Share on facebook
Share on twitter
Share on linkedin

India's Own Crypto Asset Regulations Soon: Plugging an Important Gap

Till last year, most people (at least in India) had probably only heard of cryptocurrencies such as Bitcoin and Ethereum; now, many other names such as Dogecoin, Solana, Polkadot, XRP, Tether, Binance etc. are being spoken of commonly in media. The global cryptocurrency market cap is estimated at over US$2.5 Trillion.

India too is witnessing a surge in investment in cryptotokens – especially by millennials. There is a correspondingly increase in the number of advertisements for cryptocurrencies on national television as well as on various web sites; mainstream media reports extensively on the daily price movement of cryptocurrencies. One estimate puts the number of crypto investors in India at between 15-20 million, and the total holdings to be in excess of US$5.3Billion. 

This surge in unregulated cryptoassets is a matter of rising concern globally. Recently, PM Modi urged democracies around the world to work together to ensure that cryptocurrencies do not “end up in the wrong hands, as this can “spoil our youth”. His exhortation came just days after RBI Governor Shaktikanta Das spoke of “serious concerns” around cryptocurrencies.

The RBI’s 2018 blanket ban on cryptocurrencies was lifted by the Supreme Court in 2020. However, the time has now come for the government and regulators to act quickly, and there are indications that regulations are just around the corner. At the time of writing, the government has already announced its intention to table The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 in parliament in the winter session.

It is expected that through this legislation, the Indian government will seek to ban private cryptoassets. This means that those trade in such cryptoassets may be liable for penalties and/or other punishment. It is also expected that there will be tighter regulations around advertising such products and platforms where cryptoassets can be bought and sold. Another regulatory salvo could be around taxing cryptogains at a higher rate (although such notifications may have to wait for the next budget due to be announced in another three months). The bill is also expected to deny the status of “currency” to cryptoassets because the prevailing ones are issued by private enterprises, and not backed by any sovereign.

The government has also acknowledged the potential of sovereign digital currencies (or CBDC- Central Bank Digital Currency, as they are officially called) in the days ahead. Countries such as China and the USA, are at various stages of launching their own digital currencies, and experts predict that such CBDC will be the “future of money”. In this context, the proposed bill is expected to create a “facilitative framework” to pave the way for the RBI to launch India’s sovereign digital currency in the days ahead by. In fact, the RBI is already working on India’s CBDC, and some media reports suggest that such a launch may happen in the next couple of months (which may also explain the timing of tabling the The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, at this time). CBDCs too require crypto and blockchain technologies that are similar to those that underpin cryptoassets, so the bill is also expected to promote these technologies for specific purposes. Indeed, not doing so would be akin to throwing out the baby with the bathwater.

Given their wide global reach, cryptoassets arguably will have a role to play in the world’s financial system. However, countries such as India must ensure proper regulation because by their very nature, cryptoassets can easily be misused for various activities that can destabilize the nation. They will allow for free inward/outward remittances that will make it harder to trace; being encrypted, the origins of such wealth too will become easier to hide. All this will make cryptoassets even more convenient ideal for nefarious activities such as money laundering, terror-funding, drugs-financing etc. In the absence of appropriate regulations, the rising supply of cryptocurrencies can hobble the RBI’s ability to perform its basic role. Its ability to manage the Rupee’s value against global currencies too will weaken, as will its ability to use domestic interest rates as a means to balance the economy’s twin needs of inflation management and providing growth impetus. This is a scary scenario, but not one that could unfold in the short-term. Even so, India needs to be prepared.

PS: The Indian government’s announcement to regulate cryptoassets has already triggered a significant (8-10%) correction in the prices of various cryptoassets. It’s therefore a good idea for resident Indians holding cryptoassets to sell them. They can decide on their future course of action once there is clarity on the specific regulatory impact of the proposed bill.

 

Image Credits: 

Photo by Worldspectrum from Pexels

Given their wide global reach, cryptoassets arguably will have a role to play in the world’s financial system. However, countries such as India must ensure proper regulation because by their very nature, cryptoassets can easily be misused for various activities that can destabilize the nation.

POST A COMMENT

Share on facebook
Share on twitter
Share on linkedin

Frequently Asked Questions (FAQs) on Flying Drones in India 2021

Drones have been buzzing to become the next significant tech-fascination. Owing to their sleek build, agile mobility and ability to access areas of topography beyond the reach of humans; they are increasingly relevant in today’s innovation and utility-driven technology trends. However, as with any pioneering design, the value of drones largely depends upon the intention of their use. For instance, they can be employed to perform illegal or destructive activities by terrorist groups as was evident from the June drone attack at the Indian Airforce Station in Jammu.[1] Additionally, they can easily malfunction and cause unintended harm to human life or the environment.

In view of their heightened demand and novelty, governing their usage and ownership became imperative and consequently, in March 2021, the Ministry of Civil Aviation published the Unmanned Aircraft System (UAS) Rules, 2021. However, the UAS rules were perceived as restrictive and complex. Based on the feedback from various stakeholders the UAS Rules, 2021 were repealed and the new Drone Rules, 2021 were notified under the Aircraft Act, 1934;  their scope excluded the actions done or omitted before the enforcement of these rules. Here are a few pertinent questions that we have tried to answer in light of the new rules:

Do I need a drone pilot license for flying drones in India?

 

One would require a remote pilot license to fly a drone in India unless exempted. The exceptions include the operation of nano drones and the non-commercial operation of micro-drones (i.e., drones weighing between 250 grams and 2kg). 

Additionally, no remote pilot license is required for drones operated for testing purposes within the premises of a research and development entity / educational entity under the Central government, drone manufacturer with a GST, Start-up recognized by the DPIIT, or an authorized testing entity when operated within the green zone.

Are there any restrictions on flying drones at night or over people in India?

 

The current regulations are silent on the timing at which drones can be flown. However, as night-time flying of drones will have additional safety implications and may require drones to be fitted with other mandatory safety features such as anti-collision lighting, we will have to wait for further clarification/notifications from the Ministry in this regard.

Is there a last date for registering my drone in India?

 

As per the Drone Rules 2021, a person owning an unmanned aircraft system manufactured in India or imported into India on or before the 30th day of November 2021 must make an application to register the drone and obtain a UIN by 31st December 2021. But, as per the Digital sky platform, the last date to obtain a Drone Acknowledgment Number (“DAN”) for an unlisted drone is 30th November 2021. Therefore, there seems to be a conflict between the dates specified on the website and the new drone rules. Also, as per the digital sky platform and the press release by the ministry of civil aviation one must have a DAN, a GST-paid invoice and must be part of the list of DGCA-approved drones to enlist an existing drone. 

Do I need permission to fly toy drone in India?

 

Under the guidelines to enlist an existing drone, it clearly specifies that all unmanned aircraft needs to be enlisted and it has been clarified that this includes models, prototypes, toys, RC aircraft, autonomous and remotely piloted aircraft systems, etc. [2] From these guidelines on the enlistment of drones it can be inferred that unmanned aircraft also includes toys. Thus, toy drone manufacturers/operators would need to obtain the compulsory permissions under the rules.

A remote pilot license is not required to operate nano drones and micro drones (i.e., drones weighing between 250 grams and 2kg) used for non-commercial purposes.  Type certification is not required for nano drones and model remotely piloted aircraft systems (i.e., drones used for educational, research, testing, design, and recreational purposes weighing below 25 kgs and operated within the visual line of sight). All drones need to obtain a UIN except drones used for testing purposes within the green zone and premises of the testing entity.

Hence, toy drones would require a UIN and, may require a remote pilot license and type certification depending on the size and nature of the drone. It would also need to be ensured that the drone is being flown in the green zone and that there are no notifications/restriction on the digital sky platform for drone operation in the intended area of operation.

Are there any restrictions on flying drones remotely over the internet?

 

“Remotely piloted aircraft” is defined by Drone Rules as an unmanned aircraft that is piloted from a remote pilot station. One must obtain a remote drone pilot license and type certify drones unless exempted to operate drones. Model remotely piloted aircrafts have to be operated within the visual line of sight. 

Other than the type certification and the remote pilot license, all drones need to obtain a UIN. They should not carry dangerous goods or arms, ammunitions etc. unless permitted by the concerned authority. They have to fly within the permitted zones and not violate the right of way of a manned aircraft.

The current regulations are silent on the operation of drones Beyond Visual line of sight (BVLOS). However, it is observed that entities are still availing conditional exemption for BVLOS operation from the Ministry.

What are the customs regulations for entering India with a drone?

 

Under the Drone rules, import of Drones is to be regulated by the Directorate General of Foreign Trade (DGFT) or any other authorised entity. The DGFT has not released any specific import policy on drones after the release of the rules. Under the existing Import Policy by the DGFT, import of Unmanned Aircraft System is “Restricted” and requires prior clearance of the Directorate General of Civil Aviation (DGCA) and import license from DGFT.  Nano drones (i.e., drones weighing up to 250 grams) and operating below 50ft/ 15 meters above ground level are exempted from the requirement of an import clearance from the DGCA or import license from the DGFT.[3]

Although the new rules have eliminated the requirement for import clearance from the DGCA, the DGFT is yet to update the import policy and remove the requirement from the import policy.

Further, the Import Policy by the DGFT refers to the Guidelines issued by the Directorate General of Civil Aviation. These guidelines mandate that anyone wishing to import must obtain Equipment type approval from the Wireless Planning and Co-ordination Wing, Department of Telecommunication for operating in de-licensed frequency bands. [4]  An application has to be made for a Unique Identification Number (UIN) post the necessary approvals are obtained to operate a drone in India.

Can drones be used for food/package delivery/advertisements in India?

 

The current rules prohibit the carriage of arms, ammunitions munitions of war, implements of war, explosives and military stores, etc. unless permitted by Central Government. It also regulates the carriage of dangerous goods as per the Carriage of Dangerous Goods Rules, 2003. Other than the above, the current regulations are silent on the aspect of permitted payloads.

When it comes to drones, unlike aeroplanes that generally take-off from an airport, there are no specific ports from which drones are flown. The new rules mention the development of policy framework for developing corridors for safe and seamless transfer of goods by drones. As goods on a drone could have potential dangers such as accidental drops during flight and difficulty in regulation, it is possible that these will require further regulation. The 2018 CAR and UAS Rules, 2021 required drone operators to get special approval to drop/discharge substances. Such conditions are not specified in the current rules. It would be advisable to get special clarification from the DGCA on permitted payloads as there are additional safety implications associated with it.

Are there any other initiatives in place other than the liberalized Drone Rules 2021 to achieve the target of making India a drone hub by 2030?

 

In furtherance to the initiative of the liberalization of the regulations governing Drones, the Indian government approved the Production Linked Incentive scheme (PLI) for drones and drone components in India. The net fund assigned under the scheme is Rs. 120 crores over three financial years.

It provides relaxed criteria for MSMEs and startups to encourage them to avail the benefits of the scheme. The rate of PLI is fixed at 20% of the value addition throughout the scheme. Depending on the value added by the manufacturer, their eligible PLI will be 20% of the addition. The minimum addition is set at 40% of the eligible sales turnover of the FY. Value addition is calculated as the eligible sales minus the eligible purchase cost.

It is the responsibility of the component manufacturers to show that the components are exclusively used in manufacture of drones. The scheme is for three years from 2021-2022 . The amount will be disbursed in the subsequent financial year to which it is claimed . An applicant is eligible for three consecutive years but up to FY 2023-2024.[5]

 

What steps are being taken for traffic management and avoidance of collision between manned and unmanned aircraft?

 

On the 25th of October the Unmanned Aircraft System (UAS) Traffic Management (UTM) policy framework was published by the Ministry of Civil Aviation. To achieve UTM-ATM (Air Traffic Management) interoperability and integration, the policy suggests aligning with the framework of the International Civil Aviation Organisation for UTMs. It invites studies/ proposals on real -time tracking mechanisms as real -time identification and tracking (RIT) via Bluetooth or wifi is not practical owing to the low operational range. As per the policy, all unmanned aircrafts may implement RIT via network for successful separation from manned aircrafts. However, it does recognise that this facility will not be available in areas without telecommunication network.

 

The Future Lies in the Sky

 

The new drone rules have liberalised and simplified the regulations pertaining to drones. Instead of having all the regulations and certifications within these rules, powers have either been delegated or separate authorities and platforms have been established to deal with specific issues. The new rules also facilitate self-certification and self-monitoring as well as provide an easier process for transfer and deregistration. Further, they have done away with the approvals required for unique authorisation number, unique prototype identification number, certificate of conformance, certificate of maintenance, import clearance, acceptance of existing drones, operator permit, authorisation of R&D organisation, student remote pilot licence, remote pilot instructor authorisation, drone port authorisation etc. Forms have been reduced from 25 to 6.  There is no specific criteria or approvals for drone ports, instead, the current rules have proposed that a policy be developed with a framework for corridors for the delivery of goods.

All these accompanied with the considerable reduction in the fees with respect to the remote pilot license and other registrations/certifications (wherever applicable) will set new grounds and open up a plethora of opportunities for start-ups, SMEs and research organisations who want to venture into the field of aviation, avionics and related interests. As an effect, the future will soon see Amazon, Zomato deliveries through drones, site verification for insurance organisations, crime patrolling, disaster assessment etc. eventually, as Union Minister for Civil Aviation, Jyotiraditya Scindia told, make India a global drone hub by 2030.

The future lies in the sky and beyond, and it is going to get crowded than ever!

References 

[1] https://www.thehindu.com/news/national/two-explosions-rock-technical-area-of-jammu-airport/article34997389.ece

[2] https://dronenlisting.dgca.gov.in/

[3] https://www.dgft.gov.in/CP/?opt=itchs-import-export

[4] F.No.05-13/2014-AED Vol. IV dated 27th August, 2018.

[5] https://egazette.nic.in/WriteReadData/2021/230076.pdf

Image Credits:

Photo by Dose Media on Unsplash

The new drone rules have liberalised and simplified the regulations pertaining to drones. Instead of having all the regulations and certifications within these rules, powers have either been delegated or separate authorities and platforms have been established to deal with specific issues

POST A COMMENT

Share on facebook
Share on twitter
Share on linkedin

Strong Tailwinds for India’s Technology Sector Entrepreneurs and Startups

Venture Capital (VC) investments in Indian startups in the period January – July 2021 were reported at around US$17.2 Billion. Although this figure is lower than the quantum of investments made in China in the same period, it is a healthy 55% more than the US$11.1 Billion VCs invested in India in the year 2020. Here’s an even more interesting data point: in July 2021, VCs invested around US$8 Billion in India, in comparison, their investments in China were approximately US$5 Billion. This was the first time since 2013 that India attracted more VC investments than China.

One swallow does not make a summer, but there are many reasons to believe that significantly higher levels of risk capital will become available to Indian entrepreneurs- and especially to those in the tech space. While most of these have to do with India’s intrinsic strengths, there are also some external forces at work. Here is what I believe will fuel India’s tech entrepreneurs over the course of the next five years or so.

  • Steep increase in the number of Indian unicorns:

The first 9 months of 2021 alone have seen 28 new unicorns (a term that denotes startups with valuations of US$1Billion or more) emerge in India. This number stood at 38 at the end of 2020.

  • Fintech innovation:

India has seen several innovative fintech come up in the last ten years, many of which are already unicorns or on their way there. As the global banking and financial services industry look for disruptive solutions and new ways of building ecosystems, many of these “Made in India” innovations will become globally relevant and hence attractive investment opportunities.

  • The rise and rise of Edtech:

As a result of the pandemic and the emergence of interactive technologies, the learning and education space has undergone a massive transformation in the last two years. Not just in the early school years but also coaching for various entrance exams. Byju’s for example, is valued at almost US$16.5 Billion, and has already acquired 9 other Edtech companies in recent months. Like fintech, the Edtech opportunity too has the potential to tap global business opportunities.

  • Rising interest amongst western VC funds:

Existing investors are looking to expand their Indian portfolio, with some big-name investors like Tiger Global making 25 investments in India between January and August 2021 (in 2020, they invested in 18 startups). New VC firms that have not previously invested in India too are also entering the market. Andreessen Horowitz (a16z) fund, for example, recently closed a US$260 Million investment in crypto player CoinSwitch Kuber (valuing it US$1.9 Billion). Reports suggest a 60% increase in participation by US investors in Indian fintech startups over the last three years. The Unacademy group, another major Edtech player in India, recently raised US$440 million (investors included non-US funds as well)- valuing the startup at almost US$3.5 Billion.

  • Many global giants already have an Indian presence:

It was recently reported that one in 12 global unicorns have their technology centers based in India (source: August report of the IVCA). As Indian ventures and their innovations gain global visibility, I believe many more global organizations will set up shop in India (As elaborated in my earlier blog – Global Captive Centers in India: Can add Value If Set Up Differently).

  • Strong talent base:

India has a large, trained pool of tech and managerial talent that can be attracted to startups both by higher compensation made possible by Venture Capital backing and the thrill of creating something new. Such talent can form the crucial leadership and middle layers as these startups scale and grow rapidly.

  • Entrepreneurship on the ascent:

Increasingly, young graduates are turning entrepreneurs– and choosing this avenue instead of the safety of “safe” jobs with established companies. And of course, there are senior leaders from various companies who are also getting bitten by the startup bug and leaving to start/mentor various early-stage ventures.

 

Conclusion

 

Of course, there’s also the elephant (more accurately, the dragon) in the room. The Chinese Communist Party leadership has, in the past year or so, made a number of major policy changes with the apparent intention of targeting China’s home-grown Big businesses (tech and others). The Chinese government’s seeming unwillingness to come to the rescue of defaulting real estate majors is another event that has muddied waters for investors. Western investors have significant exposure to many of these companies whose wings have clearly been clipped. Strains in diplomatic and economic ties between China and the west are expected to trigger a slowdown in fresh investments, if not cause an exit from Chinese businesses.

Capital chases the best risk-adjusted returns and so will always gravitate to where investors expect the best outcomes. India, with its relative political stability, acknowledged track record of democracy, continuing commitment to reforms, and growing stature as a global innovation hub makes it an attractive alternative.

Image Credits:

Photo by ThisisEngineering RAEng on Unsplash

Capital chases the best risk-adjusted returns and so will always gravitate to where investors expect the best outcomes. India, with its relative political stability, acknowledged track record of democracy, continuing commitment to reforms and growing stature as a global innovation hub makes it an attractive alternative.

POST A COMMENT

Share on facebook
Share on twitter
Share on linkedin

Liabilities of Intermediaries In Trademark Infringement Cases In India

The boon and bane of market vis-à-vis consumers has further intensified with the shift of the current generation to e-commerce. The boon has been the ease, economy, and the time efficiency that online trade offers while the bane has been the easy trafficking of counterfeits and threat to customer data. Although efforts are being made by the government to address the issues from a consumer/buyer point of view, not much has been done from a business/seller point of view. One worrying concern for businesses is the constant infringement of their trademarks which is suffering in the lack of necessary legislation or a decisive judicial pronouncement. Most businesses believe that intermediaries must be liable for allowing infringers sell goods on their platform without adequate due diligence, however, liability has not been conclusively attributed in this regard yet.

One prominent case that addressed the liability of online marketplaces in trademark infringement was Christian Louboutin SAS vs Nakul Bajaj & Others[i] decided on 2nd November 2018 by the Hon’ble Delhi High Court. But before we delve into the particular case or understand the liability of intermediaries, let us first understand who falls within the ambit of intermediaries and when is an intermediary exempted from liability.

 

Definition of Intermediaries

 

The term “intermediaries” is defined under section 2(w) of Information Technology Act, 2000 which says

 “Intermediary” – with respect to any particular electronic records, means 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, network service providers, internet service providers, web-hosting service providers, search engines, online payment sites, online-auction sites, online-market places and cyber cafes.

 

Exemption from the liability/ Safe Harbour Provision

 

Section 79 of the Information Technology Act provides certain immunities to the intermediaries. That the intermediary shall not be liable for any third-party information, data or communication link made available or hosted by him. Section 79 of the Information Technology Act, 2000 is extracted below:

  • Notwithstanding anything contained in any law for the time being in force but subject to the provisions of sub-sections (2) and (3), an intermediary shall not be liable for any third party information, data, or communication link made available or hosted by him.

 

  • The provisions of sub-section (1) shall apply if– (a) the function of the 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; or (b) the intermediary does not– (i) initiate the transmission, (ii) select the receiver of the transmission, and (iii) select or modify the information contained in the transmission; (c) the intermediary observes due diligence while discharging his duties under this Act and also observes such other guidelines as the Central Government may prescribe in this behalf.

 

  • The provisions of sub-section (1) shall not apply if– (a) the intermediary has conspired or abetted or aided or induced, whether by threats or promise or otherwise in the commission of the unlawful act; (b) upon receiving actual knowledge, or on being notified by the appropriate Government or its agency that any information, data or communication link residing in or connected to a computer resource controlled by the intermediary is being used to commit the unlawful act, the intermediary fails to expeditiously remove or disable access to that material on that resource without vitiating the evidence in any manner.

Section 79 of the Act elaborates on the exemption from liabilities of intermediaries and Section 79(2)(c) mentions that intermediaries must observe due diligence while discharging their duties and observe such other guidelines as prescribed by the Central Government. Accordingly, Information Technology (Intermediary Guidelines) Rules, 2011 were notified on 11th April 2011.

Though the Indian Courts have reviewed Section 79 of IT Act, 2000 (Safe Harbour Provisions) on various facts and situation including in the cases of protecting online free speech (Shreya Singhal V. Union of India[ii]), uploading content and copyright violations (My Space Inc Vs. Super Cassettes Industries Limited[iii]) and design infringement (Kent Ro Systems Limited & Anr Vs. Amit Kotak and Ors[iv])etc, the position that is considered by Indian courts on violation of trademarks rights by e-commerce platforms and the extent of protection awarded to them was unclear till recent past.  

The landmark judgment passed by the Hon’ble Delhi Court in Christian Louboutin SAS vs Nakul Bajaj & Others tried to establish the liability of intermediaries on trademark infringement cases and the same is discussed below:

 

Christian Louboutin SAS vs Nakul Bajaj & Others

 

The Plaintiffs (Christian Louboutin), manufacturer of luxury shoes well known for their red soles filed a trademark infringement suit against an e-commerce website www.darveys.com (Defendants). The Plaintiffs had also obtained trademark registration for the word mark, device mark CHRISTIAN LOUBOUTIN and also for their red sole mark in India. The Plaintiffs claimed that their products were sold only through an authorized network of exclusive distributors.

The Defendants were selling various luxury products on their website including the Plaintiff’s products by claiming that they were 100% authentic. The Plaintiffs alleged that apart from selling and offering counterfeit products on the Defendants website, the image of the founder of the Plaintiff and the names Christian and Louboutin were used as meta tags. Further, the Defendants’ website gave an impression that it was in some manner sponsored, affiliated and approved for sale of variety of luxury products bearing the mark Christian Louboutin and this resulted in infringement of trademark rights and violation of personality rights of Mr. Christian Louboutin.

On perusal of the pleadings the Hon’ble Court observed that no factual issues arose in the determination of the case as the Defendants had not disputed the proprietary rights of the Plaintiff over their brand Christian Louboutin. The only defence put forth by the Defendants was the safe harbour provision under Section 79 of the Information Technology Act, 2000 that they were mere intermediary who enabled booking of products from any of the 287 boutiques/sellers across the globe using their online platform.  The Defendants contended that the products sold through their website was genuine, however, they were not providing after sales warranty or services.

The only aspect to be decided was whether the Defendants’ use of the Plaintiffs’ mark, logo was justified under Section 79 of the Information Act, 2000 or not.

The Hon’ble court perused the Defendants’ website and observed that customers were required to pay a membership fee in order to shop from the Defendants’ website and the said website also provided an authenticity guarantee to return twice the money if the products turned out to be fake or not of expected quality. Furthermore, in the terms and conditions, the Defendants claimed that they facilitated the purchase of original products and the prices of the products were maintained and changed at the discretion of the Defendants. Quality checks of the products were carried out by a third-party team who examined the precise details of the products that were shipped to the customers. The invoices generated were those of the website (defendant) company.  

In order to determine whether an online marketplace or e-commerce website is an intermediary, the Hon’ble Court elaborately examined the nature of services (provided a detailed list of 26 possible services that could be performed by intermediary) that would fall within the ambit of service contemplated in the definition of intermediary. Accordingly, entities that performed tasks such as identification of the seller, providing transport for seller, employing delivery personnel for delivering the product, accepting cash for sale etc and the measures taken by the online platforms  to ensure that unlawful acts were not committed by the sellers were taken into consideration for determining the role of the online marketplace. Considering the services played by the Defendant in the case, the Hon’ble Court was convinced that the Defendant exercised complete control over their sale of products and they were much more than just an intermediary.

The Hon’ble Court further noted that the e-commerce website and online marketplaces were required to operate with caution if they wished to enjoy the immunity provided to the intermediaries under Section 79 of the IT Act. When an e-commerce website is involved in or conducts its business in such a manner which would see presence of large number of elements (services and measures taken by sellers referred above), it could cross the line from being an intermediary to active participant. In such cases, online marketplace could be liable for infringement in view of its active participation.  The conduct of intermediaries in failing to observe due diligence with respect to IPR could amount to conspiring or abetting, aiding or inducing unlawful conduct and may lose the exemption to which intermediaries are entitled. When an e-commerce company claims exemption under Section 79 of IT Act, it ought to ensure that it does not have active participation in the selling process. The presence of any elements which indicates active participation could deprive intermediaries of the exception.

Finally, the Hon’ble Court ascertained whether there was any falsification of Plaintiff’s trademark under Section 2(2)(c), 101 and 102 of the Trademarks Act, 1999.  These provisions were being looked at to ascertain what constituted conspiring, abetting, aiding, or inducing, the commission of an unlawful act, in the context of trademarks rights. The Hon’ble Court concluded that the use of Plaintiffs’ mark in respect of genuine goods would not be infringement and in respect of counterfeit goods, it could constitute infringement. Thus, any online marketplace or e-commerce website which allows storing of counterfeit goods would be falsifying the mark.

In view of the above, the Hon’ble Court noted that the Defendant was not entitled to protection under Section 79 of the Information Technology Act. Further, the use of the Plaintiffs’ mark, the name and photograph of the founder without permission and the sale of products without ensuring genuineness constituted violation of the Plaintiffs rights. Pertaining to the contention of meta tagging, the Court held that Defendants’ use of the meta tagging would constitute infringement as upheld by the Delhi Court in another case (Kapil Wadhawa v. Samsung Electronics[v]).

In the above circumstance, the suit was decreed directing the Defendant to disclose the details of all its sellers, their addressee, contact details on the website, and prior to uploading a product bearing Plaintiffs’ mark, Defendant was required to obtain concurrence before offering for sale on its platform.

It is apparent that the legislative intent is to protect genuine intermediaries and it cannot be extended to those persons who are not intermediaries and are an active participants in the unlawful act.

 

Post Louboutin Case

 

The test laid down in Christian Louboutin case containing the detailed list of 26 possible tasks/services that could be performed by intermediaries were applied to various other cases such as Loreal v. Brandworld and Another[vi] and in Skull Candy Inc v. Shri Shyam Telecom and Others[vii] to ascertain the liability of intermediaries in online marketplace or e-commerce website.  

In this regard, it is pertinent to note the case of Amway India Enterprises Private Limited v. 1Mg Technologies Private Limited and Another[viii] where a single bench of the Delhi High Court passed an order restraining numerous e-commerce platforms such as Amazon, flipkart, snapdeal etc from the sale of direct selling products without the consent of direct selling entities. This decision of the single bench was set aside by the Division bench of Delhi High Court on 31st January 2020 and with this again the position of law pertaining to the intermediary liabilities in trademark infringement cases remains unclear. However, it is observed from various intellectual property rights cases that courts have placed higher responsibility to take down the contents that infringes the IP rights and is titling towards making these e-commerce platforms more responsible for their content.

Now that the Information Technology (Intermediary Guidelines Amendment) Rules, 2018 framed to make social media platforms accountable for their contents is on the verge of being notified, it is apparent that internet intermediaries won’t be able to  take shelter under the safe harbour protection of the IT Act, 2000 effortlessly.  The new rules intend to tighten the noose by filtering out information that threaten public health or safety. The rules make it mandatory for intermediaries to provide information or assistance to government agencies within 72 hours of formal communication,  enable tracing out of originator of information on its platform by deploying technology based automated tools for proactively identifying and removing or disabling public access to unlawful information and by removing access to unlawful content within 24 hours upon receiving a court order or being notified. It also requires intermediaries to incorporate a company if they have more than 5 lakh users in India and to have a permanent registered office in India as well as appoint a nodal person for contact with law enforcement.  

From an IP perspective, the roles and responsibilities of intermediaries are likely to become more crucial in IPR infringement cases. The safe harbour protection must be granted to intermediaries only if they play the role of a facilitator.  Since e-commerce has flourished like a green bay tree in the massive Indian market, the government is mooting the idea of having a separate regulatory body and a separate e-commerce law that provides for periodic audit, storage of data,  consumer protection,  export promotion and other provisions for promotion of e-commerce. The new law supposedly proposes to impose joint liability for counterfeit products on e-commerce entity as well as sellers. If approved, this would substantially address the trademark concerns and ensure fair competition.

 

 

References

[i] CS (COMM) 344/2018, I.As. 19124/2014, 20912/2014, 23749/2014 & 9106/2015

[ii] AIR 2015 SC 1523

[iii] 236 (2017) DLT 478

[iv] 2017 (69) PTC 551 (DEL)

[v] FAO(OS) 93/2012

[vi] CS(COMM) 980/2016 & I.A. 24186/2014

[vii] CS(COMM) 979/2016 & I.A. 24578/2014

[viii] CS (OS) 410/2018

 

Image Credits: Photo by Mark König on Unsplash

From an IP perspective, the roles and responsibilities of intermediaries are likely to become more crucial in IPR infringement cases. The safe harbour protection must be granted to intermediaries only if they play the role of a facilitator.  Since e-commerce has flourished like a green bay tree in the massive Indian market, the government is mooting the idea of having a separate regulatory body and a separate e-commerce law that provides for periodic audit, storage of data,  consumer protection,  export promotion, and other provisions for promotion of e-commerce.

POST A COMMENT