Facebook : a monopoly in the social media market

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October 27, 2021

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This article is written by Anannya Sinha pursuing law from Symbiosis Law School, Noida. This article discusses the question of Facebook being a monopoly according to Indian laws.

Table of Contents

Introduction

Founded in 2004, Facebook is one of the most popular social media platforms that people from all over the globe use, irrespective of their age or gender. It is one of the world’s most valuable companies and is considered one of the Big Five companies in U.S. information technology, alongside Google, Apple, Microsoft and Amazon. Throughout its existence, Facebook has acquired multiple companies like Instagram and Whatsapp.

Facebook, the most popular social media platform, was the first to cross one billion registered accounts, and it now has more than 2.85 billion monthly active users. Currently, the firm owns four of the most popular social media sites, each with over one billion monthly active members.

Facebook in India

The number of social network users in India stood at around 216.5 million in 2016 and is forecast to amount to more than 336 million by 2020. From this figure, Facebook accounts for the majority of these users, as the social network is the most popular social network in the country.

As of December 2020, total Facebook users in India made up 28% of the overall Indian population. A report showed that there were 391,700,000 FB users in India by the end of December 2020. 75% of them were men, and the largest user group ranged between 25 to 34 years.

In April 2020, Facebook announced a $5.7 billion deal with the Indian multinational conglomerate Reliance Industries to purchase approximately 10 percent of Jio Platforms, Reliance’s digital media and services entity.

This has only increased Facebook’s control over the Indian social media scenario. Hence the penetration rate of Facebook in India is expected to rise from almost 15% from the year 2016 to 2021.

Why is Facebook considered a monopoly

At this point, Facebook owns 3 out of the 4 most used apps globally. It owns Facebook, Whatsapp and Instagram. Because of Facebook’s market dominance, any existing or new competitors find it difficult to compete in this arena. Facebook could be considered a monopoly that has too much power, for three simple reasons: its dominant user base, its pricing power, and its lack of direct competition. The dominant user base of Facebook is pretty evident with the extraordinary figures that show the number of users who are actually using apps owned by Facebook regularly. Facebook also makes the majority of its money by selling targeted ads, and it limits the number of ad spaces accessible to raise ad prices.

According to Zuckerberg, Facebook’s business “overlap(s)” with Google, Apple, Amazon, and Microsoft’s businesses “in different ways.” That is true, but none of those companies is a direct competitor of Facebook. Google tried several times to break into the social media sector, but none of its efforts — Orkut, Buzz, and Google+ — were able to match Facebook’s appeal.

Why should Facebook not be considered a monopoly

Yet Facebook wouldn’t be deemed a monopoly if we consider three other factors: its market share, the effectiveness of its ads, and its shifting demographics.

Even while Facebook is a huge player in online advertising, it can’t compete with Google. You could argue that Google and Facebook have a monopoly on online advertising, but you couldn’t argue that the smaller player had one. Google and Facebook combined is undoubtedly the biggest player in online advertising. It can be said that they do have a duopoly in the online advertising market, but Facebook is the smaller player when compared to Google and Facebook cannot be said to have a sole monopoly.

In terms of ad performance, Facebook isn’t the best, undermining the case for monopoly status. According to a recent study of senior ad buyers, Google’s ads had the best return on investment (ROI), with Facebook coming in second at 30%. The percentages on the other platforms were all in the single digits.

Finally, in this argument against a monopoly designation, Facebook does not have complete control over all of its users. The number of Facebook users aged 12 to 17 has decreased over time. Some of those users are being retained by Facebook through Instagram, but many are migrating to Snapchat, which Zuckerberg should have mentioned as growing competition. The age group of teenagers between the ages of 12 and 17 are considered to be the iron grip of any app. These users are supposed to be heavy users of the app, given their addictions to mobiles and social media. These users are also supposed to influence the use of the apps more and more amongst their peers. The future user base is also expected to mostly consist of these youngsters. It is hence extremely important for companies to retain this iron grip through time. Facebook has lost its iron grip and hence any question of holding the monopoly in the social media market.

Is the issue monopoly or privacy

The straightforward answer is that it is both. The FTC is now investigating Facebook, as well as other internet corporations such as Google. The probe has centred on the firms’ antitrust violations as well as their privacy policies. Unfortunately for Facebook, they look to have monopoly and privacy concerns both.

Facebook was hit with a record fine for privacy infractions, and now the American government has gone much farther, ruling Facebook’s social media market dominance illegal.

Is consumer welfare at stake

Monopolies are traditionally prohibited so that businesses cannot control consumer prices and can essentially charge whatever they want for their goods or services. The monopoly claim against Facebook, which provides all of its platforms to users for free, is based on what the anti-trust legislation refers to as “consumer welfare.”

When Facebook first launched, it advertised itself as the most private social media platform. At the time, the company boasted that it did not gather users’ private information and that its settings allowed you to manage who saw your profile. However, the company’s privacy policies have developed as well. Because ad sales account for the majority of Facebook’s revenue, the more information they have about their users, the better.

Consumers who want to engage in social media must agree to Facebook’s privacy policies to do so, thereby making their personal information their “payment” for doing so.

The battle is taking place in the courtroom and is expected to have a long-lasting impact on other companies who trade in consumer information.

Even though the Court does not agree with all of Facebook’s arguments, it does agree that the agency’s complaint is legally deficient and must be dismissed. The judge in the above case said that the FTC failed to show Facebook as a monopoly in the court of law. The FTC has not shown enough evidence to show that Facebook has monopoly power in the market for Personal Social Networking (PSN) Services.

Facebook monopoly in India

WhatsApp, (Facebook) Messenger, and Facebook—all three from the United States—were the top three non-gaming apps downloaded in India in 2015. By 2019, however, Chinese applications TikTok (which includes Musical.ly) and Likee (previously LIKE Video) had surpassed Facebook and its chat app as the top three. TikTok has knocked WhatsApp, which was the table topper in 2015, to second place.

One must go across the border to China to explain the proliferation of these Chinese apps in India. The Chinese Communist Party made certain that Google and other Western technology corporations had no place on their soil. Nonetheless, the Chinese proved to be technologically superior to even the United States.

The greatest achievement of the Chinese players is that they have put equal weight on their content strategy as they have on their product and technology strategies. They constructed a mature ecosystem of micro-content creators across villages and small towns that turned out short-format videos that appealed to India’s sensibilities, and they created teams for content curation for each vernacular language.

Conclusion

To conclude, I do not believe that Facebook is, or should be considered as a monopoly in the social media platform scenario. Facebook, for sure, owns some of the most popular social media platforms like Whatsapp and Instagram, but it can never replace all other social media platforms, with Google being its top competitor. With respect to the Indian social media scenario specifically, there is no doubt whatsoever regarding the fact that Facebook is used extensively among the masses, particularly middle-aged people. But, it has lost its iron grip in the Indian market as more and more youngsters are shifting to platforms like Snapchat and Tik Tok. A lot of new Chinese apps and social media platforms are giving tough competition to Facebook and have also managed to surpass the reach among users in India. This clearly indicated the fact that Facebook should not be considered as a monopoly, at least in the Indian context.

References

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Accessing capital markets : listing of foreign companies

By

Abanti Bose

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October 27, 2021

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This article is written by Aswathy, pursuing Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from LawSikho. The article has been edited by Aatima Bhatia (Associate, LawSikho) and Ruchika Mohapatra (Associate, LawSikho).

Table of Contents

Introduction

Post the liberalisation and globalisation era, we saw a lot of businesses globalising their operations. We have witnessed a high level of internationalisation of businesses in the past few decades, and this includes companies raising funds from foreign capital markets by cross-listing on stock exchanges around the world. This has led to an integration of the global securities market and has facilitated cross-border access to capital markets. India, being one of the fastest-growing economies of the world, has experienced a high influx of foreign investors and market penetration by foreign companies. In the light of the same, India too has jumped on the bandwagon by opening up its financial markets to a certain extent, thereby allowing foreign companies to raise funds from India. This article shall deal with how a foreign company can raise funds from India and list their securities on Indian stock exchanges.

How can a foreign company raise funds from India?

There are two ways in which a foreign company can raise funds from India. First is by incorporating and registering their company as per provisions of the Companies Act, 2013. The second is by indirectly accessing the capital markets through the issue of Depository Receipts, which are then listed on stock exchanges, or by being acquired by a listed Special Purpose Acquisition Companies (SPAC) in India. A foreign company cannot directly list their securities on Indian stock exchanges, however, they are allowed to issue Indian Depository Receipts (IDRs) which they may then enlist.

A Depository Receipt (DR) is a negotiable certificate issued by a bank in a domestic country, which represents the ownership of the shares in companies from foreign countries. The DRs programme has allowed global companies to cross-list across countries. Cross-listing via the DRs route is more preferred to direct listing as it offers a much easier and flexible mechanism with less stringent regulations on foreign companies, as compared to the regulatory requirements for the direct listing. The Depository Receipts with denominations in Indian Rupee issued by a Domestic Depository in India are known as Indian Depository Receipts (IDRs). IDR has underlying ownership shares of the foreign company and therefore enables local investors to invest Indian Rupees in foreign companies with ease. The foreign company shall issue its shares to the Indian Depository. The Domestic Depository is one which is registered with the SEBI, and it is allowed to issue the IDR on behalf of the foreign company.

SPACs are another way of becoming a listed company in India, without actually going through the entirety of the process of listing. SPACs are essentially shell companies that are backed by sponsor companies who raise capital for the SPAC through an IPO. Post the IPO, the SPAC acquires a target company and therefore the target becomes a listed company without taking the traditional IPO route.

The legal and regulatory regime governing IDR

The issue of IDR is regulated by the SEBI as well as the Companies Act 2013 and its allied rules and regulations. This includes provisions of Section 390 of the Companies Act 2013, applicable rules under the Companies (Registration of Foreign Companies) Rules, 2014 and the Companies (Issue of Indian Depository Receipt) Rules, 2004. Further, certain applicable rules of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 and the Guidelines issued by the Reserve Bank of India are also applicable to the issue of IDRs.

Eligibility for issuing IDR

The criteria laid down by the SEBI and RBI from time to time and the criteria laid down by the relevant rules and regulations must be met in order for a company to be eligible to issue IDR. These are as follows:

Companies (Registration of Foreign Company) Rules, 2014

Rule 13 of these rules lay down the following eligibility criteria:

The pre-issue paid-up capital and free reserves of the company are at least USD 50 million and it must have a minimum average market capitalization of at least USD 100 million in its parent country for the three financial years preceding the issue.
The company must be continuously trading on a stock exchange in its home/parent country, that is the country of incorporation for a period of at least three financial years preceding the date of issuance of IDRs.
The foreign company must have a track record of distributable profits as specified in Section 123 of the Companies Act 2013, for a minimum period of three out of five immediately preceding years.
Must fulfil any other such eligibility criteria laid down by the Securities and Exchange Board of India (SEBI) on this behalf from time to time.

SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009

Regulation 97 of these SEBI regulations specify that for the issuance of IDR, the issuing company:

Must be listed in its home country.
Is not prohibited by any regulatory authority from issuing securities.
Has a track record of compliance with all securities market regulations and laws as applicable in its home country.

Companies (Issue of Indian Depository Receipts) Rules, 2004

Rule 4 of these rules further lays down eligibility criteria as follows:

The pre-issue paid-up capital and free reserves of the company should be atleast USD 100 million, and it must have an average turnover of USD 500 million during the three financial years preceding the issue.
The company has been making profits for a minimum of five years preceding the issue, and the dividend declared has not been less than 10% each year for that period.
The debt-equity ratio of the company is not more than 2:1 in the pre-issue stage.

Apart from the above, it is also required that the size of an IDR issue should not be less than Rs.50 crores.

Procedure for the issue of IDR

Prior to the filing of the draft application, the company is required to obtain all required approvals as well as exemptions if any under the applicable laws relating to issuing of IDRs from the concerned authorities from the home country of the foreign company, ie. the Issuer Company.
After this, a draft application along with a due diligence report must be filed with the SEBI. This should be filed through the authorised Merchant Banker at least ninety days prior to the date of opening of the issue of IDRs. Within thirty days of filing, the SEBI may ask the Issuer Company to furnish any additional information. Once these are furnished, the SEBI is required to dispose of the application within a period of thirty days.
After SEBI grants in-principle approval to the issue, the Issuer Company is required to submit the issue fee to SEBI and the updated prospectus which incorporates all the changes suggested by SEBI must be filed with the SEBI as well as the Registrar of Companies (RoC). It is to be noted that while filing prospectus to the RoC, a copy of the SEBI approval, as well as the statement of fees paid to SEBI by the company, must be attached.
The Issuer Company must now appoint an overseas custodian bank and a Domestic Depository for the issue of IDRs.
All the underlying shares of the IDRs must be delivered to the Overseas Custodian Bank, and the Overseas Custodian Bank shall authorise the chosen domestic depository to issue IDRs via public offer.
Once this is done, the Issuer Company may now obtain the listing permission from one or more stock exchanges that have nationwide terminals in India for a listing of the IDRs.

Documents required for issuing IDR

There are certain very important documents that are required for the process of issue of Indian Depository Receipts. These are as follows:

Copy of the agreement entered into with the authorised Merchant Banker by the Issuer Company.
The due diligence certificate is to be submitted to SEBI by the authorised Merchant Banker.
The certificate stating the authenticity of the prospectus, issued by the authorised Merchant Banker.
The draft prospectus of the Issuer Company, to be filed with SEBI.
A document or instrument which defines the constitution of the Issuer Company.
A true and certified copy of the certificate of incorporation of the Issuer Company.
Copy of the agreement entered into by the Issuer Company with the Overseas Custodian Bank.
Copy of the agreement entered into by the Issuer Company with the Domestic Depository.
The copies of translated documents, of all documents of the company whose original versions are not in English. This copy must be certified to be true by key managerial personnel of the Issuer Company and it should also be attested by an authorized officer of the Indian office of the Embassy of the Issuer Company’s country.

Functioning of a SPAC

After a SPAC is formed, the sponsor conducts an IPO through which it raises capital in order to acquire an existing operational company. In certain cases, SPACs are also formed with the intent of acquiring a company that will be identified later, in a certain fixed time period of two years. Institutional investors are expected to identify the potential target and go ahead with the acquisition with the consent of the shareholders of the SPAC. Also known as blank-cheque companies, the SPAC post-acquisition takes on the identity of the target, and as a consequence, the previously unlisted target becomes a listed company. This method certainly does allow private companies to raise capital from the public more quickly and smoothly and without any procedural hassles.

SPACs in India : opportunities and legal framework

A typical De-SPAC transaction would entail the merger of the SPAC and the target entity. This requires compliance with Section 234 of the Companies Act 2013, subject to the NCLT’s sanctioning of the scheme of merger, as well as the Foreign Exchange Management (Cross Border Merger) Regulations, 2018. Obtaining NCLT’s approval will certainly be a crucial part of the process, especially considering that a shell company would be acquiring a foreign company which would result in the foreign company directly listing on stock exchanges. The existing regulatory framework in India for SPACs is not one that is favourable or supportive. Considering the fact that companies are required to commence operation within a year of incorporation, delay in identifying a target could potentially result in the company being struck off completely. Further, the SEBI’s eligibility criteria for listing companies is not one that accommodates a SPAC, as it lays down fiscal requirements of profits, assets and net worth that such companies are expected to have. Shell companies will clearly not have such figures and this poses a very real challenge.

However, considering how the SPAC trend is really catching on around the world and seeing how it could potentially drive the growth for Indian startups, the Securities Exchange Board of India (SEBI) is currently working on putting together a framework for regulating SPACs. This is proposed to include a minimum threshold for the listing of a SPAC, as well as specific listing guidelines. SPACs can certainly prove to be a key player in enabling global market integration in the near future.

Case studies

Standard Chartered’s IDR

The first-ever IDR issued was that of Standard Chartered Plc. Though market regulator SEBI originally proposed the notion of IDRs in 2000, it was not until 2010 that Standard Chartered Plc launched the first, and so far only, IDR. There was an issue of around 240 million IDRs where every ten IDRs represented one share of Standard Chartered. The issue price was fixed at Rs.104. The IDR issue was subscribed 2.2 times at the Bombay Stock Exchange whereas, at the National Stock Exchange, it was subscribed 1.53 times. However, ten years down the line, Standard Chartered had to take the decision to delist the IDRs. The IDR issue in itself faced certain risks, such as interest rate risk that comes with using short term borrowing to fund a long term asset as well as the currency risk due to strengthening of the US Dollar as against foreign currencies. There was also a multitude of tax issues. After the SEBI notified its circular disallowing redemption after one year, the Standard Chartered IDR had fallen by almost 20% and this posed a concern during redemption. Another facet was that even though the purpose of IDR was to broaden the investor base in India, this did not happen in reality. A majority of the investors were Foreign Institutional Investors (FIIs). They invested in bulk as in India, as they were able to access the shares of the company via IDR at a lower rate as compared to the rates in London. Experts made the observation that restrictions around fungibility that affected liquidity, unfavourable tax and trade regime led to the “unhappy ending” of this endeavour by Standard Chartered Plc.

ReNew Power’s SPAC deal in the US

ReNew Power, based in Gurgaon, is one of the largest renewable energy companies in India and operates across 18 states in India. In February 2021, RMG Acquisition Group, a US-based blank cheque firm was set up by the RMG Group for the purpose of listing ReNew Power on NASDAQ. The value of the transaction was around $8 billion. This was one of the biggest overseas listings of an Indian company through the SPAC route. The combined company “RNW” is proposed to be publicly listed post-closing of the transaction. Although this deal has so far been well received in India as well as the U.S, it is yet to be seen as to what challenges could come up post-closing.

Conclusion

There are a variety of reasons due to which India could not attract any other foreign companies to raise funds through the IDR route. These are restrictions on fungibility, tax issues, entry barriers and most importantly lack of awareness and popularity of IDRs around the world. The biggest concern continues to be with regards to the tax liability while redeeming IDRs into underlying equity shares as there are no specific tax provisions for the same. However, in the recent past, we have seen more and more foreign investment coming to India, as we continue to move towards becoming a global manufacturing and retail hub. With the required changes being brought about to the regulatory regime and by providing clarity on tax-related issues, there is still hope that the SEBI shall revive and popularise IDRs once again. Similarly, it is crucial that the legal regime in India also recognise and accommodate SPACs. Along with providing a fostering environment, this will also afford protection to investors. Further, start-ups are major drivers of today’s economy, and this will certainly open up a new pathway for raising capital to propel their growth.

References

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

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Whether banning advertisement is ethical or is curbing freedom of speech

By

Abanti Bose

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October 26, 2021

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Advertisement-Media — Image Source: https://rb.gy/8nqz1s

This article is written by Neeraj Salodkar, pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho. The article has been edited by Zigishu Singh (Associate, LawSikho) and Smriti Katiyar (Associate, LawSikho).

Table of Contents

Introduction and importance of advertisements

Advertisement can be defined as a notice made to the public at large to promote a product, service, event, vacancy, etc. The concept of advertising is as old as the existence of the business. Advertisement is synonymous with business. A business cannot thrive without advertisement. This is even more true in the modern world. In the modern world, hundreds of businesses offer identical products or services, as the case may be. How can a person choose a particular business out of a plethora of options? The answer lies in the quality of the product and the reach of the advertisement. The quality of the product depends upon the provider’s technical expertise, and so is an internal matter of the provider. However, the advertisement places reliance upon the ability of the provider to capture the attention and trust of the consumers.

Right to livelihood and advertisements

In the introduction itself, the magnitude and significance of advertisements have been proved. A business cannot survive without proper advertisement. Ergo, it can be safely said that the right to livelihood of a person or entity depends directly as well as indirectly upon the reach and quality of advertisements. The right to livelihood is a fundamental right enshrined in the Constitution of India. The right to livelihood is enumerated under:

Article 19(1)(g)

All citizens shall have the right to practice any profession or carry on any occupation, trade, or business.

Article 21

No person shall be deprived of his life or personal liberty except according to the procedure established by law.

Article 39(a)

The State shall, in particular, direct its policy towards securing that the citizens, men, and women equally have the right to an adequate means of livelihood.

In Olga Tellis v. Bombay Municipal Corporation [1986 AIR 180], the Supreme Court had stated that the ‘right to livelihood’ is borne out of the ‘right to life’ as no person can live without the means of living, that is, the means of livelihood.

Banning advertisement : ethics, and freedom of speech

Banning advertising means the prohibition of displaying the advertisement to the public. Banning advertisements directly limits the reach of the business towards the consumers. The consumers are stopped from knowing about the products and services of the business. This directly affects the profits of the business and thus affects the right to livelihood of the person or the entity. Therefore, prima facie directly infringes upon the fundamental right of the livelihood of the person. Ergo, banning advertisements should not be permitted.

Also, every person, business, and entity has the inherent right and fundamental right to advertise. It also comes under the right to free speech and expression. The fundamental right to free speech and expression is enshrined under section 19(1)(a) of the Constitution of India.

So, when a person, business, or entity, as the case may be, is banned from advertising or a specific advertisement is banned, it affects the right to livelihood and the right to freedom of speech and expression.

Ethics is a subject that refers to the moral principles that govern a person’s behaviour or activity. In other words, it is a branch of knowledge that deals with the moral principles of justness, fair play, equity, morality, etc.

With regard to the debate on ethics and freedom of speech and expression, the former must always pave the way for the latter. The former is nothing but a vague and subjective concept that is different from country to country, culture to culture, community to community, and even person to person. A person may find something to be ethical and some other thing to be unethical. Another person may find the same thing highly ethical. Freedom of speech and expression is one of the most important fundamental rights under the Constitution. It is not only a fundamental right but also an inherent human right of every person. The Universal Declaration of Human Rights adopted by almost all countries globally also recognizes the right to freedom of speech and expression as a human right. From the macro point of view, it is the right that separates a democracy from a dictatorship. In a fascist and authoritarian system, no contrary views are permitted, and only the views that are consistent or in line with the ideology of the dictator are allowed to be disseminated. The other contrarian view may be questionable, debatable, or even downright incorrect; it must not be put down. There must not be any muzzle placed on the fundamental right of freedom of speech and expression. Therefore, when there is a debate between ethics and freedom of speech and expression, the latter must always prevail.

Ban of advertisement by lawyers in India

In India, lawyers and law firms cannot advertise their services. According to Rule 36 of the Bar Council of India Rules is as follows:

“An Advocate shall not solicit work or advertise, either directly or indirectly, whether by circulars, advertisements, touts, personal communications, interview not warranted by personal relations, furnishing or inspiring newspaper comments or procuring his photograph to be published in connection with cases in which he has been engaged or concerned.”

The above provision almost imposes a blanket ban on all kinds of advertisements by advocates and law firms. In case any person visits any of the law firms’ websites, they would be greeted with a disclaimer and a confirmation stating that the website is not meant for promotion and advertising as per the rules of the Bar Council of India.

What is the reason for such a ban? Following are some reasons for the ban:

The legal profession is a noble profession, and advertising would commercialize it and cause dishonour to the profession;
Advertisements are considered undignified;
It is believed that if advertising is not prohibited, lawyers or law firms will be more inclined to create an image or a brand instead of rendering legal services efficiently.
The advertisements may be misleading, and people shall fall prey to false advertising.

Each and every ground mentioned above is flimsy and wafer-thin. First of all, people should stop pretending that the legal profession is noble. It only remains noble on paper. The question of nobility must not arise at all. It is a profession meant to earn money while satisfying a demand for legal services. All businesses are allowed to profess and promote their services and goods. Are they not noble? Is a tailor offering his tailoring services not noble? Well, the latter is allowed to promote his business and not the former. Also, stating that advertisements are undignified is also baseless.

Almost all developed countries in the world allow advertisements for lawyers. The United States of America, the United Kingdom, Australia, Singapore, the European Union, every single country allows lawyers to promote themselves by placing advertisements in televisions channels, social media, hoardings, etc. In Bates v. State Bar of Arizona, the Supreme Court stated that lawyers have the right to advertise their services.

Certain judicial precedents

In Hamdard Dawakhana v. Union of India [AIR 1960 SC 554] and Indian Express v. Union of India [AIR 1986 SC 515], the Supreme Court had classified advertising as commercial speech. It was said that advertising comes under commercial speech, and it is beneficial for the public. The public at large stands to benefit from the information that is made available through advertisement. In a democratic country, the free flow of information is indispensable. Ergo, any curtailment of the right to advertise would directly affect the Fundamental right given in 19(1)(a) as regards the propagation, publication, and circulation of information.

However, no right is absolute. It has certain restrictions. The restrictions need to be reasonable. What is reasonable is a question of fact. In R Rajagopal v. State of Tamil Nadu [AIR 1995 SC 264], the following restrictions were allowed on the freedom of speech and expression:

1) Decency;

2) Defamation (IPC section 499 to 502 and torts);

3) Sovereignty and integrity of India;

4) Security of the State;

5) Friendly relations with the foreign States;

6) Public order;

7) Contempt of court;

8) Incitement of an offence.

Each and every point mentioned above must be construed in the narrowest sense because these are meant to curb the right of freedom of speech and expression. In other words, the right under Article 19(1)(a) must be interpreted liberally, and the restrictions on it must be interpreted narrowly so as to give wide scope to the said right.

In a recent judgment of the Delhi High Courtin Horlicks Ltd v. Heinz Private Limited [CS (COMM) 808/2017], the following was stated:

In a democratic country, the free flow of commercial information is indispensable, and the public has a right to receive commercial speech. In fact, the protection given to an advertisement under Article 19(1)(a) of the Constitution is a necessary concomitant of the right of the public to receive the information in the advertisement.”

Conclusion

The right to advertise is three-pronged; it is connected to the right to livelihood, the freedom of speech and expression, and the right to any profession or to carry on any occupation, trade, or business. It should be curtailed only under highly exceptional grounds, not flimsy grounds like nobility, decency, morality, ethics, etc. A careful and timely approach must have opted whenever any question of banning any advertisement is raised. Therefore, to answer the question initially posed, yes, banning advertisements is not ethical and puts unreasonable curbs on freedom of speech and expression.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

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Understanding the Mastercard data localisation debacle

By

Rachit Garg

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October 26, 2021

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This article has been written by Sankara Narayanan, pursuing a Diploma in US Technology law and paralegal studies from LawSikho. It has been edited by Smriti Katiyar (Associate, LawSikho).

Table of Contents

Introduction

Data localization is very important as storing, processing, and controlling data transfer constitute emerging fields of business in Information Technology. Data localization refers to the physical storage and processing of data in the local boundaries of a country or the local jurisdiction. Different countries have constituted data transfer policies to regulate the free flow of data collected by both private and government agencies due to various types of security issues and data privacy concerns. Reserve Bank of India (RBI) in April 2018 notified all financial organizations including credit card companies, providing payment services operating in India such as Mastercard, American Express, Diners Card, etc. to conform to the guidelines of data localization to store and process data in India. Many credit/debit card companies have complied with the guidelines, but many international credit/debit card companies have not fully complied with the requirements. Therefore, RBI has put an initial restriction on Mastercard and others not to register any new customers and issue credit/debit cards to Indian consumers from 22^nd July 2021. The main contention of the credit card companies is that data localization would cost them more to do business in the competitive markets of India. RBI has not heeded any such concerns and went ahead with an indefinite ban of registering new customers by Mastercard in India.

Importance of data security

Data security is important and if it is not regulated within the limits of local jurisdiction, it may allow third parties to invade the privacy of individuals thereby infringing their liberty without any recourse to legal remedy. Data is now considered an expensive commodity and data can be used for the economic benefit of companies. In the new era of digital storage of data and when that data is properly processed becomes ‘big data’ which is a new form of wealth and often called ‘new oil’. If the data is allowed to be stored and processed on boundaries outside a country, then the government shall not be able to restrict manipulation and misuse of the transferred data.

If the data is not stored locally and allowed to be stored and processed elsewhere the data can be misused by the culprits and cannot be brought to the justice system of the particular jurisdiction due to differences in the cross-border legal framework. Companies may use personal data for their economic benefit without considering the personal right or liberty of people in a country where they can evade that country’s rules and regulations.

Data localization

Data localization is the collecting, storing, and processing of data on a physical storage device located within the boundaries of a country where the data is collected from individuals. Processing and storing data requires complex hardware and software as well as special infrastructure. Many companies use overseas storage devices, especially the ‘cloud’ which are located in different jurisdictions that provide legal and economic advantages.

Advantages of Data Localization Policies

Through data localization, personal data can be secured and protected from foreign surveillance. Personal data protection is a fundamental right and if the data is allowed to be stored in a foreign jurisdiction it is amenable to monitoring by foreign security agencies. Data localization ensures easy investigation for national security issues as to get assistance from foreign agencies only through signing Mutual Legal Assistance Treaties (MLAT). When data is stored locally, local enforcement agencies can monitor suspected data for economic crimes. Storing the data locally allows the government and regulatory authorities to call for any details when they require it. Data storage and processing is a growing industry and new employment opportunities are created for the people in the country. Once the data localization policy is formulated, greater accountability can be imposed on corporations and companies and strict measures for violation of data privacy breaches can be enforced. Data localization policies shall minimize the conflict in a jurisdiction that is normally associated when data is stored abroad.

Disadvantages of data localization

While there are many advantages to data localization, there are disadvantages too. The cost to maintain multiple data storage locally requires high investment and expertise. For efficient data storage and processing, it requires top-quality infrastructure and availability of power without interruption. Even if data is stored locally by companies, the encryption codes may not be available for the local law enforcement agencies. A strict policy on data localization may bar the entry of competitive service providers from abroad.

International Perspective on Data Localization

Various countries have implemented or are in the process of formulating a legal framework on data localization rules and regulations.

China has a strict data localization policy that stops data flow between China and other countries across the globe. China restricts access to certain websites and even restrictions of data based on trade perspective and requires certain types of information to be located within mainland China including financial and health or medical information. Cybersecurity law in China also requires certain types of organizations to conduct security assessments before transferring personal data abroad.

Japan’s localization of data policy requires patients’ personal and medical care records to be stored within the country.

Australia requires certain health information of individuals to be stored only locally.

Provinces in Canada such as British Columbia and Nova Scotia, require personal information maintained by public bodies such as hospitals, schools, and government departments to be stored locally unless explicit consent is obtained from the individuals. Individuals may choose to transfer such data outside of the country and allow it to be accessed by a third party.

Russia has one of the most extensive data localization policies among all countries. Russia’s data law requires all personal data collected from citizens must be firstly processed and stored only locally. Once it is physically stored locally, it may be transferred abroad for certain purposes.

The European Union (EU) comprises various countries in Europe and data localization policy is a contentious problem as France and Germany suggest localization policies in certain sectors while Sweden is pushing for free flow of data across the world. EU law on personal data protection allows the transfer of data to third countries only if the EU has verified adequate protection measures in that country.

The US suggests the free flow of information as all the major data storage companies such as Amazon, IBM, Google, etc are based in the USA. The US has a data privacy protection act that regulates the personal data being misused.

Data localization Policies in India

India is one of the fastest developing economies in the world, data localization policy a paramount concern, not only due to undue economic benefits drawn out by corporates and companies but also from the national security standpoint. In the absence of a data localization policy, the data can be stored by companies at various locations of their choice and will be out of reach of the Indian law enforcement authorities when such data privacy is breached or under the surveillance of foreign agencies.

The Indian government appointed Justice B. N. Srikrishna as the chairman of the expert committee for recommendations on data localization policies in 2018. The committee submitted its draft proposal for the Personal Data Protection Bill. The government introduced the 2019 bill in the Indian Parliament which is still pending to be enacted. The bill proposes a data localization and data protection legal framework for various economic sectors. The main objectives of the bill are to increase economic growth and employment, prevent external surveillance of data, personal data security and permit access of personal data by law enforcement agencies, and effective enforcement of data protection laws.

The data protection bill envisages the idea that the right to privacy of an individual is a fundamental right and protection of personal data is of paramount responsibility in the information technology era. A regulatory authority shall be able to take necessary actions in the dynamic world of digital technology to update the regulations from time to time, regulate the misuse of personal data as well as guidelines for overseas transfer of personal data. The Union Government may notify different categories of personal data and limit the data to be processed outside India.

Data localization policies have been implemented in major sectors such as the telecommunication and banking industry. Telecom operators in India must conform to the storage and process of subscriber’s data locally and restrict the transfer and storage of such data overseas. RBI has issued guidelines to the banking sector that all financial transaction and payment-related data be stored in India with permission to process the data overseas.

Conclusion

While India is yet to enact the data protection bill, Indian regulatory bodies such as the telecommunication regulatory authority have already mandated the telecom operators operating in India to store the personal data of subscribers locally. RBI, the regulatory body for the banking and financial sector requires licensed banks and payment system providers to store the data and personal information of customers locally but also allows them to store data abroad if certain criteria are met.

India may have to take initiative to facilitate world-class infrastructure and partner with organizations that are willing to co-operate and conform with Indian laws and regulations so that dependencies on foreign data storage companies can be minimized and save the cost in the long run. To better protect the national interest, the data protection bill should be enacted at the earliest with necessary changes, and the regulatory authority should be constituted for the implementation of data policies and regulate the data market.

Mastercard in India was given enough time i.e from April 2018 to conform to RBI guidelines. Their contention of additional cost and investment requirement for the data localization to be implemented is unreasonable as Mastercard holds over 31% payment service market share in India. All corporations or companies operating in India should conform to the guidelines issued by the regulatory authorities. International corporations and companies such as Mastercard cannot seek an exemption from abiding by the regulations on the pretext of any cost escalation.

References

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

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

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Spanish Constitutional Court – constitutionality of the pandemic lockdown and comparing with the Indian perspective

By

Rachit Garg

-

October 26, 2021

0

This article is written by Shruti Yadav, from Jagran Lakecity, Bhopal. This article talks about the constitutional validity of lockdown and pandemic restrictions.

Table of Contents

COVID lockdown in Spain

The Government of Spain announced a state of emergency on 14 March 2020 to curb the first wave of Coronavirus (SARS-CoV-2) infections. At that time, Covid19 rates and mortality in the country were rising, and hospitals quickly became inundated. Since then, more than 81,000 people in Spain have died due to coronavirus.

According to Article 116 of the Spanish Constitution, three legal categories for emergencies are state of alarm, state of emergency, and state of siege. They are defined as:

An organic law shall regulate the states of alarm, emergency, and siege (martial law) and the complementary competencies and limitations.
The government shall declare a state of alarm utilizing a decree decided upon by the Council of Ministers for a maximum period of fifteen days. The Congress of Deputies shall be informed and must meet immediately for this purpose. Without their authorization, the said period may not be extended. The decree shall specify the territorial area to which the effects of the proclamation shall apply.
A state of emergency shall be declared by the government utilizing a decree decided upon by the Council of Ministers after prior authorization by the Congress of Deputies. The authorization form and declaration of a state of emergency must expressly state the effects thereof, the territorial area to which it is to apply, and its duration, which may not exceed thirty days, subject to extension for a further thirty-day period, with the exact requirements.
A state of siege (martial law) shall be declared by an absolute majority of the Congress of Deputies, exclusively at the government’s proposal. Congress shall determine its territorial extension, duration, and terms.

However, Spain’s government decided to impose a lockdown through a state of emergency. Almost all people in the country were ordered to stay at home and were only permitted to leave for fundamental reasons. All but essential businesses were closed. The laws were in place until June 2020, though some restrictions were reinstated later in the year when the country faced a second wave.

Why had the Court held the lockdown unconstitutional

Spain’s Constitutional Court stated in an assertion that it had voted, by a slender majority of six to five, to affirm that the state of alarm implemented by the Central Government in March 2020 at the outset of the coronavirus pandemic was unconstitutional and the state of emergency was not enough to give the constraints constitutional backing. This is because the commands were equivalent to suppression of fundamental rights, it declared.

To legally restrain people’s freedoms to the degree they did last year, the court opined, the government would have had to declare a state of an exception rather than a state of emergency.

In Spain, a state of emergency, also known as a “state of alarm” in Spanish, can be declared by the government and be implemented in the country before it is presented in the parliament. This allows the government to put new rules into force promptly. A state of exception, however, is not directly approved and executed by the government. Instead, the proposal needs to be brought to parliament first, declaring an emergency. The court judgment was in response to a lawsuit filed by the far-right political party Vox. The case was filed on the basis that the Vox party claimed it had proof that the government was willing to break the law and tarnish the constitution.

What is a state of alarm, and what powers does it confer

Under the Spanish Constitution, once a state of alarm has been executed, the government can:

Curb the circulation or presence of people or vehicles at defined times or in determining places, or compel them to comply with specific requirements.
Temporarily requisition all kinds of assets and impose mandatory services.
Temporarily takes over and controls industries, factories, workshops, operations, or commercial premises of any kind, excluding private households, informing the relevant ministry of such actions.
Restrict or ration the use of services or the consumption of essential items.

Reasons cited by the court and arguments against the state of alarm

The state of alarm allows the central government to eject a region’s devolved authorities. All civil powers, regional and local police forces, and other civil servants are grouped under the orders of the responsible authority as per the decree. The Central Government can order “extraordinary services,” according to the rule.

The government can execute a state of alarm should there be “serious alterations to normality.” conditions to impose a state of alarm are:

Catastrophes, disasters or public misfortunes, such as earthquakes, floods, urban or forest fires and significant accidents.
Health crises, such as epidemics and situations of severe contamination.
Situations of shortages of essential items.

The judges found that such a lockdown, which saw the people of Spain restricted to their homes apart from the required activities such as buying food, should have been imposed following an emergency and declaring a state of exception under Spanish law. This would have needed the prior approval of the judiciary and Congress. After two judges’ meetings, the Constitutional Court had given the judgment, during which a draft sentence on the state of alarm penned by Magistrate Pedro González Trevijano was discussed. In the draft sentence, the judge debated that the state of alarm imposed by the government last March did not just restrict the fundamental rights of free movement and assembly between private citizens but barred them altogether.

Ever since the coronavirus pandemic hit Spain, there has been a dispute among constitutional experts on whether the country necessitated a state of emergency. One of the severe damages a state of emergency would have inflicted would have been the limitations on fundamental rights. Some speculated that the state of alarm gave sufficient legal authority to limit some of these rights. While for others, the lockdown was such an extreme restriction that it was equivalent to the suppression of fundamental rights, thus needing a state of emergency. Another key difference is that a state of alarm is initially agreed on by the government and subsequently debated in Congress, where it is approved or rejected by deputies. This allows the executive to act with a certain level of speed once a decision has been taken to go down this route. i.e. parliamentary control is exercised after the state of alarm has been implemented. In contrast, a state of emergency is not directly agreed upon by the government. The proposal is first taken to Congress, and it is the parliament that declares the emergency. One of the severe drawbacks to a state of emergency would have been the more severe restrictions on fundamental rights that it would have brought with it.

Legal specialists have denoted that a state of emergency is subjected to less oversight and allows the police to expand the time they can detain people without any judicial surveillance. Police can also enter homes or establishments using coercion when they believe it necessary without prior sanction from the courts. The authorities can also shut down media outlets under a state of emergency, all in the guise of maintaining public order.

Government justification

The coalition government, led by Socialist Party Prime Minister Pedro Sánchez, reacted sharply to the Constitutional Court ruling.

The government now intends to analyse the ruling. The case that six judges were in favour and five against is, for the government, a reflection of the immense internal contest that this ruling has incited.

The government maintains that without this tool, they would not have been successful in curbing the virus. It wouldn’t have been likely to maintain the essential measures to stop its spread. It further stated that it is an unprecedented decision provided that all of our neighbouring countries have resorted to similar methods within their corresponding legislations.

Other aspects of the court’s judgement

By voiding the emergency proclamation, the ruling opens the door to the cancellation of fines for breaching lockdown limitations imposed during the period. The Constitutional Court agreed from the start that any invalidation of the lockdown that was in place between March and June last year should not entail any liability for the State. There was consensus that no claims could be filed by any businesses or private citizens who sustained economic losses due to the state of alarm. There was also an agreement that the ruling against the state of alarm would be harmonious with the possibility of reclaiming fines paid by the people who were penalised for breaking the lockdown rules, like going out for a walk or meeting with friends and family. The government imposed these penalties under an order that has now been affirmed to be unconstitutional.

Provisions for lockdown in Indian Law

COVID-19 is a disease caused by the coronavirus, which originated in China. This novel coronavirus was first distinguished in Wuhan, an area in China’s Hubei province. It was first promulgated to the WHO Country Office in China on December 31, 2019. On January 30, 2020, the World Health Organisation declared the COVID-19 outbreak a pandemic and a global health emergency.

On March 24, 2020, Prime Minister Narendra Modi called for a total lockdown of the whole nation for 21 days to curb the COVID-19 pandemic. In a televised sermon to the country, the PM asserted that even those nations with the ablest medical facilities could not restrain the virus and that social distancing is the only possibility to mitigate it. He said that this arrangement was taken from the expertise of health sector specialists and practices of other countries and that 21 days is imperative to break the chain of infection.

The government barred all existing visas, except diplomatic, official, UN/international organisations, employment, and project visas. Incoming travellers, including Indian citizens, were urged to elude non-essential travel and were notified that they could be quarantined for a minimum of 14 days on return. Indian citizens were also instructed to avoid all non-essential travel abroad. The Indian government established social distancing as a non-pharmaceutical disease interception and control arbitration implemented to circumvent/decrease contact between those infected with a disease-causing pathogen and those who are not, to hinder or decrease the rate and range of disease transmission in a community. This ultimately led to a reduction in spread, morbidity and mortality caused by the disease. All activities of essential service must keep a gap of one meter between customers.

India then entered the third phase of its nationwide lockdown in May as the country witnessed a continuous spike in Covid-19 cases.

Finally, on June 8, India started with its unlock, a Phase of reopening after 74 days of lockdown.

Suppression of Fundamental Rights during lockdown – reasonable or violative

In the scenario of curtailing a pandemic, the clash of fundamental rights arises as a notable obstacle for governments and healthcare management due to decision making concerning the requirement to delimit the extension of the sufficient exercise of freedom rights in times of a pandemic. They also need to recognise the urgent need for fundamental human rights protection and the implications of pandemic measures on limiting people’s rights to liberty of movement, liberty of travel, liberty of work, and reopening schools. One would have expected that when the Government of India, under the Disaster Management Act 2005, announced a countrywide lockdown to halt the spread of COVID-19, they would have felt compelled, under the settled law of Olga Tellis, to compensate those whose livelihood would be stirred by this lockdown.

However, without notice, choice, or warning, lakhs of people were stripped of their livelihood nearly overnight. Many who earned daily wages were rendered desolate and starving and started walking home to their village. Others anxious about month-end wages joined this long march to salvation. This journey of workers to their villages summoned the State governments to render them food and shelter. However, no conviction of any compensation was given. The Supreme Court, when petitioned, decided to drop the petition with an overbearing statement that “if provided food, what need did people have for a wage?”

The COVID-19 lockdown does not obscure personal liberty and the fundamental right to life, the Supreme Court said in the judgment.

Prominently, these guidelines do not put a literal restriction on the freedom of movement. The movement of citizens is restricted through a network of administrative orders enacted under Section 144 of the Code of Criminal Procedure, 1973, linked with the addendum issued by the Home Ministry and recited with the colonial era Epidemic Diseases Act, 1897.

It is essential, at this juncture, to perceive that the nature of lockdown differs from jurisdiction to jurisdiction, depending chiefly on the understanding of the government regarding the elements of life in the country.

For instance, during the lockdown, Italy enables citizens to exercise solely near the house; France permits outdoor exercise, walking within 1 km, and taking the dog out for a walk; the UK concedes any one form of exercise (walking or bicycling).

The fact whether India should grant such concessions is primarily driven by the civic response and multiple other determinants.

In a nation with substantial socio-economic diversity, absolute limitations of a pervasive view could provide highly unjust effects upon execution. The whole nation was a spectator to the exhibition of migrant workers being identified as enemies of lockdown. We neglected to see that beneath the display was the involuntary change of a class of citizens into a group of culprits due to the legal provisions of severe nature inflicted indefinitely upon them.

Restrictions having such massive economic repercussions on the citizens ought to recognise their socio-economic standing. Their social stature regulates their response in the face of confinement. In times like these, even abiding by the law becomes a luxury not everyone can sustain.

The migrant workers compose yet another class of citizens facing discriminatory outcomes of the lockdown. The principle of proportionality of prohibitive measures is based upon an inherent understanding that one uniform formula does not apply to all situations and upon all the citizens every time.

Conclusion

Even though a lockdown was the need of the time, and the pandemic is just rationale to restrict fundamental rights of the citizen, the government should have concessions and better rules and regulation of the lockdown for the marginalised communities. It is legal and valid for governments to embrace drastic measures by pondering and weighing constitutional principles to approve stipulations on the exercise of the fundamental right that conflicts with the fundamental rights to health in circumstances of a pandemic, on the level of the Constitution. It is indispensable to protect the rights to life, dignity, and health of all. The prioritization of them in the light of freedom rights separated from solidarity, self-protection, care, and honour of autonomy, values that are essential to societies, must be reflected in health decisions.

To withstand the impact of rights on the level of constitutional beliefs, a law must not have explicitly legislated facts, or the specific rules are imprecise or fragmentary, or if the rules clash with other fundamental principles based on the Constitution. For that reason, these situations need the constitutional principles that address fundamental human rights to complement or define the legal significance of the government intervention to be applied. Pandemic occurrences must require this particular legislation, rules and precedent judgments of courts to determine the legal confirmation of rights restriction criteria for decision-making.

If a nation intends to achieve a position of social justice during a pandemic at the same time. In that case, the government must first shield the most vulnerable. It is vital to protect all people’s rights to health and liberty with solidarity, otherwise health equality will not be possible, mainly in poverty-stricken communities, prisons, and external regions.

Restrictive laws and legislatures must abide by the legal and constitutional policies. The social conditions must be in accordance with the sentiment of the interconnection of fundamental rights. There exists a sort of convenience that health related laws must take precedence over general freedom rights to the extent of a pandemic.

References

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

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.

How to protect your intellectual property asset as a freelancer

By

Abanti Bose

-

October 26, 2021

0

This article is written by Shlok Bansal, pursuing Diploma in Intellectual Property, Media and Entertainment Laws from LawSikho. The article has been edited by Aatima Bhatia(Associate, LawSikho) and Smriti Katiyar (Associate, LawSikho).

Table of Contents

Introduction

The freelancing business, which is majorly related to the gig economy, has grown exponentially in recent years, particularly since the onset of the coronavirus pandemic and has witnessed continuous participation of the freelancing workforce.

Some estimates predict that gig workers represent around 35 per cent of the U.S. workforce in 2020, up from 14 to 20 per cent in 2014. That means roughly 57 million Americans currently engage in some type of gig work that contributes more than $1 trillion to the U.S. economy. Those figures are only expected to grow in the coming years and if you too wish to join this bandwagon, make sure you are aware of the intellectual property rights that a freelancer owns in his work.

The idea behind this article is to educate you on the importance that intellectual property holds for any freelancer. The article also tries to lay forward proactive steps that you can opt to protect your interest as a freelancer. Finally, the article provides ways to seek remedies if your intellectual property right is infringed.

What is intellectual property?

Intellectual property is anything that emerges from human intellect. This can be inventions, writings, ideas, artistic work, music, symbols, designs, or any other creation. It is an asset belonging to the original creator unless specifically given away.

Intellectual property can be protected through trademarks, getting patents for inventions, registering designs, and most importantly by copyright.

You should be mainly concerned with copyrights as the freelance workforce is generally involved with creative fields, be it technical, literary, or artistic like drawing, photography, painting, craft, musical composition, song, writings, graphic design, computer programming, or software development which are all subject to copyright.

Why is intellectual property important to freelancers?

You should know that when a person hires a freelancer to work on a certain project, that person will not own the intellectual property rights created by the freelancer during his project unless specifically given away by the freelancer.

As per the Copyright Act of 1976, the owner of the copyright is typically the person who created the “work” with an exception that copyright for “work-for-hire” belongs to the employer i.e., the rights in any work created by the employee under their scope of employment is automatically owned by the employer. However, this exception does not apply to the freelancers as they aren’t employees rather, they are independent contractors.

The freelancers are entitled to hold copyright in the work authored by them hence, making them the owner of their creation. That essentially means they have the right to do whatever they please with their creation. Let us take an example where you as a freelancer write a book for a client. The client gives 3000 dollars to you for the book. The first-year client makes 15000 dollars from the book and you are okay with that. But the client reprints the book again and again or maybe even produces a movie out of it thus making exponential profits from your creation. This may hurt your financial interest and if you are not aware of your intellectual property rights you may be left anguished.

Mind concept of implied licenses

There will be a time when it is expected that you hand over the full rights in your work to the client. Suppose you work as a ghost-writer for a client, where you produce a piece of writing that will be published under the name of your client. Here you will be expected to hand over complete rights in your work to the client. There can be other instances where you have been sufficiently compensated for your work or you may have been working for charity. In such cases, it is expected from you to not only transfer the work but also all intellectual property rights associated with that work. Now the question arises what do you need to do in such cases?

It is advisable that in such cases you don’t engage with any client without a formal written contract. In an event where a freelancer and a client engage without any formal contract, the copyright law recognizes the concept of “implied license” in favour of the client. The law allows the client to use the work of the freelancer for the purpose for which they were engaged in the project.

But more often than not the client might want to use the freelancer’s work for a purpose other than what the freelancer was commissioned to do and this might hurt the freelancer’s interest. Under such circumstances, freelancers have to resort to a legal course that does not have a clear-cut remedy and also comes with a hefty cost. Hence, it is always advisable to engage with a written contract, features and the ways to perform such a contract are discussed below.

Ways freelancers can protect their intellectual property

The best way to protect your intellectual property is by never engaging with a client without a written contract and including a detailed ownership clause in your contract. Some of the most important questions to ask yourself while structuring an ownership clause in a contract may include.

Do you wish to give away your intellectual property for eternity or do you wish to allow your client to use it only for a certain time?
Do you wish for your client to mention you as the author of the things you created for them?
Do you wish to give reprint rights or just one-time publication rights?
Do you wish to license the intellectual property to your client? Do consider when will the ownership revert to you?
Do you wish to grant universal rights in intellectual property or only limited to a certain region?
Do you wish to keep a few rights in the intellectual property like the use of work in your portfolio once you transfer it to your client?

Other proactive steps that freelancers can take to prevent their intellectual property

More often than not, you as a freelancer while looking for work, will have to share your portfolio which is a reservoir of intellectual property with other parties. It might happen that clients may take your innovative ideas and simply run with them without including you in the project. To protect yourself from getting into such a situation you have to take a few proactive steps.

Research about your client

It might sound obvious but trust me when you’re looking for work desperately you might skip the most obvious preventive step which is to conduct a detailed research about your client. There might be chances that your client has the habit of stealing intellectual property. So, just be aware!

Don’t reveal too much

The solution to the above problem can also be, trying to not reveal too much. It might happen that to impress your client you give your client’s everything that you have in your store and the client might just run off and implement your ideas themselves. Just make sure you deliver only that information to your client that is critical to secure the deal.

A non-disclosure agreement (NDA)

It is a great business tool that should be considered to protect intellectual property. If a potential client wishes to discuss ideas or strategies or requires your work samples before formalizing a contract, you should not be hesitant in getting a non-disclosure agreement in place to ensure that your innovative creation is not misused. Make sure the non-disclosure agreement is signed by both the parties and you mark anything you send to your client with a note stating “confidential”.

What to do if the intellectual property gets stolen?

For freelancers, intellectual property theft is not something uncommon, in fact, for them, it is not a question of “if”, but a matter of “when” intellectual property will get stolen. If you freelance for long enough, there will always be a high probability that someone will attempt to use your innovative creation without your permission or without giving you any credits.

When you’ll find yourself in this situation, I would suggest you escalate the matter slowly. It’s possible that the person committed intellectual property theft without intending to do so. If this is the case simply getting in touch with the person usually resolves the issues. If asking the person who committed the theft to stop doesn’t work, and the person is your client, you can send a letter or another email, with the attached copy of a signed contract between both of you as a reminder of what was agreed upon.

When your friendly gestures don’t seem to show any positive results, I suggest it is time that you send a cease-and-desist notice to the infringing party and show them your intent to take legal action if they don’t discontinue their offensive activities. Even if you don’t intend to sue the person who stole your intellectual property, I am sure the threat of a lawsuit can often be enough motivation for them to return or stop using the intellectual property. If that doesn’t get their attention, then it’s probably time to seek legal proceedings.

Conclusion

If you seek to be self-employed and look at freelancing as a career opportunity, let me remind you that freelancing comes with great risks as there will always be predators waiting to attack your rights. You will face the situation where a client might be unwilling to pay or trying to run away with your innovative idea but you can sail through all the odds and be that shining star if you remain proactive and educate yourself about intellectual property and ways of negotiating ownership rights with a client. You’ll never be an easy target if you follow the steps laid down in the article.

References

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

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.

Appropriation Bills under the Indian Constitution

By

Rachit Garg

-

October 26, 2021

0

This article is written by Anannya Sinha from Symbiosis Law School, Noida. In this article she talks about the appropriation bill and its various aspects.

Table of Contents

What are Appropriation Bills

A Bill is a proposal for legislation. A bill becomes an act or law when duly enacted. Every Bill has to pass through stages in each House. The bills introduced in the Parliament are of two kinds- private bills and public bills. Although all the Bills are governed by the same procedure in the House, they can differ in various respects.

In the Parliament of India, the draft Bill is sent to individual ministries relating to the matter. From there the Bill goes to the Ministry of Law and Justice (India) and then is passed on to the Cabinet committee which is headed by the Prime Minister.

The Bills introduced in the Indian Parliament are of four types:

Money Bill (Article 110 of the Indian Constitution) deals with financial matters like taxation, public expenditure, etc
Financial Bill (Article 117) deals with financial matters (but are different from money bills)
Ordinary Bill (Article 107, Article 108) deals with any matter other than financial subjects
Constitution Amendment Bill (Article 368) deals with the amendment of the provisions of the Constitution of India.

A proposed law that permits the expenditure of government monies is known as an Appropriation Bill. It is a measure that allocates funds for specified purposes. It’s also known as a spending Bill or a supply Bill. The Appropriation Bill grants the government the authority to take money from the Consolidated Fund of India to cover expenses throughout the fiscal year. The government can only remove money from the Consolidated Fund with Parliament’s consent, according to Article 114 of the Indian Constitution.

As per Article 112 of the Indian Constitution, the Central Government of India is bound to present an Annual Financial Report, which is also known as the Union Budget, to the Parliament. This annual budget can be considered detailed documentation of how the government plans to raise funds in the upcoming fiscal year and where funds may be spent during the same period.

The Union Budget contains financial information for three fiscal years, including actuals from the previous year, forecasts for the current fiscal year, and estimates for the next fiscal year. In addition, the Union Budget contains the Appropriation Bill, which must be enacted by both Houses of Parliament before it can be implemented on April 1st.

Procedure to be followed to introduce Appropriation Bills

A Bill is a proposed piece of legislation that is introduced in Parliament. After each House of Parliament has debated and approved a Bill, and it has gained the President’s approval, it becomes law and is known as an Act. A Bill can be introduced by any member of Parliament. Unlike Ordinary Bills, Money Bills are only introduced in Lok Sabha on the President’s recommendation. The Bill moved on the recommendation of the President and introduced in the Lok Sabha is termed as a government Bill.

The procedure is as follows:

After talks on Budget ideas and Voting on Demand for Grants, the administration introduces the Appropriation Bill in the lower house of Parliament.
The Lok Sabha passes the Appropriation Bill before sending it to the Rajya Sabha.
Any modifications to this Bill can be recommended by the Rajya Sabha. The Lok Sabha, on the other hand, has the power to approve or reject the recommendations made by Parliament’s upper body.
The Appropriation Bill is notable for its automatic repeal clause, which ensures that the Act is abolished once it has served its legislative purpose.

The bill becomes an act after the President gives his assent, and it is published in the Indian Statute Book.

Amendments to Appropriation Bills

The process of altering or amending a law or document (such as a constitution) by the parliamentary or constitutional procedure is called an amendment.

No amendment to an Appropriation Bill can be presented that has the effect of changing the amount or destination of any grant granted or the amount of any expenditure charged on the Consolidated Fund of India, and the Lok Sabha Speaker’s decision on whether such an amendment is allowed is final.

Vote on account

According to the Constitution, the government can only take money from the Consolidated Fund of India if it has been appropriated by legislation. During the budget process, an appropriation Bill is passed for this purpose. The appropriation Bill, on the other hand, may take some time to pass through Parliament and become law. Meanwhile, starting April 1, the government will need approval to spend even a single dime.

A vote on account, as described by Article 116 of the Indian Constitution, is a grant in advance from the Consolidated Fund of India to the federal government to satisfy short-term expenditure demands, usually for a few months until the new financial year begins.

In contrast to a full Budget, which is a detailed financial statement of expenditures and receipts that includes changes in taxes and government policies, a vote on account is only a temporary licence to spend money. Because it is not fair to deny the government the ability to construct its own Budget for the remainder of the year if it changes after elections, the administration prefers to seek a vote on account rather than submitting a full Budget.

Appropriation vs. Finance vs. Money Bills

Let’s first understand what these two Bills are and what they entail.

A Finance Bill, also known as a Money Bill under Article 110 of the Indian Constitution, is a bill that is tabled in the Parliament each year to give effect to the government’s financial recommendations for the following fiscal year. A Finance Bill is primarily concerned with tax and levy changes. Once a year, during the presentation of the Budget, a Finance Bill is normally introduced. This means if the Finance Minister proposes some changes to income tax slabs during the budget speech, then that proposal will be introduced in the Parliament as a Finance Bill and will have to be passed by both the houses to come into effect.

The Appropriation Bill, also known as a Money Bill or the Finance Bill, permits the government to take money from the Consolidated Fund of India to cover expenses that may arise during a fiscal year. After presenting the Union Budget to Parliament, the government introduces the Appropriation Bill. This is because the Budget includes intentions to spend money on social programmes to help people from all walks of life. The government needs funds to carry out these programmes, which it obtains from the Consolidated Fund of India.

One of the most fundamental differences between the two bills is that the Appropriation Bill deals with the budget’s spending side, whilst the Finance Bill works with the budget’s income (or taxes and levies) side.

Another significant distinction between the two Bills is that in the Finance Law, the Houses of Parliament can seek adjustments to the amounts listed in the Bill (such as tax reductions or rejections), whereas in the Appropriation Bill, no amendments can be introduced or enacted.

Conclusion

Before becoming an Act of Parliament, a Bill is only a draught. The Bill must adhere to the criteria outlined above in order to become an act. The Parliament’s role does not end with the passage of laws. It also has a role to play in examining the regulations that create the groundwork for these laws. Both houses of Parliament have a committee that examines the government’s rules produced under various legislation.

These broad committees lack the bandwidth and technical expertise to investigate various laws and regulations enacted by the government. The only thing that can be done is for political parties to reconsider their positions in our legislative system.

The legislative process in the Parliament will have to be rethought. Without these procedures, Parliament will become a rubber stamp for the government’s legislation.

References

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2021 amendments to insurance legislations

By

Diva Rai

-

October 26, 2021

0

Webp.net-resizeimage-86-2 — Image source - https://bit.ly/3ChE7TU

This article has been written by Anindita Deb, a student of Symbiosis Law School, Noida. The objective of this article is to discuss the amendments made to insurance legislations in 2021 and the provisions under them.

Table of Contents

Introduction

Two very important Bills related to the insurance sector have been passed by the Lok Sabha which amend the legal framework surrounding insurance regulations. The Bills are the Insurance (Amendment) Bill, 2021 and the General Insurance Business (Nationalisation) Amendment Bill, 2021. The article will further discuss the provisions under both.

The Insurance (Amendment) Bill, 2021

Ms. Nirmala Sitharaman, Minister of Corporate Affairs, introduced the Insurance (Amendment) Bill, 2021, in the Rajya Sabha on March 15, 2021. The Insurance Act of 1938 is amended by this Bill. The Act establishes a framework for the operation of insurance companies and governs the relationship between insurers, policyholders, shareholders, and regulators, i.e., the Insurance Regulatory and Development Authority of India (IRDAI). The main objective of this Bill is to enhance the amount of foreign capital that can be invested in an Indian insurance company.

Provisions of the Bill

The Bill has amended provisions of the Insurance Act, 1938 with respect to foreign investment and investment of assets in the India insurance companies.

Foreign investment

Foreign investors can own up to 49 percent of an Indian insurance company, which must be owned and controlled by an Indian corporation under this Act. The Bill raises the foreign investment ceiling in Indian insurance companies from 49 percent to 74 percent and removes ownership and control restrictions. However, additional conditions imposed by the central government may apply to such foreign investment.

The term “total foreign investment” refers to both direct and indirect foreign investment.

Foreign Direct Investment refers to money invested directly by a foreigner, whereas Indirect Foreign Investment refers to money invested indirectly by an Indian company (owned or managed by foreigners) in another Indian entity.

A majority of the directors, senior management personnel, and at least one of the chairpersons of the Board, Managing Director, and the CEO of a foreign-invested Indian insurance company must be a citizen of India.

Investment of Assets

The Act mandates that insurers maintain a minimum investment in assets adequate to cover their insurance claim obligations. If the insurer is incorporated or domiciled outside of India, the assets must be held in a trust in India and entrusted to trustees who must be Indian citizens. This will also apply to an insurer incorporated in India if at least:

33 percent of the capital is owned by investors domiciled outside India, or
33 percent of the members of the governing body are domiciled outside India, according to the Act’s explanation.

The Bill removes this explanation.

Importance of the Bill

The implementation of this Bill will serve the following benefits:

With the increase in foreign ownership to 74 per cent, global best practices in terms of insurance products may be included in the future. It would also aid in the reduction of insurance product costs in India.
It is beneficial to Indian promoters since it allows them to maintain control over management and the board of directors, and the additional capital inflow will provide them with finances to pursue growth.
It will benefit minor insurance players or those whose sponsors do not have the financial resources to invest more cash, thereby strengthening them and creating competition in the business.
It is expected to assist local private insurers in rapidly growing and expanding their footprint across India, which has one of the lowest levels of insurance penetration in the world.

Insurance penetration in India

India’s insurance penetration is currently at 3.7% of GDP, compared to the global average of 6.31%.
The life insurance industry’s growth has slowed to 11-12 per cent from 15-20 per cent till the fiscal year 2020, as the pandemic has prompted customers to save money rather than invest in stocks or life insurance plans.
There were just 24 life and 34 non-life direct insurers in India as of March 31, 2021, compared to 243 life insurance businesses in 1956 and 107 non-life insurance companies in 1973 when the country was nationalised.

Model Insurance Villages (MIVs)

To increase insurance penetration in rural regions, the Insurance Regulatory and Development Authority of India (IRDAI) has proposed the notion of a “Model Insurance Village (MIV). The objective is to provide complete insurance coverage for all of the key insurable risks that villages face, with affordable or subsidised premiums.

The General Insurance Business (Nationalisation) Amendment Bill, 2021

On July 30, 2021, the General Insurance Business (Nationalisation) Amendment Bill, 2021 was introduced in the Lok Sabha. The General Insurance Business (Nationalisation) Act, 1972, is being amended by this Bill. The Act was enacted to nationalise all private general insurance companies operating in India. The Bill aims to increase private sector participation in the public sector insurance companies governed by the Act.

The General Insurance Corporation of India was established under the 1972 Act (GIC). The businesses of nationalised companies were restructured under four GIC subsidiaries: (i) National Insurance, (ii) New India Assurance, (iii) Oriental Insurance, and (iv) United India Insurance. In 2002, the Act was changed to transfer ownership of these four subsidiary firms from GIC to the central government, allowing them to operate independently. Since the year 2000, GIC has focused solely on reinsurance.

Provisions of the Bill

The Bill aims to make the following amendments in the respective areas:

Government Shareholding Threshold

The Act stipulates that the central government’s shareholding in the selected insurers (GIC and its subsidiaries) must be at least 51 percent (Section 10B). This clause is removed from the Bill.

Change in definition of General Insurance Business

The general insurance business is defined by the Act as a fire, marine, or miscellaneous insurance business. Capital redemption and annuity certain businessescent from are not included in the term. Capital redemption insurance entails the insurer paying a lump sum of money to the beneficiary on a predetermined date after the beneficiary has paid premiums on a regular basis. Certain types of insurance, such as annuity insurance, pay the beneficiary over time. The Bill repeals this definition and instead references the Insurance Act of 1938’s meaning. Capital redemption and annuity certain businesses are included in the definition of general insurance business under the Insurance Act.

Transfer of control from the Government

The Act will not apply to the listed insurers after the central government relinquishes control of the insurer, according to the Bill. Control refers to the ability to appoint a majority of the directors of a specific insurer, as well as the ability to direct its management and policy decisions.

The Act gives the federal government the authority to notify workers of selected insurers about their terms and conditions of employment. The insurer shall be assumed to have adopted schemes devised by the central government in this regard, according to the Bill. The insurer’s board of directors has the authority to alter or create new policies.

Furthermore, the central government’s powers under such schemes (as defined by the Act) will be passed to the insurer’s board of directors.

Liabilities of Directors

The Bill stipulates that a director of a specified insurer who is not a whole-time director will be held accountable solely for certain acts, which include the following:

With his knowledge, attributable through board processes.
With his knowledge or consent, or when he had failed to act diligently.

Conclusion

Both the amended Bills are major steps towards the enhancement of the insurance sector in India. The increased foreign investment is expected to bring down insurance costs in India and allow more players to enter the market. While the General Insurance Business Amendment Bill does bring down the Government shareholding to below 51%, Nirmala Sitharaman has claimed that this is not to be mistaken for a privatisation Bill.

References

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What are the takedown services for copyright protection

By

Rachit Garg

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October 26, 2021

0

1_copyright-designs-and-patents-act-1988-1 — Image source: https://blog.ipleaders.in/how-to-access-copyright-office-facilities/

This article is written by Vandita Bansal, from Symbiosis Law School, Noida. This article analyses the takedown service provisions in India.

Table of Contents

Introduction

What do you mean by copyright? A right that guarantees special powers to the creators of all artistic, literary and musical works to protect their originality and creativity from being infringed or exploited without their permission. If anyone wants to use the copyrighted works of others, they have to take permission for the same. Copyright helps the creators to promote their work to the public at large. Copyright protection starts as soon as the content is created. In India, protection of copyrights is provided by the Copyright Act,1957 and Copyright Rules, 2013.

It was recently discovered that several internet platforms are posting infringing content to their websites without the permission of copyright owners.Since the internet nowadays has become easily accessible the cases of copyright infringement over the internet have increased. To tackle such a situation, the government after a detailed analysis introduced the concept of takedown services where the owner can issue takedown notices to the platforms infringing their right of copyright. As we know, the internet is an open platform and any person residing anywhere can upload any content they wish to, the internet service provider or an intermediary cannot be held liable for copyright infringement as under a model called a “Safe Harbour” they are given immunity from any liability arising out of copyright infringement.

What is the takedown service

In India, if offers and creations are done by any intermediary produces or presents a link to any copyrighted work amounting to piracy or copyright infringement cases then the liberty has been granted to the owner to send a takedown notice for copyright infringement to withdraw the content or link from the respective intermediary’s website.

A takedown notice is a kind of complaint letter directed to a website administrator mentioning that the content presented by the website has infringed the copyright of the owner and asking them to remove such content from the website. Along with removing the content, they are supposed to take a digital fingerprint of it and store the same in their system so that the content would not be posted again until and unless the dispute has been resolved. For example- an internet service provider can be of any type, website operator, web presenter, search engine, or any other type of online site operator. As per copyright law, takedown notice should include several elements and if the elements are missing then the service provider has the right to refuse to take down the content infringing copyright of the owner.

In countries like the USA, laws governing takedown notices are mentioned under the Digital Millennium Copyright Act,1998. The law gives strict punishment for copyright infringement along with providing immunity to online service providers and Internet Service Providers (ISPs) located and listed in the USA, like YouTube in case of copyright infringement. Earlier, unlike the USA, India didn’t have any specific law providing takedown notice for copyright infringement, it only had copyright infringement penalties. But now due to increasing copyright infringements, India has begun issuing takedown notices to middlemen who infringe on the owners’ copyright.

Use of take down services

Ongoing copyright infringements have led owners to use takedown services to protect their content from being uploaded illegally. The use of this service is to inform Internet Service Providers (ISPs) that a concerned website has presented its content without their knowledge thus infringing the rights of the copyright owners. The take-down notices are also used to prevent access to any unlawful, malicious, and offensive content published on the intermediary platforms. To make sure that such derogatory and illegal content is not published by the people, the law has set up a grievance redressal mechanism that puts intermediaries under an obligation to perform sufficient due diligence. Many social media platforms give access to their users or any copyright owner to raise complaints directly without any process regarding copyright infringement with the platforms which aid in taking down any content violating the copyright owner’s rights. Some even go to the extent of penalizing the person who publishes the infringing content by restricting their access to the respective platform.

Recently, Delhi High Court of India in the case of Swami Ramdev & Anr. vs Facebook, Inc. & Ors.(2019) held that the online platforms and intermediaries are expected to deactivate or block the content against which the takedown notice has been issued on a universal level as such published offensive content is having a negative impact worldwide. A condition is also put on these online platforms and intermediaries that they cannot use geo-blocking techniques to deactivate or block access to the offensive content in a particular geographic region.

How to file a copyright takedown notice in India

Under Section 52(1)(c) of the Indian Copyright Act,1957, a copyright owner is obligated to issue a notice to the intermediary whose website displays or allows access to infringed or pirated content.

Rule 75 of the Copyright Rules, 2013 lays down the fundamentals of takedown and the process of delivering the same. The following must be kept in mind while drafting the notice-

The description should be adequate to identify the work. There are millions of similar articles released on the internet every day, so the description must be specific and not unclear in order to stand out. A copyright protected material must be clearly identified on websites such as YouTube or Facebook before it may be removed.
Details mentioning that the complainant is the only owner of copyright in the work. As a licensee, the complaint must include a copy of the licence agreement along with the notice of copyright takedown.
Copy of the work which is transient or incidental storage should be an infringing copy owned by the complainant and it should not be stated under Section 52 or any other section permitted under the Act
Location details where the storage of the work took place. The copyright takedown notification must provide a link or URL to the infringing work. If a website has a link, its server can remove it instantly.
All the details of a person who commits the crime by uploading the content of the owner by infringing his copyright
Undertaking that the complainant will file an infringement suit in the appropriate court against the person who is responsible for uploading the infringed content along with producing orders of the court having jurisdiction within the period of 21 days from the date of receipt of the notice.

In India, a copyright takedown notice must only be sent after the owner talks with a copyright lawyer to completely understand the legal procedure and ensure that a strong case is presented that does not fall under Section 52 of the Copyright Act, 1957.

In addition the Copyright Rules, 2013 also lays down that as soon as the receipt of the written complaint is received by the person responsible for the storage of the infringed copy of the original work he is directed to remove the infringed content within 36 hours and has to take necessary measures to avoid access for the same for a period of 21 days from the date of receipt of the complaint or till he receives an order restraining him from providing access from the appropriate court, whichever is earlier.

Applicable laws

The Copyright Act,(1957) regulates the infringement of copyright in India. As per Section 51 of the Act, copyright is infringed when someone interferes with the exclusive right of the owner and makes illegal use of it without receiving authorization from the owner or registrar.

Section 52(1)(c) of the Indian Copyright Act,1957 states that temporary or incidental storage of work or performance to provide electronic links, access, or integration, where the owner has not expressly prohibited such links, access, or integration, falls under the ambit of fair use of copyright. If the person is found responsible for the storage of the copy he will receive a written complaint from the owner of the copyright, mentioning that such transient or incidental storage is an infringement. The person responsible is further refrained from promoting access for a period of 21 days or till he gets an order from the court and if not received before the expiry of the time period of 21 days then he is allowed to provide the facility of such access.

Information Technology Act,2000

Information Technology Act,(2000) regulates intermediaries or ISP involved. As per the Act, an intermediary is an individual who receives, stores, or circulates a message on behalf of another person or offers any service related to that particular message. If the intermediary does not comply with the takedown notice of the government or gets involved in an unlawful act then, the protection given to him may get withdrawn anytime. Also, neither intermediary nor ISP shall be held liable for the link presented or provided by it for any third party.

Intermediaries are protected by Section 79 of the IT Act from liability for copyright infringement although Section 81 of the IT Act states that the restrictions of Section 79 do not prevent anyone from exercising any rights provided under the Copyright Act 1957. The requirements of the IT Act, therefore, have an overriding impact on any other law. However, copyright owners are excluded from the practice of their copyright law rights. It provides that the owners of copyright can take action against intermediaries if they face any direct infringement by them.

Safe Harbour Principle( Section 79 of IT Act,2000)

Section 79 of the Information Technology Act 2000 added the safe harbour immunity clause that exempted an intermediary from being held accountable for third-party content on its platform – provided that the intermediary performed “due diligence” as defined by the Central Government. Intermediaries who failed to exercise “due diligence” as required by the Central Government were held accountable for any actions taken by third parties, even if they were unaware of them. After the 2008 Amendment, this issue remained unchanged, as intermediaries were allowed to continue applying the safe harbour principle to protect themselves from being held liable for decisions taken by an external third party without their knowledge.

Information Technology Rules, 2021 on takedown service

In February of this year, the Government of India brought in the Rules on Information Technology,2021 (Intermediary Guidelines and Digital Media Ethics Code). The laws force the intermediaries/platforms in social media to abide by the rules stated within three months, which ends on May 25, 2021.

According to this, the intermediary must prevent its user from presenting, uploading, modifying, or transmitting any such information which may result in infringement of any trademark, patent, or copyright by issuing rules and regulations, privacy policy to them beforehand. Also, intermediaries cannot deny the accusation and have to comply with takedown notices issued to him. It states that whenever an intermediary receives such notice from the court or is informed by the government or third party, about infringement of content, he then cannot store or present any illegal information which is forbidden by the law. He has to act within the period of 36 hours or else have to face further consequences. It also allows the intermediary to establish grievance redressal mechanisms for handling the complaints. The intermediary is therefore required to appoint a Grievance Officer for reviewing complaints against the breach of rules. The Grievance Officer is expected to identify the complaint within 24 hours of the time limit and dispose of the same within 15 days of receipt of the complaint. In addition, a Chief Compliance Officer has to be appointed by social media intermediaries in compliance with the Act and IT Rules. They have to produce a monthly compliance report along with all the details and actions were taken by them in resolving them. If not able to produce any information then the officer will be held liable.

Since, IT Rules 2021 are self-explanatory, therefore non-compliance means that intermediaries cannot claim the safe harbour principle and are liable for any acts committed by third parties, even if they were not aware of them. Due to the severity of the penalties for non-compliance, intermediaries should respect the IT Rules 2021 to protect themselves from penalties and to avoid losing the safe harbour principle, which acts as a virtual barrier. As far as the future is concerned, different intermediaries can pose certain challenges to the legality of the IT Rules, 2021 in order to maintain their autonomy and control.

Judicial precedents

MySpace Inc. v. Super Cassettes Industries Ltd. (SCIL) (2016)

Here, in this case, Myspace Inc. is a US-based company, acting under Digital Millennium Copyright Act (DMCA) thus following the concept of “Notice and Take Down”. It is a website that provides users with a platform for viewing, uploading, and sharing videos, music, etc for entertainment purposes. The content uploaded on site was infringed as stated by the respondents. Despite the warning given to them, the content was still broadcast on the website violating SCIL’S copyright. The Delhi High Court held that the site was liable and that the infringed content on copyright was required to be taken down within 36 hours of “actual knowledge” of the infringement.

Christian Louboutin SAS v. Nakul Bajaj (2018)

In this particular case, the plaintiff sued a website named Darveys.com, selling imported luxury items on the basis that it was offering for sale counterfeit and defective products which were infringing the plaintiff’s trademark. Acting as an active participant in the trade, the High Court of Delhi observed the website as an intermediary and held liable the same for trademark infringement and stated taking shelter under the safe harbor provisions of the IT Act is not permissible.

Swami Ramdev v. Facebook, Inc. & Ors (2019)

In this case, defendants Facebook, Google, Youtube, and Twitter were ordered to remove a list of URLs from their respective platforms that were allegedly derogatory to the plaintiffs. The initiative was taken by yoga guru Swami Ramdev stating that defamatory videos and content in relation with the book named ‘Godman to Tycoon – The Untold Story of Baba Ramdev’ was posted on the defendant’s platforms. It was held by the Delhi High Court, after considering the law on intermediary liability under the Information Technology Act, 2000 and Information Technology Rules, 2011, that the intermediates are directed to take down and block all such unlawful content and videos uploaded on their platforms from I.P. addresses within India, on a universal level. For the content posted outside the territory of India, they were directed to use geo-blocking tools and disable viewership of the content.

Conclusion

We can finally conclude that Section 52(1)(c) of the Indian Copyright Act,1957 provides the owner with the right to issue a takedown notice to online platforms ordering them to remove infringed content from their websites as soon as possible. Earlier the liability of the intermediary towards the copyright owners was secondary and was only accountable for the same if the order given by the Court was not followed. But now this is not the case, the new IT guidelines have given a lot of expectations to the content providers, as now they can immediately file a complaint with the Grievance Officer and seek remedy for the same.

References

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

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

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Case analysis : Kent RO Systems Ltd. & Anr. v. Amit Kotak & Ors

By

Shoronya Banerjee

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October 26, 2021

1

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).

Table of Contents

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/

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