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Critical Analysis Of The Judgment Of The Madras High Court In Fermat Education v. Sorting Hat Technologies P. Ltd. [CS(OS) 330 of 2018]

With the budding number of online intermediaries in India, the responsibility of such online platforms, in terms of content uploaded by third parties and its legal implications have been widely discussed. In 2008, Section 79 of the IT Act was amended to provide extensive protection to online intermediaries from third party liabilities. Furthermore, in 2011, the ‘Intermediary Guidelines’ were issued for further improvement of the regulatory framework of intermediaries. The said guidelines set up a notice-and-takedown mechanism in order to avail the protection under Section 79 of IT Act. As per the mechanism, the intermediaries can avail the protection as long as they inform the users that they are not permitted to post illegal content and bring down any infringing content within 36 hours of being brought to their attention.  To ensure a balance with the freedom of speech of the citizens, the decision of the Supreme Court in Shreya Singhal v Union of India further held that a valid court order is required for a takedown of content by the intermediary.  This resulted in reducing the regulatory burden of intermediaries.

The recent decision of the Madras High Court in Fermat Education v. Sorting Hat Technologies P. Ltd. [CS (OS) 330 of 2018] clarifies the scope of online intermediaries in terms of copyright infringement and hence, has serious implications on existing online platforms that host third-party content.

Brief Facts:

The plaintiffs, M/s Fermat Education and its Partner, Mr. Rajesh Bala Subramaniam provides coaching for Common Admission Test (CAT) aspirants. The first defendant is a company incorporated in India which operates the website www.unacademy.com. The said website offers course materials by collaborating with independent tutors or educators who upload online tutorial videos. The 13 other defendants are educators, who uploaded educational contents on the website.

The Plaintiffs approached the Madras High Court, aggrieved by the fact that more than 200 videos containing questions of the plaintiffs were uploaded in the website of the first defendant by the educators. Hence, the plaintiff filed a suit under Sections 51, 54, 55 and 62 of the Copyright Act, 1957 seeking:

  1. A judgment and decree restraining the defendants from using the literary work of the plaintiff in the literary form or video form.
  2. A decree for Rs. 25,00,000 as damages for infringement of plaintiff’s copyright
  3. Preliminary decree to remove the infringing materials from the website www.unacademy.com
  4. Preliminary decree for the first defendant to render accounts of profits earned through infringement of the plaintiff’s copyright.

Issues dealt with by the Court:

The Court dealt with the defenses taken by the first defendant against the plaintiff’s allegations of copyright infringement. i.e:

1. Whether the first Defendant is an intermediary and hence, protected from third party liability?

The Defendant argued that it only provides access to a platform to upload educational materials and hence is an intermediary as defined under Section 2(1)(w) of the IT Act, 2000. Consequently, they would be exempted from liability under Section 79 of the IT Act.

Section 2(1) (w) of the IT Act is produced herein below:

“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 marketplaces, and cyber cafes”

Consequently, Section 79 of the IT Act protects intermediaries from any liability arising due to third party information, data, or communication link hosted by the intermediary. Section 79 of the IT act provides the safe harbor provisions for intermediaries in India. Under sub-section 1, it explicitly states that an intermediary will not be liable for third party information hosed in its platform. However, Subsections 2 and 3, add certain conditions to the safeguard under sub-section 1. S 79 (2) lays down the precondition for application of S79 (1). The intermediary should limit itself to providing access to a communication system to third parties. The intermediary itself cannot initiate transmission, select receiver of transmission or select or modify the information that is transmitted. S 79 (3) exempts intermediaries from the protection granted under S. 79(1) if the intermediary has conspired/abetted/aided/induced in the commission of an unlawful act. The intermediary will also be held liable if it fails to remove or disable access to any information after being notified by the appropriate government

In order to determine whether the first defendant would fall under the definition of an intermediary provided under Section 2(1) (w) of the IT Act, 2000, the court analyzed the terms and conditions of the first defendant. As per their terms and conditions of the first defendant, they retained a right to disapprove videos submitted for uploading. They also paid a fee/ consideration to the tutors who uploaded the videos. Thus, the court was of the view that the first defendant does not fall under the purview of the definition of an intermediary as the materials are not uploaded simpliciter by the tutors. The first defendant exercises their discretion and decides upon the contents uploaded on the website. Furthermore, the fact that the educators are paid consideration for uploading their content n the websites further corroborates the fact the first defendant is not an intermediary.

The Court also referred to the exclusivity clause provided by the first defendant in its terms and conditions. The said clause prohibits the educators from uploading the contents uploaded in the defendant’s website on any other offline mode or any other parallel media. Hence, the court took the view that the exclusivity clause is completely against the definition of an intermediary.

The Court then put forward the rationale that the first defendant exercises complete discretion in terms of the videos uploaded in their website and also pays the educators for providing such materials. Hence, it is only reasonable that the plaintiffs are entitled to protection from copyright infringement of the educational content.

The first defendant also relied on the judgment of the Honourable Supreme Court in the case of Myspace Inc. vs. Super Cassettes Industries Limited, wherein, defendants who operated a social network platform which enabled the users to upload entertainment video and uploaded music works, entertainment videos etc. without paying any fee were protected under Section 79 of the I/T Act. The Madras High Court was of the opinion that in the above instance the defendants could only upload a song as it is. However, in the instant case, the first defendant retained a right to examine the contents that were to be uploaded in their website. Furthermore, they also paid consideration to the users for uploading the materials.

2. Whether the Defendant is entitled to the defense of fair use under S. 52(1)(i) of Copyright Act, 1957?

The Defendant claimed that it is entitled to protection under Section 52(1)(i) of the Copyright Act, 1957 which provides a defense against infringement of copyright in case of production of any work by a teacher or a pupil in the course of instruction. For this purpose, the defendant referred to the Delhi High Court’s judgment in the case of Chancellor, Masters &Scholars of the University of Oxford and others v Rameshwari Photocopy Services and another wherein the Delhi High Court had given a wider interpretation to Section 52 (1) (i) and held that the protection is not merely to individual teachers or pupils. However, the Madras High Court differentiated the above case from this situation. According to the court, since the first defendant paid consideration to the educators and also exercised a discretion to upload, edit and reject study materials, the first defendant is engaged in a commercial activity with a motive to accrue profits. Hence, Section 52(1)(i) of the Copyright Act would not be applicable to the first defendant.:

Once consideration is paid for uploading materials, then it becomes a business venture and responsibility is imposed on the defendants to ensure that they do not infringe the copyright of any other person.

Court’s decision

In view of the above, the Court then concluded that the defendants cannot enjoy the fruits of infringed materials prepared by the plaintiffs and the plaintiffs are entitled to the protection of the originality of their educational materials.

Conclusion

The Court has rightly interpreted the provisions of law relating to intermediaries to hold the defendant liable for copyright infringement and transposed the principles of copyright infringement to the virtual space. By doing so, the court has served a warning to the existing online platforms that host contents uploaded by third parties. The Judgment also serves as a caution bell to online business models that render services relating to the hosting of information that they claim to be their intellectual property to take advantage of the virtual space.
The Court has put forward a clear and strict interpretation of ‘intermediaries’. Under Section 2(1)(w), for one to qualify as an “intermediary”, one would have to: (a) receive, store or transmit any electronic record on behalf of another person; or (b) provides any service with respect to an electronic record, on behalf of another person. However, the Judgment strictly lays down that if (i) the online platform retains editorial control over the content or (ii) pays consideration to the users for uploading content on the platform, such online platforms cannot avail the protection under Section 79.
Hence, it is all the more important for online platforms to ensure that they fall under the purview of an ‘intermediary’ strictly so that they can avail protection under Section 79. The Judgment also adds additional obligations on such online platforms to take precautions to ensure that no infringing content is uploaded on the platform. The implications of the Judgment on companies that claim themselves to be intermediaries is yet to be seen.

About Roshanara Rauf

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