-commerce platform. But the e-commerce operators shall be careful in publishing privacy policies and terms of users. Through these documents, intermediaries shall make sure that they have warned their users not to upload any content that infringes any copyright for anything against the public order. 

Intermediary companies shall take maximum care in drafting their privacy policy and terms of use in compliance with the IT Act and intermediary rules. If the intermediary complied with the IT rules by taking down all the infringed content from their sites it is not fair filing a suit for damages against the intermediary which is simply a waste of time for the judiciary.  

References

• Judgment in Kent RO Systems Ltd. & Another vs. Amit Kotak & Others. https://indiankanoon.org/doc/163813330/?type=print
• Information Technologies Act 2000:   https://indiankanoon.org/doc/1965344/
• Information technology (intermediaries guidelines) rules 2011: 
• https://www.meity.gov.in/writereaddata/files/GSR314E_10511%281%29_0.pdf 
• The Design Act 2000: https://indiankanoon.org/doc/931654/ 

---

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

https://t.me/joinchat/J_0YrBa4IBSHdpuTfQO_sA

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.