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India: Delhi High Court Defines Criminal Liability Against Online Marketplaces in India

IPR Daily

2022-09-22 15:04:19

One of the most scariest and intimidating situations for any person and more so for employees is being charged in criminal prosecutions in their official capacities on behalf of company/firm, in cases that purely arise out of commercial transactions.

There are plethora of judgments that state that commercial disputes should be handled by commercial courts. Despite that we find that criminal justice machinery is set into motion by people to settle their commercial scores. One of the aspects which can be seen is the lack of understanding of recently enacted laws by law enforcement agencies who still end up applying the provisions of Indian Penal Code, 1806 for criminal breach of trust or cheating. This issue further gets complicated when police complaints are filed for infringement of intellectual property rights, since the Trademark Act, 1999 or Copyright Act 1957, both have provisions which are classified as cognisable offences.

In this background, a landmark judgment passed by the Delhi High Court (`High Court`) attains significance, wherein, the single judge of the High Court explained the interplay between the Information Technology Act, 2000 and offences arising out of Trademark Act, 1999 and Copyright Act, 1957.

The background to this issue arises from a First Information Report (`FIR`) registered by the Economic Offences Wing, New Delhi on a complaint filed by   a distributor of a foreign cosmetics company complaining that certain ecommerce companies along with Flipkart were allowing fake, unauthorised sellers/resellers to sell products on their platform.

Upon challenge to the FIR before the High Court by Flipkart, the High Court quashed the FIR against Flipkart and clarified the position of an ecommerce marketplace in terms of criminal liability for non-removal of content.

The High Court considered the Intermediary Guidelines 2011 (`2011 Rules`) and the new Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (`2021 Rules`) published in 2021. The 2011 Rules, provide for intermediaries under Rule 3 to undertake ‘due diligence' which essentially means to inform its users to not to host, display, upload, modify, publish, transmit, store, update or share any information in which they don't have rights. The 2021 Rules also contain similar language for ‘due diligence' for intermediaries as had been provided under the 2011 Rules.   

Marketplace intermediaries such as Flipkart don't manufacture or sell products. It is another party who either manufactures and/or sells the product.

In 2015, the Supreme Court in the case of Shreya Singhal v. Union of India (2015) SCC 1 while dealing with an issue of defamation and right to freedom of speech and expression clarified the scope of ‘safe habour' and ‘actual knowledge' for intermediaries. The Supreme Court held Section 79 is valid subject to Section 79(3)(b) being read down to mean receiving actual knowledge from a court order or on being notified by the appropriate government or its agency. Supreme Court held that unless intermediaries are given a court order or notification by a government or its agency, they are not required to take down content, otherwise it would get difficult for them to comply with multiple requests for take down by private parties.

Now despite the statute and the Supreme Court's observation, there continues to be threats of criminal proceedings for non-removal of content, because of lack of judgments on the issue of criminal liability of intermediaries in case of non-removal of content.

The High Court has correctly interpreted the law on intermediaries and especially ecommerce marketplaces by holding that they will not be liable for criminal prosecution in case of non-removal of content qua complaints of infringement of intellectual property rights. The Single Judge also interprets ‘due diligence' under Rule 3 of the 2011 Rules to hold that when compliance with “due diligence” requirement under Rule 3 is evident, then ex facie, the exclusion of liability under Section 79 of the IT Act would also include exclusion from criminal prosecution.

The High Court held that a claim to trade mark or copyright is often stoutly contested affair even before a civil court. The intermediaries are certainly not situated to determine the correctness of a claim by a complainant to a trade mark or copyright. Interestingly, the High Court itself quotes an example that it could be a infringer who itself complains for removal of content of a registered owner. If such a complaint was sufficient to take down the material, then havoc will be caused e-commerce beyond imagination.

The High Court rightly held that it would create havoc on ecommerce marketplaces, especially when they are not the sellers or manufacturers of the products in question. It would result in floodgate of litigation against ecommerce marketplaces, simply because they didn't accede to or take down the content upon a person's request.

This is a landmark judgment for intermediaries who are constantly under the threat of criminal prosecutions despite the 2011 Rules or 2021 Rules being clear about the position that law enforcement authorities should adopt when confronted with any owner or anyone else claiming under such owner of infringement of intellectual property rights.  

Another aspect which was argued was whether the complainant in the present case could file a complaint under the Copyright Act, 1957, though not being the owner, author or licensee of the copyright. Flipkart had relied upon the judgment of the Allahabad High Court in the case of Nagin Chand Jain v. State of UP and Ors. (1981 SCC OnLine All 653) wherein the Court observed that only the author or assignee or licensee of a work can maintain criminal action under Section 63 of the Act for protection of its copyright. The view was also affirmed by the Madras High Court in the case of B. Balu v. State and Anr. (Crl.O.P.No.12210 of 2017). Despite Flipkart's above argument, the Delhi High Court did not give any findings on this issue in the present judgment. However, this issue will have to be decided by Courts in the near future, as there are multiple instances where complaints are filed against intermediaries at the behest of a person, who is not the owner, licensee or assignee of the intellectual property in question.  

Source: mondaq-Dheeraj Nair, Manish Jha, Shruti Dass

Editor: IPR Daily-Ann

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