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Author: Tech Law Forum NALSAR

Algorithm Based Systems and the State: A Brief Inquiry

Posted on November 13, 2020November 13, 2020 by Tech Law Forum NALSAR

[Ed Note: The following post is part of the TLF Editorial Board Test 2020-21. It has been authored by Harsh Tripathi, a second year student of NALSAR University of Law.]

Picture this: A computer software, running on AI-based algorithms, has been deployed to scrutinize housing applications. However, the applications filed by the members of a particular community or people with a particular sexual identity are constantly rejected while most allocations are being made to the members of a different community. 

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Non-Personal Data Governance Framework: Economic Ramifications on Start-ups

Posted on November 7, 2020November 7, 2020 by Tech Law Forum NALSAR

[Ed Note: The following post is part of the TLF Editorial Board Test 2020-21. It has been authored by Saumya Khandelwal, a second year student of NALSAR University of Law.]

Recently, a report on the ‘Non-Personal Data Governance Framework’ was released by an expert committee established by Ministry of Electronics and Information Technology (MeitY) for recommending a framework to regulate Non-Personal Data (‘NPD’). NPD is electronic information that cannot be traced back to an identifiable natural person. The committee, believing in the huge potential of data, strove to create a framework to unlock the economic, social and public value of data. One of the objectives of the report is to wipe out the possibility of data monopolies. It aims to create certainty and incentives for innovation to encourage domestic start-ups, spurring digital economy growth. The recommended framework: enabling start-ups/businesses to access meta-data of data-driven businesses and building data marketplaces for easy exchange of data seeks to provide a level-playing field for all Indian actors. The goal of this article would be to show how the draft framework in its present form cannot achieve the aforementioned objective.

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Are Safe Harbour Provisions anchored in deep waters?

Posted on November 6, 2020November 6, 2020 by Tech Law Forum NALSAR

[This post has been authored by Raashi Vaishya, a fourth year student at the NMIMS Kirit P. Mehta School of Law, Mumbai.]

The sentiment of intermediary liability in India can be felt from the dialogue that transpired between Cleopatra and the messenger who informed her about Antony’s marriage. When Cleopatra threatened to treat the messenger’s eyes as balls, he replied, “Gracious madam, I that do bring the news made not the match.”[1]

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E-Pharmacy and Tech Law: An Interface (Part II)

Posted on October 2, 2019 by Tech Law Forum NALSAR

This is the second part of a 2-part post authored by Anubhuti Garg, 4th year, and Gourav Kathuria, 2nd year, of NALSAR University of Law. Part I can be found here.

The previous post analysed the laws applicable to e-pharmacies in India. The present post looks at the draft e-pharmacy rules and its implications and suggests ways to ensure the smooth application of the law in India.

Draft E-Pharmacy Rules

On August 28, 2018, the government came out with the Sale of Drugs by E-Pharmacy (Draft Rules) for regulating the sale of drugs through e-pharmacies. These Rules aim to put in place an extensive regulatory regime for e-pharmacies and are important in light of the concerns that e-pharmacies pose. Given below are the salient features of the Rules:

  1. According to the Rules the definition of e-pharmacy includes within its ambit sales made through websites as well as through mobile phone apps termed ‘e-pharmacy portals’.
  2. Mandatory registration is prescribed for all e-pharmacies and sales have to be routed through specified portals. A registration application must be reviewed within 30 days.
  3. Mandatory uploading of prescription by the customer is recommended which must specify the prescribed drugs and quantity thereof. This does not apply to over-the-counter drugs.
  4. All generated data must be kept confidential and localized.
  5. An e-pharmacy cannot sell drugs covered by the Narcotic Drugs and Psychotropic Substances Act, 1985 or and the restriction extends to those listed under Schedule X of the Drugs and Cosmetics Rules.
  6. An e-pharmacy has to comply with the provisions of the Information Technology Act, 2000 and the associated Rules.

Implications of the Policy

Firstly, it will fill the regulation gap that currently exists and will put into place a robust framework to deal with e-pharmacies. Existing laws are inadequate when it comes to addressing the requirements of e-pharmacies, however, the Rules will resolve the issue and prevent misuse of medicines and data.

Secondly, sales of conventional brick and mortar outlets will be adversely affected due to competitive pricing offered by e-pharmacies. Conventional stores may fail to compete with online pharmacies which provide substantial discounts as a result of which offline stores will suffer due to loss of business.

Thirdly, the question of jurisdictional conflicts remains unaddressed as it remains to be seen which law holds the field in case of legal inconsistencies. Several inconsistencies may be spotted in the Draft Rules which need to be resolved if a solution to this issue is to be found.

Impact on the Right to Privacy

Privacy forms an important concern for consumers. There need to be adequate safeguards regarding how the data given by a customer is protected and this warrants heavy regulatory compliances in addition to strict penalties in cases of violations. The recent Aadhar judgment also brought to light numerous concerns regarding privacy which need to be kept in mind when implementing a regulatory framework for e-pharmacies.

The Draft Rules prescribe that e-pharmacies would keep data confidential and localized, however, state and central governments can secure access to the data for “public health purposes”. No criterion is prescribed for what would constitute such a purpose and the Rules also fail to mention which authority can compel e-pharmacies to share health information.  Such ambiguities pose a threat of misuse of data by government.

Further, the Draft Rules come in direct conflict with the draft of the Personal Data Protection Bill, 2018, which allows for the transfer of data outside India where the patient has expressed his/her consent or where the transfer is necessary for prompt action. The conflict between the two needs to be resolved before the Draft Rules can be implemented.

Conclusion

In conclusion, it can be said that the e-pharmacy regime is changing slowly but steadily. The government has taken cognizance of the fact that there are many health concerns surrounding the sale of medicines online and accordingly has formulated a policy which address these concerns. India is taking a step forward in terms of drafting a full-fledged policy exclusively for e-pharmacies; this is sure to make the lives of a lot of citizens easier.

There is no doubt that the proposed Rules are progressive in nature. By making regulations that stand in conformity with global best practices the government is providing impetus to the continued growth of the e-pharmacy industry. However, there exist issues that need to be resolved sooner rather than later, such as the tendency of the government to misuse data and the conflicting nature of its provisions with those of the IT Act, 2000.

India has a long way to go in governing e-pharmacies and there are a lot of loopholes that need to be plugged. Currently, there is no law governing the actions of drug companies and as a result they are operating with little regard to the consequences of their actions. There is a need to bring the Rules into force as quickly as possible, and despite the government’s promise to implement them within 100 days of the elections they are yet to act in this matter.

It is hoped that concerns about consumer privacy are addressed in a more stringent manner by the government and that provisions are put in place which ensure that misuse of the data of the customers is strictly prohibited. The government should address loopholes in the policy and examine how they come into conflict with existing rules and amend them to resolve such contentious issues.

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E-Pharmacy and Tech Law: An Interface (Part I)

Posted on October 2, 2019October 2, 2019 by Tech Law Forum NALSAR

This is the first part of a 2-part post authored by Anubhuti Garg, 4th year, and Gourav Kathuria, 2nd year, of NALSAR University of Law. Part II can be found here.

The growth of the Internet and rise of companies like Amazon and Flipkart has meant that e-commerce is rapidly gaining traction in India. A notable emergence in this regard has been that of e-pharmacies, which provide heft discounts and hassle-free deliveries to attract consumers. Their arrival on the scene has been acknowledged by the government which has tried to bring in a draft policy in order to regulate these entities, however it is yet to be implemented. The existing laws are inadequate when it comes to dealing with e-pharmacies and there is an urgent need for new legislation governing the issue which is precisely what the Sale of Drugs by E-Pharmacy (Draft Rules) aim to do.

The present post aims to analyse the laws currently applicable to e-pharmacies in India, and Part II will look at the consequences of implementing the proposed policy. The focus is on highlighting the lacunae in existing laws and providing suggestions with a view to implementing a better solution.

Laws Regulating E-Pharmacies

India does not have a special law dedicated to governing e-pharmacies. Most of the laws which are applicable to e-pharmacies were made at a time when computers did not exist and consequently, they are incapable of addressing the issues faced by e-pharmacies.

Drugs and Cosmetics Act, 1940 and the Drugs and Cosmetics Rules, 1945

The Drugs and Cosmetics Act, 1940 and the Drugs and Cosmetics Rules, 1945 regulate the sale, distribution and storage of drugs and other pharmaceutical products in India. According to the law pharmacies need to necessarily comply with two conditions: first, they need to acquire a license from the state food and drugs authority, and secondly, specified medicines can only be sold on the basis of a prescription provided by a medical practitioner. Recently, a notification passed by the Office of Drugs Controller General clarified that the present law did not distinguish between online and offline pharmacies; which implies that the present Act would govern e-pharmacies as well.

Information Technology Act, 2000

The Information Technology Act, 2000, does not contain specific references to e-pharmacies. In general, any transaction happening on the internet falls within the ambit of the Act and as a result e-pharmacies will be governed by its provisions.

Challenges with the Laws

Firstly, the current laws are inadequate when it comes to governing the functioning of e-pharmacies. For instance, the Drugs and Cosmetics Act and Rules mandate that a physical pharmacy have proper storage facilities for the medicines with special requirements pertaining to hygiene etc. However, in the case of e-pharmacies it becomes very difficult to assess where the medicines are stored or obtained from, which increases the possibility of the medicine being of below the required quality.

Secondly, the possibility of repeated use of prescriptions gives rise to the risk drug misuse and addiction. There is a need to regulate the manner in which e-pharmacies sell these drugs as restrictions applicable to conventional drug stores cannot be applied in the case of e-pharmacies.

Thirdly, there exist pertinent concerns regarding the privacy of online customers and the confidentiality of their data which need to be addressed. This aspect is not governed by any law and storage of customers’ data by e-pharmacies could prove to be problematic in the long run.

Fourthly, accountability of e-pharmacies is an increasing concern as some pharmacies claim that by virtue of their position as “intermediaries” they should not be held accountable for any problems that may arise in the future. Intermediaries are governed by the IT Act and Section 2(w) classifies online market places like Amazon and Flipkart as intermediaries. Section 79 provides them with immunity from liability for third party information provided they conform to the requirements of Section 79(2). Rule 3 of the Information Technology (Intermediaries Guidelines) Rules 2011 makes intermediaries responsible for informing the users about its policies and provides for a redressal mechanism. However, it fails to impose a high enough burden on information uploaded to the portal, as a result of which serious liability cannot be imposed on e-pharmacies.

The picture that emerges is that of inadequate laws governing the functioning of e-pharmacies, with the varied approaches taken by courts posing another problem. The Madras High Court had earlier imposed an interim ban on e-pharmacies, which was later reversed by a division bench order. Similarly, the Delhi High Court had also banned e-pharmacies however this was overturned by the government’s legislation which was upheld in a later order.

It was to deal with the confusion existing over e-pharmacies that the government came up with draft policy, however this is yet to be implemented. The next part will analyse the draft rules and highlight some concerns surrounding the legislation and will attempt to show the way forward for the regulation of e-pharmacies in India.

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Artificial Intelligence is a Road Map to Transmogrification of Legal Industry

Posted on September 30, 2019 by Tech Law Forum NALSAR

This piece, taking an optimistic view of the use of AI in the legal industry, has been authored by Priyal Agrawal and Laxmi Rathore. They are currently in their 3rd year at the Kirit P. Mehta School of Law, NMIMS, Mumbai.

“In the long term, artificial intelligence and automation are going to be taking over so much of what gives humans a feeling of purpose.” – Matt Bellamy

Artificial intelligence is a computer-based system that performs tasks, which typically require human intelligence. In this process, computers use rules to analyze data, study patterns and gather insights from the data. Artificial Intelligence companies persistently find ways of evolving technology that will manage arduous tasks in various sectors for enhanced speed and accuracy. Artificial Intelligence has transformed nearly all the professional sectors including the legal sector. It is finding its way into the legal profession and there is a plethora of software solutions available, which can substitute the humdrum and tedious work done by lawyers. In the legal profession, the changes are diverse where software solutions have outweighed paperwork, documentation and data management.

This blog analyzes the use of AI in the legal industry. It describes various AI tools which are used in the legal sector, and gives an insight into the use of AI in the Indian Judiciary system to reduce pendency of cases. Finally, we discuss the challenges in the implementation of AI in the legal field.

In the legal field, Artificial Intelligence can be applied to find digital counsel in the areas of due diligence, prediction technology, legal analytics, document automation, intellectual property and electronic billing. One such tool, which facilitates the use of artificial intelligence, is Ross Intelligence. This software has natural language search capabilities that enable lawyers to ask questions and receive information such as related case laws, recommended readings and secondary sources. Prediction Technology is a software which speculates a litigation’s probable outcome. In 2004, a group of professors from Washington University examined their algorithm’s accuracy in predicting Supreme Court judgments in 628 cases in 2002. The algorithm’s results were compared to the findings of a team of experts. It proved to be a more accurate predictor by correctly predicting 75 percent of the outcomes compared to the 59 percent of the experts’ accuracy. In 2016, JP Morgan developed an in-house legal technology tool named COIN (Contract Intelligence). It draws out 150 attributes from 12000 commercial credit agreements and contracts within few seconds. According to this organization, this equals to 36,000 hours of legal work by its lawyers.

In an interview with UK’s law Firm Slaughter and May a review of the AI tool, Luminance that is being currently used by them was taken. This tool is designed to assist with contract reviews, especially with regard to due diligence exercises during mergers and acquisitions. It was found out that the AI tool has an impact on the firm’s lawyers, who could spend more time on doing valuable work.  It was also found out that the tool fits well into the existing workflows of the firm in relation to M&A due diligence. The documents that the tool helps to review are already stored in a virtual data room; the only additional step the tool needs to take is to introduce documents into the solution itself.

India is also adopting the use of artificial intelligence in the legal field. One of India’s leading law firms Cyril Amarchand Mangaldas is incorporating artificial intelligence in its processes for contract analysis and review, in concurrence with Canadian AI assistant Kira system. This software will analyze and differentiate risky provisions in the contract. It will improve the effectiveness, accuracy and scale up the speed of the firm’s delivery model for legal service and research.

In the Indian judicial system, where a plethora of cases is pending, artificial intelligence can play a significant role to reduce the burden. A deadweight of almost 7.3 lakh cases is left pending per year. A large amount of legal research is required by advocates to argue their case. Use of AI can accelerate the speed of legal research and enhance the judicial process. In this regard, a young advocate named Karan Kalia, developed a comprehensive software program for speedy disposal of trial court cases to the Supreme Court’s E-Committee led by Justice Madan B Lokur. This software offers a trial judge with appropriate case laws instantly, while also identifying their reliability.

AI enables lawyers to get nonpareil insight into the legal realm and get legal research done within few seconds. AI can balance the expenditure required for legal research by bringing about uniformity in the quality of research. AI tools help to review only those documents which are relevant to the case, rather than requiring humans to review every document. AI can analyze data through which it can make quality predictions about the outcome of legal proceedings in a competent manner, and in certain cases, better than humans. Lawyers and law firms can swing their attention to the clients rather than spending time on legal research, making the optimum use of the constrained human resources. They can present arguments and evidence digitally, get them processed and submit them faster.

Although AI is prone to some challenges, these can be subdued with time. The major concern circumscribing AI is data protection. AI is used without any legal structure that generates the risk of information assurance and security measures. A stringent framework is needed to regulate AI to safeguard an individual’s private data and provide safety standards.  A few technical barriers will limit the implementation of AI technologies. It is difficult to construct algorithms that capture the law in a useful way. Lack of digitalization of data is also a technical constraint. Complexity of legal reasoning acts as a potential barrier to implementing effective legal technologies. However, this will be eventually rectified with continuous usage and time.

The introduction of AI in the legal sector will not substitute lawyers. In reality, technology will increase the efficiency and productivity of lawyers and not replace them. Instead, the roles of lawyers will shift, rather than decline, and become more interactive with technological applications in their field. None of the AI tools aims to replace a lawyer but they increase the authenticity and accuracy of research and enable to give a more result-oriented suggestion to the clients. As Mcafee and Bryjolfsson have pointed out, “Even in those areas where digital machines have far outstripped humans, people still have vital roles to play.”

The use of AI will manifest a new broom that sweeps clean, i.e., it will bring about far- reaching changes in the legal field. Over the next decade, the use of AI-based software is likely to increase manifold. This will lead to advancement and development in functionality present lawyering technologies such as decision engines, collaboration and communication tools, document automation, e-discovery and research tools and legal expert system the aforementioned. Trending industry concepts like big data and unstructured database will allow vendors to provide more robust performance. There will also be an influx of non-lawyer service providers who will enter the legal industry, some of whom will be wholly consumer-based, some lawyer focused and others will sell their wares to both consumers and lawyers. The future for manual labor in law looks bleak, for the legal world is gearing up to function in tandem with AI.

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Emergence of OTT Market in India: Regulatory and Censorship Issues

Posted on September 27, 2019 by Tech Law Forum NALSAR

This post has been authored by Gaurav Kumar, a 3rd year student at Dr. Ram Manhar Lohiya National Law University (RMLNLU), Lucknow. He is also a Contributing Editor at the RMLNLU Arbitration Law Blog.

The media industry in recent times is witnessing a revolution when it comes to censorship of streaming content. As compared to theatres it has become comparatively much easier for the web industry to dodge any moral scrutiny when releasing its work. While the release of the Narendra Modi biopic during the 2019 Lok Sabha Elections caused significant controversy, a web series on the same subject was allowed to air without any issues, though it was later removed by the Election Commission for having violated the Model Code of Conduct.

There have been many instances where the content of a web series has been objected to for promoting vulgarity, violence and attacking political and religious sentiments. The Delhi HC recently witnessed a PIL filed by an NGO called Justice for Rights Foundation seeking framing of guidelines to regulate the functioning of online media streaming platforms such as Netflix, Amazon and others alleging that they show unregulated, uncertified, and inappropriate content. However, the current situation indicates that content produced by such platforms continues to be outside the purview of censorship laws, thereby requiring a regulatory mechanism to balance out the conflicting views of the government, attempting to play a watchkeeping role and the advocates of creative and artistic freedom.

What are OTT platforms?

“Over-the-top (OTT)” is the buzz-word for services carried over networks that deliver value to customers without the involvement of a carrier service provider in the planning, selling, provisioning and servicing aspects. Essentially, the term refers to providing content over the internet unlike traditional media such as radio and cable TV.

The entertainment industry in recent times has gradually moved towards releasing content on streaming platforms such as Netflix and Amazon Prime. This is due to consumer preferences as expressed in a survey report by Mint and YouGov, which reveals millennials’ preference for online streaming as against cable TV. Another finding by Velocity MR expects the audience movement to reach 80% following the implementation of the new tariff regime for pay-television by TRAI, and the positive responses to series like Sacred Games and Mirzapur from critics and audience shows that quality of content is the key factor influencing the move to streaming services.

Considering its increasing popularity it becomes important to understand OTT with an Indian perspective.  In 2015, amid the burning debates of net neutrality, TRAI floated a Consultation Paper On Regulatory Framework for Over-the-top (OTT) services to “analyze the implications of the growth of OTTs”. In this paper it defined the term “OTT provider” as a “service provider which offers Information and Communication Technology (ICT) services but does not operate a network or lease capacity from a network operator.”. Instead, such providers rely on global internet and access network speeds ( to reach the user, thereby going “over-the-top” of a service provider’s network. Based on the kind of service they provide, there are three types of OTT apps:

  • Messaging and voice services;
  • Application ecosystems, linked to social networks, e-commerce; and
  • Video/audio content.

In November, 2018, TRAI came out with another consultation paper considering a “significant increase in adoption and usage” since its last paper. In order to bring clarity with regard to the understanding of OTT, chapter 2 of this Consultation Paper on Regulatory Framework for Over-The-Top (OTT) Communication Services discussed the definitions adopted for OTT in various jurisdictions. However, it failed to formulate a definition due to the lack of consensus at the global level. Moreover, the earlier definition of the 2015-Consultation paper, which has been reiterated in 2018, also appears to lose context because it was more oriented towards the telecom service providers.

TRAI’s approach while discussing OTT services has been to restrict itself to the telecom industry so as to address their complaints regarding interference by OTT services in the domain traditionally reserved for telecom service providers. Even though it includes “video content” as its third category, a lack of clarity for defining web series within the ambit of OTT in India is evident which explains the absence of a regulatory mechanism for the same.

Differences between OTT platforms and conventional media

Conventional media vests the broadcaster with the discretion to air particular content. The viewer in this case involves all age groups and classes who have no control over the content being broadcasted, as a result of which governmental authorities are in charge of determining whether particular content is suitable for being shown to the public. However, the emergence of streaming has enabled a switch to a more personalized platform that caters to individual consumers enabling them to decide for themselves own what they wish to watch, which completely removes the role of government discretion and intervention.

Although there exist rules and restrictions to regulate pay-television operators, they fail to put any checks and balances on the newly emerged online streaming platforms for the significant differences in their structure and technology. The individualized viewing experience that has come up with the OTT media channels has clearly reduced the amount of surveillance, any existing regulatory bodies could have, over these platforms.

Can OTT platforms be regulated using existing laws?

The censorship of films in India is governed by the Cinematograph Act of 1952, which lays down certain categories in order to certify the films which are to be exhibited. Cable Broadcast is governed by the Cable Television Networks (Regulation) Act, 1995 and Cable Television Networks Rules, 1994. The Cable TV rules explicitly lays down the program and advertising codes that need to be followed in every broadcast.

Although it can be argued that that online streaming of content can be treated like cable broadcast, this would fail to comply with the legal test when it comes to application of the statute to streaming platforms. Certification for cable television does not require a separate mechanism but rather is done by the Central Board of Film Certification itself, and the cable TV rules restrict any program from being carried over cable if it is in contravention of the provisions – specifically Rule 6(n) of the Cable TV Rules – of the Cinematograph Act.

The problem here arises when defining the category within which web series will fall under the existing laws. Under the Cable TV Act, cable service means “the transmission by cables of programs including re-transmission by cables of any broadcast television signals.”[1] Cable television network is defined as “any system consisting of a set of closed transmission paths and associated signal generation, control and distribution equipment, designed to provide cable service for reception by multiple subscribers.”[2] However, the mode of transmission for OTT platforms is substantially different insofar as the content travels through Internet service providers which are difficult to regulate given their expanding nature. This makes the existing broadcasting laws inapplicable to OTT services.

The future of the OTT market

Censorship has always prevailed in the Indian television and cinema industry. Despite accusation of moral policing the CBFC has continued to censor moves to bring them in line with its understanding of public morality. This involves issues of free speech and expression which has seen the courts get involved in these matters, adjudicating upon directions issued by the CBFC in various instances.

TRAI is presently assessing a consultation process to construct a framework to regulate online video streaming platforms like Netflix, Amazon Prime and Hotstar, etc. on requests made by some of the stakeholders of the film industry. Some major tycoons of the industry such as Netflix, Hotstar, Jio, Voot, Zee5, Arre, SonyLIV, ALT Balaji and Eros Now signed a self-censorship code that prohibits the over-the top (OTT) online video platforms from showing certain kinds of content and sets up a redressal mechanism for customer complaints. However, Amazon declined to sign this code, along with Facebook and Google, stating that the current rules are adequate.

Considering the fact that the OTT media industry is increasing rapidly, sooner or later it will require a regulatory body. Portals like Netflix are not even India-run, which furthers the socio-political pressure to scrutinize western content on the government. Moreover, the spread of this industry to the vulnerable group will always remain a concern. Another problem that might come up with time could be of regulating the prices of the services as seen recently with the Cable TV. This may, in fact, lead to conflicts between this emerging online streaming industry and the pre-existing cable TV industry. The courts are already being approached, against the violent and obscene content of some of the series, indicating the need of immediate attention of the legislature to take appropriate steps. The OTT-boom in the Indian entertainment market has certainly revolutionized the viewing experience but it has posed many questions and loopholes that need to be addressed in the near future.

[1] Section 2(b), Cable Television Networks (Regulation) Act, 1995.

[2] Section 2(c), Cable Television Networks (Regulation) Act, 1995.

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Smart Derivative Contract: The Dark Horse of the Securities Market?

Posted on September 18, 2019 by Tech Law Forum NALSAR

This post has been authored by Arnav Maru, currently in his 4th year at Maharashtra National Law University (MNLU), Mumbai.

In a previous post, the concept of smart contracts as used in the legal field was explained comprehensively. Smart contracts are pieces of software that are formed when certain operational terms of a contract are written in the form of electronically executable codes. They were originally envisaged by Nick Szabo and theorized in a paper titled ‘Smart Contracts: Building Blocks for Digital Markets’. He used a rudimentary example of a vending machine to explain the concept. A consumer inserts cash into the machine and enters his preference. The machine then automates the execution of the contract and the goods are delivered to the consumer. The introduction of Blockchain technology has added another dimension to this concept and has exponentially increased its application. Self-executing contracts, based on the Blockchain are a reality now, and have found applications in a myriad of fields. An increasing popularity of the Blockhain and its uses has necessitated an overview of the progress made on this front, both, in terms of legal developments as well as feasibility of actual use.

The Interface of Blockchain and the Derivatives Market

One such innovative, immensely useful, and lucrative application is in the field of derivatives. Explained simply, a derivative contract is one whose value is based on an agreed underlying financial asset or a set of assets. Smart derivative contracts inculcate the advantages of smart legal contracts such as inalterability, self-enforcement and removal of intermediaries, while also providing the flexibility that comes with the written word, necessary for making derivative contracts viable. In September 2018, Bloomberg reported that Morgan Stanley, one of the world’s leading investment banks, would be offering Bitcoin swap trading for clients. CNBC, in a follow up piece, added that Goldman Sachs is working on a derivative for the Bitcoin. These derivatives have been developed on increasing client demand, and have gained traction despite Bitcoin losing a huge chunk of its value in months preceding September 2018.

Smart contracts derive utility from the automated and guaranteed enforcement of promises made ex ante more than anything else. The reduction in enforcement costs has been pegged as their greatest advantage. Researchers have tried to exploit these core advantages and come up with futures, options, and swap models of smart derivative contracts.

Desired Legal Framework

The most important work on taking the model comes from the International Swaps and Derivatives Association (“ISDA”). In a whitepaper published in October 2018, ISDA has developed the concept of a derivative smart contract and laid down a roadmap to their proper construction. In its introduction, the paper lays down that a smart derivative contract lies at the intersection between a smart legal contract, which in itself is a subset of a smart contract, and a derivative contract. The explanation appended to the Venn diagram reads as follows:

“Smart derivatives contracts are smart because they are derivatives contracts with some terms that can be automatically performed. Those terms are expressed in a form that enables their efficient automation. Other terms that are not automatically performed are expressed in natural language.”

Following this analysis, the paper talks about the actual applications of smart contracts to the derivatives market. Automation, as mentioned above, is the key advantage that smart contracts have to offer. A distinction is made between the parts of a derivative contract that can be automated, and the parts of a derivative contract that should be automated. In addition to highlighting that automating the entire contract is neither possible nor desirable, when viewed from a commercial perspective, it also elaborates on how certain ambiguous legal standards, such as ‘a reasonable person’ ought to be so for the proper functioning of private law. A previous paper from ISDA, elaborates on what operational clauses are. Explained simply, they are if-then functions in a derivatives contract. For example, ‘Pay X $100 per share brought on date B if condition Y is met’. These basic Boolean functions are encoded into a smart legal contract and the operational part of a derivative contract is automated.

The natural language of the contract, however, needs to be retained for certain non-operational parts of a derivative contract. Provisions such as the governing law of the contract, arbitration clause, a clause imposing a duty of best efforts on parties, et cetera are non-operational clauses that need the flexibility of the written word. The smart contract can be added as one of the terms to this written contract and integrated in a way that the performance of terms still stands guaranteed. The ISDA has concluded the paper with an effective model for the implementation of such a scenario.

A few other models have come up independently of ISDA. Future or forward options where a smart contract can be programmed to buy or sell security tokens at designated timelines; an options contract where the owner of a security token is given the right but is not burdened with an obligation to sell; a swap model with two different security tokens to hedge against market uncertainties. Their adoption on a commercial scale remains uncertain as of now. While banks and financial institutions have taken steps towards this direction, the solidification of legal frameworks stands in their way.

After an overwhelming response and a positive market reaction, ISDA followed the white paper up with another one titled ‘Legal Guidelines for Smart Derivatives Contracts: Introduction’. In this paper, ISDA has evolved four principles for the development of smart derivatives contracts. The first principle lays down that the smart contract framework needs to meet the existing legal and regulatory framework. While it says that the smart derivative contracts must comply with both, the standards governing smart contracts, and the standard governing derivative contracts, Indian jurisprudence has not developed on the functioning of smart contracts. Any smart legal contract, thus, need only satisfy the provisions of the Indian Contract Act, 1872. The second principle develops on the notion that only the part of the derivatives contract that is capable of being automated should be considered. This commonsensical principle does not need much further elaboration.

The third principle points out that effective automation should be based on legal validation. That is to say, lawyers and legal enforcement officers should be able to validate the legal effect of any coded or automated provision. The legal effect of the code must align with the intended legal effect of the contract. The mere fact of automation must not discount the nature and purpose of the contract. Lastly, leaning more on an economic point of view, the benefit of automation must outweigh the cost of such automation. This principle adds a cost benefit analysis to the feasibility of smart contracts and touches the core of their utility.

Conclusion

The derivatives market in India is still relatively new and undergoes change and development on a regular basis. Markets and technological operations have received the introduction of Blockchain and smart contracts positively. It has huge potential to alter how we think of the derivatives market. ISDA has taken the lead in venturing into tapping the potential that these technologies have in store for us. The whitepapers and other literature need further development and research, and this paper has sought to consolidate the existing works for better understanding in Indian context. No legal machinery or regulatory framework exists at this moment to make the fusion of smart legal contracts and derivative contracts a solid possibility. Until initiative is taken and more research is done in this area, India could fall behind the international trends in fully embracing this advancement. It is urged that foresight be exercised in attempting to make India friendly to such developments. The author sees this piece as a small step towards ensuring the same.

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The Effect of Motor Vehicles (Amendment) Bill, 2019 on Ola and Uber

Posted on September 16, 2019September 17, 2019 by Tech Law Forum NALSAR

This quick read has been authored by Shauree Gaikwad, a 3rd year student at Maharashtra National Law University (MNLU), Aurangabad.

[Ed. Note: Since the post was written, the Bill has become law and the amendments have now come into force.]  

With the progress in technology and the advent of cab-aggregator platforms such as Ola and Uber in India, an amendment to the Motor Vehicles Act was long due. As a result of the Motor Vehicles (Amendment) Bill, 2019 (“2019 Amendment”) being passed, Ola and Uber will have to comply with the Motor Vehicles Act, 2000. The Bill has amended Section 93 of the Motor Vehicles Act, 2000 (“Principal Act”) by adding the term “aggregator” to the existent terms “agent” and “canvasser” to the section. The term “aggregator” has been defined as “a digital intermediary or marketplace for a passenger to connect with a driver for the purpose of transportation”, to be added under Section 1A of the principle Act. Cab-hailing platforms are now recognized as a marketplace, allowing the Centre and States to regulate and penalize Ola and Uber for non-compliance.

The 2019 Amendments which would be directly applicable to Ola and Uber once it becomes a law are:

Recognition of cab-aggregators as intermediaries

Until now, Ola and Uber were not governed directly by any legislation. But the Motor Vehicles (Amendment) Bill, 2019 makes the Information Technology Act, 2000 directly applicable to Ola and Uber through their recognition as digital intermediaries. As a result, Ola and Uber can be penalised for offences such as breach of data privacy under Section 66E and 72 of the IT Act. Hence, the emphasis is laid on preventing the misuse of personal data of consumers such as date of birth, debit card details, UPI number, phone number shared with Ola and Uber in order to use their services. Additionally, under Section 85 of the IT Act, companies who don’t comply with the Act shall be penalised. Further, Ola and Uber will have to compulsorily obtain a license from the State authorities, which will be subject to the guidelines laid down by the Centre. In case of non-compliance, a fine ranging from Rs. 25,000 to Rs. 1,00,000 can be levied against aggregators, according to the new Section 193(2) inserted by the Amendment.

Central and State Laws

The principal Act also empowers the State authorities to attach conditions in the form of guidelines, for obtaining a license that can differ between states, customizable to the local needs. In case of a conflict between central guidelines and the state rules, central guidelines will prevail as the principal Act falls under the concurrent list in the 7th Schedule of the Constitution.

Compliance with directions given by the Centre

Ola and Uber will have to comply with the directions issued by the Centre such as “the promotion of effective competition, passenger convenience and safety, competitive fares and prevention of overcrowding” under Section 96(2) Clause (xxxiib) of the Motor Vehicles Act, 2000. Until now, Ola and Uber independently decided the number of passengers a car could accommodate, according to their pricing and categories such as micro, mini, Ola share (Ola) and pool, Uber-go and premium (Uber). But now, as Ola and Uber have to comply with the principle Act, the number of people a cab can accommodate as well as whether differential pricing by Ola and Uber might be liable to change due to the compulsory competitive pricing clause, and in turn affects the revenue of Ola and Uber.

Uniform Surcharge and Fees

The 2019 Amendment envisages a uniform license rule by making obtaining of license by Ola and Uber a strict norm with hefty fines and makes state authorities responsible for their implementation. Prior to the 2019 Amendment, the surcharge fees and the limit of the number of passengers that a car can accommodate were decided by Ola and Uber. Now, Section 96 of the principal Act, which emphasizes fair pricing and passenger convenience, will bind these cab-aggregator services.

Penalties on Hand-Held Devices

The 2019 Amendment Act also brings in stricter penalties for using hand-held devices. Section 184 of the principal Act penalized the driver for driving dangerously but failed to define acts that constitute dangerous. With the insertion of an explanation clause in Section 184 by S.67(iv) of the 2019 Amendment, drivers can be charged for using mobiles and tablets with a fine ranging from Rs. 1000 to Rs. 5000, instead of the previous fine of Rs. 1000.

Ola and Uber operate through digital platforms, and their business model is heavily dependant upon the use of mobile phones and GPS technology, for navigation and booking and accepting rides. Therefore, the applicability of a strict penal provision for the use of mobile phones may be harmful to their business model. With the increase in the penalty for using a mobile phone while driving and the necessity for Ola and Uber drivers to use mobile phones as a part of their job, there is a degree of uncertainty as to the extent to which usage of technology is acceptable.

 

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De-linking the Deep Links: An Insight Into the PVR-Justdial Controversy

Posted on July 27, 2019July 27, 2019 by Tech Law Forum NALSAR

This post by Archita Prawasi, currently in her 3rd year at NALSAR University of Law, was originally published here. In an explanatory piece, she brings forth the impact of technology on IPR.

A recent dispute between PVR and Justdial has highlighted the connection between various facets of networking and IP infringement that ensues through the use of regular networking tools like deep links, meta tags and frames. With the interim order by the Delhi High Court against Justdial, it seems that new age digital awareness is catching up with the old and still relevant IP laws in the country. Before discussing the facts of the dispute, it is relevant to discuss the implications of the networking tools forming the dispute.

Networking techniques employed

  • Linking: It is largely bifurcated into Surface linking and Deep Linking. Surface links are those that direct the user to the home page of a site, while deep links are those that bypass the home page of the linked website and directly display the content in the internal webpage.
  • Meta tags: These are small content descriptors that help indicate to search engines what a web page is about. Website designers use meta tags to label a website’s content to ensure that the majority of search engines index their website.
  • Framing: It is an HTML technique that allows for the display of multiple documents in the same window. These are designed to keep one set of information visible even as the reader scrolls through another document. Sites that use frames typically use them to link to external web pages while keeping their own information and advertisements at the top of the page so that the user does not need to visit the original information page which results in a loss for the original website.

PVR v. Justdial

The parties PVR Pvt. Ltd. and Justdial were parties to a non-exclusive ticketing agreement that gave Justdial access to PVR’s ticketing software to book tickets for the cinema halls. The agreement expired in August 2018 after two subsequent extensions in 2016.

The defendants, i.e. Justdial, continued to offer online ticket booking services even after the expiry of the arrangement. The bookings were redirected to the BookMyShow platform through deep-links. The plaintiffs (PVR) approached the defendants regarding the same and were orally assured that the service will be discontinued.

Subsequently, in January 2019, a third party informed the plaintiff that the defendant was still offering online ticket booking for PVR Cinemas. It made web pages that displayed images of the defendant’s cinema halls and used their registered trademark to give the impression that the two parties were still commercially associated. PVR’s registered trademark was used in meta-tags of the web pages that had deep links to the websites of authorised third-party sellers.

Encroachment on intellectual property rights

While these networking tools are a great way of maintaining a good web presence, they can also be a notorious means of stealing the rightful web traffic of websites. The issue of deep links arises when the web traffic of the homepage of a website is deviated to an internal webpage of the same that reduces the possible revenue for the websites from the advertisements on the homepage.

While meta tags are not visible on the website, it still is a contentious tool discussed extensively in global and Indian jurisprudence. It is very common that a business uses a competitor’s trademark in the meta tags of its own website so that the search engine indexes the website in the search results when the keyword is entered. This again, results in diversion of web traffic to the competing website.

However, some people use meta tags to describe their services without the mala-fide intention of diverting traffic and still become entangled in an IP infringement suit. While ignorance of the law is no excuse, unawareness about a particular trademark is often possible and may result in unfair punishment. For instance, a second-hand car dealer might use descriptors like Honda or Maruti to index his website in the search engine. While his act might lead the user to click the link believing it to be the intended website, (thereby qualifying the initial interest confusion doctrine) it will not materially harm the companies if the website states that the owner deals in second hand cars. The diverted web traffic will not be of any utility to the shop owner if he has no advertisements listed on his website and the user has to re-surf the web for the intended address. While consent from the party whose trademark has been used can be a way to evade the infringement, it is not practically possible for small businesses to receive permission from all the companies in the field. Hence, the dealer may find himself in a suit for infringing IPR of various companies, despite the mere intention to publicise.

An individual employing framing is likely to be held liable for trademark or copyright infringements if the material is modified without authorisation in the framed page or if the framed page endorses the parties’ commercial association when there is no such commercial relation between the two sites.

Global Scenario

The jurisprudence around deep linking/meta tagging and IP rights has been varied. Canada, Denmark, Italy and the Netherlands have mostly ruled in favour of the party alleging IP infringement.

The Imax Corporation case, in the Federal Court of Canada, was an IP infringement suit filed by Imax against Showmax for framing web pages in a manner that would convey commercial connections between the two parties. The Court, in this case passed an injunction against the defendants due to harm caused to the plaintiff’s goodwill and reputation.

The Courts of Rome and Milan have ruled in favour of the plaintiffs in cases of deep linking and framing web pages that could confuse users as to the relation between the parties. The Court of first instance Leeuwarden, a case adjudged in Netherlands followed similar rationale as discussed above.

However, cases in USA tend to sway both ways. While the Ninth Circuit Court in the Brookfield Communications case injuncted the defendant, West Coast Co. from using “moviebuff.com” which would have infringed on their trademark of ‘Moviebuff’. The Court discussed the doctrine of initial confusion according to which when the user browses the internet, the link by west coast could create a confusion in the mind of the user about Brookfield’s Moviebuff website.

On the other hand, the District Court of California, in the case of Ticketmaster Corporation held that Microsoft’s unauthorised deep linking of its ‘sidewalk.com’ to Ticketmaster’s events pages circumventing the plaintiff’s homepage did not constitute unfair competition or passing off because the ultimate sale of tickets was done through the plaintiffs. The present controversy between PVR and Justdial is similar to the Imax and the Ticketmaster’s Case.

Indian Jurisprudence

The Jurisprudence around meta tags/deep links and IP infringement in India has been pro-plaintiff. The Court has followed a similar reasoning as was discussed in the global scenario in various Indian cases like Mattel, Inc, Consim Info Ltd. vs Google, Kapil Wadhwa vs. Samsung, and Christian Louboutin.

However, in cases of meta tagging, the Court has also accepted the defence for use of meta tags by competing businesses. The Madras High Court discussed “nominative use” of meta tags while referring to some cases of the Ninth Circuit in USA. The Court laid down the following parameters for a meta tag to qualify for nominative use:

  1. the product or service in question must be one not readily identifiable without use of the trademark;
  2. only so much of the mark or marks may be used as is reasonably necessary to identify the product or service; and
  3. the user must do nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder.

However, these conditions are quite onerous to prove and hence, in practice, Courts often rules in favour of the party alleging infringement. While this protects the goodwill of the plaintiff, it invariably restricts the bona fide users of trademark who use the trademarks for purely descriptive purposes.

Conclusion

In the present dispute, between PVR and Justdial, the Court has passed an order holding it to be a prima facie case of infringement and passing off in favour of the plaintiff.  It has said that unless an interim injunction was passed, the plaintiff would suffer irreparable harm and hence, restrained the defendants from using the registered trademark for PVR or any deceptive variant.

This dispute provides an opportunity to the judiciary to instate guidelines to regulate the use of different networking techniques and prevent piling of litigation. It should be acknowledged that IPR awareness in relation to the use of the internet is not enough and explainers for different avenues that internet provides for proliferating e-business and regulations around them to ensure a reduction in IPR suits would help.

References:

In favour: Oppedahl & Larson v. Advanced Concepts, United States District Court for the District of Colorado, Civil Action Number 97-CV-1592 ; Playboy Enterprises, Inc. v. Netscape Communications Corp., 354 F.3d 1020 (9th Cir. 2004) ; Nissan Motor Co., et al. v. Nissan Computer Corp. 378 F.3d 1002 (9th Cir., 2004) ; SFX Motor Sports Inc., v. Davis, 2006 WL 3616983.

Against:  Bijur Lubricating Corp. v. Devco Corporation 332 F.Supp.2d 722, Civ. No. 00-5157 (WHW) (D.N.J., August 26, 2004) ; Online Policy Group v. Diebold, Inc., 337 F. Supp. 2d 1195; 72 U.S.P.Q.2d 1200 ;  Perfect 10, Inc. v. Amazon.com, Inc., 487 F.3d 701, 2007 U.S. App. LEXIS 11420, 99 U.S.P.Q.2D (BNA) 1746, Copy. L. Rep. (CCH) P29,380 (9th Cir. Cal. May 16, 2007); Kelly v. Arriba Soft Corp. (U.S. Court of Appeals for the Ninth Circuit, July 7, 2003)   336 F.3d 811.

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