MIR-013 Commerce and Cyberspace

UNIT 1 E-COMMERCE: EVOLUTION,
MEANING AND TYPES

Structure
1.1 Introduction
1.2 Objectives
1.3 E-commerce Evolution
1.4 Defining E-commerce
1.4.1 Difference between E-commerce and E-business
1.4.2 E-commerce Definitions
1.4.2.1 E-commerce: A Commercial Transaction
1.4.2.2 E-commerce & WTO
1.5 Types of E-commerce Models

1.5.1 Business-to-Business (B2B)
1.5.2 Business-to-Consumer (B2C)
1.5.3 Consumer-to-Business (C2B)
1.5.4 Consumer-to-Consumer (C2C)
1.6 E-commerce: The Future

1.7 Summary
1.8 Terminal Questions
1.9 Answers and Hints
1.10 References and Suggested Readings
1.1 INTRODUCTION
Electronic commerce is a process, which is happening with the help of Information
and Communication Technologies. In order to see its evolution it is important to
see how commerce itself evolved over a period of time.
1.2 OBJECTIVES
After studying this unit, you should be able to:
z define the term e-commerce and make a distinction between e-commerce
and e-business;
z explain how e-commerce is a commercial transaction;
z make a nexus between e-commerce and the World Trade Organization;
z explain the different models of e-commerce; and
z analyse the future of e-commerce.
5
E-commerce
1.3 E-COMMERCE EVOLUTION
As the society evolved the commercial practices also evolved. The barriers to
trade were broken chiefly by the language and later by transport. The barter trade
gave way to acceptance of bullion as the trading currency. With the passage of time
nation states emerged as new political units and with new technological developments,
like telegraph and telephone further facilitated the trade. For over a century these
telecommunication devices became an integral part of the commercial enterprises
all over the world.
Later, in the early 1960s, computers were increasingly used to disseminate information
across geographical space. Though telegraph, telephones, telex and facsimile were
still the relied upon options, nevertheless the big corporations opted for Electronic
Data Interchange (EDI). It refers to the process by which goods are ordered,
shipped, and tracked computer-to-computer using standardised protocol. EDI1
permits the “electronic settlement and reconciliation of the flow of goods and services
between companies and consumers”. EDI saves money because the computer,
and not an office staff, submits and processes orders, claims, and other routine
tasks.
EDI began in the 1960s as a computer-to-computer means of managing inventory,
bill presentment, shipment, orders, product specifications, and payment. EDI is
made possible because trading partners enter into master agreements to employ
electronic messaging permitting computer-to-computer transfers of information and
validating computer-to-computer contracts.2
The early adopters of EDI were companies running complex operations in the airlines,
shipping, railways and retail sectors. These companies developed their own
proprietary format for interchanging data messages. It led to development of
proprietary systems. These proprietary systems whether of a retail or automobile
company were operation specific. It was felt that a universal standard was impractical
and unnecessary. Consequently, the lack of universal standards made it difficult for
companies to communicate with many of their trading partners.
In late 1970s, the American National Standards Institute (ANSI) authorized a
committee called the Accredited Standards Committee (ASC) X-12 (consisting of
government, transportation, and computer manufacturers) to develop a standard
between trading partners. The standard was called ANSI X-12. Over a period of
time sectors like paper, chemical, warehouse, retail, telecommunications, electronics,
auto, metals, textile, and aerospace developed and started using sector specific
EDI standards, which are subset of X12 standards.
Under the aegis of United Nations, organizations from different sectors collaborated
and developed an internationally approved standard structure for transmitting
information between different trading partners, called the United Nations Electronic
Data Interchange for Administration, Commerce and Transport (UN/EDIFACT)
in 1986. It ensures transmission compatibility of electronic business documents
globally. In the US companies tend to use ANSI X-12 protocol while their European
counterparts prefer EDIFACT. Moreover, various industry sectors use their industry-
specific protocols.
The EDI was like a business-to-business (B2B) model involving a company and its
various vendors performing commercial transactions using proprietary networks.
6 By late 1980s computers acquired the status of ‘personal computer’, i.e. became
part of the private domain of an individual. It was EDI at the individual level supported E-commerce: Evolution,
Meaning and Types
by the public networks known as Internet.
Hence, e-commerce evolved out of EDI and should be considered as a next logical
step in the development of commercial processes involving commercial transactions.
Thus e-commerce means doing business electronically across the extended enterprise.
It covers any form of business or administrative transaction or information exchange
that is executed using any information and communications technology.
Narrowly put, e-commerce is limited to specific initiatives, such as sales via the
Internet, electronic procurement, or electronic payment.
Please answer the following Self Assessment Question.
Self Assessment Question 1 Spend 3 Min.
Trace the evolution of E-commerce.
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
1.4 DEFINING E-COMMERCE

It is important to note that phrases, like ‘e-business’, ‘e-commerce’, Internet business,
Net commerce etc. are commonly being used these days. Thus for the sake of
clarity e-commerce should be distinguished from e-business. In fact, e-commerce
is a subset of e-business.
1.4.1 Difference between E-commerce and E-business

E-business refers to all aspects of a business where technology is important. This
may include knowledge management, design, manufacturing, R&D, procurement,
finance, project planning, human resource planning and the related activities. E-
commerce is that part of e-business that relates directly to sales & marketing. That
is, e-commerce is part of the all-encompassing world of e-business.
E-business is a wider concept that embraces all aspects of the use of information
technology in business. It includes not only buying & selling but also servicing
customers and collaborating with business partners and often involves integration
across business processes & communication within the organization.
1.4.2 E-commerce Definitions

As the Internet makes way for new business transactions via its complex
telecommunications network, it is difficult to provide a single all encompassing
definition of e-commerce. It means different to different people. Thus it would be
prudent to look into various definitions of e-commerce to comprehend e-commerce
and its different characteristics:
7
E-commerce 1.4.2.1 E-commerce: A Commercial Transaction
E-commerce defined simply, is the commercial transaction of services in an electronic
format. In general terms, e-commerce is a business methodology that addresses
the needs of organizations, traders and consumers to reduce costs while improving
the quality of goods and services and increasing the speed of service delivery. It
refers to all forms of transactions relating to commercial activities, including both
organizations and individuals that are based upon the processing and transmission
of digitized data, including text sound and visual images. A broad definition of e-
commerce is: “The marketing, promoting, buying & selling of goods electronically,
particularly via the Internet”, which encompasses, interalia, “e-tailing (virtual shop
fronts), EDI, which is B2B exchange of data; e-mail & computer faxing; [and]
B2B buying and selling3”.
A narrower definition is “the trading of goods and services in which the final order
is placed over the Internet”. The Office of Tax Policy at the US Department of
Treasury defines e-commerce most broadly as any transaction that occurs with the
facilitation of electronic “tools and techniques”. The Internet Tax Freedom Act
(ITFA), 1998, on other hand provides the only legal definition of e-commerce as
“any transaction conducted over the Internet or through Internet access, comprising
the sale, lease, license, offer or delivery of property, goods, services or information,
whether or not for consideration, and includes the provision of Internet access”.
The US Census Bureau measures e-commerce by looking at “the value of goods
and services sold online whether over open networks such as the Internet, or over
proprietary networks running systems such as EDI4”.
According to European Commission, e-commerce encompasses more than the
purchase of goods online. It includes a disparate set of loosely defined behaviours,
such as shopping, browsing the Internet for goods and services, gathering information
about items to purchase and completing the transaction. It also involves the fulfillment
and delivery of those goods and services and inquiries about the status of orders.
Like any other sustained business activity it also means conducting consumer
satisfaction surveys, capturing information about consumers and maintaining
consumer databases for marketing promotions and other related activities.
Interestingly, its Directive on E-commerce (2000/31/EC) defined the term
‘commercial communication’ instead of defining ‘E-commerce’. Article 2(f) defined
‘commercial communication’ as any form of communication designed to promote,
directly or indirectly, the goods, services or image of a company, organization or
person pursuing a commercial, industrial or craft activity or exercising a regulated
profession.
The Gartner Group5 defines e-commerce as an evolving set of:
(a) Home-grown or packaged software applications that link multiple enterprises
or individual consumers to enterprises for the purpose of conducting business.
(b) Business strategies aimed at optimizing relationships among enterprises and
between individuals and enterprises through the use of information technologies.
(c) Business processes (such as procurement or selling or order status checking
or payment) that, by definition, cross boundaries, and
(d) Technologies and tools that enable these applications, strategies and processes
8
to be implemented and realised.
1.4.2.2 E-commerce & WTO E-commerce: Evolution,
Meaning and Types
Interestingly, the World Trade Organization (WTO) Ministerial Declaration6 on E-
commerce defines e-commerce as “the production, distribution, marketing, sales
or delivery of goods and services by electronic means”. The six main instruments
of e-commerce that have been recognised by WTO are telephone, fax, TV, electronic
payment & money transfer systems, EDI and Internet. In other words, e-commerce
can be conducted over telephones, fax machines, automatic teller machines (ATMs),
electronic payment systems such as prepaid telephone cards, electronic data
interchange (EDI), television and the Internet. That means activities like, booking
an order over telephone, sending invoices over fax, ordering from shopping networks
as advertised on TV etc. amount to indulging in e-commerce activities.
It is laudatory on the part of WTO to have provided a very wide definition of e-
commerce; it is understandable as WTO member consists of developed, developing
and the least developed countries (LDCs).
The growing importance of electronic commerce in global trade led the Members
of the WTO to adopt a declaration on global electronic commerce on 20 May
1998 at their second Ministerial Conference in Geneva, Switzerland. The declaration
directed the General Council of the WTO to establish a comprehensive work
programme to examine all trade-related issues arising from electronic commerce,
and to present a report on the progress of the work programme at the third Ministerial
Conference of the WTO. The declaration setting up the work programme included
the statement that “Members will continue their current practice of not imposing
customs duties on electronic commerce”. The work programme was adopted by
the WTO General Council on 25 September 1998. Subsequently, under the auspices
of the General Council on June 15, 2001, WTO Members Governments identified
three types of transactions on the Internet:
z Transactions for a service, which is completed entirely on the Internet from
selection to purchase and delivery.
z Transactions involving “distribution services” in which a product, whether a
good or a service, is selected and purchased on-line but delivered by conventional
means.
z Transactions involving the telecommunication transport function, including
provision of Internet services.
That is, the stress is on using low cost technology application, i.e. Internet for
managing and facilitating the entire chain of commercial processes. Web makes it
possible to dispense with the normal value chain for retailing, through direct sales
by manufacturing to consumers. It can create new points on the value chain, such
as Internet portals that act as shopping malls or aggregators that offers a new way
of amassing buying power.
What are the different modes by which e-commerce be conduced?
................................................................................................................
9
E-commerce ................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
1.5 TYPES OF E-COMMERCE MODELS

Regardless of how narrowly or broadly e-commerce is defined, e-commerce occurs
in various forms and between various entities in the market. It is necessary to
consider the various forms that Internet commerce embodies in order to understand
the implications for taxation. E-commerce can be categorised in four ways:
(1) business to business (B2B); (2) business to consumer (B2C); (3) consumer to
business (C2B); and (4) consumer to consumer (C2C).
Table 1: E-commerce Models Matrix
Business Consumer
Business B2B B2C
www.vendome.niit.com www.indiatimes.com
Consumer C2B C2C

www.makemytrip.com www.ebay.in
These models represent ‘online’ commercial transactions and are comparable to

their ‘offline’ counterparts. In other words, all these online models have adopted
the functionalities of ‘brick and mortar’ (offline) companies and are being identified
as ‘click and mortar’ companies. Clicks have replaced the bricks for faster, efficient
and effective commercial transactions. Take a case of Dell computers. One can
purchase a Dell computer or a server by visiting the site: www.dell.co.in and clicking
on the desired computer or server configuration. Dell computers cannot be purchased
from physical shops. One has to visit its site to purchase. Dell in a way has done
away with bricks in favour of clicks.
Moreover, these new business models are creating immense economic value by
offering huge variety of products and service online. Amazon offers 57 times as
many titles as a typical large bookstore stocks. This is often referred to as “long-
tail” phenomenon: books that once lacked a market can be shifted at any time off
Amazon’s virtual shelves. It has been estimated that in 2000 the value of online
sales of books that were not available at a typical bookstore was $ 578 million.
1.5.1 Business-to-Business (B2B)

It is a new name given to EDI. As the name suggests, it is a business platform
involving two independent or even dependent business entities. In B2B version of
online transaction(s) the manufacturing organization takes a lead in setting up a
business platform. This platform acts a business communication channel between
the manufacturing/software developer entity and its vendors/suppliers, i.e., whatever
10
was being done earlier in offline manner are now being done online. This may
include registration of vendors, invitation of quotations, negotiations, price settlement, E-commerce: Evolution,
Meaning and Types
contract finalisation, procurement, cargo tracking, and payments – online. Thus a
B2B platform acts as a business facilitator, negotiator and dealmaker, which facilitates,
negotiates and clinches deal between independent or dependent business units.
1.5.2 Business-to-Consumer (B2C)

It refers to a business platform, involving a business entity and consumers. It is a
retail version of e-commerce known as e-tailing. Selling goods or services through
web based shops. It is the most popular model of e-commerce as it has helped
moving commercial transactions from public domain to private domain. B2C is
about creating a better offline shopping experience – online.
It has benefit for both the business entity and consumer. E-tailing is a cheaper
option as it is cheaper to set up a single website and warehouse combination than
operate a chain of shops. From the point of consumer benefits are in the form of
convenience, wider choice and time saver. From the consumer’s point of view,
online shopping is a great leveler. One can shop at any time (24×7), from anywhere,
i.e. all consumers are to be treated equally online. It has made shopping a great
fun!
1.5.3 Consumer-to-Business (C2B)

It is an innovative retail-marketing platform, where a business entity offers a variety
of packages or options to entice the online customer. Here the business entity/
service provider bids for consumer. It is often referred to as ‘reverse auction’.
Such models are widely prevalent in tourism and travel industry. The tour operators,
hotels and airlines not only give deep discounts to the consumers but also give
them option to negotiate the prices. It is a pro-active version of e-commerce as it
offers deals, packages or bundle of products at competitive prices.
Interestingly, its major success has come by the adoption of this model by the
business entities – mainly the manufacturers. This process of reverse auction has
resulted into major savings for the manufacturers, as suppliers bid for the purchase
orders, offering discounts in the process.
1.5.4 Consumer-to-Consumer (C2C)

It represents a consumer business platform, which is for the consumer, by the consumer.
It is referred to as online ‘consumer-to-consumer’ auctions. Almost anything can
be offered on such online platforms. A buyer who wants a particular item enters the
maximum amount he is prepared to pay. This remains a secret to other bidders
while auction site’s computers monitor the bidding. Highest offer is accepted until
the end of auction. Highly popular online auction sites, like eBay also provides
services where bidders may even check the reliability of a seller, how he has been
rated by other buyers by reading comments left by people who have done business
with him before. Once a bid has been won, the two sides contact each other, the
buyer pays and the seller sends the goods. Payments can be made online as well.
PayPal7, an online payments company supports eBay buyers. This is an improvement
over traditional selling or auction processes in terms of convenience and volume of
goods being auctioned.
To begin with, these models were nothing but the online version of successful offline 11
E-commerce businesses. Apart from these ‘pure’ business models, some ‘necessity’ business
models have also occupied Internet space. These business models occupy the ‘niche
service’ areas. For example, Yahoo! Hotmail, Rediff, AOL etc. fulfill the need of an
electronic post office; search engines providing directory services; and government
websites for facilitating better government-to-citizen or government-to-business
interface8.
Interestingly, with the passage of time these online models have also matured. A
B2C model is no longer a ‘business-to-consumer’ model, it is integrating functionalities
of other models like C2C or C2B also. It is far easier for a website that is successful
at selling one product to branch into others. For example, Amazon has moved from
selling books only to selling sea foods and other products as well. It is now hosting
auctions, and courting eBay traders. Similarly, eBay is no longer a C2C platform
but is also selling goods at fixed price, like e-tailer, B2C. Online market place is
more dynamic and ready for all kinds of innovation. Yahoo! has made so many
recent changes to its business that it is being called “the new google”, while Google
is using it’s advertising formula to steer specialist buyers straight to specialist online
sellers.
Online businesses have to keep on reinventing themselves to remain successful. E-
entrepreneurs have to have an open mind about the future. In a way, the Internet
has opened up opportunities to be very creative in the design of the business model.
The success of e-commerce models is built around managing supplies, partners
and customers effectively and efficiently. E-commerce is more customers oriented
than its offline counterpart. The offline world was one where producers said to
customers: “I have made this; buy it from me at this price”. In the online world,
customers are saying, “I want this; sell it to me at this price”.
Online world allows things like customer aggregation & auctions to be done in
ways that are impossible in the physical world. Internet as a strong price-deflation
mechanism: raising your prices is harder when your customers instantly compare
them with everyone else. Price & product comparisons have been made easier by
the development of “shopping bots”. Websites like, Mysimon.com & Dealpilot.com
enable buyers quickly to compare products, prices and availability.
Mention the different models of E-commerce.
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
1.6 E-COMMERCE: THE FUTURE

E-commerce is growing. It is a reality and part of everyday life. Economies of
12 scale and scope are also easier to obtain online than offline. The biggest boost of
e-commerce over the next few years will come not from snazzier websites or snappier E-commerce: Evolution,
Meaning and Types
marketing but from the proliferation of broadband Internet connections. Mobile
phones and a host of other electronic devices are now being hooked to the web,
ousting the personal computer from its monopoly position in providing Internet
access.
As desktop (PC) access will increasingly migrate to the mobile environment, it
would be more of m-commerce (mobile commerce) than e-commerce. Technological
advances would make the commercial transactions further personalised. And as
the numbers of customers who shop, grow, the business will scale, bringing in a
lower cost structure.
Let us now summarize the points covered in this unit.
1.7 SUMMARY
z E-commerce represents online transactions.
z It is the retail version of the Electronic Data Interchange (EDI).
z In general terms, e-commerce is a business methodology that addresses the
needs of organizations, traders and consumers to reduce costs while improving
the quality of goods and services and increasing the speed of service delivery.
z In terms of types, it has four types: Business-to-Business (B2B), Business-to-
Consumer (B2C), Consumer-to-Business (C2B) and Consumer-to-Consumer
(C2C).
z These models are dynamic business models and are changing as per the needs
of the e-consumers.
1.8 TERMINAL QUESTIONS

1. Traditional business models have found extension in the electronic medium.
Discuss this statement in light of various e-commerce models giving examples.
2. E-commerce business models are adapting themselves to the changing consumer
behaviour in an online environment. Is it a correct statement to make? Explain.
1.9 ANSWERS AND HINTS

Self Assessment Questions
1. EDI.
2. E-commerce can be conducted over telephone, fax machines, automatic teller
machine (ATMs), electronic payment system such as prepaid telephone cards,
electronics data interchange (EDI), televisions and the internet.
3. (1) Business to Business (B2B), (2) Business to Consumer (B2C), (3) Consumer
to Business (C2B), and (4) Consumer to consumer (C2C).
Terminal Questions
1. Refer to section 1.3 of the unit.
2. Refer to sections 1.3, 1.4 of the unit. 13
E-commerce
1.10 REFERENCES AND SUGGESTED READINGS
1. Teitelman Robert and Stephen Davis. “How the Cash Flows?”. Institutional
Investor 58. Aug.1996.
2. Electronic Messaging Services Task Force. The Commercial Use of Electronic
Data Interchange: “A Report and Model Trading Partner Agreement”. 45 Bus.
Law 1645. 1990.
3. US Small Business Administration. Office of Advocacy. E-commerce: Small
Business Venture Online. at 3 July. 1999.
4. US Department of Commerce. US Census Bureau. E-Stat. at (Mar. 18. 2002).
5. www.gartner.com
6. www.wto.org
7. www.paypal.com
8. Sharma, Vakul. “E-commerce: A New Business Paradigm”. in Legal Dimensions

of Cyberspace Ed. Verma, S.K. and Mittal Raman. ILI Publications. 2004.
14
UNIT 2 PAYMENT MECHANISM IN
CYBERSPACE
Structure
2.1 Introduction
2.2 Objectives
2.3 Electronic Fund Transfer (EFT)
2.3.1 How Electronic Fund Transfer Works?
2.3.2 Different Mode of EFT Mechanism
2.3.3 The Electronic Clearing Services (ECS)
2.3.4 RBI EFT
2.3.5 INFINET
2.3.6 Structured Financial Messaging System (SFMS)
2.3.7 Real Time Gross Settlement System (RTGS)
2.4 Online Payment Mechanism

2.4.1 How Online Payment Mechanism Works?
2.4.2 Electronic Cash
2.4.3 Electronic Wallets
2.4.4 Smart Card
2.4.5 Digital Cheques
2.4.6 Digital Signature
2.4.7 Digital Certificates
2.5 Online Payments and the Information Technology Act, 2000

2.5.1 Online Payments and Negotiable Instruments
2.5.2 Establishment of Public Key Infrastructure (PKI)
2.6 Future of E-money

2.7 Summary
2.1 INTRODUCTION
Payment mechanism in cyberspace is all about paying for goods and/or services
ordered or consumed using modern means of information technology. Such payment
mechanism in order to be accepted must have all the attributes of a widely accepted
offline payment system.
2.2 OBJECTIVES
z explain the meaning of electronic fund transfer (EFT) and how it works; 15
E-commerce z explain the different modes of EFT mechanism;
z explain EFT as an important tool in online financial and banking networks and
its crucial role in electronic settlement;
z discuss the online payment mechanism in the form of credit cards, smart cards,
electronic wallet, and digital certificates; and
z describe the role of law in shaping the online payment mechanism.
2.3 ELECTRONIC FUND TRANSFER (EFT)

Electronic Fund Transfer means transferring money from one bank account to another
in the same (intra bank) or different bank branches (inter bank). EFT has been in use
since 1960s when banks first started using proprietary EDI network to share banking
information. This was later converted into automated clearing houses. At a global
level, to facilitate faster fund transfer between the remitter and beneficiary, the payment
instructions are sent through telex, SWIFT1 (Society for Worldwide Interbank
Financial Telecommunications), Wire Transfer, CHIPS2 (Clearing House Interbank
Payment System) etc. But when it comes to transfer of funds domestically, the options
have been restricted to demand draft, mail transfer or telegraphic transfer.
2.3.1 How Electronic Fund Transfer Works?

Electronic fund transfer implies transfer of money using Internet technologies. This
involves participation of payer and payee and their respective banks including an
automated clearing house.
Step 1: Payee submits the cheque to his bank
Step 2: Payee’s bank presents the cheque to the automated clearing house
Step 3: Automated clearing house informs the drawer’s bank
Step 4: Drawer’s bank clears the cheque
Step 5: Payee receives the payment
PAYEE DRAWER
PAYEE’s DRAWER’s
BANK BANK
AUTOMATED
CLEARING
HOUSE
INTERNET
16
Figure 1: EFT mechanism using Internet
In India, electronic fund transfer system has got a fillip when the Central Government Payment Mechanism in
Cyberspace
amended the Negotiable Instruments Act, 1881 and brought in forth the Negotiable
Instruments (Amendment and Miscellaneous Provisions) Act, 2002, and introduced
the concept of a “truncated cheque” in section 6 (b) of the said Act:
Section 6(a) “ a truncated cheque” means a cheque which is truncated during the
course of a clearing cycle, either by the clearing house or by the bank whether
paying or receiving payment, immediately on generation of an electronic image for
transmission, substituting the further physical movement of the cheque in writing.
Explanation II. – For the purposes of this section, the expression “clearing house”
means the clearing house managed by the Reserve Bank of India or a clearing house
recognised as such by the Reserve Bank of India.
As evident from the aforesaid section, the truncation process involves replacing
physical cheques with their electronic images, which will travel through the stages of
the clearing cycle. During the whole process of truncation the instrument would remain
with the collecting bank.
2.3.2 Different Mode of EFT Mechanism

Over the period of time, the Reserve Bank of India (RBI) has taken various initiatives
to introduce technology to facilitate electronic fund transfer at both corporate and
retail banking level. For example, electronic settlement in the form of the electronic
funds transfer services – Electronic Clearing Services (ECS), i.e., Credit Clearing
and Debit Clearing and retail Electronic Funds Transfer (EFT) system has been a
great success. In 2003-2004, the value of cheque transactions shrunk 16%, while
settlements through the ECS3 jumped 200%.
Further, it has introduced Centralised Funds Management System (CFMS), Securities
Services System (SSS), Real Time Gross Settlement System (RTGS) and Structured
Financial Messaging System (SFMS) to transform the existing systems into a state-
of-the-art payment infrastructure in India.
2.3.3 The Electronic Clearing Services (ECS)

The Electronic Clearing Services (ECS) ‘credit scheme’ and the Electronic Clearing
Services (ECS) ‘debit scheme’ are two activity lines, which have become important
vehicles for furthering improvements in customer services. In ECS – credit, a series
of electronic payment instructions are generated to replace the paper instruments.
The system works on the basis of a single debit transaction triggering a large number
of credit entries. These credits or the electronic payment instructions which possess
the details of the beneficiary’s account number, amount and bank branch, are then
communicated to the bank branches through their respective service branches for
crediting the accounts of the beneficiaries either through magnetic media duly encrypted
or through hard copy. ECS – debit is meant for payment of charges to utility services
such as electricity, telephone companies, payment of insurance premia and loan
installments etc. by customers. ECS – credit, has become popular and is being availed
of by most corporate entities and official bodies.
17
E-commerce Please answer the following Self Assessment Question.
The two activity lines which have become important vehicles for furthering
improvements in customer services are ......................and ......................
2.3.4 RBI EFT

RBI EFT – a scheme introduced by RBI to help banks offer their customers money
transfer service from account to account of any bank branch to any other bank
branch has widened its reach to more than 150 centres in the country. RBI EFT
system is an inter-bank oriented system, wherein RBI acts as an intermediary between
the remitting bank and the receiving bank and effects inter-bank funds transfer. The
customers of banks can request their respective branches to remit funds to the
designated customers irrespective of bank affiliation of the beneficiary.
2.3.5 INFINET
The setting up of the apex-level National Payments Council in May 1999 and the
operationalisation of the Indian Financial Network (INFINET) by the Institute for
Development and Research in Banking Technology (IDRBT), Hyderabad have been
some important developments in the direction of providing a communication network
for the exclusive use of banks and financial institutions. INFINET members include
RBI, Public sector banks, Private banks, Foreign banks, Cooperative banks and
Financial Institutions.
2.3.6 Structured Financial Messaging System (SFMS)

At the base of all inter-bank message transfers using the INFINET is the Structured
Financial Messaging System (SFMS). It would serve as a secure communication
carrier with templates for intra-bank and inter-bank messages in fixed message
formats that will facilitate straight ‘through processing’. All inter-bank transactions
would be stored and switched at the central hub at Hyderabad while intra-bank
messages will be switched and stored by the bank gateway. Security features of the
SFMS would match international standards.
2.3.7 Real Time Gross Settlement System (RTGS)

It is significant to note that the RTGS system in banking sector has the potential to
emerge as a major payment mechanism in India. Through this system both processing
and final settlement of fund transfer instructions can take place in real time. It would
help banks to scale up transactions that they have been processing. When fully
implemented, RTGS would pave the way for a paperless money transfer mechanism.
It would facilitate payment/receipt of funds without going through the traditional mode
of pay order/demand draft/mail transfer/telegraphic transfer, which takes two to seven
days to real time transactions.
RTGS apart from providing a real time funds settlement environment has also become
critical to an effective risk control strategy. The risks inherent in a net settlement
system are well known. Payment system risks in a net settlement system are such
that the default by one bank may lead to a ‘knock-on’ or domino effect to the system.
Gross settlement reduces the risk significantly, as transactions are settled one by one
18
on a bilateral basis in a real time mode.
Presently, RBI is aiming to give legal sanctity to the whole EFT system by bringing Payment Mechanism in
Cyberspace
legislation on the Electronic Funds Transfer and its role in electronic settlement.
Moreover, it has suggested numerous amendments in the: Bankers’ Book Evidence
Act, the Negotiable Instruments Act, the Banking Regulation Act and the RBI Act.
2.4 ONLINE PAYMENT MECHANISM

Plastic money, i.e. credit cards has already made a presence in India and is fast
becoming online shoppers’ choice4. Credit cards have registered a slow but steady
growth in India. All the major banks, both public and private sectors, use the major
international brand names like VISA and MASTERCARD. The most recent trend is
to issue multipurpose cards which function as credit cards, debit cards or Automatic
Teller Machines (ATM) cards. This is essentially to enable the holder to exercise a
choice of payment option.
2.4.1 How Online Payment Mechanism Works?

Online business requires a website (Sub merchant) which acts as a kind of e-shop
for the users. It gives details of products (or services). A customer can buy any of the
products listed on such a website by making payment against the same either in cash
or cheque or through the route of online payment namely credit card/debit card/net
banking. The sub-merchant’s are linked to a Payment Gateway facility provided by
a Master Merchant, which works in association with a Payment Gateway Bank,
which is further linked to VISA or MASTERCARD – the Credit Card Companies.
To illustrate the mechanism, when a prospective customer visits a website (of a Sub-
merchant) on Internet and selects a product he intends to buy, he is redirected to the
website of Master Merchant (Payment Gateway) where the customer feeds all his
details like name, credit card number, billing address etc. and completes the transaction
by making the payment online. The Master Merchant at its end analyse the details of
credit card holder (name, address, phone number, IP address etc.) and forwards the
request to the Payment Gateway Bank and to Credit Card Companies. Depending
on the report generated, the Master Merchant accepts or rejects the purchase order
of the customer. Acceptance would lead to the customer account being debited by
the same amount and the sub-merchant would be required to dispatch the ordered
goods to the customer’s address.
Sub-merchant
www.xyz.com
Master Merchant
www.abc.com
Payment Gateway Bank
Master/Visa Card
Figure 2: Online payment mechanism using credit card 19
E-commerce Apart from credit card based transactions, other online payment systems include:
2.4.2 Electronic Cash

E-cash is a pre-paid system. Consumers buy electronic tokens and build up electronic
funds for use over the Internet. It is stored in an electronic device such as a chip card
or computer memory. The person who has purchased such cash can use it online for
making payments. It is also known as cyber cash5.
2.4.3 Electronic Wallets

E-wallets can be useful for making a series of micro payments online for example,
downloading MP3 music file, paying for an online article etc. A mechanism is necessary
that ensures that the transaction costs of collecting payment for such items do not
exceed the value of the transaction. A software wallet requires a user to set up an
online account to which heads an amount of money. When transactions are
undertaken, the wallet is debited6.
2.4.4 Smart Card

Smart cards use a micro controller chip embedded in the card. The cards can be
purchased and reloaded again and again. It works as an electronic purse storing
digital money, which could be used over public terminals (Websites, ATMs, Telephone
lines) etc. Another example of smart card is the Stored Value Cards (pre-paid SIM
cards for mobile phones).
2.4.5 Digital Cheques

It is a cheque in the electronic form. Here, the consumer uses his digital signatures to
sign an e-cheque. The consumer fills in the cheque online and then sends it via a
secure server to the recipient. The amount specified on the cheque is electronically
withdrawn from the sender’s account and deposited in the recipient’s account.
2.4.6 Digital Signature

It is a mechanism to ensure authenticity, message integrity, non-repudiation and
confidentiality of an electronic record. It is based on asymmetric crypto-system,
which uses a private key to encrypt, and a public key to decrypt messages. A digital
signature regime requires a trusted third party – Certifying Authority (CA) to verify
and authenticate the identity of a subscriber (a person in whose name the Digital
Signature Certificate is issued). These days, even smart cards may contain digital
signatures of a subscriber.
Define digital signature.
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
20 ...................................................................................................................
2.4.7 Digital Certificates Payment Mechanism in
Cyberspace
Digital certificates are like trust certificates developed by a consortium led by Master
Card and Visa. These digital certificates provide Secure Electronic Transaction (SET)
to the users. SET allows a purchaser to confirm that the merchant is legitimate and
conversely allows the merchant to verify that a credit card is being used by its owner.
It also requires that each purchase request include a digital signature, further identifying
the cardholder to the retailer.
SET is an improvement over SSL (Secure Sockets Layer) encryption method. SSL
uses a private key to encrypt data that is then transmitted over the SSL connection.
It is used to encrypt customer and credit card information when it is transmitted
across the Internet. The message ‘You are about to view information over a secure
connection’, is an indication that SSL is in use. Websites protected by SSL also
carry a security symbol in the status bar, often in the form of a closed lock7.
A key difference between SSL and SET lies in the allocation of risk. SET makes the
buyer responsible for proving her credentials, whereas, with SSL, the merchant takes
responsibility for checking the buyer’s ability to pay and that the credit card account
being referenced belongs to the user initiating the transaction8.
The difference between SSL and SET lies in .........................................
2.5 ONLINE PAYMENTS AND THE INFORMATION

TECHNOLOGY ACT, 2000
The Information Technology Act, 2000 is a facilitating as well as an enabling Act. It
facilitates e-commerce by enabling a digital signature regime. It is important to note
that a digital signature regime not only authenticates electronic records but also plays
an important role in electronic fund transfer.
2.5.1 Online Payments and Negotiable Instruments

When the Information Technology Act, 2000 came into effect on October 17, 2000
it was non-applicable to the negotiable instruments, like promissory note, cheque
and bill of exchange but subsequently to facilitate e-commerce related transactions,
the Central Government amended the Negotiable Instruments Act, 1881 and brought
in forth the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act,
2002 to recognise “a cheque in the electronic form” (e-cheque) and “a truncated
cheque”. Therefore, to facilitate e-commerce related transactions, creation and
acceptability of ‘e-cheque’ (a signer uses his digital signatures to sign an e-cheque)
and payment or receipt on the basis of an electronic image of a ‘truncated cheque’
are now legally valid. Still, the negotiable instruments, like promissory note and bill
of exchange are considered non-applicable under the Act.
Further banking transactions in India are being regulated by the Indian Central Bank
– the Reserve Bank of India (RBI). Banks, which are going for e-cheque and truncated
cheque facilities, have their secured proprietary IT networks in place conforming to
the guidelines issued by the RBI from time to time on network banking. 21
E-commerce For example, “Punjab National Bank” (PNB) was among the first banks to deploy
the first image-based cheque clearing system in India. This provided clearance of
inter-city cheques within 48 hours after the cheque is presented, at selected centres
using cheque truncation, where there is image based cheque clearing system. Earlier
it took about 15-20 days for clearance of outstation cheques. PNB was the first
bank to launch the Intra Bank Inter City Cheque truncation project by using NCR’s
ECPIX (Electronic Cheque Presentment with Image Exchange) technology. After a
successful pilot run the system was introduced by connecting MICR Centres located
at Lucknow, Nagpur, Jaipur, Kanpur, Ludhiana, Chandigarh, Jalandhar, Agra,
Allahabad and Varanasi.
2.5.2 Establishment of Public Key Infrastructure (PKI)

The Information Technology Act, 2000 gives a legal mandate to the use of digital
signatures to protect confidentiality of data protection. It is based on “asymmetric
crypto system” [Section 2(1)(f)], wherein two different keys are used to encrypt
and decrypt the electronic records. A private key is used to encrypt an electronic
record and a public key is used to decrypt the said record. Private key is kept
confidential and is to be used by the signer (subscriber) to create the digital signature,
whereas the public key is more widely known and is used by a relying party to verify
the digital signature and is listed in the digital signature certificate. The subscriber’s
public key and private key constitute a functioning key pair. In an asymmetric crypto
system, a private key is mathematically related to public key and it is computationally
impossible to calculate one key from the other. Hence the private key cannot be
compromised through knowledge of its associated public key.
It calls for establishment of a Public Key Infrastructure (PKI), which is based on
mutual trust involving subscribers, Certifying Authorities and the Controller of
Certifying Authorities (CCA). Public Key Infrastructure (PKI) represents a set of
policies, processes, server platforms, software and workstations used for the purpose
of administering Digital Signature Certificates (DSCs) and public-private key pairs,
including the ability to generate, issue, maintain, and revoke public key certificates.
The Information Technology Act, 2000 provides for a statutory environment for
establishment of a PKI to administer DSCs. It has provisions related to powers and
functions of the Controller of Certifying Authorities [Sections 17-34 of The Information
Technology Act], Certifying Authorities [Sections 35-39 of The Information
Technology Act] and Subscribers [Sections 40-42 of The Information Technology
Act]. The Controller of Certifying Authorities is a public body and acts as a regulator,
whereas the Certifying Authorities could be any person, who fulfills all the licensing
conditions put forth by the Controller of Certifying Authorities.
The success of this PKI model can be gauged from the fact that presently, in India
there are seven licensed Certifying Authorities, namely, Safescrypt, Institute for
Development & Research in Banking Technology (IDRBT), Tata Consultancy Services
(TCS), National Informatics Centre (NIC), Mahanagar Telephone Nagar Limited
(MTNL), (n) Code Solutions Ltd. and Department of Customs and Excise.
Moreover, it is important to note that most of these Certifying Authorities are quite
active in both businesse-to-consumer (B2C) and business-to-business (B2B) domain.
For example, TCS is issuing DSCs for online Tax Filing, Northern Railway e-
procurement, ONGC e-procurement etc.; MTNL is issuing free DSCs to MTNL
22 Broadband customers; Safescrypt is issuing DSCs for EXIM (Export-Import)
purposes to vendors dealing with the Directorate General of Foreign Trade and (n) Payment Mechanism in
Cyberspace
Code Solutions Ltd. is issuing DSCs to Northern Railway vendors (e-procurement).
PKI is based on ............................... system.
2.6 FUTURE OF E-MONEY

The growth of e-commerce depends on effectiveness and acceptability of online
payment mechanisms. Newer technologies are making online world a safer, convenient
and cost effective medium to do monetary transactions.
What would be the result of these technological advances, replacing money with
digital cash? This gradual e-monitisation can shrink cash demand and may affect the
money supply and rate of interest in the long term. It will also restrict RBI’s ability to
conduct open market operations. The current trends, involving e-monitisation
transactions through credit cards and Internet will require monetary policy to take
not of the ongoing revolution in the payments and settlement system9. According to
RBI the spread of e-monitisation does not require monetary and financial aggregates
to be redefined, as long as transactions take place through the banking channel.
However, e-money instruments, like credit cards, debit cards and stored-value cards
have a potential to bypass the banking channels altogether and serve as parallel
money suppliers.
2.7 SUMMARY
z Online payment is fast emerging as a good alternative to physical mode of
payments.
z Electronic fund transfer mechanisms are a reality now.
z Financial institutions and banks have transformed themselves into huge financial
networks providing real time facilities to their customers.
z The traditional ‘brick-and-mortar’ banking model has given way to ‘click- and-
mortar’ banking model which has made many online payment options available
to a consumer.
z Significantly, the law also grants legal validity to such online payment instruments.

1. It is said that technology has made online world a safer, convenient and cost
effective medium to do monetary transactions. Do you agree with this statement?
Give reasons.
2. What is the role of public key infrastructure in creating trust in an online medium?
3. Explain the working of online payment mechanism?
23
E-commerce
1. Electronic Clearing Services (ECS) ‘credit scheme’ and Electronic Clearing
Services (ECS) ‘debit scheme’.
2. It is a mechanism to ensure authenticity, message integrity, non-repudiation and
confidentiality of an electronic record.
3. The allocation of risk.
4. Asymmetric crypto system.
Terminal Questions
1. Refer the unit and analyse the problem in your own way.
2. Refer to sub-section 2.4.2 of the unit.

1. SWIFT is a reliable. Secure. high-speed. global telecommunications network
owned by its bank participants and used to transmit financial instructions in

machine-readable formats worldwide.
2. CHIPS are a computerised funds transfer system operated by the New York
Clearing House Association. It is used primarily for high-value, cross-border
payments.
3. www.rbi.org.in
4. According to Power Shopper Report - IOAI Ecommerce Report 2005. 62%
of online shoppers have used ‘credit cards’ for online purchase.
5. See: www.cybercash.com
6. See: www.ecoin.net
7. Rowley Jennifer. “E-business – Principles & Practice”. p.249. Palgrave. 2002.
8. Ibid. p.252
9. Sharma Vakul. 2004 “E-commerce: A New Business Paradigm”. in Legal
24 Dimensions of Cyberspace. Ed. Verma. S.K. and Mittal Raman. ILI Publications.
UNIT 3 ADVERTISING AND TAXATION VIS-
À-VIS E-COMMERCE
Structure
3.1 Introduction
3.2 Objectives
3.3 Online Advertising
3.4 Forms of Online Advertising
3.4.1 Banner Advertisements and Payment Models
3.4.2 Looking Beyond the Banner Ads
3.4.3 Cookies as an Advertising Tool
3.4.4 Google AdWords: Pay Per Click
3.4.5 Other Advertising Tools
3.5 Online Advertising: Boon or Bane?

3.6 E-commerce and Taxation
3.7 Tax Issues Emerging from Online Transactions
3.8 E-taxation: Problem Areas
3.9 An Overview of Developing E-taxation Practices
3.9.1 The Internet Tax Freedom Act (ITFA)
3.9.2 OECD Model Treaty
3.9.3 India: E-taxation Practice
3.10 Summary
3.1 INTRODUCTION
Commercial transactions do not occur in vacuum. They require all kind of support
services in the form of advertising, marketing, sales, logistics, insurance and banking.
If these support functions are considered essential for offline commercial transactions,
then these can also be taken as essential for online commercial transactions.
3.2 OBJECTIVES
After reading this unit, you should be able to:
z explain the concept of online advertising and taxation and make a comparison
between traditional media and online media;
z describe the different forms of online advertising and the way it works;
25
E-commerce z explain the merits and demerits of online advertising;
z explain the relationship between e-commerce and taxation; and
z discuss the tax issues emerging from online transaction.
3.3 ONLINE ADVERTISING

It is important to note that online advertising is still in its nascent stage of development.
It is still evolving and is often considered to be complementary of offline marketing
efforts. Any comparison of online advertising with offline advertising would be an
unequal comparison but nevertheless should be made.
Table 1: Comparison1 between traditional media and online media
Traditional Media Online

Advertising space Expensive and limited Cheap and unlimited
Advertising time Expensive commodity Expensive commodity
for marketers for users
Image creation Image is everything Information is
Information is everything
secondary Image is secondary
Communication Push, one-way Pull, interactive
Audience Mass Targeted
Links to further Indirect Direct/embedded
information
Investment in design High Low, allows change
Interactivity Low Low to two-way
dialogue
Online advertising is specifically meant for online consumers. It is technology driven

promotion of products, people, businesses and events in a digital medium, which
primarily includes Internet, but of late even mobile telephones are also being included.
As compared to traditional media, online media is still new and its audience (e-
consumers) base is extremely low.
Online advertising is meant for ......................................
3.4 FORMS OF ONLINE ADVERTISING

Online advertising is a part of e-commerce ecosystem. To begin with, the Internet
user population was extremely small, but with the passage of time, it has grown
exponentially. If the earliest version of e-commerce happened on proprietary networks
in the form of EDI, it is now happening at a public networks and these networks
have brought more and more consumers closer to businesses than ever before. Online
advertising has played an important role in bringing the consumer and the businesses
26 closer and like e-commerce it has also grown exponentially.
3.4.1 Banner Advertisements and Payment Models Advertising and Taxation
vis-à-vis E-commerce
A banner advertisement is a small graphics link, sometimes called a ‘hot link’, placed
on a Web page. The banner is linked to the advertiser’s Web pages, so that clicking
it will transport the browser into the advertiser’s site.
A banner advertisement can be placed anywhere on a Web page. They look
deceptively similar to ‘real-world’ magazine advertisements. The effect of such ads
is precisely measurable, as the advertiser collating ‘click-throughs’ can easily count
the users who click on the banner.
The earliest banner advertisement payment model was based on a simple, flat rate
fee with little or no co-relation between the actual, or even the expected number of
visitors to the site and the cost. Later, this unrealistic model was replaced by payment
model based on the CPM model (cost per thousand impressions or page views),
whereby advertisers pay on the basis of impressions of an advertisement. That is,
advertising rates were calculated on the number of Web users accessing the Web
page holding the banner.
In most cases, the publishers owning and operating the sites selling the advertisement
space will guarantee a number of impressions per month, and either price on the
CPM basis, or provide a fixed monthly price with a quotation for the equivalent
CPM. For example, some of the most visited sites on the web would normally yield
around 2.25 million impressions per month, with CPMs around Rs. 1000.00 to
Rs. 1500.00 only depending on the location of web pages. If it is on a home page of
a popular site, the cost per month may even exceed Rs. 20,000.00.
The problem with CPM is that it is difficult to assess the impact of impressions in
terms of cost-benefit analysis. Moreover, technologically speaking, impressions are
difficult to assess because site visits – the nearest Web has an impression not readily
recorded by the Web servers themselves. Web servers receive requests to transfer
page contents – that is, they receive ‘hits’ – and each page might require several hits
to be satisfied, as different text or graphics elements are transferred. Now which of
these hits is to be recorded as the impression? Does an impression occur when the
first part of the page is copied to the browser, or when all of it is copied? What if the
user chooses to interrupt a transfer, having already received part of the page – Does
this count as an impression or not? And if unique impressions are required – i.e., a
count of unduplicated visits – how is this to be achieved2?
A calculation based on impressions alone is not a good parameter and would be
unwise of an advertiser to rely on such a measure without an independent audit of
the numbers involved.
Proctor & Gamble, a global Fast Moving Consumer Goods (FMCG) company set
a precedent in April 1996 when they agreed with search-provider Yahoo! that they
would pay advertising fees based not on CPMs but on click-throughs themselves. It
is based on, Cost per click (CPC) – the amount an advertiser pays for each visitor
who clicks on his or her online advertisement. Click rate is the percentage of visitors
who click on a banner ad. Click through is the number of people who click on a
banner ad and get to the advertiser’s Web site. The idea of paying for results, as it
were, rather than promises is today gaining wider credence among the advertisers.
In other words, inserting an advertisement on a well-focused Web page – one that is
attracting the audience appropriate for the advertisement – is clearly worth buying,
27
even at higher advertising rates.
E-commerce 3.4.2 Looking Beyond the Banner Ads
One of the simplest approaches to extend the value of a simple banner is to create an
interactive ad. It requires the ‘programmability’ of the computer on which the
advertisement is displayed, so as to create new and interesting shapes, images or
messages whenever the banner is seen – by using the facilities of Sun’s Java or
Microsoft’s ‘ActiveX’ applets.
An Applet is a small program or set of instructions copied from a web server on to
the local browser, just like the graphics and textual content fold. With these applets,
however, instead of merely fulfilling a simple display role, the browser can execute
the program logically. It allows several concurrent parts of the program to be executed
simultaneously; each part is called thread and can be used to gather information,
animate pictures or to perform the most complicated of software functions.
Web applets are used within the banners to provide engaging computer games –
banner games. The use of Java applets in the ‘live’ banner allows images to move
and evolve as the mouse is moved around the screen.
3.4.3 Cookies as an Advertising Tool

When the online shopper does shopping it is necessary to maintain a record of these
shopping details. Holding this record on the server is problematic, hence the data is
stored on the browser or client end, available to the server for update as subsequent
shopping choices are made. When the shopping session is complete, the server needs
simply to examine the collected records and use this to place the order and invoice.
The data stored on the local browser is referred to as a ‘cookie’. In other words, a
“cookie” is a block of text (digital identification tags) which the website (accessed)
places in a file on a computer hard disk of a person to track his activity. While a code
in the cookie file enables the site to label the person as a particular user, it doesn’t
identify the person by name or address unless the person has registered himself and
provided the site with such information or set up preferences in his browser to do so
automatically.
From the point of online advertisement, cookies can be used to record the location
of the browser, so that only advertisements for a specific country, city, or even individual
user are displayed. Also, cookies can be used to track the path through a series of
Web pages or shopping choices (known as ‘click trail’). Cookies help in creating a
profile of the user so that only those advertisements for a particular web page or site
those are relevant to the user are displayed before him. For example, international
online advertising companies insert ads on web pages with cookies tagged on them.
Once clicked, they start building up the user’s profile as he moves from one site to
another. This is how the advertising companies, known as profilers build a
comprehensive profile of the user’s surfing habits and use it to put ads targeting him
on their partner sites. Also there has been an increasing use of profiling software
tool(s) that reads the user’s on-line activity and recommends other similar
products.
3.4.4 Google AdWords: Pay Per Click

Credit should be given to the search engines to translate the search results into ads.
In 2000, Google introduced its first advertising programme called AdWords, which
28 allowed advertisers to place their ads alongside search results. These were not called
advertisements, but “sponsored links” and appeared separately on the right side of Advertising and Taxation
the search page, demarcated by a vertical line. Initially, AdWords advertisers paid
Google based on the number of times their ads showed up alongside the search
results. By 2002, it started charging advertisers per click.
It is an innovation from Google, which has pioneered pay-per-click text advertisement,
which appear alongside search results, triggered by keywords in the search query.
In this case, the advertiser will bid for keywords that he thinks would be used by
people to search the services and products he is providing. When a user searches
using these keywords then they will see a listing and brief description of the advertiser’s
site, known as ‘Google AdWords’ which would appear to the right of its search
result. The advertiser will only pay if that user decides to click on the description and
follow the link to the advertiser’s actual site. These keywords cost not much for
relatively not-so-popular words but may cost on the high side if they relate to popular
products and services. The advertisement is displayed for free with the site owner
paying for those click throughs within a daily budget they have stipulated in advance.
The rank of AdWords displayed on the right of the Google screen is decided by
multiplying the maximum cost-per-click by the click through rate. Interestingly, majority
of AdWord advertisers are small and medium enterprises. Only a minimum of
Rs. 250.00 is needed to sign up for the service and money gets deducted from the
account based on the number of clicks.
In 2005, Google started AdSense, which extended Google and the advertiser’s reach
to other (but specified) sites, which are using Google search. Suppose a visitor on a
share and stock investment site runs a search (using Google search on the site’s
webpage) for a tax advisor. The tax advising firms whose ads show up as sponsored
links will pay Google, which in turn will split some revenue with the website.
3.4.5 Other Advertising Tools

Blogger, Blogs and Forums
Blogger allows anyone to publish onto web instantly. It is like publishing one’s own
diary. Blogging has grown with web users publishing what are called webblogs or
Blogs. This is a web page made up of usually short, frequently updated posts that
are arranged chronologically. The blog posts are like instant messages to the web.
These are being increasingly used to influence the viewers and many times these
blogs are used to promote products and services in a clandestine manner.
Micro sites
These are like magazine inserts and usually associated with infotainment sites. They
are placed in such a manner that they create interest to the visitor. These Microsites
have sometimes also been called ‘brand modulus’ or even ‘cuckoos’, since they are
‘eggs’ placed in another bird’s nest.
Messenger Services
Search engines, like Yahoo!, MSN, Google, Talk etc. help users to connect to other
users instantly via messages or voice chat or webcam. These messenger alerts appear
like Pop-ups (term given to when a new browser window which opens up while the
user is viewing a website) on users display. These days they are one of the most
popular ways to advertise on the Internet.
29
E-commerce Short Messaging Service (SMS)
Short Messaging Text is used in sending advertisements to mobile phone users. This
is commonly known as text messaging and usually involves a short message quite
often using shortened or abbreviated form of words. This is an example of intrusive
form of advertising.
Spyware
Spyware are malicious programs often hides insecurity holes in Windows, collecting
data for market research, and will sometimes announce it by parasitically attaching
an ad to the computer screen. This is known as adware. Sometimes spyware is part
of mainstream software and it is the price a gullible Net user pays for that free
download. Spywares are capable of not only generating annoying pop-up
advertisements but also collect passwords and credit card numbers.
Web casting
It is a push technology that delivers personalised information to the individual’s
computer (even to his mobile number). For effective personalisation, web casting
needs to build a profile of the user’s interests. It comes in the form of NewsAlerts,
MessageAlerts, and StockAlerts etc.
Please answer the following Self Assessment Questions.
Google is a .............................................
The full form of SMS is ...............................................
3.5 ONLINE ADVERTISING: BOON OR BANE?

From the Net advertiser perspective, online advertising is a boon for the advertisers.
It is low cost, fast and has the widest of the wide reach. It is a good investment of
money. From the Net user perspective, online advertising may become a nuisance.
He may not want it and yet he cannot do without it. It is intrusive and yet useful and
informative. It is the cost a Net user is paying for availing many services free of cost
over the Internet. Nevertheless, it eats into Net users’ Internet usage time and slackens
the speed of Internet. Also, the most disturbing aspect of online advertising is that it
could violate privacy of the Net user.
3.6 E-COMMERCE AND TAXATION

Tax revenues are a major source of income to the governments – whether Central or
state. There have been numerous statutory provisions giving powers to the
governments to levy both direct and indirect taxes. Over a period of time, numerous
tax procedures and tax authorities have been created to streamline the tax collections.
The advent of e-commerce has opened up a Pandora’s Box – how to tax online
transactions? Is it possible to tax such transactions in view of nature of Internet?
Should e-commerce be taxed on lines of offline commercial activities? There are
more questions than answers.
30
The broad consensus that has emerged is: (i) Online transactions should not be immune
from taxation solely because the sale is conducted through a medium distinct from
that of traditional offline businesses, and (ii) It is not prudent to tax these online Advertising and Taxation
transactions purely on the basis of traditional taxation approach applicable to offline
businesses.
3.7 TAX ISSUES EMERGING FROM ONLINE

TRANSACTIONS
As e-commerce represent online transactions involving consumer(s) and business(es)
– it is occurring instantaneously, which makes it difficult to determine who the buyer
and seller are and where they are respectively located. Question is how to tax such
online transactions? From a point of electronic taxation following issues may emerge3:
z Who is the customer?
z Where does the customer live?
z Did the transaction constitute sale of tangible property, the performance of a
service, or the transfer of intangible property?
z Which jurisdiction has the authority to tax the sale?
z What online activities constitute sales for sales tax purposes?
z What constitutes a business connection/substantial nexus within a taxing
jurisdiction?
z Can Central and/or state Government(s) technologically capable to monitor all
online transactions?
z What kind of record retention requirements is necessary for tax purposes?
Answers to these questions would lay down the ground rules of electronic taxation
vis-à-vis e-commerce. Until then, traditional tax rules must be utilized to address
these complex issues. Moreover, it is a myth that electronic tax is an ‘additional’ tax
burden – the fact is, it is a new tax which is applicable in lieu of other indirect taxes.
3.8 E-TAXATION: PROBLEM AREAS

Apart from the above-mentioned tax issues there are certain problem areas as well.
The problems are because of the very nature of Internet technology, which is seamless
and unobtrusive. It may lead to4:
a) the lack of ‘physical’ connection between a consumer in one state and a seller
in another state;
b) absence of permanent establishment (PE) – “place of business”;
c) ever changing location of web servers hosting the website, meant for online
transactions;
d) relocation of businesses in tax havens, like Bahamas, Monaco, etc.
e) general confusion regarding which country has the right to tax the transaction,
and at what rate;
f) non-taxation of digital (intangible) goods, like software, music and data (or
31
information);
E-commerce g) export and import of digital (intangible) goods across international borders
without paying customs duty (or tariffs), thereby bypassing the existing export-
import policies, regulations and tax system;
h) a parallel channel of transactions, ignoring the traditional documents based on
banking practices;
i) the general lowering down of ‘barriers to trade’ for the smaller and medium
business entities; and
j) complete disregard to accounting and audit procedures.
These problem areas constitute real threat to the establishment of an extensive platform
dealing with electronic taxation. It is thus imperative that in order to construct an
effective e-taxation regime the problem areas should be addressed and proper
guidelines must be framed to deal with such issues. But care should be taken not to
impose an overly strong regulation and tax regime as this could lessen the financial
attractiveness of conducting electronic commerce.
3.9 AN OVERVIEW OF DEVELOPING E-

TAXATION PRACTICES
World over the nation states are in the process of introducing e-taxation in a selective
manner. There have been legislative and treaty provisions unfolding the e-taxation
practices.
3.9.1 The Internet Tax Freedom Act (ITFA)

The Internet Tax Freedom Act was introduced in March 1997 in the US Senate and
was enacted into law on October 21, 1998. Its objective was to ensure the continued
growth of the Internet as well as to prevent multiple or discriminatory taxes which
could potentially stifle the growth of e-commerce. It further articulated5:
z Jurisdictions are free to impose taxes on all “e-business sales provided that the
tax rate is the same as that which would have been imposed, had the transactions
been conducted in a traditional manner, such as by mail-order.
z States may impose taxes on sales of “tangible personal property over the Internet,
just as if those sales were conducted” in person.
z A three year moratorium on multiple or discriminatory taxes on e-commerce.
The ITFA moratorium expired on October 22, 2001, and was retroactively extended
until November 1, 2003.6 On December 3, 2004, Congress made the moratorium
on taxes on Internet access and multiple and discriminatory taxes on electronic
commerce imposed by Internet Tax Freedom Act permanent.7 Even though the IFTA
imposes a moratorium on taxes, it still allows the imposition of a single
nondiscriminatory tax on goods and services sold on the Internet. In order to collect
a sales tax on Internet transactions, a State in the US must show that it has sufficient
jurisdiction over a company doing business over the Internet. Today many pure play
e-commerce companies (e-tailers), like Amazon.com and eToys, are paying sales
taxes as if their tax exposure is similar to catalogue businesses.
32
3.9.2 OECD Model Treaty Advertising and Taxation
The Organization for Economic Co-operation and Development (OECD), a 30
member organization has proposed that the basis of any online taxation system should
be equitable, simple, certain, effective, distortions free, flexible and dynamic. The
idea is to create a uniform mode of taxation whether offline or online. That is, any
online taxation system should completely harmonize with existing offline taxation
system. Broadly speaking, electronic commerce should be taxed neither more nor
less heavily than other commerce, and online sales should, to the extent possible, be
taxed at the state of destination of sales, irrespective of the fact whether the vendor
(seller) has a physical presence in the state or not.
The OECD Commentary, on the “OECD Model Treaty” issued on January 28,
2003, clarified from an e-commerce perspective.
Whether a website constitutes a “place of business”?
The OECD Commentary mentions that a website, which is a combination of software
and electronic data, does not in itself constitute tangible property and hence cannot
be referred to as a “place of business”.
Whether location of a server constitutes a permanent establishment (PE)?
The OECD Commentary provides that if an enterprise owns (or leases) and operates
the server on which the website is stored and used, the place where that server is
located could constitute a permanent establishment of the enterprise.
It is evident that the OECD countries place a lot of emphasis on permanent
establishment from e-taxation perspective.
3.9.3 India: E-taxation Practice

With the growth of e-commerce in India, it was felt that India should also adopt the
concept of PE in view of rapid globalisation of commerce. The Finance Act, 2002
has introduced the definition of Permanent Establishment (PE) in the Income Tax
Act, 1961. It shall mean to include a fixed place of business through which the
business of an enterprise is wholly or partly carried on [S.92F (iii (a)]. It may include
a wide variety of arrangements, like a place of management, a branch, an office, a
factory, a workshop or a warehouse etc. The definition is similar to that of the OECD
model. Apart from statutory provisions defining PE, e-taxation in India is still a
developing area. In fact, online taxation regime is presently confined to development
of IT infrastructure facilitating online filing of tax returns. Once it is achieved, e-
taxation rollout would be the next logical step.
Further, it is obligatory to note that in Tata Consultancy Services v. State of Andhra
Pradesh[AIR 2005 SC.371], the issue before the Hon’ble Supreme Court was
whether the canned software which were available off the shelf in the form of software
packages sold by the appellants can be termed to be “goods” and as such assessable
to sales tax. The Constitutional Bench of five judges opined that for the purpose of
sales tax, the term “goods” cannot be given a narrow meaning. In India, the test to
determine whether a property is “goods”, for purposes of sales tax, is not whether
the property is tangible or intangible or incorporeal. The test is whether the concerned
item is capable of abstraction, consumption and use and whether it can be transmitted,
transferred, delivered, stored, possessed etc. Admittedly in the case of software,
both canned and uncanned, all of these are possible. 33
E-commerce It is important to note that under the Sale of Goods Act, 1930 “goods” means every
kind of movable property other than actionable claims and money; and includes
stock and shares, growing crops, grass, and things attached to or forming part of the
land which are agreed to be severed before sale or under the contract of sale [S.
2(7)].
The Hon’ble Supreme Court’s decision has further widened the tax regime to include
intangible property as well.
The full form of OECD is .............................................................
3.10 SUMMARY
z Online advertising is aiding online marketing initiatives.
z It has moved from a flat fee payment model to a more dynamic ‘pay per click’
model.
z Over a period of time, online advertising has become intrusive and bane for the
Net users’ and it is thus imperative that online service providers should now opt
for self-regulation.
z It is a myth that electronic tax is an additional tax burden. The fact is that it is
not! It is meant to tax e-commerce transactions but the process is not easy
because of the very nature of Internet technology, which is seamless and
unobtrusive.
z Nevertheless, world over, the governments are coming to terms with the e-
taxation reality.

1. Online advertising is a necessary evil. Justify the statement with the help of
examples.
2. What is so difficult about taxing e-commerce transactions?
3. Explain the different forms of online advertising?

1. Online consumers
2. (a) Search Engine
(b) Short Messaging Service
3. Organization for economic co-operation and development
34
Terminal Questions Advertising and Taxation

1. Janal D. “Online Marketing Handbook – how to promote. advertise and sell
your products and services on the Internet”. Van Nostrand Reinhold. 1998.
2. Armstrong Steven. “Advertising on the Internet”. Kogan Page. 2001.
3. Rustad L. Michael and Cyrus Daftary, “E-business Legal Handbook. Aspen
Law & Business”. 2002.
4. Sharma Vakul . “Information Technology – Law and Practice”. Universal Law

Publishing Co.. 2004.
5. The Internet Tax Freedom Act. Pub. L. 105-277. S 1101.a, Oct. 21. 1998.
6. On November 28. 2001. President Bush signed H.R. 1552. the “Internet Tax
Non-discrimination Act” which simply amended the IFTA so that the moratorium
would not expire until Nov. 1. 2003.
7. Public Law 108-435. 108th Congress. Dec. 3. 2004.
35
UNIT 4 CONSUMER PROTECTION IN
CYBERSPACE
Structure
4.1 Introduction
4.2 Objectives
4.3 E-consumers
4.4 E-consumer Support and Service
4.4.1 E-mail Support
4.4.2 Newsgroups, Chat Rooms, Message Boards, Blogs
4.4.3 FAQs
4.4.4 Consumer Service Information
4.4.5 Feedback Forms
4.4.6 Help Desk
4.5 Caveat Emptor: Consumers Beware!

4.5.1 Private Policy
4.5.2 Terms of Service
4.6 Legal Remedies

4.6.1 The Consumer Protection Act, 1986
4.6.2 The Specific Relief Act, 1963
4.6.3 The Sale of Goods Act, 1930
4.7 Summary
4.1 INTRODUCTION
Today cyberspace represents an e-marketplace. It has got e-shops, e-malls etc.,
selling all kinds of goods and services. If there are e-sellers, then there are e-buyers
as well. These e-buyers, buying goods and/or availing services on the Internet should
be treated as the consumers as defined under the Consumer Protection Act, 1986.
4.2 OBJECTIVES
z describe who is an e-consumer and how the general profile of e-consumer is
different from that of offline consumer in many ways;
z explain the various kinds of support and service, which is being provided to the
e-consumers by the e-commerce service providers; and
z explain the legal remedies and analyse whether the rights of e-consumers have
36
been protected or not.
Consumer Protection in
4.3 E-CONSUMERS Cyberspace
E-consumers are consumers who are buying, consuming or selling1 goods or services
using digital medium (Internet or any other electronic platform). It is interesting to
note that the e-consumers are consuming both tangible (physical) goods as well as
intangible (digital) goods. The digital medium helps e-consumers to place buy orders
for physical goods using e-commerce business models, like business-to consumer
(B2C), consumer-to-business (C2B) and consumer-to-consumer (C2C); it also helps
them to download digital goods in the form of MP3 music files, data, databases,
content, software etc.
Interestingly, the term e-consumer nowadays includes both e-commerce (electronic
commerce) and m-commerce (mobile commerce) consumers.
E- consumer: A Profile
The general profile of e-consumer is different from that of offline consumer in many
ways. An e-consumer is urban, young, technology savvy, educated, convenience
shopper and multiple choices oriented. Moreover, he is smart; he knows where to
look for discount on the Net. As compared to physical world, ease of price comparison
and greater choices are the biggest plus points in favour of e-consumers.
It is thus important to compare a physical shopping experience with that of online
shopping experience to understand the psyche of e-consumer – his wants and needs.
Table 1: Comparison2 between physical and online shopping
Physical Shopping Online Shopping

Shop/Supermarket/Mall Website
Display windows Home Page
Store layout Frames, browse and search
function, navigation buttons
In-store promotion/sales/discounts Special offers, discounts
Store atmosphere Interface consistency, graphics
quality
Number of branches Links to other similar sites
Product displays Menu buttons
Look and touch of the merchandise Look and feel of the merchandise
Footfalls (number of people entering Number of unique visits to the
the store) online store
As indicative from the aforesaid table, e-consumer shopping decisions are based on
“look and feel” factors, i.e. products which require “low touch” (which consumers
prefer to be able to see and feel before they buy). Nevertheless, the distinctions are
blurring, e-consumers are now even going for goods, which require look and touch,
for example dresses and diamond jewelry3.
37
E-commerce Please answer the following Self Assessment Question.
Who is an E-consumer? Are you an E-consumer?
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
4.4 E- CONSUMER SUPPORT AND SERVICE

E-commerce is more about personalised support and service. E-consumer is a seeker
of information before he makes a buy decision. Hence, the ability to collect product
information and make comparisons between the different product offerings from
different providers is often viewed as one of the main competitive challenges of e-
shopping and is therefore a key aspect of the online shopping experience. For
example, price and product comparisons have been made easier by the development
of “shopping bots”. Websites such as Mysimon.com and DealPilot.com enable buyers
quickly to compare products, prices and availability. In other words, e-consumers
are being assisted at every step by the technology.
Significantly, at e-marketplace, an e-consumer is not alone. There exists a community
of e-consumers helping each other in every possible manner. For example, eBay, an
auction site provides a platform for buyers to rank sellers on the basis of their business
dealings. Bad reviews against a particular seller would mean no further business
dealings with that seller on eBay platform. This is a self-regulating process. Similarly,
a site called Epinions.com provides an “open source” style of review for products of
all kinds, with visitor providing all the material. The company makes no attempt to
edit any of this, but once posted, the reviews themselves are rated by other users.
Consumer support and service in the digital medium is one of the means to protect
not only the organization reputation but also provide an opportunity to redress the
consumer complaints and grievances. Consumer service is concerned with giving e-
consumers the opportunity to talk to the organization and to receive personalised
responses.
There are a number of different avenues through which consumer service and support
can be delivered4: (a) E-mail support (b) Newsgroups, chat rooms, message boards,
blogs (c) FAQs (d) Consumer service information (e) Feedback forms (f) Help
desk support.
4.4.1 E-mail Support

E-mails are the best means of communication between the consumer and the
organization. If handled effectively, the consumer will be duly satisfied and the
organization will learn more about the types of difficulties that consumers have with
its products or services and evolve solutions to those problems.
38
E-mail services can be expensive to operate due to the personalised nature of the Consumer Protection in
Cyberspace
response to begin with. But by incorporating technology, the system may be so
programmed to produce an answer from its databank automatically.
4.4.2 Newsgroups, Chat Rooms, Message Boards, Blogs

These services allow consumers to communicate with one another. These are often
being used to share knowledge and create a self-help group. In the present day
environment, such services help in creating awareness among consumers. Blogs are
the latest edition in this discussion centric online environment. Blogs5 are a kind of
personalised e-diaries carrying views of the blogger; others may join and post their
views.
4.4.3 FAQs
Frequently Asked Questions are common consumer-service resources. They are
the most common questions posed by consumers, which are collected, together with
their answers, and can be viewed online. The only disadvantages with FAQs are that
they are not personalised.
4.4.4 Consumer Service Information
It provides relevant information to the consumer, which may include product
specifications, compatibility charts, pricing, warranty details etc. Such an information
resource helps the consumer not only in arriving at a decision, but also safeguards
him against any artificial price increase by a retailer.
4.4.5 Feedback Forms
These are the forms through which customers can complain or provide valuable
comments about the service and the products provided by the organization. These
forms are valuable assets from the point of view of consumer trust and retention.
4.4.6 Help Desk

Help desk support system in a form of toll free number, provides real time help to
consumers. It works 24×7, wherein call center executives listen to complaints and
grievances and try to solve problems.
It is thus imperative for any organization selling services or goods online to provide
to its consumers a system of online help. Such a system would resolve initial disputes
amicably, which may crop up between the consumers and the organization.
Name the different avenues through which consumer service and support can be
delivered.
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
................................................................................................................... 39
E-commerce
4.5 CAVEAT EMPTOR: CONSUMERS BEWARE!
E-consumers do have certain rights as consumers. But it is obligatory to note that the
consumers have certain obligations as well. It is expected that e-consumer are aware!
Any failure to protect their interests would be considered to be his own failing.
In the digital medium, it is natural for the consumer to read the privacy policy and
terms of service conditions posted on e-tailer’s website. Such policy statements
constitute online contracts between the consumer and the service provider (e-tailer).
4.5.1 Privacy Policy

Privacy policy posted on the website provides details of ways and means of protecting
users’ ‘personal’ and ‘not-so-personal’ information. It provides details6, like:
z What kind of information is to be collected: e-mail address, name, phone number,
postal address, age, gender, occupation, credit card number etc?
z What kind of technological tools will be used to collect information?
z How the information thus collected will be used and for what purpose?
z Whether information to be given to any third-party and for what purpose?
z Whether a choice will be given to the individual to opt-out from collection and
distribution of online information.
z What will be the business transaction consequences of an individual who has
refused to provide private information or has refused to accept a cookie or has
opted out of a particular use of such information?
z How individually identifiable private information collected can be reviewed and,
if necessary, corrected or removed?
z How frequent the privacy policy will be reviewed?
z Whether the site will be independently verified to ensure that its security
adequately protects its customers from the risk of security breaches.
Privacy policy may exist in a form of ‘Safe Harbor Agreement’, which may provide
for terms such as:
(a) Notice – to the consumer, i.e., data subject about what information is collected,
processed and used.
(b) Choice – covers the ability for consumers to ‘opt-out’ from direct marketing.
(c) Onward Transfer – choice for consumers about the way in which a third party
could use their data.
(d) Security – taking reasonable measures to protect data from loss, misuse etc.
(e) Data Integrity – data to be kept accurate, current and complete etc.
(f) Access – consumers to have reasonable access to information about them
derived from non-public sources.
(g) Enforcement – assuring compliance with data protection; also readily available
and affordable independent recourse mechanisms by which consumers’
40 complaints and disputes can be resolved.
4.5.2 Terms of Service Consumer Protection in
Cyberspace
A posted term of service conditions is also an important statement on behalf of an e-
tailer. It signifies that the user’s use of this website constitutes user’s agreement to be
bound by these terms and conditions of use. It may contain following details:
(a) Notice
Please review these Site ‘terms of use’ which govern your use and purchase of
products and services from our website. By accessing, browsing or using the site,
you signify your assent to these terms of use. If you do not agree to these terms of
use then please do not use this site.
(b) Membership Eligibility
Use of the site is available only to persons who can form legally binding contracts
under applicable law. Persons who are “incompetent to contract” within the meaning
of the Indian Contract Act, 1872 including minors, undischarged insolvents etc. are
not eligible to enter and execute financial transactions with the site.
In consideration of the use of the service, the user agrees to provide true, accurate,
current and complete information about himself as prompted by the User Registration
Form. It is the user’s obligation to maintain and promptly update the personal
information as requested in the User Registration Form in order to make it true,
accurate, current and complete.
(c) Website Limited License
As a user of this site you are granted a nonexclusive, nontransferable, revocable,
limited license to access and use this site and its content in accordance with these
Terms of Use. Provider may terminate this limited license at any time for any reason.
(d) Protecting Passwords
The user is responsible for maintaining the confidentiality of the password and user
name and is fully responsible for all activities that occur under his password.
(e) Price Offers
The prices advertised on this site are for Internet orders and is inclusive of all central/
local taxes and delivery and handling charges. Prices and the availability of items are
subject to change without notice.
(f) Modifications to Site
The service provider reserves the right, for any reason, in its sole discretion, to
terminate, change or suspend any aspect of the site, including, but not limited to,
content, features or hours of availability. The service provider may impose limits on
certain features of the site or restrict your access to part or the entire site without
notice.
(g) Disclaimer of Liability
This site is provided on an “as is, as available” basis. Provider expressly disclaims all
warranties, including the warranties of merchantability, fitness for a particular purpose
and non-infringement. Service provider disclaims all responsibility for any loss, injury,
claim, liability, or damage of any kind resulting from, arising out of or any way related
to the use of the site. 41
E-commerce (h) Indemnification
You agree to indemnify, defend and hold harmless provider, its officers, directors,
employees, agents, licensors, suppliers and any third party information providers to
the site for and against all losses, expenses, damages and costs, resulting from any
violation of these Terms of Use by you.
(i) Governing Law and Jurisdiction
The Terms of Use are governed by and construed in accordance with the relevant
Indian laws. You agree that any action at law or in equity arising out of or relating to
these terms shall be filed only in the courts / tribunals and forums located in Delhi and
you hereby consent and submit to the personal jurisdiction of such courts and forums
for the purposes of litigating any such action.
All provisions in this Agreement regarding representations and warranties,
indemnification and disclaimers shall survive any termination of this Agreement.
Explain the term Caveat Emptor?
....................................................................................................................
....................................................................................................................
....................................................................................................................
....................................................................................................................
....................................................................................................................
....................................................................................................................
4.6 LEGAL REMEDIES

It does not imply from the aforesaid discussion that e-consumers rights and obligations
are confined to the privacy policy and term of service conditions only. Does he have
rights if he gets defective goods or services?
Consumer protection in cyberspace can be understood with the help of the following
statutes:
(a) The Consumer Protection Act, 1986
(b) The Specific Relief Act, 1963
(c) The Sale of Goods Act, 1930
4.6.1 The Consumer Protection Act, 1986

Recourse to consumer protection under the Consumer Protection Act, 1986 is taken
after the dispute has arisen. The Act applies to all goods and services unless specifically
exempted by the Central Government. It covers all the sectors of the economy –
private, public and cooperative. Further, it provides for adjudication process, which
is simple, speedy and less expensive.
42
Consumer is defined under section 2(1)(d) of the Act as a person who buys any Consumer Protection in
Cyberspace
goods or services for a consideration, which has been paid or promised. Therefore
any person buying goods and/or availing services on the Internet will be a consumer
for the purposes of Act. It provides a very wide definition of “service” as service
of any description which is made available to potential users and includes,
but not limited to, the provision of facilities in connection with banking, financing
insurance, transport, processing, supply of electrical or other energy, boarding or
lodging or both, entertainment, amusement or the purveying of news or other
information, but does not include the rendering of any service free of charge or under
a contract of personal service [section 2(1)(o)]. This definition is capable of including
all online service providers since it is an inclusive definition.
According to section 2(1)(c) of the Act “complaint” means any allegation in writing
made by a complainant that the goods or services hired or availed suffer from
deficiency in any respect. The complainant can be a consumer or his legal
representatives, any registered voluntary consumer association, Central or State
Government [section 2(1)(b)].
But if a consumer in the digital medium faces any defects in goods or deficiency in
services, who are the persons against whom he can lodge a complaint? The term
“deficiency” means any fault, imperfection, shortcoming or inadequacy in the quality,
nature and manner of performance which is required to be maintained by or under
any law for the time being in force or has been undertaken to be performed by a
person in pursuance of a contract or otherwise in relation to any service [section
2(1)(g)]. A consumer has every right to file a complaint against all such service
providers, which may include information providers, websites owners, payment
gateways etc. in a District Forum.
Further, section 2(1)(j) of the Act, further qualifies a manufacturer as a person who
makes or manufactures any goods or parts thereof, or assembles them or puts his
own mark on any goods manufactured by any other manufacturer. A trader is a
person (including manufacturer) who sells or distributes any goods for sale. In other
words, a complaint can also be made against manufacturer and trader selling goods
online.
Define consumer briefly.
....................................................................................................................
....................................................................................................................
....................................................................................................................
....................................................................................................................
....................................................................................................................
....................................................................................................................
4.6.2 The Specific Relief Act, 1963

A mature legal system endeavours to provide not merely a remedy for every right
infringed, but also an adequate remedy. The Specific Relief Act provides that effective
remedial action. 43
E-commerce It provides preventive relief in the form of temporary and perpetual injunctions
[sections 37 and 38] to the plaintiff to prevent the breach of an obligation existing in
his favour, whether expressly or by implication. For example, a person can move
against any service provider, even an online service provider to a court and plead for
issuing injunction against a service provider, if he feels that the service provider is not
fulfilling his contractual obligations or preventing the breach of an obligation existing
in his favour. The court can perpetually enjoin the defendant (service provider) from
the assertion of a right, or from the commission of an act, which would be contrary
to the rights of the plaintiff.
Further, the plaintiff in a suit for perpetual injunction under section 38, or mandatory
injunction under section 39 of the Act, may claim damages either in addition to, or in
substitution for, such injunction and the court may, if it thinks fit, award such damages
[section 40].
4.6.3 The Sale of Goods Act, 1930

Under Article 366 (13) of the Constitution of India, the expression “goods” includes
all materials, commodities and articles. Different enactments over the years have
further enlarged the definition of goods. For example, under the Sale of Goods Act,
1930, “goods” means every kind of movable property other than actionable claims
and money; and includes stock and shares, growing crops, grass and things attached
to or forming part of the land which are agreed to be severed before sale or under
the contract of sale [section 2(7)].
A contract of sale is made by an offer to buy or sell goods for a price and acceptance
of such offer [Section 5 of Sale of Goods Act, 1930]. Now the question is – is it
possible to make an online contract? Section 4 of the Information Technology Act,
2000 has accorded legal acceptance to electronic records. Therefore, an offer and
an acceptance through an electronic record will form a contract for the purposes of
the Sale of Goods Act, 1930. Thus a contract for sale of goods made online will
have:
(a) the same effects of contract;
(b) would require same level of performance of contracts;
(c) will give same rights and duties to the seller and buyer; and
(d) will have same consequences for breach of contract as a contract in the physical
world.
The Buyer’s Rights under the Sale of Goods Act, 1930
It is significant to note that the Sale of Goods Act has laid down a statutory provision
with respect to implied condition as to quality or fitness, i.e., if the buyer, expressly
or by implication, makes known to the seller the particular purpose for which the
goods are required, thereby relying on the seller’s skill or judgment, (except in case
of sale an article under its patent or trade name) there is an implied condition that the
goods shall be reasonably fit for such purpose [section 16]. Further, a buyer has a
right to examine the goods, i.e. where goods are delivered to the buyer, which he has
not previously examined, he cannot be said to have accepted them until he has had a
reasonable opportunity of examining them. The seller is bound to give the buyer a
44 reasonable opportunity of examining the goods, on buyer’s request. Moreover, where
goods have been delivered to the buyer and he intimates to the seller that he has Consumer Protection in
Cyberspace
rejected the goods due to some defect; he is not bound to return them to the seller
[sections 41-43].
Also, the Act protects the buyer from any breach of contract arising out of sellers’
actions, like where the seller wrongfully neglects or refuses to deliver the goods to
the buyer, the buyer may sue the seller for damages for non-delivery. The buyer may
also sue for specific performance, i.e., the buyer may apply to the Court to direct the
seller to deliver the goods. In case of breach of warranty the buyer may sue the seller
for damages for breach of warranty or set up against the seller the breach of warranty
in diminution or extinction of the price [sections 57-59].
It is thus evident from the aforesaid discussion that legal remedies are available to
the e-consumers in the form of statutory provisions. Nevertheless, e-consumer has
to be careful and vigilant in exercising their legal rights.
4.7 SUMMARY
z E-consumers are consumers who are buying, consuming or selling goods or
services using digital medium (Internet or any other electronic platform).
z The digital medium helps e-consumers to place buy orders for physical goods
using e-commerce business models, like business-to consumer (B2C), consumer-
to-business (C2B) and consumer-to-consumer (C2C); it also helps them to
download digital goods in the form of music files, data, databases, content,
software etc.
z A proactive website is the one which provides consumer support and service
functions in the form of e-mail queries, feedback forms, consumer service
information etc.
z The knowledge of privacy policy and terms of use are also beneficial for e-
consumers.
z From statutory perspective enactments, like the Consumer Protection Act, 1986,
the Specific Relief Act, 1963 and the Sale of Goods Act, 1930 play a critical
role in safeguarding the e-consumers interests in cyberspace.

1. Examine the role of ‘privacy policy’ and ‘terms of use’ statements vis-à-vis e-
consumers.
2. Do you think that the enactments, like Consumer Protection Act, 1986, the
Specific Relief Act, 1963 and the Sale of Goods Act, 1930 are adequate to
safeguard the interests of e-consumers in online environment?

1. An E-consumer is one who buys, consumes or sell good or services using digital
45
medium, Yes.
E-commerce 2. (a) E-mail support
(b) News Groups, Chat Rooms, Message boards, Blogs
(c) FAQs
(d) Consumer service information
(e) Feedback forms
(f) help desk support.
3. The term ‘Caveat Emptor’ means consumer be aware.
4. Consumer is defined under section 2(1)(d) of the Act, as a person who buys
any goods or services for a consideration, which has been paid or promised to
pay.
Terminal Questions

1. Auction sites. like www.ebay.in represents a consumer-to-consumer C2C model.
2. Adapted from Lohse. G.L. and Spiller. Electronic Shopping: “The Effect of
Customer Interfaces on Traffic and Sales” Communications of the ACM, Page
1998.
3. The success story of www.baazee.com revolved around selling diamond jewelry
to e-consumers. Interestingly www.ebay.in sells all kinds of physical goods like
cameras. TVs. mobile phones. electronic devices and even automobiles.
4. Rowley Jennifer. “E-business: Principles & Practice” Palgrave. p. 130. 2002.
5. According to. www.technorati.com which tracks blogs on the Internet that there
are 30 million blogs and there number is growing everyday!
6. Sharma Vakul. “Handbook of Cyber Laws” Macmillan. India. 2002.
46
UNIT 5 FORMS OF ONLINE CONTRACTS
Structure
5.1 Introduction
5.2 Objectives
5.3 The Nature of Online Contracts
5.3.1 Nature of Online Contracts and the European Directive
5.3.2 Nature of Online Contracts and the U.S. Law
5.3.3 Nature of Online Contracts and the Indian Law
5.4 Forms of Online Contracts

5.4.1 Electronic Data Interchange (EDI) Contracts
5.4.2 Access Contract
5.4.3 Click-wrap Contracts
5.4.4 Web-wrap Contracts
5.5 Objective of Online Contracts

5.6 Summary
5.1 INTRODUCTION
E-markets are technological extensions of physical markets in the cyberspace.
Everything that exists in the physical world now exists in cyberspace. E-markets
are functioning like physical markets and have their respective set of e-buyers
and e-sellers. These buyers and sellers are fulfilling all the legal pre-requisites
to have binding relationship between them. Online contract is one such
relationship that binds the buyer with the seller.
5.2 OBJECTIVES
z explain the different online contracts associated with various online
commercial activities from the global perspective i.e. from European
Council, the U.S. and the Indian legal perspective;
z describe online contracts covering the entire gamut of online business
behaviour whether it is:
(a) business to business (B2B) or
(b) business to consumer (B2C)
z discuss the different forms of online contracts like EDI contract, access
contracts, click wrap contracts and web wrap contracts.
5
Online Contracts
5.3 THE NATURE OF ONLINE CONTRACTS
An online contract is formed over the Internet when an offer is made and an acceptance
is received. The offer could be made by a seller (service provider) using an e-mail or
a website. The buyer on receipt of an offer, places an order and the seller confirms
receipt of the order. But there needs to be a clear statement as to how offers and
acceptance are to be communicated and received.
In fact, it was the United Nations Commission on International Trade Law
(UNCITRAL) Model Law on Electronic Commerce, which for the first time
articulated about the nature of online contract mechanism in terms of its formation
and validity. It was adopted by the General Assembly of the United Nations on
30th January 1997 by its Resolution A/RES/51/162. It deals not only with the
issue of contract formation but also with the form in which an offer and an
acceptance may be expressed. It provides1 that “information shall not be denied
legal effectiveness, validity or enforceability solely on the grounds that it is in
the form of data messages (electronic record)”.
Basically there are three legal issues related to online contracts:
(a) What sort of contracts to be concluded by electronic means?
(b) What sort of information related to offer to be provided by the service
provider?
(c) What sort of information on receipt of order to be provided by the service
provider?
It is thus imperative to seek answers to aforesaid questions across various
legislations.
5.3.1 Nature of Online Contracts and the European Directive

The European Directive2 on Legal Aspects of Information Society Services seeks
to contribute to the proper functioning of the internal market by ensuring the free
movement of information society services between the member states. It has
defined terms such as, service provider [Article 2(b)], established service
provider [Article 2(c)], recipient of the service [Article 2(d)] and consumer
[Article 2(e)].
z A Service provider is any natural or legal person providing an information
society service.
z An Established service provider is a service provider who effectively
pursues an economic activity using a fixed establishment for an indefinite
period.
z A Recipient of the service is any natural or legal person who, for
professional ends or otherwise, uses an information society service, in
particular for the purposes of seeking information or making it accessible.
z A Consumer is any natural person who is acting for purposes, which are
outside his or her trade, business or profession.
6
Please answer the following Self Assessment Question. Forms of Online Contracts

What are the issues related to online contracts?
....................................................................................................................
....................................................................................................................
....................................................................................................................
....................................................................................................................
....................................................................................................................
....................................................................................................................
Contracts to be concluded by Electronic Means

Article 9 of the Directive deals with treatment of contracts to be concluded by
electronic means. It states:
1. Member States shall ensure that their legal system allows contracts to be
concluded by electronic means. Member States shall in particular ensure
that the legal requirements applicable to the contractual process neither
create obstacles for the use of electronic contracts nor result in such contracts
being deprived of legal effectiveness and validity on account of their having
been made by electronic means.
2. Member States may lay down that paragraph 1 shall not apply to all or
certain contracts falling into one of the following categories:
(a) contracts that create or transfer rights in real estate, except for rental
rights;
(b) contracts requiring by law the involvement of courts, public authorities
or professions exercising public authority;
(c) contracts of suretyship granted and on collateral securities furnished
by persons acting for purposes outside their trade, business or
profession;
(d) contracts governed by family law or by the law of succession.
Information Related to Offer to be Provided by the Service Provider
Article 10 of the Directive deals with the information to be provided by the
service provider prior to the order placed by the recipient. It states:
1. In addition to other information requirements established by Community
law, Member States shall ensure, except when otherwise agreed by parties
who are not consumers, that at least the following information is given by
the service provider clearly, comprehensibly and unambiguously and prior
to the order being placed by the recipient of the service:
(a) the different technical steps to follow to conclude the contract;
(b) whether or not the concluded contract will be filed by the service
provider and whether it will be accessible; 7
Online Contracts (c) the technical means for identifying and correcting input errors prior to
the placing of the order;
(d) the languages offered for the conclusion of the contract.
2. Member States shall ensure that, except when otherwise agreed by parties
who are not consumers, the service provider indicates any relevant codes
of conduct to which he subscribes and information on how those codes can
be consulted electronically.
3. Contract terms and general conditions provided to the recipient must be
made available in a way that allows him to store and reproduce them.
4. Paragraphs 1 and 2 shall not apply to contracts concluded exclusively by
exchange of electronic mail or by equivalent individual communications.
Information Related to on Receipt of Order to be Provided by the Service
Provider
Article 11 of the Directive deals with the information related to placing of
order by the recipient and its receipt by the service provider. It states:
1. Member States shall ensure, except when otherwise agreed by parties who
are not consumers, that in cases where the recipient of the service places
his order through technological means, the following principles apply:
- the service provider has to acknowledge the receipt of the recipient’s
order without undue delay and by electronic means,
- the order and the acknowledgement of receipt are deemed to be
received when the parties to whom they are addressed are able to
access them.
2. Member States shall ensure that, except when otherwise agreed by parties
who are not consumers, the service provider makes available to the recipient
of the service appropriate, effective and accessible technical means allowing
him to identify and correct input errors, prior to placing of the order.
3. Paragraphs 1, first indent, and paragraph 2 shall not apply to contracts
concluded exclusively by exchange of electronic mail or by equivalent
individual communications.
It is obligatory to note that the words “except when otherwise agreed by
parties…..”, in the context of contract formation, intend to make it clear that the
purpose of the Directive is not to impose the use of electronic means of
communication on parties who rely on the use of paper-based communication to
conclude contracts.
As evident from above, the European Directive provides specific safeguards
for online contracts. It has provided a methodology whereby the onus is on the
service provider to formulate proper ‘terms of use’ policies for the benefit of
the consumer. Significantly, the Directive has made it clear that its provisions
shall not apply to contracts concluded exclusively by exchange of electronic
mail or by equivalent individual communications.
8
Moreover, the Directive also creates a bar on the contracts concluded by electronic Forms of Online Contracts
means, like creating or transferring rights in real estate, exercising public authority,
creating suretyship, creating testamentary disposition etc. This has been a right step
in view of the nature of Internet and web technologies.
5.3.2 Nature of Online Contracts and the U.S. Law

In the U.S., law related to online contracts is always in flux. Newer and updated
versions of state and federal contract laws are being adopted to facilitate
interstate online commerce. The basic legal principle behind all such legislations
is that a “contract may not be denied legal effect or enforceability solely because
an electronic record was used in its formation”.
The Uniform Commercial Code (UCC)
In the U.S. contracts are generally governed by state law, either the common
law for service contracts or the UCC for sales of goods. UCC provides flexibility
to the parties to choose the law provided it bears a “reasonable relation” to the
commercial contract. It has been updated periodically to accommodate new
technologies and business practices. For example, Article 2 of UCC in its updated
version applies to online sales of goods as well. Revised Article 2 has electronic
contracting provisions which are consistent with UCITA and E-Sign Act.
The Uniform Electronic Transactions Act (UETA)
On July 29, 1999 the National Conference of Commissioners on Uniform State
Laws (NCCUSL) approved the UETA for enactment in the states. UETA governs
procedural rules for contracting. It applies to transactions related to business,
commercial, and governmental matters. Wills, codicils, and testamentary trusts
are removed from this Act. UETA applies to any electronic record or electronic
signature created, generated, sent, communicated, received, or stored.
It applies “only to transactions between parties, each of which has agreed to
conduct transactions by electronic means” [section 5(b)]. It validates electronic
records, electronic signatures and electronic contracts. It legitimizes the concept
of electronic contract, providing that “a contract may not be denied legal effect
or enforceability solely because an electronic record was used in its formation”
[section 7(b)].
Further, UETA provides a legal infrastructure for automated transactions using
intelligent electronic agents. Section 14(1) validates contracts formed by
electronic agents, even without human review of the terms and agreements.
The Uniform Computer Information Transactions Act (UCITA)
“UCITA” – was formerly known as Article 2B to the Uniform Commercial Code,
which was also adopted by the National Conference of Commissioners on
Uniform State Laws (NCCUSL) on July 29, 1999.
UCITA is applicable to a wide variety of software-related contracts. It defines
a license to mean a contract that authorizes access to distribute, perform, modify,
or reproduce information or information rights. It provides a set of uniform
rules for a wide variety of Internet-related mass market licenses, including
software contracts, contracts to download software, access contracts, click-
9
Online Contracts wrap agreements, web-wrap agreements, electronic data interchange (EDI) and
others.
UCITA’s contracting rules apply to the entire transaction if information is the
predominant purpose of the transaction. Moreover, it permits the manifestation
of assent to be fulfilled by an affirmative act such as clicking a display button
labeled “I accept the terms of this agreement”. Accordingly, a licensor must
give the licensee a right to a refund if the licensee has not had an opportunity to
review the terms and to manifest assent prior to a requirement to pay [section
209 (b)].
The E-Sign Act
The Electronic Signatures in Global and National Commerce Act (E-Sign), a
federal Act came into effect on July 1, 2000. Its objective is to promote the use
of electronic records and authentication methods in interstate commerce. E-
Sign gives legal legitimacy to electronic signatures, contracts and records. E-
Sign defines the term “electronic signature” to mean an electronic sound, symbol,
or process that is attached to or logically associated with the record and intended
to act as a signature.
Section 101 of E-Sign validates electronic records and signatures – “A signature,
contract or other record relating to such transaction may not be denied legal
effect, validity or enforceability solely because it is in electronic form”.
Likewise, “a contract relating to such transactions may not be denied legal effect,
validity or enforceability solely because an electronic signature or electronic
record was used in its formation”.
Further, under section 101(c), the E-Sign Act prescribes the following disclosures
which constitute affirmative consent for consumers: (1) the consumers must have
affirmatively consented to use of e-records and not withdrawn consent; and (2)
the consumer, prior to consenting, must have been given a “clear and conspicuous
statement informing the consumer of any right or option of the consumer to have
the record provided or made available on paper or in non-electronic form”. If
special software or hardware is required to access or retain electronic records,
the consumer is entitled to a statement of the system requirements.
Explain UCITA and list its applications.
....................................................................................................................
....................................................................................................................
....................................................................................................................
....................................................................................................................
....................................................................................................................
5.3.3 Nature of Online Contracts and the Indian Law

In India, there is no specific law pertaining to online contracts. Nevertheless,
the Indian Parliament has enacted an Act called the Information Technology
10
Act, 2000. This Act is based on the UNCITRAL’s Model Law on Electronic
Commerce.
The Indian Information Technology Act, 2000 has made the following instruments/ Forms of Online Contracts
documents (contracts) non-applicable under section 1(4) of the Act:
(a) A negotiable instrument (other than a cheque) as defined in section 13 of
the Negotiable Instruments Act, 1881.
(b) A power-of-attorney as defined in section 1A of the Powers-of-Attorney
Act, 1882.
(c) A trust as defined in section 3 of the Indian Trusts Act, 1882.
(d) A will as defined in clause (h) of section 2 of the Indian Succession Act,
1925 including any other testamentary disposition by whatever name called.
(e) Any contract for the sale or conveyance of immovable property or any
interest in such property;
(f) Any such class of documents or transactions as may be notified by the
Central Government in the Official Gazette.
Reasons of making aforesaid instruments/documents (contracts) non-applicable
result not only from lack of proper IT infrastructure to support legal requirements
of such instruments but also issues related to payment of stamp duty under the
State or Central Stamp Duty enactments and so far there is no technology, which
would facilitate payment of statutory stamp duty payable on such instruments.
5.4 FORMS OF ONLINE CONTRACTS

Online contracts cover the gamut of online business behaviour, whether it is
business-to-business (B2B) or business-to-consumer (B2C). These contracts
may exist in various forms, like EDI contracts, access contracts, click-wrap
contracts and web-wrap contracts. All these contracts may deal with tangible
(physical) as well as intangible (digital) goods depending upon the nature and
type of transaction.
Table 1: Types of online contracts
Goods/ EDI Access Click-wrap Web-wrap

Services Contract Contract Contract Contract
Intangible + + +
Tangible + +
EDI contract predominantly deals with tangible goods in B2B space3, whereas
‘access contract’ deal with intangibles. A click-wrap contract deals with both
tangible and intangible goods. A web-wrap contract predominantly deals with
intangible goods only.
5.4.1 Electronic Data Interchange (EDI) Contracts

EDI refers to the process by which goods are ordered, shipped, and tracked
computer -to-computer using standardised protocol. It permits the “electronic
settlement and reconciliation of the flow of goods and services between
companies and consumers”.4 EDI is made possible because trading partners
enter into master agreements (or umbrella agreement) to employ electronic
11
Online Contracts messaging permitting computer-to-computer transfers of information and validating
computer-to-computer contracts.5
It is important to note that EDI is a contracting practice by which the parties set
guidelines for what qualifies as an offer or an acceptance. The difficulty of the
EDI model, however, is that it requires trading partners to agree in advance to
accept the validity of electronic contracts. Trading partner agreements set the
ground rules for permitting the ordering of goods or services through computer-
to-computer communications, such as given transaction sets that provide for
electronic offers and acceptance6.
5.4.2 Access Contract

Internet service providers like Satyam, VSNL, and MTNL etc. provide facility
of Internet access, but others like Rediff, Sify and Yahoo provide web mail
services and proprietary content to their subscribers. The latter, may enforce a
comprehensive content and interactive service contracts on their subscribers.
Such contracts are visible on the website in a form of a link or an icon and
provide legal clauses pertaining to notice, disclaimers, warranties, eligibility
conditions, registration etc.
They are also being referred as a “content and interactive service contracts” –
means a contract to obtain electronic access to, or information from, an
information processing system of another person, or the equivalent of such
access”. Accessing legal databases, like SCCONLINE, WESTLAW and LEXIS
would also fall under this category.
5.4.3 Click-wrap Contracts

Click-wrap contracts are commonly used in connection with e-business
transactions. It is being used to bind the user to ‘terms of use’ contract facilitating
online sale or purchase of goods and services. The goods can be tangible or
intangible (digital).
With these agreements the buyer or user usually explicitly assents to these terms
by clicking on a button stating “I agree”, “I accept”, “Yes”, “I submit”, “No” or
“I decline” after having had an opportunity to review the terms. The typical
click wrap contract will state: “By clicking the ‘accept’ button, you are
consenting to be bound by and are becoming a party to this agreement. If you do
not agree to all of the terms of this agreement, click the ‘do not accept’ button
and the installation process will not continue”.
An act by the buyer affirmatively assenting to the terms of the click-wrap contract
significantly enhances its enforceability. Some sites, for instance, indicate that
continuing use of the site by the user or buyer manifests assent to be bound by
the terms and conditions applicable to using the site. It is critical that the users
have an opportunity to review the terms of use applicable to the site. If they are
buried deep inside the site or otherwise inconspicuous, they will be more difficult
to enforce.
These contracts are typically used to specify the terms and conditions applicable
to the use of the website as well as to the products and services purchased over
the Internet.
12
Please answer the following Self Assessment Question. Forms of Online Contracts

1) Click Wrap Contracts are used in ........................... with ........................
2) The goods for which Click Wrap Contract one used may be ......................
or .......................
5.4.4 Web-wrap Contracts

It represents purported contract terms in a separate link but does not require the
reader to click to indicate agreement. It is also being referred to as “browse-
wrap” contract. It is typically structured as a license agreement. Website visitors
are given a license to use material on a given website. The license, for example,
may restrict the visitor from distributing, copying, or preparing derivative works
from a company’s posted materials. The license spells out permitted and restricted
uses by visitors. Access to and use of the website is provided subject to the
license agreement’s terms and conditions. In other words, web wrap contract
will generally have a term such as: “By using this site, you agree to these terms
of use. If you do not agree to these terms, you may not use this site”.
Click-wrap agreements are entered into by an affirmative assent as opposed to
the failure to act. In contrast, a “browse-wrap agreement” was not enforced
where the agreement was available in the form of an on-screen icon to a browser
seeking to download software, but where the browser could complete the
download without clicking on the agreement, viewing the agreement, or otherwise
manifesting affirmative assent.
(Specht v Netscape Communications Corp. 150.F. Supp. 2d 585 S.D.N.Y. 2001
aff'd, 2002 U.S. App. LEXIS 20714.2d Cir. Oct.1, 2002).
What is a “Browse-Wrap” Contract? Answer briefly.
....................................................................................................................
....................................................................................................................
....................................................................................................................
....................................................................................................................
....................................................................................................................
5.5 OBJECTIVE OF ONLINE CONTRACTS

The objective of online contracts is to facilitate the online buying and not to
erode the consumer confidence. It is important to note that if the contracts are
too overbearing or contain unusually harsh terms it is possible, especially in a
consumer law context that the click-wrap agreement, even if assented to, may
be found unconscionable and unenforceable. It is thus imperative that click-
wrap contracts must be easy to read and understand and should provide a clear
and simple mechanism allowing the consumer to return the products for a refund
within a reasonable period of time. 13
Online Contracts Moreover, since the nature of e-commerce is dynamic, it is imperative that the posted
online contracts on the website should be reviewed and revised periodically. Further,
the company must establish a policy of maintaining records of the disclaimers and
contract terms contained on its website, including any changes made over through
time. On the first page (home page) of the website, a company should include a
prominent notice instructing users to review the terms and conditions of usage and
alerting users to changes in the terms as they occur.
E-businesses must keep records showing what version of their electronic agreement
is applied to what e-customer and at what time. This was one of the problems Pay
Pal experienced in Comb v. Pay Pal, Inc., (2002 WL20002171 N.D. Cal.Aug.
30, 2002) where Pay Pal was unable to show which of the six versions of its Terms
of Use applied to which plaintiff making it very difficult for Pay Pal to prosecute its
breach of contract claims. Besides the record-keeping requirements necessitated by
electronic agreements mean that there is also the risk that an exchange of e-mails
may be treated as a binding contract inadvertently.
5.6 SUMMARY
z Online contracts are dynamic in nature and represent both business-to-business
(B2B) and business-to-consumer (B2C) space.
z All over the world, various legislations have been framed to articulate legal
principles creating binding relationships between e-businesses and e-consumers.
z Online contracts deal with both tangible and intangible goods.

1. Enumerate the legal issues related to contracts concluded by electronic means.
2. Differentiate between click-wrap and web-wrap contracts.
3. Explain the objective of online contracts.

1. (a) What sort of contracts should be concluded by electronic means
(b) What sort of information related to offer is to be provided by the service
provider
(c) What sort of information on receipt of order is to be provided by the
service provider
2. UCITA was formerly known as Article 2B to the UCC. It is applicable to a
wide variety of software related contracts. It defines a License to mean a
contract that authorizes access to distribute, perform, modify or reproduce
information or information rights (Refer sub section 5.3.2.).
3. 1) Connection, Business transaction.
2) Tangible, Intangible
14
4. It is typically structured as a license agreement. Website visitors are given a Forms of Online Contracts
license to use material on a given website.
Terminal Questions
2. Refer to sub-sections 5.3.3, 5.3.4 of the unit.

1. Article 11 of the “UNCITRAL Model Law on Electronic Commerce”.
2. Directive 2000/31/EC of the European Parliament and of the Council of 8 June
2000 on certain legal aspects of information society services, in particular
electronic commerce, in the Internal Market, 2000 O.J.
3. EDI contracts may also exist in IT and ITeS sectors
4. Teitelman Robert and Stephen Davis. “How the Cash Flows?” Institutional
Investor 58 Aug. 1996.
5. Electronic Messaging Services Task Force, The Commercial Use of Electronic
Data Interchange: “A Report and Model Trading Partner Agreement”. 45 Bus.
Law 1645.1990.
6. Rustad Michael L, Cyrus Daftary. E-business Legal Handbook. 2000.
15
UNIT 6 FEATURES OF ONLINE CONTRACTS
Structure
6.1 Introduction
6.2 Objectives
6.3 Essential Features of a Contract
6.3.1 Pre-requisites of a valid Contract
6.3.2 Valid Offer
6.3.3 Valid Acceptance
6.4 The Process of Communication: Offline Contracts

6.4.1 Postal Rule
6.4.2 Instantaneous Communication Rule
6.5 The Process of Communication: Online Contracts

6.5.1 The Information Technology Act, 2000: Parties to Communication Process
6.5.2 The Information Technology Act, 2000: Process of Communication
6.5.3 Electronic Communication Process and Functional Equivalent Approach
6.6 Summary
6.1 INTRODUCTION
The Indian Contract Act, 1872 lays down that for a contract to exist there has to be
a proposal, and an assent to the proposal, which transforms into a promise. A promise
supported by consideration becomes an agreement and an agreement enforceable
by law is a contract. Likewise, an online contract follows the same pre-requisite as
being followed in offline (physical) contract. At a basic level, online contract formation
requires online offer/proposal by one party and its online acceptance by the other
party.
6.2 OBJECTIVES
z explain the essential features of a contract;
z describe proposal, acceptance and pre-requisites of a valid contract;
z explain when a communication is complete in case of online contracts;
z compare between the postal route and the Instantaneous Communication
Rule; and
z describe the use of digital signature in online communication.
16
Features of Online
6.3 ESSENTIAL FEATURES OF A CONTRACT Contracts
Under the Indian Contract Act, 1872 the formation of a contract is a two-limb
process, involving firstly, a communication of proposal from first party to the second
and secondly, a communication of acceptance from the second party to the first.
6.3.1 Pre-requisites of a Valid Contract

In order to have a valid contract there should be a proper offer/proposal by an
offeror [section 2(a)] and its acceptance by an offeree [section 2(b)]. Proposal must
be supported by consideration [Section 2(d)] and the agreement must be made by
free consent of the parties [sections 13-22].
Moreover, it is important that the parties must be competent to contract [sections 11
& 12)] and the object of contract must be lawful [section 23-25]. Further, there
should be meeting of minds, consensus ad idem, which means both parties must
agree to the same thing in the same sense. There should be no ambiguity.
6.3.2 Valid Offer

Under the Indian Contract Act, there should be minimum two parties, legal or natural,
competent to contract. Offer to a contract must have an object that is lawful; it must
be communicated to the person for whom it is meant and it should be communicated
with the objective of obtaining assent.
Further, terms and conditions of offer should be certain or capable of being made
certain.
There should be an intent of creating a legal relationship.
6.3.3 Valid Acceptance

The offer must be communicated to the acceptor and must come to the knowledge
of the acceptor before the acceptance. The offer must be made to the acceptor by
the offeror himself or through his duly appointed legal agents. The acceptance must
be made by the acceptor himself or through his duly appointed legal agents, to the
offeror.
Also, the acceptance must be made before the offer lapses [section 6]. The
communication of acceptance must be complete in the eyes of law. Acceptance may
be express or implied, absolute and qualified.
Define a Contract?
....................................................................................................................
....................................................................................................................
....................................................................................................................
....................................................................................................................
....................................................................................................................
.................................................................................................................... 17
Online Contracts
6.4 THE PROCESS OF COMMUNICATION:
OFFLINE CONTRACTS
Under Section 4 of the Indian Contract Act, the communication of “Proposal” is
complete, when it comes to the knowledge of the person to whom it is made.
The communication of “Acceptance” is complete:
z As against the “Proposer”, when it is put in the course of transmission to
him, so as to be out of power of the “Acceptor”.
z As against the “Acceptor” when it comes to the knowledge of the “Proposer”.
A contract comes into existence when the acceptor puts his acceptance/assent
into transmission so as to be out of the power of the said acceptor.
Contract through post/correspondence is complete at the place where acceptance
is made.
For a contract to happen there should be a communication of proposal and
communication of acceptance as well. This process of communication may involve
communication by post or by telephone, while former being referred to as postal
communication and latter as instantaneous communication.
6.4.1 Postal Rule

Postal Rule requires that the proposer / acceptor has to put into transmission the
concerned proposal / acceptance so as to be out of power of the said proposer /
acceptor.
Acceptance is complete as soon as the letter is put into the post box and that is the
place where the contract is made. The postal rule lays emphasis on both
communication of proposal and communication of acceptance. Contract through
post/correspondence is complete at the place where acceptance is made.
6.4.2 Instantaneous Communication Rule

In case of instantaneous communication the contract is made where the acceptance
was so received. It is now a settled law that a
contract is complete when the acceptance is received by the offeror and the contract
is made at the place where the acceptance is received. It was in Entores Ltd. v.
Miles Far Eastern Corporation[(1955)2 QB 326], wherein the plaintiffs, in
London, made an offer by telex to the agents of the defendant corporation, in Holland.
This was accepted by a telex, which was received on the plaintiff’s telex machine in
London. The relevant issue was whether the contract was made in England. If it
were, that would provide a basis for the plaintiffs to serve a writ on the defendant
corporation outside the jurisdiction. The court held that the contract was made in
London.
Denning, L.J., observed:
“When a contract is made by post it is a clear law throughout the common-law
countries that the acceptance is complete as soon as the letter is put into the post
18 box, and that is the place where the contract is made. But there is no clear rule about
contracts made by telephone or by telex. Communication by these means are virtually Features of Online
Contracts
instantaneous and stand on a different footing.”
“My conclusion is that the rule about instantaneous communications between the
parties is different from the rule about the post. The contract is only complete when
the acceptance is received by the offeror: and the contract is made at the place
where the acceptance is received”.
A similar view was expressed by the Supreme Court in Bhagwandas Goverdhandas
Kedia v. Girdharilal Parshottamdas and Co. [1966 S.C. 543]. In this case, the
plaintiffs commenced an action in the City Civil Court at Ahmedabad against the
Kedia Ginning Factory & Oil Mills of Khamgaon [defendants] for a decree of
Rs.31,150/- on a plea that the defendant had failed to supply cotton seed cake,
which they had agreed to supply under an oral contract dated July 22, 1959 negotiated
between the parties by conversation on long distance telephone. The plaintiffs
submitted that the cause of action for the suit arose at Ahmedabad, because the
defendants had offered to sell cotton seed cake, which was accepted by the plaintiffs
at Ahmedabad.
The decision by majority was that telephone is an instantaneous mode of
communication, as if the parties were in presence of each other. The exception to the
general rule, as applied to post, would not apply here. So, in this case, the contract
would be made at the place where acceptance is received, i.e., Ahmedabad.
Table 1: Postal Rule v. Instantaneous communication rule1
Postal Rule Instantaneous Communication Rule

Contract through post/correspondence Contract through telephone/ telex/fax is
is made at the place where acceptance made at the place where the acceptance
is made. is received.
It is thus evident from the aforesaid discussion on postal and instantaneous

communication rule2 that it is the acceptance that gives rise to the cause of action
and not merely the making of an offer.
When is communication of acceptance complete?
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
19
Online Contracts
6.5 THE PROCESS OF COMMUNICATION:
ONLINE CONTRACTS
Contract formation in an online environment follows the same pre-requisite as have
to be followed in offline (physical) contract. It requires online offer/proposal by one
party and its online acceptance by the other party. The Information Technology Act,
2000 has not amended, modified or substituted the Indian Contract Act, 1872 in any
manner whatsoever. In order to form a valid electronic contract one still needs a
‘promisor’ and a ‘promisee’3.
6.5.1 The Information Technology Act, 2000: Parties to

Communication Process
The Information Technology Act came into effect from October 17, 2000. The Act
identifies three parties to the electronic transmission process: the originator [section
2(1)(za)], the intermediary [section 2(1)(w)] and the addressee [section 2(1)(b)].
The Originator
Originator, as defined under the Act means a person who sends, generates stores or
transmits any electronic message; or causes any electronic message to be sent,
generated, stored or transmitted to any other person but does not include an
intermediary.
The Intermediary
Intermediary with respect to any particular electronic message, means any person
who on behalf of another person receives, stores or transmits that message or provides
any service with respect to that message.
The Addressee
Addressee, as defined under the Act means a person who is intended by the originator
to receive the electronic record but does not include any intermediary.
Originator Intermediary Addressee
Figure 1: Electronic Communication Process
The role of all the three parties involved in an electronic communication process is
distinct. For a given electronic message, there would be an originator, an intermediary
and an addressee. The categories like originator and addressee are dynamic, i.e. for
an electronic message there would be a sender (originator) and a recipient (addressee)
of that message, but suppose the recipient replies back to the sender, then in such a
case the recipient would become the originator of that electronic message (reply)
and the sender would thus become the addressee. Interestingly, during the entire
activity of exchange of such messages between the parties, the category of the
intermediary4 would remain static, i.e. its function would remain the same irrespective
of role reversal of the originator and the addressee. The function of an intermediary
is that of a facilitator, a third party service provider, like e-mail service provider, web
services provider etc.
20
It is obligatory to note that categories like, originator and addressee are not to be Features of Online
Contracts
considered as equivalent to ‘promisor’ and ‘promisee’ [S.2(c)] of the Indian Contract
Act, 1872. A promisee may act as an originator or an addressee vis-à-vis any
electronic message, depending on its functional role. The categories ‘originator-
intermediary-addressee’ facilitate end-to-end communication process.
6.5.2 The Information Technology Act, 2000: Process of

Communication
The Information Technology Act grants legal recognition to communication
process involving computer, computer system and computer network by
identifying attribution, acknowledgement, dispatch and receipt of electronic
records as key statutory provisions.
Attribution of Electronic Records
Section 11 of the Act lays down conditions as and when an electronic record
shall be attributed to the originator as defined under [section 2(1)(za)] of the
Act. The conditions as laid down are performance specific: (a) sent by the
originator himself (b) sent by an authorized person on behalf of the originator
and (c) sent by an information system programmed by or on behalf of the originator
to operate automatically.
Acknowledgement of Receipt of Electronic Records
Section 12 of the Act addresses a number of legal issues arising from the use of
acknowledgement of receipt. It is based on the assumption that acknowledgement
procedures are to be used at the discretion of the originator. The procedures
range from a mere acknowledgement of receipt of electronic record by the
addressee to receipt of acknowledgement received by the originator within a
reasonable time.
Acknowledgement of receipt plays a very important role in the communication
process involving computer, computer system and computer network.
Acknowledgement does not mean acceptance. It only signifies that the message
has been received.
Section 12(1) provides for a situation where the originator has not agreed with
the addressee that the acknowledgment of receipt of electronic record be given
in a particular form or by a particular method. An acknowledgment may be
given either by any communication by the addressee, automated or otherwise or
any conduct of the addressee, sufficient to indicate to the originator that the
electronic record has been received.
Section 12(2) provides for the situation where the originator has specified to
the addressee that the electronic record shall be binding only on receipt of an
acknowledgment of such electronic record by him, and then unless
acknowledgment has been so received, the electronic record shall be deemed to
have been never sent by the originator. The onus is on the addressee to make
sure that the originator did receive the acknowledgement as sent by him.
Significantly, section 12(3) lays down an optional procedure to be adopted by
the originator in case of non-receipt of acknowledgement by the originator. As
per the statutory provision the originator may give notice to the addressee stating
that no acknowledgment has been received by him and specifying a reasonable time
21
Online Contracts by which the acknowledgment must be received by him. Furthermore, if no
acknowledgement is received within the aforesaid time limit, originator may
after giving notice to the addressee, treat the electronic record as though it has
never been sent.
Dispatch of Electronic Records
Apart from acknowledgement of receipt by the addressee, it is also important to
ascertain the time and place of dispatch of electronic record.
According to section 13(1) of the Act, the dispatch of an electronic record
occurs when it enters a computer resource outside the control of the originator.
The process of “dispatch” involves electronic transmission of the electronic
record to a destination. The Act defines the time of dispatch of an electronic
record as the time when it enters a computer resource5 outside the control of the
originator, which may be the computer resource of the addressee (or an
intermediary). The electronic record should not be considered to have been
dispatched if it merely reached the computer resource of the addressee but failed
to enter it, i.e. by some reason the addressee has not been able to access or
retrieve the electronic record from that computer resource successfully.
Receipt of Electronic Records
From the statutory point of view, the receipt of electronic record is as important
as its dispatch. If dispatch occurs at the originator’s end, then the receipt occurs
at the recipient’s end. It is important to note from the legal perspective whether
the originator has sent the message at a designated computer resource or a non-
designated computer resource. A designated computer resource implies a
computer resource that has already been designated by the recipient to receive
all e-mail communications, for example, an e-mail address of the recipient,
which the recipient has already provided to the originator. A non-designated
computer resource is the one, which has not been stipulated by the recipient to
the originator for electronic communication purposes.
It is important to note that the Act has distinguished between the receipt of
electronic record at a designated and non-designated computer resource. Under
section 13(2) of the Act, the receipt occurs at the time when the electronic
record enters the designated computer resource. But it may so happen that the
originator sends the electronic record to a non-designated computer resource,
in such a case receipt occurs at the time when the electronic record is retrieved
by the addressee.
Dispatch of Electronic Records and Place of Business
In the world of electronic contracts, parties may be accessing their e-mails
while on the move, and then the critical question is – how cause of action is
fixed in the case of a dispute?
Under the Act, section 13(3) provides that an electronic record is deemed to be
dispatched from the place where the originator has his place of business, and is
deemed to be received at the place where the addressee has his place of business.
Further, it provides under section 13(5) that:
(a) if the originator or the addressee has more than one place of business, the
principal place of business, shall be the place of business;
22
(b) if the originator or the addressee does not have a place of business, his usual Features of Online
Contracts
place of residence shall be deemed to be the place of business;
(c) “usual place of residence”, in relation to a body corporate, means the place
where it is registered.
In other words, the location of computer resource is irrelevant [section 13(4)] and
it shall in no way affect the applicability of time & place of dispatch and receipt of
electronic records between the originator and the addressee as given in sub-section
(3).
6.5.3 Electronic Communication Process and Functional

Equivalent Approach
The aforesaid statutory provisions [sections 11-13] as articulated under the Information
Technology Act, underlining the process of communication using computer, computer
system or computer network are based on UNCITRAL Model Law of E-commerce.
This Model Law provides for ‘equal treatment to users of paper-based documentation
and electronic information’ which has also been expressed as ‘functional equivalence’,
i.e. it is based on an analysis of the purposes and functions of the traditional paper-
based requirement with a view to determining how those purposes or functions could
be fulfilled through electronic-commerce techniques. The Model Law treats paper-
based communication and its equivalent electronic “writing”, which is, in essence, a
series of electronic impulses at par. Article 6(1) of the Model Law provides, “where
the law requires information to be in writing, that requirement is met by data (electronic)
message if the information contained therein is accessible so as to be usable for
future reference.”
Moreover, apart from “writing” equivalence, there also exists functional equivalence
of a signature, which can be produced cryptographically, referred to as ‘digital (or
electronic) signature.’
Table 2: Functional equivalent parameters
Functional Equivalent Physical Online

Parameters Communications Communications
Writing Requirement Writing/documents Electronic records
Signature Signature Digital Signature

Requirement
Use of Digital Signatures in Online Communications

In order to be called legally binding all online communications must meet the
fundamental requirements, one authenticity of the sender to enable the recipient to
determine who really sent the message, two message’s integrity, the recipient must
be able to determine whether or not the message received has been modified during
the transmission and third, non-repudiation, the ability to ensure that the sender
cannot falsely deny sending the message, nor falsely deny the contents of the message.
This fundamental requirement of authenticity, message integrity and non-
repudiation can also be met using digital signatures with the help of cryptography 23
Online Contracts technique. Based on the nature and number of keys cryptography has evolved into
Symmetric (private key cryptographic system) and Asymmetric (public key
cryptographic system) cryptography. In symmetric cryptography a single secret
key is used for both encryption and decryption of a message, whereas in
asymmetric cryptography encryption and decryption is done involving an
asymmetric key pair consisting of a public and a private key.
Basically a digital signature is a two way process, involving two parties: signer
(creator of the digital signature) and the recipient (verifier of the digital
signature). A digital signature is complete, if and only if, the recipient successfully
verifies it.
A signer subscribing to a digital signature can encrypt the entire electronic record
using his private key. Once encrypted, the digitally signed document can be
transmitted over the Internet. On receipt, the recipient will decrypt the encrypted
electronic record using signer’s public key. A successful verification by the recipient
would lead to acceptance of the said electronic record by the recipient. This process
of creating and verifying a digital signature provide a high level of assurance to the
said electronic record and would make it a secured record.
It is imperative to note that by using digital signature a signer is creating a trust in the
online environment. It establishes the principle that, in an online environment, the
basic legal functions of a signature are performed by way of a method that identifies
the originator (sender) of an electronic record and confirms that the originator
approved the content of that electronic record; any attempt to change the content of
the record must be seen to be incompatible with the signature.
(a) A Digital Signature involves two parties ...................... and ....................
(b) When is a Digital Signature complete?
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
6.6 SUMMARY
z At a basic level, online contract formation requires online offer/proposal
by one party and its online acceptance by the other party.
z For a contract to happen there should be a communication of proposal and
communication of acceptance as well.
z This process of communication may involve communication by post or by
telephone, while former being referred to as postal communication and
24 latter as instantaneous communication.
z The Information Technology Act identifies three parties to the electronic Features of Online
Contracts
transmission process: the originator, the intermediary and the addressee. These
categories are not to be considered as equivalent to ‘promisor’ and
‘promisee’.
z The said Act not only grants legal recognition to communication process
involving computer, computer system and computer network by identifying
attribution, acknowledgement, dispatch and receipt of electronic records as
key statutory provisions, but also provides for a mechanism to create binding
trust with the help of digital signatures.

1. Enumerate the role of originator, addressee and an intermediary in an online
communication process.
2. What do you understand by the term ‘functional equivalence’? Explain it with
the help of examples.
3. What is the importance of digital signatures in an online communication process?

1. Contract has been defined as a two way process. It involves a communication
of proposal from first party to the second and secondly a communication of
acceptance from the second party to the first.
2. The communication of acceptance is complete
z as against the proposer when it is put in the course of transmission to
him so as to be out of power of the acceptor.
z as against the acceptor when it comes to the knowledge of the proposer.
3. (a) Signer, Recipient.
(b) A digital signature is complete, if an only if the recipient successfully
verifies it.
Terminal Questions

1. Sharma Vakul. “Information Technology – Law and Practice”. Universal Law
Publishing Co. (2004).
25
Online Contracts
2. It was observed by Lord Wilberforce in Brinkibon Ltd. v. Stahag Stahl und
Stahlwarenhandelgesellschaft mbH, that since 1955 (when Entores ruling came)
the use of Telex communications has been greatly expanded, and there are
many variations on it. There may be some error or default at the recipient’s end
which prevents receipt at the time contemplated and believed in by the sender.
The message may have been sent and/or received through machines operated
by third persons. And many other variations may occur. No universal rule can
cover all such cases, they must be resolved by reference to the intentions of the
parties, by sound business practice, and in some cases by a judgment where the
risk should lie……
3. Section 2(c) of the Indian Contract Act, 1872 states: The person making the
proposal is called the ‘promisor’, and the person accepting the proposal is
called the ‘promise’.
4. An intermediary has function equivalent to that of Post Office or Telephone
Exchange.
5. Computer Resource has been defined under section 2 (1) (k) of the Act and
includes computer, computer system, computer network, data, computer
database or software.
26
UNIT 7 ISSUES EMERGING FROM ONLINE
CONTRACTING
Structure
7.1 Introduction
7.2 Objectives
7.3 Issues Emerging from Online Contracting
7.3.1 Capacity to Contract
7.3.2 E-mail Box Rule
7.3.3 Electronic Authentication
7.3.4 Choice of Law
7.3.5 Choice of Forum
7.3.6 Doctrine of Acceptance by Silence
7.3.7 Unconscionable License Terms
7.3.8 Mandatory Arbitration Clauses
7.3.9 Automated Contracts
7.4 Summary
7.1 INTRODUCTION
Online contracts represent the formation of series of contractual obligations in an
online environment. From a legal perspective, an online contract follows the same
pre-requisite as being followed in offline (physical) contract. At a basic level, online
contract formation requires online offer/proposal by one party and its online
acceptance by the other party. The entire process of formation of online contract is
not simple. One has to trust the technology as well.
7.2 OBJECTIVES
z explain the emerging issues concerning contracts formed electronically;
z explain the various features of online contract such as
a) validity / enforceability of online contracts
b) capacity to contract
c) applicability of postal and instantaneous communication rule in online
medium
d) authentication of electronic records
e) jurisdictional complexities
f) unconscionable licensing terms
g) automatic contracts 27
Online Contracts
7.3 ISSUES EMERGING FROM ONLINE
CONTRACTING
Electronic contracts, by their very nature, are dynamic and often multi layered
transactions. With a layered contract, agreement to a contract may not occur at a
single point in time. There exist a chain of successive events – e-offer, e-
acceptance, consideration etc., combination of which may lead to electronic
contract formation.
E-contract formation has not only given rise to many complexities but also raised
certain critical legal issues. It is thus imperative to look into the following
issues in view of the emerging law.
7.3.1 Capacity to Contract

To rely on an electronic message, the parties should take steps to make sure the
contract is binding, e.g., that the essential terms of the contract are manifested,
agreed upon, and that the persons who are parties to the electronic “contract”
have the legal competence and capacity to enter into an agreement.
Often it is a nameless individual entering into a contract. The other party (service
provider) has no idea whether the individual who has clicked on “I Agree” text
or icon is legally competent to enter into a contract. Under the Indian Contract
Act, 1872, one of the pre-requisites of a valid contract is that the parties must
be competent to contract [sections 10, 11 & 12]. Contracts entered into by
individuals, who are not competent to contract are void. There may arise in a
situation, wherein infants who are not old enough to enter into a contract are
entering into an online contract with the service provider by clicking on “I
Agree” text or icon.
Section 11 of the Indian Contract Act, states “…..every person is competent to
contract who is of the age of majority according to the law to which he is
subject, and who is of sound mind, and is not disqualified from contracting by
any law to which he is subject”. Also, under section 3 of the Indian Majority
Act, 1875, the age of majority is eighteen years. In other words, reading of
sections 10 & 11 of the Indian Contract Act together with section 3 of the Indian
Majority Act will make a person below the age of eighteen years, incompetent
to contract. However, no section in the Indian Contract Act makes it clear whether,
such an agreement if entered into, would be voidable or altogether void.
Nevertheless, in Mohori Bibee v. Dharmodas Ghose [(1903) 30IA 114], it was
settled by the Privy Council that “it is essential that all contracting parties should
be competent to contract and a person who by reason of infancy is incompetent
to contract cannot make a contract within the meaning of the Act. The question
whether a contract is void or voidable presupposes the existence of a contract
within the meaning of the Act, and cannot arise in the case of an infant”. That is,
a minor’s agreement is absolutely void or devoid of all effects. Consequently,
all the effects of a minor’s agreement must be worked out independently of any
contract.
Translating the aforesaid decision in online medium, any online contract entered
into by a minor would tantamount to be void. Thus, it is imperative that the
28
service provider needs to incorporate the following clause on Membership
Eligibility in its Standard Terms and Conditions: Issues Emerging from
Online Contracting
“Use of the Site is available only to persons who can form legally binding
contracts under applicable law. Persons who are “incompetent to contract”
within the meaning of the Indian Contract Act, 1872 including minors, undischarged
insolvents etc. are not eligible to use the Site.”
But the question remain is – would it be sufficient to protect the interests of
service provider, who has been wronged by a minor? The answer is in negative,
in view of the decided case law:
(1) The minor is not estopped from setting up the defence of infancy, for the
reason that there can be no estoppel against a statute. This rule applies
even if the minor has acted fraudulently (Gadigeppa Bhiwappa v. Balangowda,
AIR 1931 Bom 561).
(2) The minor will not be liable for a tort arising out of contract, for the reason
that such liability is an indirect way of enforcing his agreement. But where
the tort is independent of the contract the mere fact that a contract is also
involved, will not absolve the minor from liability (Leslie Ltd. v. Shill,
[(1914) 3KB 607]).
(3) The minor cannot even ratify the agreement on attaining majority, as ratification
relates back to the date of the making of the contract and, therefore, a
contract, which was then void, cannot be made valid by subsequent
ratification (Suraj Narain v. Sukhu Ahir, ILR [(1928) 51 All 164]).
Thus in a nutshell, a minor’s agreement is always absolutely void. It is obligatory
for the service provider to ask for parental consent where children are potential
purchasers of online goods or services.
What is meant by capacity to contract?
....................................................................................................................
....................................................................................................................
....................................................................................................................
....................................................................................................................
....................................................................................................................
Examples of Online Contracts.
7.3.2 E-mail Box Rule

Traditional contract law (common law) does not permit silence or inaction to
constitute acceptance. Acceptance requires that an offeree communicate his
assent to the terms of the offer. Acceptance may be manifested by acts such as
“speaking or sending a letter, a telegram, or other explicit or implicit
communication” to the offeror. Even the mere receipt of an e-mail message may
constitute acceptance.
The question is – whether e-mail communication fall in the category of postal 29
Online Contracts rule or instantaneous communication rule? When the sender sends an e-mail
message, the message is routed through the mail servers of the Internet Service
Providers (ISPs), before being delivered to the recipient. The communication is
not instantaneous. In other words, e-mail communication falls under the category
of postal rule, i.e., a contract comes into existence when the acceptor puts his
acceptance/assent (e-mail message) into transmission so as to be out of the power
of the said acceptor. But it is important to note that the acceptor when puts his
assent into transmission would assume a role of an originator1 (of an electronic
record) and the law2 says an electronic record is deemed to be dispatched from
the place where the originator has his place of business, which means contract is
complete at the place where acceptance is made by the acceptor.
In Shattuck v. Klotzbach (2001 Mass. Super LEXIS 542), the court enforced
a contract that the parties made through a series of e-mails for the sale of real
property, in which all of the essential business terms were communicated. The
court also concluded that the seller’s typed signature at the end of the e-mails
constituted authentication of the seller’s intent to engage in the transaction.
How about applicability of instantaneous communication rule in online medium?
Parties in Electronic Data Interchange (EDI) transactions exchange information on
an agreement upon electronic format using proprietary computer networks. The
European Model EDI Agreement provides obligations of the parties to ensure
authenticity, integrity, confidentiality and non-repudiation of EDI messages. It
provides that in an EDI transaction, the contract is concluded at the time and
place where the EDI message-constituting acceptance of an offer reaches the
computer system of the offeror3. That is, EDI contracts fall under the category of
instantaneous rule, because the exchanges of e-mails are instantaneous over the
proprietary computer networks.
7.3.3 Electronic Authentication

The common law of contract has evolved over a period of many centuries. It has
crystallized the concept of “pen-paper-and-signature” as physical means of
authenticating a contract. Now, in the online medium electronic authentication has
to be seen from the point of “electronic records and digital signatures”.
Electronic records need validation under the rules of evidence and procedure.
Digital signature provisions are procedural provisions that treat digital signature as
equivalent to a handwritten signature. The Information Technology Act, 2000
advocates the use of digital signatures to authenticate electronic records. The said
Act provides a legal framework to facilitate and safeguard electronic transactions
in the electronic medium. It accepts ‘digital signature’ [section 2 (1)(p)] as an
authentication standard. Section 3 of the Act enumerates the whole process of
digital signature creation and its verification. It is based on UNCITRAL’s Model
Law on E-commerce, which adopts ‘functional equivalent approach’ advocating
a shift from paper-based environment to a computer-based equivalent.
Digital signatures as an electronic authentication standard fulfills all statutory
requirements associated with acceptance of handwritten signatures, like purpose,
affirmative action, evidence, signer identification etc. It should not be forgotten
that the law does not recognise digital signatures in a stand-alone environment.
It gives recognition to the whole system, i.e., the public key infrastructure
30
(constituting certifying authorities) including the standards, which create and verify Issues Emerging from
Online Contracting
digital signatures.
In an online medium, wherein parties are using digital signatures to authenticate e-
mails (electronic messages), it is imperative that the parties exchanging
e-mails must seek answers to the following questions before accepting the
electronic messages:
(1) Whether the Certifying Authority providing the digital signature is a licensed
one?
(2) Whether a digital signature has been created as per the technology standards
prescribed under the law?
(3) Whether the digital signature verification process has been successful?
Affirmative answers to all the above questions will give authenticity, message
integrity, non-repudiation and confidentiality to the electronic messages received
by the parties.
7.3.4 Choice of Law

Courts will apply the law of the jurisdiction that has the most points of contact
with the contractual relationship. This is often being referred to as “personal
jurisdiction” of the court. It looks into an issue from the point of ‘physical
presence’, whether the person was a resident or a non-resident. If he is a resident,
then there is no doubt about his being subject to municipal (domestic) laws. The
problem arises, if he is a non-resident, what laws would be applicable –
municipal laws of the state where he is residing or municipal laws of the state
whose laws he has transgressed? The problem becomes much more complex
when it comes to fixing choice of law in an online medium.
Legal principles on personal jurisdiction, like ‘Long-arm Statute’, ‘Minimum
Contacts’, and ‘Due Process of Law’ have been increasingly used by the courts
in the U.S. to fix the place of jurisdiction in e-business transactions by
differentiating between ‘passive’ and ‘interactive’ websites.
Passive Websites
A passive website represents an extension of offline business activities in an
online medium. The website is meant for information purposes only. It does not
solicit business.
In Bensusan Restaurant Corp. v. King [937 F. Supp. 295 (SDNY, 1996)], where
a New York jazz club operator sued a Missouri club owner claiming trademark
infringement, dilution and unfair competition over the use of the name “The
Blue Note”. The defendant maintained a web site promoting his Missouri “Blue
Note” club and providing a Missouri telephone number through which tickets to
the club could be purchased.
The issue, as framed by the Federal District Court, was whether the existence
of the web site, without more, was sufficient to vest the court with personal
jurisdiction over the defendant under New York’s long arm statute.
The court considered whether the existence of the web site and telephone ordering
information constituted an “offer to sell” the allegedly infringing “product” in
New York, and concluded it was not. The court noted that, although the web site 31
Online Contracts is available to any New Yorker with Internet access, it takes several affirmative steps
to obtain access to this particular site, to utilize the information contained there, and
to obtain a ticket to the defendant’s club.
The court found that the defendant did nothing to “purposefully avail” himself of the
benefits of New York. There was no evidence of the defendant actively encouraging
New Yorkers to visit the site.
Interactive Websites
An interactive website provides information and facilitates purchasing decisions. It
purposefully solicits business. It complements offline business activities.
In CompuServe, Inc. v. Patterson [(89F. 3d 1257 (6th Cir. 1996], CompuServe,
an Ohio corporation with its main offices and facilities in Ohio, sued one of its
commercial shareware providers, a resident of Texas. The suit was filed in
Ohio and the defendant asserted that the Federal District Court in Ohio lacked
jurisdiction over him, claiming never to have set foot in Ohio.
The appellate court measured the defendant’s “contacts” with Ohio and
concluded that jurisdiction was proper because: (a) the defendant had
“purposefully availed” himself of the privilege of doing business in Ohio by
subscribing to CompuServe and subsequently accepting online CompuServe’s
Shareware Registration Agreement (which contained an Ohio choice of law
provision) in connection with his sale of shareware programs on the service, as
well as by repeatedly uploading shareware programs to CompuServe’s computers
and using CompuServe’s e-mail system to correspond with CompuServe
regarding the subject matter of the lawsuit; (b) the cause of action arose from
Patterson’s “activities” in Ohio because he only marketed his shareware through
CompuServe; and (c) it was not unreasonable to require Patterson to defend
himself in Ohio because by purposefully employing CompuServe to market his
products, and accepting online the Shareware Registration Agreement, he should
have reasonably expected disputes with CompuServe to yield lawsuits in Ohio.
It is thus obvious from the aforesaid case law that it is the degree of interactivity
that separates an interactive website from the passive one, and hence
determination of personal jurisdiction by the courts.
What are interactive Websites?
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
32
European Approach to Personal Jurisdiction: The Brussels Regulation Issues Emerging from
Online Contracting
The European approach to personal jurisdiction has found a strong basis in the Brussels
Regulation, which became effective on March 1, 2002. The Brussels Regulation has
become the established law to resolve disputes concerning jurisdiction and
enforcement of judgments in civil and commercial matters. The Regulation is also
applicable to resolve online commercial disputes.
Further, to resolve such cross border consumer contractual disputes, the EU Member
States became signatories to the Rome Convention, 1980. It decides which country
law would apply in contractual disputes. The Convention gave freedom of choice to
the contracting parties: “A contract shall be governed by the law chosen by the
parties. The choice must be express or demonstrated with reasonable certainty …”
(Article 3.1).
Indian Approach to Personal Jurisdiction
The Indian law provides two choices to apply personal jurisdiction, i.e., to apply the
law of the forum (lex fori), or to apply the law of the site of the transaction, or
occurrence that gave rise to the litigation in the first place (lex loci).
The courts do have a judicial right to determine the choice of law by identifying the
system of law with which the transaction has its closest and most real connection.
There is no bar that law of a foreign country cannot be applied or an Indian party
could not be subject to foreign jurisdiction. The emphasis is on to select proper law4.
7.3.5 Choice of Forum

Choice of forum clause is found in almost all online contracts. It makes a good legal
sense for the online service providers to limit their exposure to one jurisdiction only.
Defending lawsuits at multiple geographical locations could be both expensive and
frustrating. Thus the online service provider has no other choice but to subject
themselves to only one set of forum and applicable laws only. The user has no other
choice, but to accept the service provider’s Standard Terms and Conditions by
clicking an on-screen text or icon “I Agree”, “I Accept” or “Yes”. In Steven J.
Caspi, et al. v. The Microsoft Network, L.L.C., et al. [1999 WL 462175, 323 NJ
Super, 118 (NJ App. Div, July 2, 1999)], the user could not use Microsoft Network
unless she clicked the “I agree” button next to a scrollable window containing the
terms of use. Plaintiffs clicked the “I Agree” button to use Microsoft Network,
indicating their assent to be bound by the terms of the subscriber agreement and thus
forming a valid license agreement. The Superior Court of New Jersey held that the
forum selection clause contained in Microsoft Network subscriber agreements was
enforceable and valid.
In business-to-business (B2B) online contracts, choice of forum terms allows parties
to fix a forum of mutual choice. It was held by the court in M/S Bremen v. Zapata
Off-Shore Co. [407 U.S. 1, 9-10 (1972)], “is that such clauses (forum selection)
are prima facie valid and should be enforced unless enforcement is shown by the
resisting party to be ‘unreasonable’ under the circumstances”.
7.3.6 Doctrine of Acceptance by Silence
33
Online Contracts Online contracts may also exist in the form of mass-market licenses to download
software or shareware programs. Such mass-market licenses are posted on the
websites in a standard form. These are enforced if two conditions are met: (1)
the user has an opportunity to review the terms of license; and (2) the user manifests
assent after having an opportunity to review the terms.
Simply clicking an “I Accept” text or icon may accomplish the manifestation of assent.
These days, a growing number of website vendors use a “double click” method,
which asks customers whether they are certain that they accept the terms of the
license. It is quite likely that the reasonable visitor will click through these icons
without reading the license agreement prior to the payment. Nevertheless, there should
be right to refund if they (customers) have no opportunity to review a mass-market
license or a copy of it before becoming obligated to pay.
7.3.7 Unconscionable License Terms

It is quite common to see online contracts containing unconscionable terms of
agreement. The question is – whether these agreements can be enforced, if yes,
then to what extent? The basic test is whether the license agreement or term
should be invalidated because it is “so one-sided as to be unconscionable under
the circumstances existing at the time of the making of the contract”.
A court, in its discretion, may refuse to enforce the contract as a whole if it is
permeated by the unconscionability, or it may strike any single term or group of
terms in an online contract or license agreement.
7.3.8 Mandatory Arbitration Clauses

Often online contracts carry arbitration clause. It may read as follows:
“In case of any dispute or any difference arising at any time between the parties
as to the construction, meaning or effect of this agreement or any clause or thing
contained therein or the rights and liabilities of a Party, hereunder that cannot
be amicably resolved by the Parties shall be settled in accordance with the
process of arbitration, shall be referred to a single arbitrator of Indian nationality,
in case the Parties can agree upon one, and failing such agreement, each Party
shall appoint one arbitrator of Indian nationality, and the two appointed
arbitrators shall appoint the third arbitrator, an Indian national, who shall act as
the presiding arbitrator. The arbitration shall be held in English and the decision
of the arbitrator(s) shall be final and binding. All such arbitration proceedings
shall be in accordance with and subject to the provisions of The Arbitration and
Conciliation Act (India), 1996.”
Would one call such a clause unconscionable and excessive? Would it serve to
deter the individual consumer (or Party) from invoking the process, leaving
consumers “with no forum at all in which to resolve a dispute?”
The aforesaid arbitration clause though part of Standard Terms and Conditions of a
vendor cannot be held as unconscionable and excessive. It gives equal treatment to
both the parties. In Brower v. Gateway 2000, [676 N.Y.S. 2d 569 (N.Y. App. Div.
1998)], a New York court upheld a click-through agreement
34
that required any dispute arising out of the plaintiff’s purchase of a computer and Issues Emerging from
Online Contracting
software to be resolved by arbitration. Gateway shipped its personal computers in a
box containing a printed warning stating, “This document contains Gateway 2000’s
Standard Terms and Conditions.” The license agreement also stated, “By keeping
your Gateway 2000 computer system beyond 30 days after the date of delivery, you
accept these Terms and Conditions.” One of the clauses of the contract mandated
that all controversies arising out of the computer contract were to be arbitrated in
Chicago, Illinois, applying the “Rule of Conciliation and Arbitration of the
International Chamber of Commerce.”
The court upheld5 the arbitration clause, holding that it did not render the contract an
unenforceable adhesion contract. The court stated that because “the consumer has
affirmatively retained the merchandise for more than 30 days – within which the
consumer has presumably examined and even used the product(s) and read the
agreement……the contract has been effectuated”.
Problems may arise, if the arbitration clause mentions scope of international
arbitration under the London Court of International Arbitration (LCIA) or
Conciliation and Arbitration of the International Chamber of Commerce Rules. For
an Indian consumer the fee to arbitrate the dispute in such international forums may
exceed the price of the goods or service, depriving the consumer of any effective
remedy. A court may declare such a clause unconscionable and invalid.
It is thus imperative that the mandatory arbitration clause should take care of
following factors6:
(1) Whether there exist unequal bargaining power;
(2) Whether the weaker party has an option to opt out of arbitration;
(3) Whether the arbitration clause is drafted with clarity;
(4) Whether the stronger party enjoys an unfair home-court advantage;
(5) Whether the weaker party had a meaningful opportunity to accept the arbitration
agreement; and
(6) Whether the stronger party used deceptive tactics.
An online contract containing one-sided arbitration clause that take away many
substantive rights without giving consumers meaningful remedies carries a risk of
being declared unconscionable by the court.
7.3.9 Automated Contracts

It is possible that an individual’s communication in an online medium may be met by
the programmed response of a computer, without any immediate human knowledge
or intervention. Would such interactions create valid contracts? It has been argued7
that the courts should not have any difficulty in translating these situations into offer
and acceptance. The physical involvement of a machine has no legal consequences
because it is held to be only the result of prior human intention. Thus, automated
declarations of offer and acceptance are valid.
Interestingly, section 14(1) of the Uniform Electronic Transactions Act (UETA)
35
Online Contracts of U.S., validates contracts formed by electronic agents, even without human review
of the terms and agreements. Contracts may be formed by the interaction of an
electronic agent and an individual.
Nevertheless, in an automated transaction, an individual must be given the opportunity
for the prevention or correction of errors. An individual seeking to avoid the effect of
an electronic record must promptly notify the other person of the error. The person
erroneously receiving an electronic record must “return it to the other person” or
“destroy the consideration received”. The person “must not have used or received
any benefit or value from the consideration” received from an erroneous message.
7.4 SUMMARY
z The legality of electronic communication process culminating into electronic
contracts is also based on common law of contract.
z Electronic contracts, by their very nature, are dynamic and often multi
layered transactions.
z In online contracting process, technology is an added dimension and hence,
it is important that the contracting parties should be prudent and aware of
their obligations and liabilities before they click on on-screen “I Agree”
text or icon.

1. It is said, “Online contracting process is quite similar to offline contracting
process”. Do you agree with this statement? Give reasons.
2. What is meant by ‘unconscionable’ terms of agreement? Is there a remedy
available to a consumer against such terms?
3. Differentiate between interactive and passive websites from the point of
applicability of personal jurisdiction.

1. Mohori Bibee v. Dharmodas Ghose.
2. A passive website represents an extension of offline business activities in
an online medium.
Terminal Questions
36
Issues Emerging from
7.7 REFERENCES AND SUGGESTED READINGS Online Contracting
1. Section 2(1)(za) of the Information Technology Act, 2000.
2. Section 13(3) of the Information Technology Act, 2000.
3. Article 3.3 of the European Model EDI Agreement.
4. Sharma Vakul. “Information Technology, Law and Practice”, Universal Law
Publishing Co. 2004.
5. Rustad Michael L. and Cyrus Daftary. “E-Business Legal Handbook, Aspen
Law & Business” 2004. p. 656.
6. Id. at 658.
7. Glatt Christopher. “Comparative Issues in the Formation of Electronic Contracts”

(1998) 6 Int JLIT 34.
37
UNIT 8 INTELLECTUAL PROPERTY IN
CYBERSPACE
Structure
8.1 Introduction
8.2 Objectives
8.3 Copyright
8.3.1 Basic Concept
8.3.2 Rights Included in the term ‘Copyright’
8.3.3 Infringement of Copyright and Remedies Thereof
8.3.4 Limitations/Exceptions to Copyright
8.3.5 Registration of Copyright
8.3.6 International Nature of Copyright Protection
8.4 Trademarks
8.4.1 Fundamental Concept
8.4.2 Establishing Trademark Rights
8.4.3 Passing Off
8.4.4 Remedies for Breach
8.5 Migration of Intellectual Property on the Internet

8.6 Challenges for Intellectual Property in Cyberspace
8.7 Summary
8.1 INTRODUCTION
In common use, property is simply ‘one’s own thing’ and refers to the relationship
between individuals and the objects which they see as being their own to dispense
with as they see fit. Scholars in the social sciences frequently conceive of property as
a ‘bundle of rights and obligations’. They stress that property is not a relationship
between people and things, but a relationship between people with regard to things.
Property is often conceptualized as the rights of ‘ownership’ as defined in law. Private
property is that which belongs to an individual; public property is that which belongs
to a community collectively or a State. Property is usually thought of in terms of a
bundle of rights as defined and protected by the sovereign. Traditionally, that bundle
of rights includes:
z control use of the property
z benefit from the property (e. g.: mining rights and rent)
z transfer or selling of the property
z exclude others from the property
5
Intellectual Property The term intellectual property reflects the idea that this subject matter is the product
Protection in
Cyberspace
of the mind or the intellect, and that intellectual property rights may be protected at
law in the same way as any other form of property.
Intellectual property laws are territorial such that the registration or enforcement of
IP rights must be pursued separately in each jurisdiction of interest. However, these
laws are becoming increasingly harmonised through the effects of international treaties
such as the Berne Convention, Paris Convention and WTO Agreement on Trade-
Related Aspects of Intellectual Property Rights.
Intellectual property laws confer a bundle of exclusive rights in relation to the particular
form or manner in which ideas or information are expressed or manifested, and not
in relation to the ideas or concepts themselves. The term “intellectual property”
denotes the specific legal rights which authors, inventors and other IP holders may
hold and exercise, and not the intellectual work itself.
Intellectual property laws are designed to protect different forms of intangible subject
matter, although in some cases there is a degree of overlap. Like other forms of
property, intellectual property (or rather the exclusive rights which subsist in the IP)
can be transferred or licensed to third parties. There are various kinds of tools of
protection that come under the umbrella term ‘intellectual property’. Important among
these are the following:
z Patents
z Trademarks
z Geographical Indications
z Layout Designs of Integrated Circuits
z Trade Secrets
z Copyrights
z Industrial Designs
Out of this tool kitty mainly it is copyright and trademark which are of relevance
when we discuss intellectual property protection in cyberspace. Before proceeding
to discuss the exact application of IP laws and their implication in cybersapce, it
becomes imperative to know in some greater detail about them.
8.2 OBJECTIVES
z explain the term intellectual property;
z describe the basic concept of copyright and the rights included in the term
copyright;
z explain infringement of copyright and what are the remedies;
z explain the concept of trademark the rights of trademark and remedies for their
search; and
6 z describe the challenges faced by IPR in cyberspace.
Intellectual Property in
8.3 COPYRIGHT Cyberspace
8.3.1 Basic Concept

Copyright is a right given by law to the creators of literary, dramatic, musical and
artistic works and producers of cinematograph films and sound recordings to do or
authorize the doing of certain acts with regard to their creations. It is a kind of
protection against unauthorized use or misuse of a work, but for a limited duration.
Generally the rights include the rights of authorship, reproduction, distribution,
communication to the public, broadcasting, adaptation and translation. The exact
nomenclature and scope of the rights may vary from country to country and from a
class of work to another class of work. However, international treaties such as the
Berne Convention for the protection of Literary and Artistic Works and the Agreement
on Trade Related Aspects of Intellectual Property Rights have brought in some kind
of harmonisation in these rights.
In India, copyright is governed by the Copyright Act, 1957, the Copyright Rules,
1958 and the International Copyright Order, 1999. The Copyright Act provides the
basic law so far as copyrights are concerned, the Copyright Rules contain the rules
and regulations as well as various procedures and the International Copyright Order
extends copyright protection to works of nationals of specified foreign countries.
The Copyright Act classifies the works in which copyright subsists in India in to the
following three classes:
(a) literary, dramatic, musical and artistic works
(b) cinematograph films, and
(c) sound recordings.
The scope of ‘literary work’ includes any “work which is expressed in print or writing,
irrespective of the question whether the quality or style is high”. It also includes
computer programs and computer databases. Dramatic work includes any piece for
recitation, choreographic work or entertainment in dumb show, the scenic arrangement
or acting, form of which is fixed in writing or otherwise but does not include a
cinematograph film. Musical work means a work consisting of music and includes
any graphical notation of such work but does not include any words or any action
intended to be sung, spoken or performed with the music. Artistic work means a
painting, a sculpture, a drawing (including a diagram, map, chart or plan), an engraving
or a photograph, whether or not any such work possesses artistic quality; a work of
architecture; and any other work of artistic craftsmanship. The Copyright Act defines
cinematograph film as “any work of visual recording on any medium produced through
a process from which a moving image may be produced by any means and, includes
a sound recording accompanying such visual recording”. Sound recording
(phonogram) is a recording of sounds from which sounds can be produced regardless
of the medium on which such recording is made or the method by which the sounds
are produced.
Copyright is governed by ……………… Act. 7
Intellectual Property 8.3.2 Rights Included in the term ‘Copyright’
Protection in
Cyberspace Copyright is a bundle of rights and this bundle can be broadly classified into two
categories, viz. economic rights and moral rights. Economic rights are so called
because “they imply as a rule that within the limitations set by the copyright law the
owner of the copyright may make all public use of the work conditional on payment
of remuneration”. These rights enable the copyright owner to reap economic returns
for his work. The major economic rights available in the Indian copyright Act are the
following:
(a) Right of Reproduction
(b) Right to Issue Copies of a Work
(c) Rights of Public Performance
(d) Right of Communication to the Public
(e) Adaptation Right
(f) Translation Right
Right of reproduction is the most fundamental of all economic rights. The right envisages
that copyright owner has the exclusive right to authorize the making of one or more
copies of a work or of a substantial part of it in any material form, including sound
and visual recording. The most common kind of reproduction is printing an edition
of a book. Storing of a work in any medium by electronic means is also reproduction.
The Copyright Act gives the right of reproduction in all classes of works.
Moral Rights are generally provided with a view to assert the authorship on a work
and also to uphold the right of integrity. The Indian Copyright Act provides this as
special rights of authors to claim authorship of the work and to restrain or claim
damages in respect of any distortion, mutilation, modification or other act in relation
to the said work which is done before the expiration of the term of copyright if such
distortion, mutilation, modification or other act would be prejudicial to his honour or
reputation. Moral rights are independent of the economic rights and remain with the
author even after he has transferred his economic rights. In the era of digital
technologies, moral rights, particularly right of integrity, are very necessary to safeguard
against misuse and distortion of an author’s work.
Copyright, being a property right, can be transferred or assigned to another person.
It can also be inherited during the time it exists. Without transferring or assigning, a
copyright owner can license specified uses by others.
8.3.3 Infringement of Copyright and Remedies Thereof

Any copying or duplication, adaptation, translation, public performance,
communication to the public or broadcast done without the authorization of the
copyright owner, or even where any work has been licensed or assigned, any violation
of the conditions of the licence or assignment constitutes copyright infringement. Any
import of infringing copies also constitutes copyright infringement. Even such copies
made outside India cannot be imported into India without infringing copyright where
such copies, if made in India, would infringe copyright, even if it may not be an
infringement in the country of origin. Since copyright is a proprietary right, the owner
8 has to administer his own rights. The Copyright Act provides for collective
administration of rights through registered copyright societies. These societies have Intellectual Property in
Cyberspace
to be formed voluntarily by the copyright owners. Only the owner of copyright or
the society who have the rights can institute civil and criminal proceedings against
infringement of his works. Civil remedies include injunction, and damages. Copyright
infringement is also a cognizable offence. Copyright infringement is punishable with
imprisonment for a term ranging from six months to three years and with a fine ranging
from Rs. 50,000 to Rs. Two lakh. District Courts have been given jurisdiction to try
the suits relating to copyright violation within the vicinity of which the owner of the
copyright resides or carries on business.
8.3.4 Limitations/Exceptions to Copyright

The rights granted by copyright are exclusive in nature. This exclusivity is sometimes
criticised as monopoly in favour of the right owners. Therefore, in order to balance
these opposing private and public interests the legislature provides the remedy in the
form of drawing limitations/exceptions to copyright. This is achieved by two means;
firstly, limiting the duration in which a work enjoys copyright protection, and secondly,
allowing certain uses without specific authorization by the owner of copyrights, known
as fair use provisions in copyright parlance.
Copyright is an intellectual property right and like all other intellectual property rights
it is for a limited duration. This limitation emanates from the basic concept of
intellectual property right that while creators of intellectual property have the
right to control the reproduction and other uses of their works, they being
essential elements in the scientific and cultural progress of humanity, the society has
the right to access and share the same so that social and cultural life of humanity gets
enriched. While the Berne Convention provides for a minimum period of protection
which is life term of the author plus 50 years thereafter, national governments are
free to provide a longer term of protection. In India, original literary, dramatic, musical
and artistic works enjoy copyright protection for the lifetime of the author plus 60
years if they are published within the lifetime of the author.
Many types of exploitation of a copyrighted work which are for social purposes
such as education, religious ceremonies, and so on are exempted from the operation
of the rights granted in the Act. For example, playing music at religious ceremonies,
including marriage processions and marriage festivities, official functions of central
and state governments and local bodies will not be affected by copyright. This is
done in keeping with the social and cultural traditions of the country.
8.3.5 Registration of Copyright

The Copyright Act provides for registration of works. However, the registration
under the Act is voluntary and not obligatory. Registration does not itself confer
copyright but the particulars entered in the Register of Copyright maintained in the
Copyright Office constitute prima facie evidence of ownership of copyright in
copyright cases. As per the provisions of the Act, copyright subsists in any work as
soon as it is created, without any formality like registration being observed.
8.3.6 International Nature of Copyright Protection

Copyrights are national in nature. This means that your rights are recognised by your
national laws and extend to the territorial limits of your country. However, international
treaties like the Berne Convention for the Protection of Literary and Artistic Works 9
Intellectual Property (1886) the Universal Copyright Convention (1952) and the Agreement on Trade
Protection in
Cyberspace
Related Aspects of Intellectual Property Rights (1994) ensure protection of copyrights
of nationals of a member country in all other member countries. Through the principle
of ‘National Treatment’ it is ensured that foreigners if they are nationals of a member-
country, are given the same rights enjoyed by the nationals, except in the matter of
term of protection.
India is part of the international copyright regime through its membership of Berne
Convention for the Protection of Literary and Artistic Works, Convention Establishing
the World Intellectual Property Organization (WIPO), Universal Copyright
Convention, Convention for the Protection of Producers of Phonograms Against
Unauthorized Duplication of Their Phonograms, Multilateral Convention for the
Avoidance of Double Taxation of Copyright Royalties and Additional Protocol, and
the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS).
8.4 TRADEMARKS
8.4.1 Fundamental Concept
A trademark is a distinctive sign of some kind which is used by a business to uniquely
identify itself and its products and services to consumers, and to distinguish the business
and its products or services from those of other businesses. Conventionally, a
trademark comprises a name, word, phrase, logo, symbol, design, image, or a
combination of two or more of these elements.
The essential function of a trademark is to exclusively identify the commercial source
or origin of products or services thereby facilitating identification of products and
services which meet the expectations of consumers as to quality and other
characteristics. That way, trademark law is designed to fulfill the public policy
objective of consumer protection, by preventing the public from being misled as to
the origin or quality of a product or service. Trademarks also serve as an incentive
for manufacturers, providers or suppliers to consistently provide quality products or
services in order to maintain their business reputation.
What is the function of trademark?
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
8.4.2 Establishing Trademark Rights

The law considers a trademark to be a form of property. Proprietary rights in relation
10 to a trademark may be established through actual use in the marketplace, or through
registration of the mark with the trade marks office of a particular jurisdiction. A Intellectual Property in
Cyberspace
trademark may be eligible for registration if, amongst other things, it performs the
essential trademark function, and has distinctive character.
A registered trademark confers a bundle of exclusive rights upon the registered owner,
including the right to exclusive use of the mark in relation to the products or services
for which it is registered. The law also allows the owner of a registered trademark to
prevent unauthorized use of the mark in relation to products or services which are
similar to the “registered” products or services, and in certain cases, prevent use in
relation to entirely dissimilar products or services.
Trademarks rights must be maintained through actual use of the trademark. These
rights will diminish over time if a mark is not actively used. In the case of a trademark
registration, failure to actively use the mark, or to enforce the registration in the event
of infringement, may also expose the registration itself to removal from the register
after a certain period of time.
The symbol ™ may be used when trademark rights are claimed in relation to a mark,
but the mark has not been registered with the government trade marks registry of a
particular jurisdiction, while the symbol ® is used to indicate that the mark has been
so registered. It is not mandatory to use either symbol, although the force of convention
is such that the symbols are widely used around the world.
8.4.3 Passing Off

If a trademark has not been registered, some jurisdictions especially Common Law
countries offer protection for the business reputation which attaches to unregistered
trade marks through the tort of passing off. Passing off may provide a remedy in a
scenario where a business has been trading under an unregistered trade mark for
many years, and a rival business starts using the same or a similar mark.
The law of passing off prevents one person from misrepresenting his or her goods or
services as being the goods and services of the plaintiff, and also prevents one person
from holding out his or her goods or services as having some association or connection
with the plaintiff when this is not true.
Passing off and the law of registered trademarks deal with overlapping situations,
but deal with them in different manners. Passing off does not confer monopoly rights
to any names, marks, get-up or other indicia. It does not recognise them as property
in its own right. Instead, the law of passing off is designed to prevent misrepresentation
to the public where there is some sort of association between the plaintiff and the
defendant. Where the defendant does something so that the public is misled into
thinking the activity is associated with the plaintiff, and as a result the plaintiff suffers
some damage, under the law of passing off it may be possible for the plaintiff to
initiate action against the defendant. The three fundamental elements to passing off
are therefore reputation, misrepresentation, and damage to goodwill.
When can a trademark be eligible for registration?
...................................................................................................................
11
Intellectual Property ...................................................................................................................
Protection in
Cyberspace ...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
8.4.4 Remedies for Breach

The extent to which a trademark owner may prevent unauthorized use of trademarks
which are the same as or similar to its trademark depends on various factors such as
whether its trademark is registered, the similarity of the trademarks involved, the
similarity of the products and/or services involved, and whether the owner’s trademark
is well known. If a trademark has been registered, then it is easier for the trademark
owner to demonstrate its trademark rights and to enforce these rights through an
infringement action.
Unregistered trademark rights may be enforced by way of a lawsuit for passing off,
while the exclusive rights which attach to a registered mark can be enforced by way
of an action for trademark infringement.
8.5 MIGRATION OF INTELLECTUAL PROPERTY

ON THE INTERNET
The character of the intellectual property system is evolutionary. While, the nature of
the rights themselves, to control and exploit the products of one’s creativity and
innovation, remains relatively constant, the manner by which they are expressed and
exchanged is constantly adapting to developments in the underlying technologies.
The invention of, in turn, the printing press, phonograms, radio and television
broadcasting, cable and satellite transmission, videocassette recorders, compact disc
(CD) and digital versatile disc (DVD) technology and, now, the Internet, has affected
both the form and the substance of intellectual property rights. Ever adaptable,
intellectual property has now migrated to the Internet and is being modified to suit
the online environment.
The digitization of works of intellectual property, by the process that reduces text,
visual images and sound to computer-readable binary code of ‘0’s and ‘1’s, has led
to the creation of digital products which can travel over the networks. This has
enabled intellectual property to migrate so efficiently to the Internet. This migration
of intellectual property onto the Internet can be seen with respect to each species of
rights, but predominantly the migration is best visible in case of copyright and
trademarks.
In the field of copyright, vast numbers of works of literature, film and art, and notably
computer programs, have already transferred to the digital environment. Textual works
such as books and newspapers are ideally suited to digitization and there is evidence
of a growing demand for e-books. There has been real success in the online availability
of science, technology and medical publications, where the demand for fee-based
research has supported the e-publishing industry. Increasingly, numerous journalists
and aspiring writers have engaged in online publishing to post ‘blogs’, Web logs or
12
journals, that allow individuals to make their views available to the public without the
need for intermediation by large publishing houses or distributors. In the field of fine Intellectual Property in
Cyberspace
art, indigenous craft and artifacts, numerous museums and art galleries have digitized
their collections and made them available for viewing on the Internet.
There are numerous .com companies that rely on business models that trade in physical
objects of intellectual property. The online traders utilize vast databases of book,
video and music titles and user-friendly purchasing systems to attract consumers
away from the shopping mall, and then send these intellectual property products to
consumers using postal mail. Travel sites and airline companies and entertainment
ticket sellers, profit through saved overheads by conducting sales online, using e-
ticketing or mailing tickets to purchasers. Numerous small and medium sized
enterprises have used the Internet in this way, as a marketing tool to locate buyers
for their products in a huge global marketplace.
The trademark system facilitates the identification of goods and services and allows
consumers to distinguish those produced by a certain enterprise. On the Internet
consumers increasingly rely upon strong brand awareness and brand performance
for the confidence to engage in e-commerce. While trademarks are of greater
importance in this virtual environment, they are also more vulnerable to infringement,
dilution and anticompetitive practices.
Domain names are user-friendly addresses that correspond to the unique Internet
Protocol numbers that connect our computers to the Internet and enable the network
routing system to direct data requests to the correct addressee. Because domain
names are intuitive and easy to remember they now perform a function as business
or personal identifiers. Businesses advertise their domain name to signal a Web
presence. In this way domain names perform an identifying function akin to that of a
trademark.
What are domain names?
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
8.6 CHALLENGES FOR INTELLECTUAL

PROPERTY IN CYBERSPACE
Although a good proportion of the information on the Web is in the public domain,
that is, freely available to use and copy, an increasingly significant amount is protected
as intellectual property. Many .com companies took the approach that it was initially
more important to make their products available freely, and thereby establish a market
presence, and to address issues of revenue and profit at a later stage. The enthusiasm
excited by the availability of so much online information, easily accessible through 13
Intellectual Property browsing and hyper linking, contributed to a general expectation that this information
Protection in
Cyberspace
was free and its use uncontrolled. So, a key challenge is the expectation among
many users that information and intellectual property sourced or downloaded from
the Internet should be free of charge.
Right owner such as film and music creators, software developers, authors and
publishers, are now exploring ways in which to make their products available online,
while protecting their rights and recouping their investment. To some extent, the
uptake of fee-based intellectual property services is dependent on the efficient
management of these rights, as well as the availability of workable and secure methods
of micro payments that would enable pay-per-unit purchases, and the building of
consumer confidence in online payment security, privacy and consumer protection.
So, another challenge is to make intellectual property rights holders feel secure and
sure that they can protect their property from piracy and control its use, before they
will be willing to make it available online.
Peer-to-peer (P2P) networks enable millions of users to upload and share their
music and film files via the Internet, often infringing copyright in the works they trade.
Difficult issues are raised by the vast availability of intellectual property on the Internet,
the ease of copying and distribution of copies and the relative anonymity afforded to
these digital transactions. Many companies that continue to operate in the online
environment have developed other business models, often relying on advertising
revenue or value-added service charges to finance their free services and information.
Surveys have shown that consumers are gradually becoming more willing to pay for
online content. However there remains a general reticence to pay for material that
was once free. This trend suggests that education of online consumers is another
challenge for smooth exploitation of intellectual property on the Internet.
How does one protect digital content when technology, by its nature, encourages
copying? New international laws such as the WIPO Internet Treaties, adapt the
intellectual property laws to facilitate the dissemination of protected material over
the Internet. Technological tools such as encryption and watermarking provide
practical solutions and, together with digital rights management initiatives, contribute
to meeting this concern. However, many creators and rightsholders remain
apprehensive.
The first cum first served principle of domain name registration has let to the misuse
of trademarks on the Internet. How to stop this abuse is the paramount task of
trademark owners and international legal community. Trademark owners expend
vast resources, engaging automated ‘web crawling’ software and cyber surveillance
firms, to monitor the billions of Web pages and protect their intellectual property
rights.
Search engines have come to acquire a unique position in the cyberspace. If you are
not indexed by a search engine you simply do not exist. But in order to be indexed
and to achieve a good rating on any search engine, businesses have adopted all
kinds of ethical and unethical practices. The unethical practices in the overall search
engine optimisation are known as spamdexing which involves the abuse of someone
else’s trademark. Another legal challenge is to streamline the working of search engines
so that their abuse is minimized leading to the overall confidence enhancement of the
consumers.
14
Intellectual Property in
8.7 SUMMARY Cyberspace
z The term intellectual property reflects the idea that this subject matter is the
product of the mind or the intellect.
z Copyright and trademark are of utmost relevance when we discuss intellectual
property protection in cyberspace.
z Copyright is a right given by law to the creators of literary, dramatic, musical
and artistic works and producers of cinematograph films and sound recordings
to do or authorize the doing of certain acts with regard to their creations.
z Copyright is a bundle of rights and this bundle can be broadly classified into
two categories, viz. economic rights and moral rights.
z A trademark is a distinctive sign of some kind which is used by a business to
uniquely identify itself and its products and services to consumers, and to
distinguish the business and its products or services from those of other
businesses.
z Intellectual property in its various forms has migrated to the Internet.
z Books, music, films, images, etc. are now readily available to be consumed on
the Internet.
z The biggest challenge for the success of e-commerce is to ensure proper control
of intellectual property present in cyberspace in the hands of rightowners.

1. What do you mean by intellectual property and what are the various tools of
intellectual property protection?
2. How and in which form intellectual property is migrating to the Internet?
3. What are the challenges that cyberspace has posed to the intellectual property
regime?

1. Copyright Act, 1957.
2. Function of trademark is to exclusively identity the commercial source of origin
of products or services thereby facilitating identification of products and services
which meet the expectations of consumers as to quality and other characteristics.
3. A trademark may be eligible for registration of amongst other things it perform
the essential trademark fraction, and has destructive character.
4. Domain names are uses friendly addresses that correspond to the unique internet
protected number that connect our computers to the internet and enable the
Network routing system to direct data requests to the correct address.
Terminal Questions
3. Refer to section 8.6 of the unit and other reference material.
15
UNIT 9 LINKING, INLINING AND FRAMING
Structure
9.1 Introduction
9.2 Objectives
9.3 Linking
9.3.1 What is Linking?
9.3.1 Liability for Linking
9.4 Inlining
9.4.1 What is Inlining?
9.4.2 Inlining and Indian Law
9.5 Framing
9.5.1 What is Framing?
9.5.2 Legality of Framing under Indian Law
9.6 Summary
9.1 INTRODUCTION
The Web sites are soaked in information, much of it with varying degrees of copyright
protection. In fact, the reality is that almost everything on the Net is protected by
copyright law. Web sites are a composition of materials, often consisting of words,
graphics, audio, and video, that are expressed to the consumer as information content.
The subject matter expressed in the site is an electronic publication of this content.
Since, designing, producing, and maintaining a sophisticated Web site is very
expensive, protecting content ownership is extremely important. As Web sites
become more and more interactive with consumers, their creation, design, and
maintenance place enormous demands on innovative marketing techniques that
should be legally protected.
Never before has it been so easy to violate a copyright owner’s exclusive right to
copy the material. Everyone with a computer and an Internet connection creates his
own Web pages and thus become a publisher. Hence the rules that once applied to
only a few companies bind million of people now.
This unit highlights the scenario when contents of your Web site are exploited by
others without your permission or knowledge. The discussion is centred on copyright
issues involved in the practices of Linking, In lining and Framing technologies which
are normally being used on the Internet.
9.2 OBJECTIVES
z explain the concept of linking;
16
z make distinction between surface linking and deep linking; Linking, Inlining and
Framing
z describe the liability for linking;
z explain the Indian law references to linking; and
z describe the legality of framing under Indian law.
9.3 LINKING
9.3.1 What is Linking?
The interactive feature of the Internet’s most popular information access tool, the
World Wide Web, to hyperlink defines its very culture distinguishing it from any
other communications medium. On the Internet, a link is a selectable connection
from one word, picture, or information object to another. Links usually appear as
highlighted, underlined, otherwise prominent text or picture that can be selected by
the user, resulting in the immediate delivery and view of another file. The highlighted
object is referred to as an anchor. The anchor reference and the object referred to
constitute a link. A link may lead either to another file in the same Web site, or to a
file on a different computer located elsewhere on the Internet. Internet browsers
automatically decipher the instructions given by links and retrieve the specified file. A
single Web page may contain many links to other Web pages.
Linking is the sine qua non for the World Wide Web and in fact links are what make
the World Wide Web a web. Links allow quick access to information that otherwise
could take much time and effort to find. Linking is of two types:
Surface linking: When the home page of a site is linked it is the case of surface
linking.
Deep linking: When a link bypasses the home page and goes straight to an
internal page within the linked site it is the case of deep linking.
9.3.2 Liability for Linking

The Web was built for the purpose of enabling hypertext capabilities, allowing one
site to link to and access another. In most cases, the owner of a Web page will
desire the page to be the destination of as many links as possible because more links
would mean more hits, and more hits would in turn mean wider dissemination of
whatever information the page is designed to get across. To date, Web site owners
have made money primarily from the sale of advertising at their sites. The advertising
rate is set keeping in mind the number of people who visit the site.
The problem arises only with regard to the practice of deep linking. The home page
of a Web site is used as the entry point to information contained within the Web site
and welcomes users, explains the nature of the site and offers links that allow the
user to navigate through the site. Deep links defeat a Web site’s intended method of
navigation. Further deep links may “steal” traffic from the linked site’s homepage
thereby decreasing the revenue that could be generated from advertising that is
dependant on the traffic onto the site. A link is just a URL, the Internet address of a
Web site and therefore like a street address is not copyrightable. But this technology
of hyperlinking may aid in the distribution of creative material that belongs to someone
else. 17
Intellectual Property In the Ticketmaster Corp. v. Microsoft Corp.[United States District Court for the
Protection in
Cyberspace
Central District of California, Civil Action Number 97-3055DPP] case, the plaintiff,
Ticketmaster Corporation sued Microsoft for Microsoft’s practice of linking, without
permission, deep within its site rather than to the home page, and claimed, among
other things, that Microsoft effectively diverted advertising revenue that otherwise
would have gone to the plaintiff. Ticketmaster Corporation had also entered into
contracts with other firms whereby those firms had agreed to pay to link to the
Ticketmaster site. Free linking by Microsoft to the plaintiff’s site could have devalued
those contractual relationships. Allowing such a free link undercut Ticketmaster’s
flexibility both in designing its site and in its marketing efforts and arrangements with
other sites. During the pendency of the court proceedings the parties entered into a
settlement agreement whereby Microsoft agreed not to link to pages deep within the
Ticketmaster site and agreed that the links will point visitors interested in purchasing
tickets to the ticketing service’s home page.
In a Scottish case, Shetland Times, Ltd. v. Dr. Jonathan Wills and Another [1997
FSR 604.], the plaintiff, the Shetland Times operated a Web site through which it
made available many of the items in the printed version of its newspaper. The
defendants also owned and operated a Web site on which they published a news
reporting service. Defendants reproduced verbatim a number of headlines appearing
in the Shetland Times. These headlines were hyperlinked to the plaintiff’s site. Clicking
on the headline took the reader to the internal pages in the plaintiff’s site on which
the related story was found. In the process, the front page of the Shetland Times’
site (on which paid advertisements appeared) was bypassed, significantly diminishing
the value of the site to potential advertisers. The court issued an interim interdict
barring defendants, without the plaintiff’s consent, from copying headlines from the
plaintiff’s newspaper onto their Web site, and creating hyperlinks from those headlines
to the location on the plaintiff’s site on which the article described in the headline
appears.
What liability is there for the content on a linked site? A hyperlink used by a Web site
does not directly cause copying of any substantive content by anyone, but instead
merely provides a pointer to another site. A surface link to a home page does not
generally require permission. This position is based on the theory that going online
creates an implied license for anyone with a computer to view the Web site. Simply
placing a surface link is no more an infringement than the library catalogue telling you
it stocks a book, is an invitation to you to photocopy it in its entirety. The very fact
that a person or an entity has put up a Web site is in itself an invitation to all to visit
the site. So, the owner of a Web site should only be happy that someone has provided
a link to his Web site.
But what exactly can be the liability for a deep link under the Copyright Act of India.
By virtue of section 14 and 51 of the Indian Copyright Act, reproducing any
copyrighted work, issuing copies of the work to the public or communicating
the work to the public could amount to copyright violation. But in case of deep
linking the linking site is not reproducing any work. The reproduction, if at all any,
takes place at the end of the user who visits the linked page via the link. Can the
linking site said to be issuing copies of the work or communicating it to the public?
Technically, the linking site is only informing people about the presence of the work
and giving the address of the site where the work is present. It is the user’s discretion
to access the work by clicking the link. But nevertheless the linking site is definitely
18
aiding in the distribution of the work.
Looking from another angle, section 2(ff) of the Copyright Act says: Linking, Inlining and
Framing
Making any work available for being seen or heard or otherwise enjoyed by the
public directly or by any means of display or diffusion other than by issuing copies
of such work regardless of whether any member actually sees, hears or otherwise
enjoys the work so made available.
This definition of communication to the public could be stretched to cover the
communication of contents of a Web site on the Internet as the expression by any
means of display has been used to define communication.
But in case of deep linking problems could arise. Without deep linking, the Internet
as we know it would collapse. You couldn’t have a search engine, for example. But
some grey areas do need to be addressed. It is quite different for a search engine to
deep link than a competitor of an e-business Web site to do the same. Deep linking
to commercial Internet databases without the permission of the content owner could
raise many problems. It would be difficult for any business to see its content being
used by a competitor for free just because the new technology allows it. Many
publishers are moving to curtail or block permanent deep links, as more free content
moves behind registration screens or is shepherded after a few days into paid-for
archives. But many Web sites would welcome deep links as well.
So, should the law be amended to stop deep linking without permission of the owner
of the content? Or should the law provide complete immunity to links of all kinds.
Internationally, no law till date has put a ban on deep linking. There are indeed
problems in doing so. On the one hand one has to consider the rights of the owner
of content and on the other hand the interests of the society for which growth of the
Internet is all important. The international treaties and laws do emphasize the
importance of control in the hands of the content owner, but specifically they have
not dealt with the problem of deep linking. It would not be proper for the Indian
legislation to include a provision banishing deep links altogether because the current
provisions are sufficient to check the unauthorized use of someone’s content through
deep linking and using these provisions courts can fill the vacuum by deciding from
case to case basis; if a deep link has been created with bad intent and in order to
derive unjust enrichment out of somebody’s content then it could be injected.
Before linking deep within a Web site the prudent course for businesses and individuals
would be to seek permission. And for the creators of a Web site who want that it is
not linked to a pornographic or shabby site could place a prohibition in its ‘terms of
use’ similar to, “Do not link to this site without our express consent”. If you link
to a site that includes illegal material, could you be liable? It may be best to post a
disclaimer on your site indicating that the links are for information only, and do not
constitute an endorsement or approval of the material on the linked sites.
What are the different kinds of linking?
...................................................................................................................
...................................................................................................................
................................................................................................................... 19
Intellectual Property ...................................................................................................................
Protection in
Cyberspace ...................................................................................................................
...................................................................................................................
9.4 INLINING
9.4.1 What is Inlining?
Inlining or ‘In-line linking’ enables a Web page to summon different elements from
diverse pages or servers to create a new Web page. Instead of copying the elements
to the composite page, the elements are linked in by “pulling in” graphic or image
files from another site and displaying on the composite Web page. Thus, the composite
page would consist of a series of links to other sites and servers. While browsing the
composite page, the page directs the browser to get the pictures, graphics etc. from
the original sources.
An example would be a Web page on art that contains images stored around the
world. The Web page could contain the text: “See my favourite paintings”. Using an
IMG link, the Web page could then direct the visiting browser to retrieve the images
of famous paintings from the Web page of various museums and place it immediately
below the text. To the end-user, the integration of the two pieces of content (text and
pictures) is seamless, despite the fact that they were taken from two very different
sources. The viewer cannot distinguish that the image has originated at and been
imported from a separate site and may never come to know that it was not created
or stored at the site being visited by him. In this respect, inlining is different from
deep linking where the user is usually aware that he has “changed pages”, either
from the different appearance of the newly accessed page, or from the change in the
URL address display in the Web browser.
In the USA the Dilbert dispute, though did not involve the filing of a complaint or any
judicial determinations, is one of the few inline controversies and thus serves as a
point of discussion for these links. Dan Wallach created “The Dilbert Hack Page”, a
site that presented the Dilbert comic strip via inlining to the United Media Web site,
where the comic strips were located. The images appeared on Wallach’s Web site
via inlining. United Media, speaking for United Feature Syndicate, Inc., owner of
the copyright in the comic strip, requested by letter to Wallach to discontinue the
link. United Media contended that “the names or likenesses of the Dilbert comic
strips and all other United Media intellectual property cannot be used – on the World
Wide Web or elsewhere – without the express, written consent of UFS”. United
Media asserted that Wallach’s inline links to copyrighted material constituted an
unauthorized display of a copyrighted work, a violation of the Copyright Act. To
avoid litigation, Wallach removed the page.
In, Leslie A. Kelly v. Arriba Soft Corporation [Case No. 00-55521, US Court of
Appeals for the Ninth Circuit], a visual search engine (ditto.com, formerly known as
Arriba) crawled the web to produce thumbnail images of photographs and used
them to link to the original pictures. Leslie Kelly, a professional photographer was
upset that the search engine reproduced thumbnails of the images on his site which,
when clicked, produced the full-size image in a window on Arriba’s site. The page
used so-called in-line linking to display the original full-sized image, surrounded by
20 text describing the size of the image, a link to the original web site, the Arriba banner,
and Arriba advertising. Kelly filed suit on April 6, 1999, alleging copyright Linking, Inlining and
Framing
infringement. A California District Court ruled that both the creating of the
thumbnails and the inline-linking is justified under the fair use doctrine. On appeal by
Kelly, the Ninth Circuit Court of Appeals affirmed and reversed in part the
district court decision. The display of the tiny images was deemed to be legal fair
use, but not the inline-linking. On February 6, 2002, the US Court of Appeals for
the Ninth Circuit held that that unauthorized inline linking to images residing on the
copyright owner’s Web site violates the copyright owner’s right of public display.
The court rejected defendant’s fair use defence and stated that inline linking
diminishes the opportunities of the copyright owner to sell or licence the images on
his own Web site. The Electronic Frontier Foundation (EFF) filed a brief, thereafter,
urging the court to reconsider the part of its ruling on inlining to copyrighted
images. The EFF argued that the ruling against “inline linking” threatened to transform
everyday Web site activities into copyright infringements. In July 2003 the court
withdrew that portion of its opinion which was relating to inlining, leaving it to the
lower court to take a fresh look at the issue. It is now open for the court to reconsider
whether inlining is violative of copyright or not.
Content on the Internet is protected by copyright law. Do you agree?
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
9.4.2 Inlining and Indian Law

As in linking one has to turn to section 51 read with section 14 of the Copyright Act,
1957 to test the legality of inlining. By virtue of section 14 and 51, reproducing any
copyrighted work, issuing copies of the work to the public or communicating
the work to the public could amount to copyright violation. The person who employs
an inline link on his site is not causing any reproduction of the copyrighted content.
This is because the link’s creator never copies the pirated content; instead merely
provides a visiting browser with instructions to retrieve the image, which is then
incorporated into the overall page on the user’s site. Thus the only person who
copies the protected image is the final user who never comes to know that his browser
is fetching different elements from different sites. So, the reproduction, if at all any,
takes place at the end of the user who visits the linked page via the link. Also, the
creator of the inline link is not issuing copies of the work nor communicating or
distributing the work to the public. But he can be said to be aiding in such
communication and distribution.
Looking from the angle of section 2(ff) of the Copyright Act the definition of
communication to the public could be stretched to cover the communication of 21
Intellectual Property contents of a Web site on the Internet as the expression by any means of display
Protection in
Cyberspace
has been used to define communication.
Section 14(a)(vi) grants the right of adaptation only to the owner of copyrighted
work. By inlining the linking site could take some elements from the linked site’s
multimedia settings and create it’s own, thereby affecting the right of making a
derivative work of the linked site because taking some elements from the multimedia
setting and combining them with some other could well fit into the definition of
adaptation. So, adaptation rights do come in picture vis-à-vis inlining.
Inlining brings in the question of moral rights as well. Section 57 of the Copyright
Act, 1957 says:
1. Independently of the author’s copyright, and even after the assignment either
wholly or partially of the said copyright, the author of a work shall have the
right —
a. to claim the authorship of the work; and
b. to restrain or claim damages in respect of any distortion, mutilation,
modification or other act in relation to the said work which is done before
the expiration of the term of copyright if such distortion, mutilation,
modification or other act would be prejudicial to his honour or reputation.
2. The right conferred upon an author of a work by sub-section (1), other than the
right to claim authorship of the work, may be exercised by the legal
representatives of the author.
First, this section allows the copyright author to claim authorship of the work. In
case of inlining the user is confused about the original source and hence may never
come to know about the author. The user may never know from where different
elements of the site have emanated.
Second, it talks about the right of integrity. The author of the copyrighted work has
a right to see that his work is not being distorted, mutilated or modified. Copyrighted
graphic image could be pulled into a site with its image appearing on a single page
combined with other images, thus creating another work virtually new and different
from the original thereby strongly implicating the right to integrity of the work. The
combination of various elements could be termed as modification or even mutilation
in certain circumstances.
Even if a Web page allows others to link to it, it cannot be presumed that it has also
granted permission to link to individual elements of the page. If someone were to
create a composite Web page by summoning various elements from a different Web
site without necessary permission, it is clear that such a use would not be protected
as fair use. By stripping an element of its context, you also strip many of the copyright
privileges that may have been attached.
Should the law be amended to outlaw inlining or to allow this practice? The Copyright
Act talks about various rights of owners and authors of works and describes situations
where these rights can be infringed. So, there is no need for the law to be changed
as such in this regard. A complete ban could restrict the growth of the Internet. At
the same time owner’s content should not be subject to exploitation by one and all.
22 In this situation, it is for the courts to decide upon the legality/illegality of inlining from
case to case. The measure would always be the Copyright Act, the philosophy of Linking, Inlining and
Framing
which is amply clear. In case an inline link amounts to aiding in distribution or
communication with dishonest intentions, the courts will come forward and declare
such inlining illegal.
It is considered a breach of net etiquette to link to anyone else image through an
IMG link without permission. Consequently, one should obtain permission from the
copyright owner of the image prior to creating an inlining link.
What is copyright violation? Explain
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
9.5 FRAMING
9.5.1 What is Framing?
Web browsers allow Web authors to divide pages into “frames”. A frame is an
independently controllable window on a Web site through which pages from another
Web site can be viewed. Since it is possible for a site to call a frame’s contents from
a different location, a programmer might “frame” another’s Web content beneath his
own navigation or banners. This allows him to use creative content owned by another
entity to sell banner advertising on its on site. A typical use of frames is to have one
frame containing a selection menu in one frame and another frame that contains the
space where the selected (linked to) files appear.
In Washington Post Co. v. Total News, Inc. [97 Civ.1190 (S.D.N.Y.)] The
Washington Post filed a complaint against an online news site, Total News, the
publisher of the Web site www.totalnews.com. TotalNews, an aggregator of web
news sources, employed frame technology to display news sites from around the
Web. Total News had created pages with frames that contained hyperlinks to other
news Web sites, such as The Washington Post, CNN, USA Today, Time and Sports
Illustrated, etc. Web users, therefore, could use www.totalnews.com to access
articles from various sources. The TotalNews Web site generated its revenue from
advertising, which it placed in a static border frame. Clicking on a hyperlink to ‘The
Washington Post’ within the Total News Web page displayed the content of The
Washington Post page within a frame that was surrounded by TotalNews’s URL,
logo, banner, advertisements and information. Six content providers – CNN, Time-
Warner, Reuters, The Washington Post, The Wall Street Journal and the LA Times,
sued TotalNews, claiming that such framing was the Internet equivalent of pirating
copyrighted material. They also alleged misappropriation, trademark infringement
and trademark dilution. The plaintiffs complained that TotalNews has designed a 23
Intellectual Property parasitic Web site that republishes the news and editorial content of other Web sites
Protection in
Cyberspace
in order to attract both advertisers and users. Total News settled the case by agreeing
to link to, rather than frame, the Post’s Web pages of various plaintiffs and the court
did not have an opportunity to decide any of the legal issues that were raised by the
plaintiffs.
In, Futuredontics Inc. v. Applied Anagramic Inc. [1997 46 USPQ 2d 2005 (C.D.
Calif. 1997)] Applied Anagramic, Inc., a dental services Web site, framed the content
of a competing site. The frames included information about Applied Anagramic as
well as its trademark and links to all of its Web pages. A district court ruled that the
addition of the frame somewhat modified the appearance of the linked site and such
modifications could, without authorization, amount to infringement.
What do you mean by frame in context of cyberspace?
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
9.5.2 Legality of Framing under Indian Law

As in linking and inlining one has to turn to section 51 read with section 14 of the
Copyright Act, 1957 to test the legality of framing. The person who frames some
other site’s content on his site is not causing any direct reproduction of the copyrighted
content. This is because the framer never copies the pirated content; instead merely
provides a visiting browser with instructions to retrieve the content, which is then
incorporated into the overall page on the user’s site. Thus the only person who
copies the content is the final user who never comes to know that his browser is
fetching different elements from different sites. Also, the framer is not directly issuing
copies of the work nor communicating or distributing the work to the public as the
user’s browses is actually fetching the content directly from the owner’s site. But he
can be said to be aiding in such communication and distribution.
Section 14(a)(vi) grants the right of adaptation only to the owner of copyrighted
work. The framing site could take some elements from the framed site’s multimedia
settings and create it’s own, thereby affecting the right of making a derivative work
of the framed site because taking some elements from the multimedia setting and
combining them with some other could well fit into the definition of adaptation. So,
derivation and adaptation rights do come in picture vis-à-vis framing.
Framing brings in the question of moral rights as well. Section 57(1) of the Copyright
Act, allows the copyright author to claim authorship of the work. In case of framing
the user is confused about the original source and hence may never come to know
24 about the author. The user may never know from where different elements of the
site have emanated. The creator of a frame does not literally “copy” the contents of Linking, Inlining and
Framing
the framed page but only directs the user’s browser to summon content from another
Web site and show the same along with the content of the framing site. Since the
URL of the framed Web page does not appear on the screen, the user accessing a
framed site may not perceive the site as being framed and may attribute the
appropriated material to the home site owner. This could implicate the right of the
author to be identified as such, since the user never comes to know that he is viewing
content from a different site.
The author of the copyrighted work has a right to see that his work is not being
distorted, mutilated or modified. Content from various sites could be pulled into
a single window, thus creating another work virtually new and different from the
original thereby strongly implicating the right to integrity of the work. The combination
of various elements could be termed as modification or even mutilation in certain
circumstances.
Should the law be amended to outlaw framing or to allow this practice? The Copyright
Act talks about various rights of owners and authors of works and describes situations
where these rights can be infringed. Imagine a situation akin to the Washington
Post case. The world renowned news portals make huge investments in terms of
time, effort and cost to bring a news report. What if someone just frames the same
by a simple technique? It would be wholly unfair to do so or to allow so. In this
situation, it is for the courts to decide upon the legality/illegality of framing from case
to case. The measure would always be the Copyright Act, the philosophy of which
is amply clear. In case a frame amounts to aiding in distribution or communication
with dishonest intentions, the courts will come forward and declare such inlining
illegal.
Despite the paucity of judicial guidance in this area it could be stated that framing
could amount to copyright infringement. Therefore, the use of frames to contain
linked content should only be carried out with the express permission of the owner
of the framed materials.
9.6 SUMMARY
z Almost everything on the Net is protected by copyright law.
z Linking is of two types; surface and deep linking.
z Inlining or ‘In-line linking’ enables a Web page to summon different elements
from diverse pages or servers to create a new Web page.
z Inlining is different from deep linking where the user is usually aware that he has
“changed pages”, either from the different appearance of the newly accessed
page, or from the change in the URL address display in the Web browser.
z A frame is an independently controllable window on a Web site through which
pages from another Web site can be viewed.
z The technologies of linking, inlining and framing could be abused to violate
someone’s copyright.
25
Intellectual Property z Moral rights which are included within the overall doctrine of copyright could
Protection in
Cyberspace
also be jeopardized by these technologies.

1. How in lining could lead to copyright violations?
2. What is meant by the term ‘framing’? How framing could lead to copyright
violations?
3. Write a note on linking technologies and its copyright implications.

1. Surface linking and deep linking.
2. Yes.
3. Frame is an independently controllable window on a website through which
page from another website can be viewed.
4. Reproducing any copyrighted work, issuing copies of the work to the public of
communicating the work to the public amounts to copyright violation.
Terminal Questions
1. Refer to sub section 9.3.1 of the unit.
26
UNIT 10 P2P NETWORKING
Structure
10.1 Introduction
10.2 Objectives
10.3 What is Peer-to-peer Network?
10.4 Various P2P Networks and their Legal Implications
10.4.1 Napster
10.4.2 Post Napster P2P Networks
10.5 Damage by P2P Networks and Reaction of Copyright Industry

10.6 Indian Legal Landscape vis-à-vis P2P Networks
10.7 Copyright Law and Digital Technology: Need for Balance
10.8 Summary
10.1 INTRODUCTION
Peer-to-peer (P2P) technology, with which users can use the Internet to exchange
files with each other directly or through a mediating server, is seen as a threat to
copyright industry. Recently, P2P networks such as Napster, Gnutella and Kazaa
have led to massive reproduction and distribution of copyrighted works. Armed with
digital and communication technologies, ordinary people have the competence to set
up huge distribution networks of digital products in which everything is available for
free and the producer gets nothing.
On the information superhighway this loss of control over their own digital products
has sent the digital product industry into shock and panic. In recent times the industry
has supplied figures of piracy that, if believed, are massive by any standards. This
trend, if continues, has the potential of disrupting the traditional balance in the copyright
regime and also alter the business models of our society. If taken to extreme, the
P2P networks could land us in a situation where there are no working artists or
programmers.
10.2 OBJECTIVES
z explain the concept of peer to peer network and the different kind of P2P
networks along with their legal implications;
z describe the damage cause by P2P networks and the reaction of copyright
industry; and
z explain the nexus or relationship between Copyright law and Digital technology,
and the growing need for the balance of the two.
27
Intellectual Property
Protection in 10.3 WHAT IS PEER-TO-PEER NETWORK?
Cyberspace
Peer-to-peer (P2P) is defined as two or more computers connected by software
which enables the connected computers to transit files or data to other connected
computers. In recent usage, P2P has come to describe applications in which users
can use the Internet to exchange files with each other directly. The P2P connection
means that it’s a direct link, the file is being directly transferred from one computer to
the other, it is not going through any mediating server.
A P2P network does not have the notion of clients or servers, but only equal peer
nodes that simultaneously function as both “clients” and “servers” to the other nodes
on the network. This model of network arrangement differs from the client-server
model where communication is usually to and from a central server. Napster, Gnutella
and Kazaa are popular examples of this kind of P2P software.
What are P2P networks?
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
10.4 VARIOUS P2P NETWORKS AND THEIR

LEGAL IMPLICATIONS
10.4.1 Napster
Napster was created by 19-year-old Shawn Fanning in 1999 and it quickly became
popular around the world and pioneered the concept of P2P file sharing. With Napster,
individual people stored files that they wanted to share (typically mp3 music files) on
their hard disks and shared them directly with other people.
In order to download a free music file first of all one had to become a member of
Napster service by downloading the Napster software on one’s computer. The
Napster software was available for free at the Napster’s Web site
‘www.napster.com’. After implementing the Napster software the computer became
a small server able to make files available to other Napster users. Then the computer
connected to Napster’s central servers. The Napster software that a member
downloaded on his computer automatically told Napster central servers that these
were the music files on his computer. So, the Napster central servers had a complete
list of every shared song available on every hard disk connected to Napster at that
time. A Napster user could send a request to the Napster server for a particular
piece(s) of music. Now, the Napster server did not contain any music on its own
server but had a list of all the music that was available on the Napster members’
28 computers. The list was dynamic in nature as the music files available depended on
which member was online at a particular time. The entire user community could be P2P Networking
searched for artists or titles in seconds. One could simply type in the name of an
artist or song, receive a list of what was available, and then downloaded the music
from another user’s hard drive.
Napster grew to having 57 million users of its service with a consistent 1.6 million
using the system at any given time. Napster became so popular so quickly because
it offered a unique product – free music that anybody could obtain nearly effortlessly
from a gigantic database. You no longer had to go to the music store to get music.
You no longer had to pay for it. You no longer had to worry about cuing up a CD and
finding a cassette to record it onto. And nearly every song in the universe was available.
At its peak, Napster was perhaps the most popular Web site ever created.
But for the music industry Napster was a big, automated way to illegally copy
copyrighted material. The music industry was against Napster because people could
get music for free instead of paying for a CD and any music downloaded was
considered a loss of business opportunity. The industry sued Napster under a claim
of copyright infringement. Napster’s defence was that it contained no copyrighted
music files on its servers. It just had a list of what was available on Napstes’s users’
computers. So, if at all any one is liable for copyright infringement it is the person
who downloads the copyrighted product or the person who makes it available and
not Napster itself. But the court had sufficient reasons to injunct Napster for copyright
infringement. The court said that putting the list on the Web site was akin to running
a huge distribution network. Napster’s key weakness lay in its architecture – the
way that the creators designed the system. The central database for song titles was
Napster’s Achilles’ heel. The court [A&M Records v. Napster, Inc., 239 F.3d 1004
(9th Cir. 2001)] ordered Napster to stop listing the music files which were under
copyright protection and there was no means with Napster to segregate copyrighted
music files from those that were in public domain. The only option with Napster was
to shut down the database and the absence of a central database killed the entire
Napster network.
Who was the creator of Napster and when was it invented?
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
10.4.2 Post Napster P2P Networks
With Napster gone, what the world had at that point was something like 100 million
people around the globe hungry to share more and more files. It was only a matter of
time before another system came along to fill the gap. One distinguishing feature of
the P2P services that came after Napster was that they had no central server 29
Intellectual Property maintaining direct file listings of all the files. The other distinction was that Napster
Protection in
Cyberspace
was related to music files and that too specifically mp3 files. But most of these new
softwares, Gnutella, Kazaa, etc., allow any type of files to be transmitted and
downloaded.
Gnutella is an underground variant of Napster whose popularity has risen dramatically
in the wake of the litigation in which Napster had been embroiled. Gnutella has
dozens of clients available. Some of the popular Gnutella clients include: BearShare,
Gnucleus, LimeWire, Morpheus, WinMX and XoloX. Given that there is no central
server to store the names and locations of all the available files first, one has to install
a version of Gnutella on one’s computer and type in the name of the song/film or any
other file one wants to find. The machine knows of at least one other Gnutella machine
somewhere on the network because it has been told the location of the machine by
typing in the IP address, or because the software has an IP address for a Gnutella
host pre-programmed in. The machine sends the file name typed in to the Gnutella
machine(s) it knows about. These machines search to see if the requested file is on
the local hard disk. If so, they send back the file name (and machine IP address) to
the requester. At the same time, all of these machines send out the same request to
the machines they are connected to, and the process repeats. After getting all of the
search results the machine directly contacts the computer that has the desired file. It
is an extremely simple and clever way of distributing a query to thousands of machines
very quickly.
Kazaa is the latest version in the P2P technology which is spreading like a
wildfire. Kazaa was originally established in the Netherlands. Kazaa network is
built on a technology called the Fast-track technology. This is different from Gnutella
in the manner that this software actually converts certain good quality computers in a
particular network into supernodes which perform the listing function. The P2P
searches occur through users with these supernodes. A supernode contains a list of
some of the files available and where they are located. The Kazaa software first
searches the nearest supernode to a user and then refers his search to other supernodes
and so on. This process is designed to make searching as fast as possible and means
that searching will take place only through the files that have been indexed by the
supernodes.
In Buma & Stemra v. Kazaa [Buma & Stemra v. Kazaa, Cause list number KG
01/2264 OdC (Judgement passed by the President of the Amsterdam District
Court on November 29, 2001)], an action for copyright infringement was brought
against Kazaa by Buma & Stemra in a Dutch court. The plaintiffs, Buma & Stemra,
a Dutch copyright licensing group, sued Kazaa for the distribution of software which
allowed users to make unauthorized copies of copyrighted works. In November
2001, the district court of Amsterdam ruled in favour of the copyright industry and
ordered Kazaa to remove its website. Kazaa, thereupon, filed an appeal vide matter
Kazaa v. Buma & Stemra[Kazaa v. Buma & Stemra, Judgement delivered by the
Amsterdam Court of Appeal on March 28, 2002.] in the Amsterdam court of
appeal. The court of appeal decided in Kazaa’s favour and reversed the findings of
the district court stating that the Kazaa technology has many other substantial and
legitimate uses such as trading jokes and personal photographs apart from the fact
that it could be used for copyright violations.
The latest in the series of legal battles against the P2P file sharing softwares is MGM
30 Studios, Inc. v. Grokster, Ltd. [545 U. S. , 125 S. Ct. 2764 (2005)] which is a
United States Supreme Court case in which the Court unanimously held that defendant P2P Networking
P2P file sharing companies Grokster and Streamcast could be sued for inducing
copyright infringement for acts taken in the course of marketing file sharing software.
The plaintiffs were a consortium of 28 of the largest entertainment companies (led by
Metro-Goldwyn-Mayer studios). The case has been called the most important
intellectual property case in decades.
Grokster came before the Supreme Court having already won in two previous courts.
The United States District Court for the Central District of California originally
dismissed the case in 2003, citing the Betamax decision. Then a higher court, the
Ninth Circuit Court of Appeals, upheld the lower court’s decision after acknowledging
that P2P software has legitimate and legal uses. Finally the Supreme Court stated,
“We hold that one who distributes a device with the object of promoting its use to
infringe copyright, as shown by clear expression or other affirmative steps taken to
foster infringement, is liable for the resulting acts of infringement by third parties.”
The Court unanimously concurred that Grokster could be liable for inducing copyright
infringement. The principle laid down by the court is that it has to be shown that the
distributors of the file sharing program have advertised and/or otherwise induced its
use for copyright infringement; if this intent can be shown, additional contributory
aspects may be relevant.
The decision has been hailed by many as striking a fair balance between the need to
respect the intellectual property rights of artists, and the benefits of allowing and
promoting technological innovation. Indeed, the decision does seem to leave sufficient
leeway for developers in creating new products, as it establishes guidelines to
compliance with existing copyright law, and holds liable the distributors rather than
developers for copyright infringement. Conversely, others have criticized the new
test for its apparent vagueness.
1. Name some popular Gnutella clients?
..............................................................................................................
..............................................................................................................
..............................................................................................................
..............................................................................................................
..............................................................................................................
..............................................................................................................
2. .............................................. is the latest version in the P2P technology?
10.5 DAMAGE BY P2P NETWORKS AND

REACTION OF COPYRIGHT INDUSTRY
Millions of people around the world have downloaded various P2P software and
are increasingly using them to exchange music, movie and software files. The copyright
industry has been giving figures that go to show the decline in the sales of copyrighted
products and they cite the reason as Internet piracy. The stakes as reported by the
Industry are definitely high. The Industry points the finger directly at the Internet. 31
Intellectual Property But these figures have all been brought out by the Industry. Moreover, it can’t be
Protection in
Cyberspace
said with unfailing certainty that how much of this loss is due to online piracy. So, on
the question of the impact this activity is having on entertainment company profits,
one has to be agnostic: other factors, such as the state of the economy, and the easy
availability of CD’s and DVD’s, in the form and containing the tracks that users
want, will also have a bearing on the sales of pre-recorded music, films and software.
There is also a tendency by the entertainment industries to argue that every copy
made through the medium of file-sharing is a lost sale and missed business opportunity.
That begs the question as to whether the person who made the copy would have
actually paid to acquire a legitimate copy had the alternative not been available.
For the audiovisual industry, Napster was a loud wake-up call. The online file-sharing
service demonstrated that people using readily available equipment could easily
download and distribute digital music and movies en masse, regardless of copyright.
Not surprisingly, that sent the audiovisual industry into a panic. After all, one theory
goes, if you can get digital files for free, why would you ever pay for a movie ticket
or a CD? The industry argues that online piracy eliminates the economic incentives
for a business to invest millions in the production of movies, software, video games,
CD’s, etc. A business will no longer get a return on its investment if a consumer can
just get it for free online. In that manner Internet piracy would hinder the growth of
creativity.
Shocked and dismayed, the industry in the last couple of years has been fighting this
menace of ‘piracy’ on all possible fronts, that include, lobbying, litigation, legislation
and technological measures. The industry is starting to prosecute not only companies
like Napster but also individuals who download copyrighted content and the persons
who make it possible namely the Internet service providers.
In the past, there has been pressure from the industry for stronger protection of their
rights in the digital context. In 1996, two treaties were concluded at WIPO: the
WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms
Treaty (WPPT) (commonly referred to as the “Internet treaties”). These treaties
address the issues of the definition and scope of rights in the digital environment, and
some of the challenges of online enforcement and licensing. As a continuation of this
process, in many countries laws have emerged in this direction.
The industry is continuously looking towards a solution through the courts. Napster
was of course a success for the industry. But in future litigations the results have not
been very encouraging for the industry. They are now proceeding against the individuals
who share the copyrighted works through these P2P networks and also the Internet
service providers1 who make all these downloads possible.
A pragmatic answer to these problems was provided by the technology itself and the
audiovisual industry is currently looking at technological solutions to prevent
unauthorized access to or use of copyrighted material, or illicit dissemination of
protected works. Technological protections could take many forms and serve many
related purposes. Some of these protections are scrambling signals, encryption,
passwords, electronic watermark, digital code and the like. By these the product can
be locked behind technological barriers (or ‘walls’ or ‘fences’) – requiring authorization
and payment through electronic means before they could be opened up or set aside. The
idea is to stop copying in the first place rather than fighting back after it has been
done. No matter how sophisticated the technological protections employed, none
32 are invulnerable, and surely smart people will increasingly make it their business to
hack through encryption, pick digital locks, steam open electronic envelopes, or P2P Networking
obliterate digital watermarks. Since every kind of technical protection provokes
circumvention, technical identification and control mechanisms have been backed by
accompanying legal protection. In order to protect against the circumvention of
technological protections applied to copyrighted products in the digital environment,
provisions have been incorporated in the WCT and WPPT making it obligatory for
member states to provide legal protection against the circumvention of technological
measures that are used by authors in connection with the exercise of their rights.
10.6 INDIAN LEGAL LANDSCAPE VIS-À-VIS P2P

NETWORKS
Let us examine a network like Napster functioning in India which allows people to
share and distribute music, films and computer software. Section 51 of the Copyright
Act, 1957 says that in case anyone does anything the exclusive right to do which is
by this Act conferred upon the owner of the copyright, his act amounts to infringement
of copyright. Section 14 of the Copyright Act which governs the domain of exclusive
rights granted to copyright owners says that making copies of any work by using
whatever medium, communicating the work to the public or issuing copies of the
work to public fall within the domain of exclusive rights of a copyright owner. So, if
any person is running a network like Napster in India he could be liable for encroaching
upon the exclusive rights of the copyrights owner as he is essentially facilitating the
communication of the work to the public.
Further section 51(a)(ii) says that in case a person permits for profit any place to
be used for the communication of the work to the public where such
communication constitutes an infringement, he shall be liable for infringement of
copyright. The expression ‘any place’ could well be construed to mean virtual
place as well.
As for the persons who actually make available and download copyrighted works,
the law is very clear. Section 14 says that issuing copies of work or communicating
the same to public amounts to infringement. So, a person who downloads a software
like Napster and implements the same on his machine is making the copyrighted
work available to any member of the public who has the corresponding software
installed on his machine. The person who actually downloads the file containing
copyrighted work is reproducing the work without the consent of the copyright owner,
so is guilty of copyright violation as well. Section 51(b)(ii) says anyone who distributes
either for the purpose of trade or to such an extent as to affect prejudicially the
owner of the copyright he shall be deemed to have infringed the copyright in a
work. Any person making available copyrighted works over P2P network may not
be trading in the same but he is nevertheless distributing such work which when
combined amount to gigantic proportions affecting prejudicially the interests of
copyright owner.
Now for networks akin to Gnutella or Kazaa, where there is no central server
brokering the requests of people, it is rather hard to stop the system in one go.
There is no one person or entity that is managing the affairs. The entire thing is
managed by a software and that is already out and lakhs of people have made copies
of the same. You can’t really outlaw the installation and use of that software as it
could legally be used for sharing files which are not protected by copyright. But
33
Intellectual Property individuals who use such software for sharing copyrighted works remain guilty under
Protection in
Cyberspace
the above stated provisions of Copyright Act. Catching them is rather difficult. But,
potential liability is made easier to document by the fact that P2P applications create
long user sessions that present adequate opportunity to trace users back to a point
of origin.
10.7 COPYRIGHT LAW AND DIGITAL

TECHNOLOGY: NEED FOR BALANCE
Technology is copyright industry’s best friend and worst enemy. The copyright industry
is at crossroads once again in this digital age and faces yet again a challenge which is
unprecedented in magnitude and consequence. This junction is, in many ways, a
defining moment in the long and chequered history of copyright. There is a need for
the industry to shun the traditional antagonism towards new technology and stop
seeing it as a threat resulting in crisis. The industry should realise the great potential
offered by the digital technologies and it might even turn out to be advantageous to
the industry. Over 100 years, every single new technology that copyright owners
have protested has turned out to make them more money, not less.
The USA can be said to be the birthplace of modern digital technologies and these
technologies have had their greatest impact there; not surprisingly the USA has also
taken lead in controversies over such issues. Most of the legislative and judicial
exercise has also taken place there. This makes it a suitable bed for conducting legal
experiments and social debates. But things are at their most confused there. There is
an ongoing tussle and tension between industry, consumers, technology makers and
access providers. There are many unsolved questions and unsettled controversies
yet. No single section of the community is capable of solving these vexing issue and
there is no single and straight answer. Answers to these questions will not arrive
overnight; nor will they be delivered to us in a dream. We have to struggle to find
answers ourselves. We have to participate in a debate and make sure that the debate
is well informed and balanced and in which the needs and concerns of all relevant
parties are heard.
P2P file trading is a global phenomenon. Although record companies have won
considerable victories with the enactments like the Digital Millennium Copyright Act,
Napster’s bankruptcy, and tools enabling the encryption protection of CDs to prevent
copying, they have progressively lost a substantial consumer base. Stronger and
more uncontrollable P2P networks have emerged since the death of Napster, hackers
have easily circumscribed copy protection technology, and consumers are fighting
for the fair use rights. The continued growth and popularity of P2P networks is not
likely to cease in the near future. It’s hard to get the genie back in the bottle. The
record industry has fought the war against music piracy with lobbying, litigation,
copy protection technologies and self help measures. The industry cannot possibly
win a war fought on all fronts and has to think in terms of change in its business
model. Entrepreneurs will have to think about change in business models and reducing
prices so as to be viable to the digital market. Public education and awareness about
copyright is also important. Consumers will have to learn and be comfortable shopping
at their computer than in stores.
Our challenge is to ensure that the laws of copyright adapt to the new technological
environment in a way that feeds and encourages creative activity rather than in a way
34 that inhibits or overwhelms it. The proprietary aspect of copyright law is only one
side of the matter, which is to be considered in close relation with its cultural-economic P2P Networking
aspect. In other words: the right of copyright owners to equitable remuneration should
always be balanced with the interests of society at large. The key is to balance which
has always to be interpreted and reinterpreted considering varying interests from
time to time along with the advancement of technology.
10.8 SUMMARY
z P2P technology is seen as a great challenge to copyright industry.
z P2P is defined as two or more computers connected by software which enables
the connected computers to transit files or data to other connected computers.
z Around the year 2000 Napster became very popular to download free music
from the Internet but ultimately the site had to shut down under a court order for
copyright violations.
z But newer P2P networks are very difficult to shut down, as they do not depend
on a central server unlike Napster.
z Copyright industry is trying to stop the damage by P2P networks through law
reform, litigation and technological measures.

1. How the P2P technology is a threat to the copyright industry?
2. What are the major litigations around the world that have taken place against
the P2P technology? Also summarize the overall impact of these litigations.
3. Describe how the copyright industry will develop in future keeping in mind the
growth and development of digital and information technology.

1. P2P network is defined as two or more computers connected by software
which enables the connected computer to transfer file or data to other connected
computers.
2. Shawn Fanning in 1999
3. a) BearShare, Gnucleus, LimeWire, Morpheus, WinMX and XoloX.
b) Kazaa is the latest version in the P2P technology.
Terminal Questions
35
UNIT 11 WEBCASTING
Structure
11.1 Introduction
11.2 Objectives
11.3 Understanding Webcasting

11.3.1 Content Distribution on the Internet
11.3.2 Emergence of Webcasting
11.3.3 Difference between Broadcasting and Webcasting
11.4 Broadcasting Piracy on the Internet
11.5 Legal Protection of Webcasts

11.5.1 International Framework for Protection of Webcasting/Broadcasting
11.5.2 Indian Legal Framework for Protection of Broadcasting/Webcasting
11.6 Summary
11.1 INTRODUCTION
Webcasting is the real-time transmission to the public in a digital format of
audio and audiovisual works. Webcasting over the Internet is similar to
broadcasting but uses special technology to reduce the size of the digital files
being sent. Webcasts are widely available to anyone with a computer connected
to the Internet. Webcasting opens new opportunities for authors and performers
to expose and market their works to new audiences, and for the public to enrich
their understanding and appreciation of cultures from around the world.
The world of broadcasting, as we have known it, is about to change with the leading
broadcasting organizations ready to jump on the Internet bandwagon. Webcasting
has a promise of presenting content which fits the slogan of ‘anything, anytime,
anywhere’. In view of the growing importance and widening reach of webcasting
and increasing incidents of piracy involving webcasting, it has become extremely
important for national laws and international conventions to address this phenomenon
which till now has been ignored. In this light this unit examines the issues of:
z How the world of broadcasting is undergoing changes with the emergence of

the digital and information technologies?
z Should Internet broadcasting/webcasting be accorded legal protection and if

yes, how?
36
Webcasting
11.2 OBJECTIVES
z explain the concept of web casting;
z explain the context of distribution on the internet, the emergence of web casting;
z distinguish between broadcasting and web casting;
z describe the legal protection of web casts under the International framework,
and Indian framework both; and
z analyse and suggest the merits and demerits of the Indian protection.
11.3 UNDERSTANDING WEBCASTING

11.3.1 Content Distribution on the Internet
C o n te n t d istrib u tio n o n
th e In te rn e t
D o w n lo a d s W e b c a sts
S im u lc a stin g V id e o /au d io o n
P2P dem and
O n -d e m a n d R e a l-tim e
s e rv ic e s tre a m in g
From a technical perspective, there are two principal methods for users to access
sound and images (or a combination of both) over the Internet. The first are
downloads, whereby a file on a server is accessed by a remote user, transmitted
over the Internet in the form of “packets” to the user’s machine and saved there
locally (in most cases on the hard drive).1
The second is streaming, which has been defined as an “Internet data transfer technique
that allows users to see and hear audio and video files without lengthy download
times. The host or source ‘streams’ small packets of information over the Internet to
the user, who can access the content as it is received. The stream may be a real time
(live) transmission or it may be an archived file”. The common underlying feature of 37
Intellectual Property all different types of streaming, which distinguishes this method of transmission from
Protection in
Cyberspace
downloads, is that, in the case of streaming, files are not saved locally on the user’s
machine.
11.3.2 Emergence of Webcasting

Webcasting is the real-time transmission to the public in a digital format of audio and
audiovisual works. The practice of webcasing is also described as netcasting or
Internet broadcasting or streaming. Webcasting is seen as a new model of content
delivery on the Internet providing automated and, possibly, personalised delivery of
services. In case of webcasting of audio, video and animation the user receives the
content when it is transmitted, but without retaining a copy of it. Webcasting services
function on the basis of “pull technology”, which means that the content is delivered
to the user upon request.
Webcasting could further be divided into (i) on-demand service (ii) real-time
streaming. On-demand service refers to that webcasting which can be activated by
an individual used at his place and at a time individually chosen by him. Whereas in
case of real-time streaming content is streamed at a time chosen by the webcaster;
any one who is interested in listening/viewing may log on to the server of the webcaster
at that time. The difference between the two lies in that in case of on-demand
service users have the choice to log on any time which in real-time streaming users
have to log on at a time chosen by the webcaster and content can be perceived only
at the time when it is transmitted. The content originates from one or more servers
that make it accessible via the Internet. Each recipient requests the program from
the initial server and is issued a separate stream from the source to his or her address.
Webcasting is a “point-to-point” technical process. Even though the same program
is transmitted to multiple recipients, it is transmitted via a point-to-point bi-directional
communication, instigated by the user. In other words, there is an individual virtual
connection per user, over which parallel point to point streaming to each of the
individual subscribers take place. In other words, there is an individual connection
between each user and the source of the streamed content (a host) and such point to
point streaming to multiple individual users takes place in parallel.
Works broadcast over the Internet may appear in conjunction with on-screen text
and graphics. The audio or audiovisual broadcast data comprise streams that generally
are separable from the data that appear as text and graphics on-screen; when viewed
together, the user is provided with a rich multimedia experience heretofore unavailable
through traditional broadcast media. These text and graphics may provide additional
information concerning the broadcast material, and may incorporate hypertext links
from which the listener or viewer can access additional information concerning the
events or works being broadcast, or can be linked to e-commerce Web sites where
the listener or viewer can learn about and purchase of goods and services related to
the broadcast.
A number of Internet broadcasters retransmit the signals of radio stations. Radio
stations also retransmit their own signals via webcasting. This retransmission is referred
to as simulcasting which means the process of disseminating the same broadcast
over two different transmission systems, for example, when the sound of a TV program
is also played over a radio station. The term is also used for the simultaneous
broadcasting and streaming over the Internet of a broadcast. Broadcasting
38
organizations often simulcast their broadcast program services via both analog and Webcasting
digital systems.
Webcasting opens new opportunities for authors and performers to expose and
market their works to new audiences, and for the public to enrich their understanding
and appreciation of cultures from around the world. Rather than creating a
homogenisation of experience, webcasting emphasizes the importance of local
culture. An Internet channel from India, Nigeria, USA or Australia, for example,
will attract listeners/viewers from around the world primarily because it provides a
window to local information, news, customs and arts. Thus, webcasting is a source
for information, culture and commerce of all nations and cultures in a way that
transcends the normal physical limitations of terrestrial communications, or the
channel bandwidth restrictions of satellite broadcasting. Importantly, webcasting
unleashes new opportunities for artists and performers to market their works on a
global basis.
The world of broadcasting, as we have known it, is about to change with the leading
broadcasting organizations ready to jump on the Internet bandwagon. Webcasting
has a promise of presenting content which fits the slogan of ‘anything, anytime,
anywhere’. In view of the growing importance and widening reach of webcasting it
has become extremely important for national laws and international conventions to
address this phenomenon which till now has been ignored.
What is webcasting?
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
11.3.3 Difference between Broadcasting and Webcasting
In the case of broadcasting, users can simply access the broadcast by switching on
the receiver as the signal transmitted by the broadcasting station is direct and present,
whereas, in webcasting, users must access a server and incite its facilities to transmit
back the information.
Unless specific technological restrictions are applied, webcasts can be accessed
from any point that has Internet access. Since Internet is available globally, webcasts
can be accessed from almost any point on the planet earth. This is the major difference
in term of geographical coverage from broadcasts, be it via satellite, cable or over
the air which have an inherent limitation in their reach.
On the Internet, there are no restrictions on the number of programs offered. Capacity
can be obtained at relatively short notice and allows for a flexible adaptation to the
level of demand. Consequently, the initiators of streams face no significant initial
39
barrier to entering the market. Webcasting activities can be initiated with modest
Intellectual Property investments, albeit with a limited capacity of simultaneous listeners or viewers.
Protection in
Cyberspace
Streaming services can be adapted to the consumers’ preferences, for example,
distributing niche programs for groups of consumers or basing the contents,
arrangement and presentation of the service on intelligence gathered during earlier
visits by the consumers.
One of the main characteristics of webcasting is that the transmission is always
interactive at the machine level. The transmitting server is in active contact with the
receiving machine, verifying the success of the transmission, exchanging status reports.
This is not the case with broadcasting, where the main transmission is only one way.
11.4 BROADCASTING PIRACY ON THE INTERNET

As a result of the huge investments and costs involved in broadcasting and the
enormous marketing revenues generated because of the massive appeal of television
programs, not to mention the rise of new recording and transmission technology,
broadcasting piracy has become a main problem.
The pirate could steal the signal and bundle it with its own advertising and transmit
the same to the public via the Internet; thus competing with the original broadcaster.
In the digital environment, piracy is a severe threat since a digital signal, once received,
can be perfectly cloned and reproduced. Pirates are increasingly able to obtain
perfect digital copies of broadcast programs from which multiple copies and Internet
downloadable/streamable copies can be made and redistributed. Transmission of
original broadcast over the Internet i.e. webcasting is also vulnerable to piracy because
of the ease with which contents can be accessed and copied. Large segments of the
public have access to broadcasting services, and at the same time copying devices
have become cheap and commonplace.
Broadcasting and webcasting organizations make use of encryption systems so that
only the viewers they authorize could access the programming content. But piracy
could affect the market for encrypted transmissions too.
The notion of “program-carrying signal” relates to the issue of “signal theft”. The
pre-broadcast program-carrying signal can be described as the electronic signal
carrying program material which is sent via a telecommunications link to a broadcasting
organization for use in its broadcasts. Such signals are intended not for reception by
the public, but for use by broadcasting organizations in their broadcasts. Therefore,
they are not broadcasting, but a point to point transmission by telecommunications
links from the site of an event (sports, news or cultural) to one or more national and/
or foreign broadcasting organizations for the purpose of enabling the latter’s
broadcasting of the event. A broadcasting network (or program syndicator) also
sends such signals, for example, to its affiliated broadcast stations. Pirates can intercept
the signals, with their content, either at the stage of the pre broadcast transmission,
for example, off a satellite, or at the stage of the actual broadcast. Since pre-broadcast
signals are often digital, pirates are able to obtain perfect digital clones of the program-
carrying signals and content from which multiple streams, copies, downloads or
rebroadcasting can be made.
The practice of retransmission of terrestrial radio stations’ over-the-air broadcasts
via the Internet has also raised copyright concerns. In National Football League
et al v. iCraveTV.com [53 U.S.P.Q.2D (BNA) 1831], a case brought by United
40
States and Canadian motion picture and broadcasting companies, the Court issued Webcasting
a permanent injunction to prevent iCraveTV.com, a Canadian website, from
converting copyrighted television material from 17 North American television stations
into digital Web broadcasts and streaming them over the Internet. The unauthorized
re-transmission was found to be an infringement of the plaintiffs’ exclusive right to
perform and display their works in the United States.
Webcasting will be widespread and one can be sure that piracy will be equally
pervasive. In the light of huge promises that webcasting offers, it is essential that
clear rules as to the practice of webcasting are adopted in both national and
international environment.
Broadcasting and webcasting organization make use of ................................
system so that only the viewers they authorize could access the programming
content?
11.5 LEGAL PROTECTION OF WEBCASTS

Broadcasting organizations have in the past been granted protection for the result of
their investment, their entrepreneurial efforts and their contribution to the diffusion of
culture and their public information service. The same interests that initially impelled
protection of copyright and neighbouring rights for broadcasting now compel adoption
of equivalent protections for webcasting. Even for works consisting of retransmissions
of terrestrial radio or television broadcasts, it would be illogical and irrational not to
offer protection, as piracy over the Internet is more widespread and commonplace.
But what should be the mechanism of protection? Should webcasts and webcasters
be protected independent of broadcasting? Or should webcasting be assimilated to
broadcasting in terms of protection? Different views have been expressed as to
whether such new services should be assimilated to traditional broadcasting.
Protection to webcasts is being considered around the world at national and
international level. In view of convergence of various technologies and services, and
considering the threat of piracy both by webcasts and of webcasts it is only appropriate
to assimilate new activities of webcasting to traditional broadcasting.
11.5.1 International Framework for Protection of

Webcasting/Broadcasting
Until 1961, broadcasting rights were essentially granted at the national level, and not
all countries provided for such protection. At the international level, the main rights
granted to broadcasting organizations were laid down in the International Convention
for the Protection of Performers, Producers of Phonograms and Broadcasting
Organizations (the Rome Convention), which was adopted on October 26, 1961.
The Rome Convention of 1961 reflects the technological development of the time
when it was negotiated. It defines broadcasting as:
“broadcasting” means the transmission by wireless means for public reception of
sounds, or of images and sounds.
41
Intellectual Property This definition confines broadcasting to cover the air transmissions, excluding coverage
Protection in
Cyberspace
for cable transmissions. Protection for cable transmissions has, however, in a number
of countries been granted at the national level. Articles 13 of the Rome Convention
lay down the minimum rights for broadcasting organizations and ensures the exclusive
right to authorize or prohibit a number of activities in the realm of broadcasting as
follows:
Broadcasting organizations shall enjoy the right to authorize or prohibit:
(a) the rebroadcasting of their broadcasts;
(b) the fixation of their broadcasts;
(c) the reproduction:
(i) of fixations, made without their consent, of their broadcasts;
(ii) of fixations, made in accordance with the provisions of Article 15, of their
broadcasts, if the reproduction is made for purposes different from those
referred to in those provisions;
(d) the communication to the public of their television broadcasts if such
communication is made in places accessible to the public against payment of an
entrance fee; it shall be a matter for the domestic law of the State where protection
of this right is claimed to determine the conditions under which it may be
exercised.
The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS
Agreement) does not contain any definitions relating to broadcasting, but it vests in
broadcasting organizations rights to prohibit certain acts relating to their broadcasts.
These acts are: the fixation; the reproduction of fixations; and the rebroadcasting by
wireless means of broadcasts; as well as the communication to the public of television
broadcasts of the same. Where Members do not grant such rights to broadcasting
organizations, they shall provide owners of copyright in the subject matter of broadcasts
with the possibility of preventing the above acts, subject to the provisions of the
Berne Convention.
Under international copyright and related rights treaties the word “broadcasting”
generally has been understood as transmission via Hertzian waves. A certain number
of national copyright laws give providers of cable-originated programs, who do not
merely distribute broadcasts simultaneously and unchanged, rights similar to those
granted to broadcasting organizations, insofar as they are considered organizations
which are analogous to broadcasting organizations, that is, offering program services
for reception by the public at large.
11.5.2 Indian Legal Framework for Protection of

Broadcasting/Webcasting
India is a member of the TRIPS Agreement, but not of the Rome Convention; though
the Copyright Act, 1957 fully covers the minimum standards of the Rome Convention
and even goes further to it in providing protection to cable originated broadcasting.
The definition of broadcasting in provided in section 2(dd) of the Copyright Act,
1957 which reads:
42
‘Broadcast’ means communication to the public— Webcasting
i. by any means of wireless diffusion, whether in any one or more of the forms of
signs, sounds or visual images; or
ii. by wire; and includes a re-broadcast.
Further, communication to the public is defined as:
‘Communication to the public’ means making any work available for being seen or
heard or otherwise enjoyed by the public directly or by any means of display or
diffusion other than by issuing copies of such work regardless of whether any member
of the public actually sees, hears or otherwise enjoys the work so made available.
Section 37 of the Copyright Act, 1957 which protects broadcasts reads:
Broadcast reproduction right.—
1. Every broadcasting organization shall have a special right known as “broadcast
reproduction right” in respect of its broadcasts.
2. The broadcast reproduction right shall subsist until twenty-five years from the
beginning of the calendar year next following the year in which the broadcast is
made.
3. During the continuance of a broadcast reproduction right in relation to any
broadcast, any person who, without the licence of the owner of the right does
any of the following acts of the broadcast or any substantial part thereof,—
a. re-broadcasts the broadcast; or
b. causes the broadcast to be heard or seen by the public on payment of any
charges; or
c. makes any sound recording or visual recording of the broadcast; or
d. makes any reproduction of such sound recording or visual recording where
such initial recording was done without licence or, where it was licensed,
for any purpose not envisaged by such licence; or
e. sells or hires to the public, or offers for such sale or hire, any such sound
recording or visual recording referred to in clause (c) or clause (d), shall,
subject to the provisions of section 39, be deemed to have infringed the
broadcast reproduction right.
The minimum rights granted to broadcasting organizations under the Copyright Act
and the Rome Convention are the rights to authorize or prohibit: (a) the re-
broadcasting of their broadcasts; (b) the fixation of their broadcasts; (c) the
reproduction of fixations of their broadcasts; and (d) the communication to the
public of television broadcasts if such communication is made in places accessible to
the public against payment of an entrance fee.
The object of the protection under article 13 of Rome Convention, 1961 and section
37 of the Copyright Act, 1957 is not defined but from the definition of “broadcasting”
in section 2(dd), it appears that it is the signals constituting the wireless transmission
of images and/or sounds. Accordingly, the object of the protection is the signals
themselves and not to the content of what they transmit. The content part is 43
Intellectual Property independently protected as such. So, protection is granted to broadcasting
Protection in
Cyberspace
organizations for their signals independently of the copyright and related rights
protection of the content.
To protect webcasting, the definition of “broadcasting” in the Copyright Act should
be updated in two ways. First, the definition should encompass ancillary data that
may be included in the transmission. As noted above, Internet transmitting organizations
may send related and ancillary text, graphics and images along with the audio or
audiovisual works. Such data may include, for example, information concerning the
works being performed; information concerning the performers; links to the Web
sites of online retail establishments from which the listener or viewer can purchase
the particular phonogram or audiovisual work being broadcast, or tickets to concert
performances, etc. As a whole, this capacity results in rich and creative forms of
broadcasting content which merit full protection.
Article 14 of the Rome Convention states that the term of protection shall last at
least until the end of a period of twenty years computed from the end of the year in
which the broadcast took place. Section 37 of the Copyright Act, 1957, on the
other hand, states the term to be twenty five years. So, the term of protection for
webcasts should be coextensive with the term of protection for other broadcasts.
The legal framework applicable to broadcasting was normally specific and well
defined. In most countries the broadcasting sector was, and it remains today,
extensively regulated. The rules to which broadcasting organizations are subject
range from the licence required for the activity as such, procedures for the allocation
of frequencies, rules relating to the public mandate, regulation of the content itself
like language quotas, local cultural content, or rules for the protection of young people.
Because of technology the same activities can now be undertaken and transmitted
over the Internet without any rules or regulations. It is just a matter of time when
national governments would realise the importance of regulating webcasting otherwise
the entire regulations for the broadcasting sector will be rendered redundant.
What are the rights granted to broadcasting organization?
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
11.6 SUMMARY
z Webcasting, also known as ‘streaming’, is the process of digitally transmitting
44 musical recordings, and radio and television broadcasts over the Internet.
z Broadcasting organizations have in the past been granted protection for the Webcasting
result of their investment, their entrepreneurial efforts and their contribution to
the diffusion of culture and their public information service.
z The same interests that initially impelled protection of copyright and neighbouring
rights for broadcasting now compel adoption of equivalent protections for
webcasting.
z Webcasters create and transmit valuable content reflecting creativity and
authorship, as do traditional broadcast media.
z Webcasts and webcasters do need legal protection for their activities.
z In view of convergence of various technologies and services it is only appropriate
to assimilate new activities of webcasting to traditional broadcasting.

1. How piracy of digital broadcasts could take place?
2. Describe the legal regime for the copyright protection of traditional broadcasting?
3. Compare the Indian legal framework with the International legal framework.

1. Web casting is the real-time transmission to the public in digital format of audio
and audio visual works.
2. Encryption.
3. a) The re-broadcasting of their broadcasts.
b) The fixation of their broadcasts.
c) The reproduction of fixation of their broadcasts, and
d) The communication to the public of television broadcasts if such
communication is made in places accessible to the public against payment
of an endurance fee.
Terminal Questions
3. Refer to sub section 11.5.1 & 11.5.2 of the unit.
45
UNIT 12 DOMAIN NAMES
Structure
12.1 Introduction
12.2 Objectives
12.3 What is a Domain Name?
12.4 Types of Domain Names
12.4.1 generic Top-level Domain (gTLD)
12.4.2 country code Top Level Domains (ccTLD)
12.5 Domain Name Disputes – Cybersquatting

12.6 Dispute Resolution
12.6.1 Litigation in Courts
12.6.2 The Arbitration Route – UDRP
12.6.3 Dispute Resolution: Traditional Litigation in Courts v/s Arbitration under
UDRP
12.7 Dispute Resolution for ccTLDs

12.8 Summary
12.1 INTRODUCTION
Originally the purpose of Internet domain names was to locate a web site on the
Internet. But in today’s world the importance of domain names has gone much beyond
web site location. They are used to identify the goods and services which a particular
company is offering, be it online or offline. So, domain names serve the purpose of
trademarks. Registration of domain names being not as stringent as that of trademarks
led to the practice of cybersquatting and disputes started emerging regarding their
abusive registration. Courts have responded positively to such disputes and have
resolved them by applying the principles of trademark and passing off laws.
Alternatively, the remedy exists in the form of arbitration as well.
12.2 OBJECTIVES
z describe the term Domain Name and its different kinds;
z explain cybersquatting;
z discuss how domain name disputes can be resolved through courts;
z explain the process of resolving such disputes through arbitration under the
UDRP rules; and
46
z compare between traditional litigation in courts and under arbitration rule.
Domain Names
12.3 WHAT IS A DOMAIN NAME?
A domain name is the address of a Web site like www.tata.com is the address of the
famous business house Tata. The purpose of a domain name is to locate a Web page
on the Internet. Every Web page has a unique address just in the same manner as
every telephone has a unique number. If you want to call someone you need to dial
that person’s telephone number. In much the same way, if you need to access a Web
site, you have to type out its IP number like 192.0.34.166. Since Web sites are very
many, it is inconvenient to remember them by numbers, a system evolved under
which a name is mapped to the concerned number or IP address. So, simply put, a
domain name is the linguistic counterpart of what is known as an Internet Protocol
(IP) address. Thus, today, instead of typing a numeral, one has merely to type in
www.tata.com. Internet Corporation for Assigned Names and Numbers (ICANN),
which is a non-profit corporation, has the overall responsibility for managing the
Domain Name System.
12.4 TYPES OF DOMAIN NAMES

Every domain name ends in a top-level domain (TLD) name. TLD is the last part of
a domain name; that is, the letters which follow the final ‘dot’ of any domain name.
For example, in the domain name www.wikipedia.org, the TLD is org. Every TLD is
either one of a small list of generic names (three or more characters), or a two
characters territory code based on ISO-3166. So, broadly domain names are of
two types — one, generic top-level domain (gTLD); two, country code top level
domains (ccTLD).
12.4.1 generic Top-level Domain (gTLD)

A gTLD is a top-level domain used by a particular class of organization. These are
three or more letters long, and are named for the type of organization that they
represent (for example, .com for commercial organizations, .int for international
organizations). But some of these gTLDs have become unrestricted, that means they
no longer represent any particular type of organization and anyone could get a domain
name under it. Like .com which can be registered by anyone even if the purpose is
not commercial activity. The following gTLDs currently exist.
.aero - for the air transport industry
.biz - for business use
.cat - for Catalan language/culture
.com - for commercial organizations, but unrestricted
.coop - for cooperatives
.edu - for educational establishments
.gov - for governments and their agencies in the U.S.A.
.info - for informational sites, but unrestricted
.int - for international organizations established by treaty
.jobs - for employment-related sites 47
Intellectual Property .mil - for the U.S. military
Protection in
Cyberspace .museum - for museums
.name - for families and individuals
.net - originally for network infrastructures, now unrestricted
.org - originally for organizations not clearly falling within the other gTLDs, now
unrestricted
.pro - for certain professions
.travel - for travel agents, airlines, hoteliers, tourism bureaus, etc.
gTLDs are governed directly under a centralized system by ICANN which means
all terms and conditions are defined by ICANN with the cooperation of the gTLD
registries.
Define domain name?
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
12.4.2 country code Top Level Domains (ccTLD)

ccTLD is used and reserved for a country. These are two letters long, and most of
them correspond to the ISO 3166-1 standard for country codes. The administration
of a ccTLD is left to the specific country concerned and thus each ccTLD policy
setting out the rules for allocating domains is distinct from the other. ICANN has
only a consultation role in these domain registries but is in no position to regulate the
terms and conditions of how a domain name is allocated or who allocates it in each
of these country level domain registries. The administration of domain names within
the .in (Indian) category is overseen by Center for Development of Advance
Computing, Mumbai (C-DAC), a scientific R&D institution under the Ministry of
Communications and Information Technology. Some countries allow anyone in the
world to acquire a domain in their ccTLD. Other countries allow only residents to
acquire a domain in their ccTLD. There are over 243 ccTLDs in use currently.
Most corporations apart from registering their trade names and some of their core
brands as gTLD’s, also register them as ccTLD’s in certain select countries where
they foresee business potential. For example, Yahoo.com is a gTLD. However,
yahoo.co.in is a ccTLD registered in India and yahoo.co.fr is a ccTLD registered in
France.
48 Please answer the following Self Assessment Question.
Domain Names
What are the different kinds of domain name?
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
12.5 DOMAIN NAME DISPUTES –

CYBERSQUATTING
The original role of a domain name was no doubt to provide an address for computers
on the Internet. But the Internet has developed from a mere means of communication
to a mode of carrying on commercial activity. With the increase of commercial activity
on the Internet, domain names are also used as business identifiers. They have a
significant impact on online brand building, advertising, search engine optimisation,
etc.
Any business entity, for example, would prefer its own trade mark to be used as
domain name since people recognise the trade mark. So Bata would prefer
www.bata.com for the purpose of marketing its products and, even the consumers
would relate www.bata.com with the famous company Bata that deals in shoes. But,
as opposed to the physical world where two or more trademarks are capable of co-
existence, the medium of the Internet does not allow for more than one domain name
registration. Domain names have become akin to trade marks but the process of
registration of a domain name is not the same and as stringent as that of registration
of a trademark. The system is based on first-come-first-serve basis. Anyone can
approach a Domain Name Registrar and register any available domain name. So, if
the company Bata has not registered www.bata.com anyone else could just register
that name in his favour. So, it becomes important for business entities to procure
domain names that correspond with their trade marks. But there is another problem.
There are various top level domains and various combinations thereof under which
you could register your trademark. Like Bata could register as www.bata.com or
www.bata.org or www.bata.net or www.bataindia.com. So, there could be numerous
combinations that have a relation to a trademark and it is not possible for a business
entity to procure all those combinations.
This leads many a time to what are commonly referred to as “abusive registrations”
i.e. registration by a person of a domain name containing a trademark, in which such
person/entity has no legitimate right or interest. The practice of registering and claiming
rights over Internet domain names that are, arguably, not for the taking is known as
cybersquatting. The cybersquatter then could offer the domain to the person or
company who owns a trademark contained within the name at an inflated price.
Cybersquatters usually ask for prices far greater than that at which they purchased
it. Some cybersquatters put up derogatory remarks about the person or company
the domain is meant to represent in an effort to induce the subject to buy the domain 49
Intellectual Property from them. And some use such domain name in competition with the company which
Protection in
Cyberspace
the domain is meant to represent. All this and much more is aimed at taking an unfair
advantage of someone’s trademark. Many cybersquatters also register many variants
of a popular trademarked name, a practice known as typosquatting.
What is cybersquatting?
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
12.6 DISPUTE RESOLUTION

In case of cybersquatting, the potentiality of the harm is far greater because a wrong
could be easily propagated to every corner of the world. It would be highly
unreasonable to allow such persons to continue their practice of cybersquatting. So,
it becomes imperative for law to address such a situation. For resolving disputes
which arise out of cybersquatting in relation to gTLDs their exist two separate routes
— one, the normal court litigation route and the other is the arbitration route.
12.6.1 Litigation in Courts

One has to litigate domain name disputes before a court of law-the cause of action
would be one in passing off or trademark infringement, depending on whether the
trademark was registered or not. If one is successful in obtaining a court order, then
one could furnish a copy of such order to the registrar who would transfer the domain
name.
One of the earliest and most significant cases in the Indian context has been Yahoo!
Inc. v. Akash Arora & Anr.[1999 PTC 201] where the Internet search engine Yahoo!
Inc. sued a cybersquatter who had not only copied the domain name
‘www.Yahooindia.com’ but had used Yahooindia as a trademark in a similar script
on its Web site by offering directory services with information specific to India, and
was passing itself off as an extension of Yahoo. The Delhi High Court granted an
injunction restraining him from using Yahoo as a part of his domain name or as a
trade mark. Specifically, the court held that trade mark law applies with equal force
on the Internet as it does in the physical world. The courts in India had occasions to
decide many other cases on similar reasoning.
Satyam Inforway Ltd. v. Sifynet Solutions (P) Ltd. [2004 (28) PTC (SC) 566]
case is the first one from the Supreme Court of India dealing with legal protection of
domain names and has given seal to the law laid down by the High Courts in various
cases that the domain names are entitled to legal protection equal to that of a
50 trademark.
The appellant, which was incorporated in 1995, registered several domain names Domain Names
like www.sifynet.com, www.sifymall.com, www.sifyrealestate.com, etc. in June 1999
with ICANN. The word ‘Sify’ is a coined word which the appellant claimed to have
invented by using elements of its corporate name, Satyam Infoway. The respondent,
on the other hand, started carrying on business of Internet marketing under the domain
names www.siffynet.net and www.siffynet.com from June 2001. A suit was filed by
the plaintiff on the basis that the respondent was passing off its business and services
by using the appellant’s business name and domain name. An application for temporary
injunction was also filed which was allowed by the trial court but on appeal reversed
by the High Court. The plaintiff/appellant preferred a special leave to appeal before
the Supreme Court. Leave was granted.
The first question for consideration of the Court was that whether a domain name is
just an Internet address or is an instrument that could distinguish between goods and
services made available through different businesses. In other words is it mere address
or a ‘business identifier’? The respondent contended that a domain name could not
be confused with ‘property names’ such as trademarks and is merely an address on
the Internet. While describing the overall importance of domain names on the Internet
the court answered the question in the affirmative and said: “The Internet has developed
from a mere means of communication to a mode of carrying on commercial activity.
With the increase of commercial activity on the Internet, a domain name is also used
as a business identifier.” Thus a domain name may pertain to provision of services
within the meaning of Section 2(Z) of the Trade Marks Act, 1999.
Next and the main question for the consideration of the Court was whether Internet
domain names are subject to the legal norms application to other intellectual properties
such as trademarks. It was also submitted by the respondents that registration of a
domain name with ICANN does not confer any intellectual property right; that it
was a contract with a registration authority allowing communication to reach the
owner’s computer via Internet links and channelled through the registration authority’s
server and that it was akin to registration of a company name which is a unique
identifier of a company but of itself confers no intellectual property rights. After
reiterating the principles of passing off, the Supreme Court observed, “The use of
the same or similar domain name may lead to a diversion of users which would result
from such users mistakenly accessing one domain name instead of another. This may
occur in e-commerce with its rapid progress and instant (and theoretically limitless)
accessibility to users and potential customers and particularly so in areas of specific
overlap. Ordinary consumers/users seeking to locate the functions available under
one domain name may be confused if they accidentally arrive at a different but similar
website which offers no such services. Such users could well conclude that the first
domain-name owner has misrepresented its goods or services through its promotional
activities and the first domain-owner would thereby lose its custom. It is apparent,
therefore, that a domain name may have all the characteristics of a trademark and
could found an action for passing off.”
But which law would apply to a domain name dispute before the courts. Does any
statute in India talk about domain names and consequent disputes that may arise?
The court also discussed this issue and said, “As far as India is concerned, there is
no legislation which explicitly refers to dispute resolution in connection with domain
names. But although the operation of Trade Mark Act, 1999 itself is not extra territorial
and may not allow for adequate protection of domain names, this does not mean that 51
Intellectual Property domain names are not to be legally protected to the extent possible under the laws
Protection in
Cyberspace
relating to passing off.”
After looking into the evidence, the Supreme Court reached a prima facie conclusion
that the appellant had been able to establish the goodwill and reputation claimed by
it in connection with the trade name ‘Sify’. Apart from the close visual similarity
between ‘Sify’ and ‘Siffy’, the Court held that there was phonetic similarity between
the two names as well. The addition of ‘net’ to ‘Siffy’ did not detract from this
similarity. It was also noticed by the Supreme Court that admittedly, the appellant
was the prior used and had the right to debar the respondent from eating into the
goodwill, it may have built up in connection with the name.
12.6.2 The Arbitration Route – UDRP

Domain name disputes are typically resolved using the Uniform Domain Name
Resolution Policy (UDRP) developed by ICANN. Under UDRP, most types of
trademark-based domain-name disputes must be resolved by agreement, court action,
or arbitration before a registrar will cancel, suspend, or transfer a domain name. The
policy offers an expedited administrative proceeding for trademark holders to contest
“abusive registrations of domain names”. UDRP currently applies to all .biz, .com,
.info, .name, .net, and .org top-level domains, and some country code top-level
domains.The intention is to create a process that is faster and cheaper than the legal
system.
According to the policy, complaints are submitted to “approved” dispute-resolution
service providers, which can be corporations or non-profit organizations. Currently,
the following four are the only authorized providers:
z World Intellectual Property Organization (WIPO)
z National Arbitration Forum (NAF)
z CPR Institute for Dispute Resolution
z Asian Domain Name Dispute Resolution Centre (ADNDRC)
Each provider has a list of panelists from which either one or three are chosen to
decide a particular dispute. The policy is incorporated by reference into the registration
agreement that the registrant had with the registrar at the time of registering its domain
name. By virtue of the incorporation of the UDRP into the registration agreement,
the registrant submits itself to the jurisdiction of the approved dispute resolution
providers and binds itself to the UDRP.
In the event that a trademark holder considers that a domain name registration infringes
on its trademark, it may initiate a proceeding under UDRP. The UDRP permits
complainants to file a case with a resolution service provider, specifying, mainly, the
domain name in question, the respondent or holder of the domain name, the registrar
with whom the domain name was registered and the grounds for the complaint.
Paragraph 4 of UDRP states the three elements that have to be established by a
complainant to obtain relief. These elements are:
z Respondents domain name is identical or confusingly similar to a trademark or
service mark in which the complainant has rights;
52
z Respondent has no right or legitimate interest in respect of the domain name; Domain Names
and
z Respondent’s domain name has been registered and is being used in bad faith.
Apparently, the main requirement under the policy is that the domain name of the
complainant “should have been registered and used in bad faith”. The policy stipulates
certain “inclusive” factors for determining “bad faith registration and use” which are
as follows:
z Registering the domain name with the primary purpose of subsequently selling it
at a profit.
z Registering the domain name primarily for the purpose of disrupting the business
of the competitor.
z Registering the domain name in order to prevent the owner of the trademark
from reflecting the mark in a corresponding domain name.
z Using the domain name to attract Internet users to one’s Web site by creating a
likelihood of confusion with the complainant’s trademark.
However, such factors are, only inclusive and not exhaustive and the arbitration
panel has the discretion to rely upon other factors to determine “bad faith”. The
respondent is offered the opportunity to defend himself against the allegations. The
provider appoints a panelist who decides whether or not the domain(s) should be
transferred.
Using the resolution provider WIPO for resolution of a case involving one to five
domain names, with a single panelist, the current cost is US$ 1,500; for three panelists,
the total cost is US$ 4,000. For six to ten domain names, the current cost is US$
2,000 for a case involving a sole panelist and US$ 5,000 for a case involving three
panelists.
A domain name after the dispute is resolved could either be transferred or the complaint
could be denied. It is also possible to seek cancellation of the domain name. There
are no monetary damages applied in UDRP domain name disputes, and no injunctive
relief is available. The accredited domain name registrars – which have agreed to
abide by the UDRP – implement a decision after a period of ten days. The panel
decisions are mandatory in the sense that accredited registrars are bound to take the
necessary steps to enforce a decision, such as transferring the name concerned.
However, under the UDRP, either party retains the option to take the dispute to a
court of competent jurisdiction for independent resolution. But this option is exercised
very seldom.
Thousands of cases have been decided by the dispute resolution providers using the
UDRP. It is neither possible nor desirable to list all those cases here but it would be
suffice to discuss a few.
In Osho International Foundation v. Osho Dhyan Mandir [Claim Number:
FA0006000094990], Osho International Foundation (OIF), filed a complaint with
National Arbitration Forum (NAF) against Osho Dhyan Mandir (ODM) based in
Delhi, for the domain name www.oshoworld.com. Claiming to be rightful owner of
the trademark ‘Osho’ by virtue of its registration with the United States Patent and
53
Trademark Office, OIF pleaded for the transfer of the domain name from Osho
Intellectual Property Dhyan mandir to OIF as OSHOWORLD.com is confusingly similar/identical to the
Protection in
Cyberspace
complainants OSHO.com, OSHO.net and OSHO.org. ODM in its response pointed
out the fact that Osho is not a valid trademark for materials by or regarding Osho.
ODM maintained that as followers of Osho, ODM has an internationally recognised
right to use the term Osho. NAF decided in favour Osho Dhyan Mandir to retain the
domain name www.oshoworld.com. The Arbitrator observed that “To grant OIF’s
request for relief would be to permit virtual monopolisation on the Internet by
Complainant of any domain name which includes the name of a great spiritual teacher
and leader.” While making no judgment on the relative merits or validity of the world’s
religions or spiritual movements or any leader thereof, the penalist found that permitting
this would be as improper as doing the same with Christianity, Judaism, Islam,
Zorastrianism, Hinduism, Buddhism, Taoism, Confucianism, Shintoism or any of the
several hundred other of the world’s religions and/or spiritual movements.
In, Tata Sons Ltd. v. The Advance Information Technology Association [Case
No. D2000-0049] the dispute was on the domain name www.tata.org. The word
“TATA” was the corporate name and trade mark, of the complainant and its group
of companies. The complainant and its group companies had interests in a diverse
field of activities like automobiles, chemicals & pharmaceuticals, consumer products,
metal, IT, etc. The Respondent was the registrant of the domain name www.tata.org
with NSI but did get the Web site activated.
The complainant contended that potential customers would be induced to subscribe
to the services offered by the impugned Web site believing them to be coming from
or authorized by the complainant. Since the Web site was not activated even though
it was registered for three years, it was found by the resolution provider ‘WIPO’
that the respondent is merely ‘hoarding’ the said domain name. It was further observed
that even if a Web site under the said domain name had been activated, in the facts
and circumstances of the case, it would still constitute dishonest adoption and
misappropriation. It was also brought on record that the complainant had successfully
obtained orders from courts in India in relation to domain names wherein Courts
have granted orders of injunction against the defendants therein from using the domain
names <tatagroup.com>, <bodacious-tatas.com>, <jrdtata.com>, <ratantata.com>,
<tatahoneywell.com>, <tatateleservices.com>, <tatahydro.com>,
<tatawestside.com>, <tatatimken.com>. Though these disputes were still pending
at the time the decision was rendered, it was observed that they were prima facie
evidence of the recognition of the complainant’s rights in the TATA name/mark. The
panel decided that the respondent’s domain name www.tata.org was identical to the
trade mark TATA in which the complainant had trade mark rights and the respondent
had no legitimate interest in the said domain name. Terming the registration of
www.tata.org as an instance of “bad faith registration”, the panel decided that the
domain name should be transferred to the complainant.
12.6.3 Dispute Resolution: Traditional Litigation in Courts

v/s Arbitration under UDRP
The advantage of ICANN’s dispute resolution system is its speed. Respondents
must reply to a complaint within 20 days, and once the submissions are complete the
panel has 45 days to issue its decision. A domain name case filed with WIPO is
normally concluded within two months. There are no in-person hearings, except in
extraordinary cases. The parties have the option of a panel of one or three arbitrators,
54
selected from a list of ICANN-approved experts in intellectual property matters.
The panel will then base their decision on the filings alone. All the proceedings take Domain Names
place electronically. So, the redressal is much faster than normal litigation in courts.
Another advantage of UDRP is that, by virtue of agreements between ICANN,
domain name registrars and registrants, the awards are binding thus making their
enforcement easy.
The disadvantage of UDRP is that you cannot claim any monetary damages even in
cases of bad faith registrations. Moreover, there is no provision of injunctive relief.
Both these can potentially be obtained by litigating a dispute in courts. So, for dispute
resolution, one can exercise either of these two options weighing their respective
pros and cons as per his requirements.
Distinguish between Traditional Litigation in courts and under Arbitration rule?
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
12.7 DISPUTE RESOLUTION FOR ccTLDs

With gTLD’s being in short supply, the world is increasingly turning to ccTLD’s. In
fact, certain ccTLD’s project themselves as being alternatives to gTLD’s. Since the
administration of ccTLDs is in the hands of each individual country, power to resolve
disputes also flows out of it. Though, some countries have subscribed to the UDRP
for this purpose.
In India, the administration of domain names within the .IN category is looked after
by the Centre for Development of Advance Computing, Mumbai (C-DAC). C-
DAC has published the .IN Dispute Resolution Policy (INDRP). It has been
formulated in line with internationally accepted guidelines, and with the relevant
provisions of the Indian IT Act 2000. As per section 4 of the policy, any person who
considers that a registered domain name conflicts with his legitimate rights or interests
may file a complaint to the .IN Registry on the following premises:
i. the Registrant’s domain name is identical or confusingly similar to a name,
trademark or service mark in which the Complainant has rights;
55
Intellectual Property ii. the Registrant has no rights or legitimate interests in respect of the domain name;
Protection in
Cyberspace
and
iii. the Registrant’s domain name has been registered or is being used in bad faith.
The Registrant is required to submit to a mandatory arbitration proceeding in the
event that a complainant files a complaint to the .IN Registry, in compliance with this
Policy and Rules thereunder.
The IN Registry shall appoint an Arbitrator out of the list of arbitrators maintained by
the Registry. The Arbitrator shall conduct the Arbitration Proceedings in accordance
with the Arbitration & Conciliation Act, 1996 as amended from time to time and also
in accordance with this Policy and rules provided thereunder.
12.8 SUMMARY
z A domain name is the linguistic counterpart of what is known as an Internet
Protocol (IP) address.
z Broadly domain names are of two types — one, generic top-level domain
(gTLD); two, country code top level domains (ccTLD).
z Domain names have acquired the same importance as that of trademarks for
identifying a business or an entity.
z Bad faith registration of a trademark belonging to another is known as
cybersquatting.
z Mainly, domain name disputes could either be resolved by litigation in a court of
competent jurisdiction or referring the matter to arbitration under the UDRP.
z The Supreme Court of India is of the view that Law of trademarks and passing
off applies to domain name disputes.
z Domain name disputes could also be referred to resolution by arbitration under
the UDRP.
z In India, for the .IN category disputes could be referred to arbitration under the
dispute resolution policy framed by C-DAC.

1. Write a note on the case Satyam Inforway Ltd. v. Sifynet Solutions (P) Ltd.
[2004 (28) PTC (SC) 566].
2. What do you mean by cybersquatting? What are the reasons for its prevalence
in cyberspace?
3. Write a detailed note on the UDRP as to how domain name disputes could be
resolved under this policy.
56
Domain Names
1. A domain name is the address of a website like www.tata.com is the address of
the famous business house TATA. The purpose of domain name is to locate a
webpage on the Internet.
2. a) generic top level domain (gTLD)
b) Country code top level domain (ccTLD).
3. The practice of registering and cleaning right over internet domain names that
are arguably not for the taking is known as cyber squatting.
4. See sub section 12.5.3.
Terminal Questions
57
UNIT 13 LIABILITY OF INTERNET
SERVICE PROVIDERS
Structure
13.1 Introduction
13.2 Objectives
13.3 ISPs and their Role in Communication on the Internet
13.4 Various Approaches for Determining the Liability of ISPs
13.4.1 Horizontal Approach
13.4.2 Non-horizontal Approach
13.5 ISP Liability for Copyright Infringement: Indian Position
13.5.1 ISP Liability under the Copyright Act, 1957
13.5.2 ISP Liability under the Information Technology Act, 2000
13.5.2.1 Classification of ISPs under the IT Action, 2000
13.5.2.2 Filtering ISP Liability through the IT Act
13.5.2.3 How can an ISP Qualify for Exemption from Liability for Copyright
Infringement?
13.6 Criticism of Provisions of IT Act vis-à-vis ISP Liability
13.7 Why are ISPs Sued for Copyright Infringements on the Internet?
13.8 Summary
13.1 INTRODUCTION
The issue of on-line copyright infringement liability for ISPs has been around since
the use of the Internet started to expand rapidly in the early 1990’s and has been the
subject of extensive debates worldwide. Should ISPs be held responsible for illegal
activities committed by their users? To what extent are ISPs responsible for third
party material put on the Internet by users of their facilities?
Because of the inherent difficulties of enforcing copyrights against individual Internet
users worldwide, the copyright owners have found the answer to this problem in
placing legal liability for copyright infringement on those who allow and enable Internet
copyright pirates to exist, namely the Internet service providers (ISPs). For the content
owners, it is practical to sue the ISPs as they are in a position of policing the Internet.
On the other side of the argument, ISPs are passive carriers similar to
telecommunications companies and, therefore, should be granted some limitation
from liability with regard to copyright infringement. In addition, to make ISPs liable
could stifle the growth of the Internet.
13.2 OBJECTIVES
z appreciate the role of ISPs in communication on the Internet;
5
Management of IPRs in z describe the various approaches for determining the liability of ISPs for eg the
Cyberspace
horizontal approach, the non-horizontal approach;
z explain the liability of ISPs for Copyright infringement under the Copyright Act,
1957, and The Information Technology Act, 2000.
13.3 ISPs AND THEIR ROLE IN COMMUNICATION

ON THE INTERNET
ISP is an entity that connects people to the Internet and provides other allied services
such as Web site building and hosting. An ISP has the equipment and the
telecommunication line access required to have a point of presence on the Internet
for the geographic area served.
Various kinds of intermediaries are involved in delivering content online to end-users,
as making a work available over the Internet will involve a chain of intermediaries. A
person who is desirous of launching a Web site will first obtain an account with a
hosting service provider and then will upload Web pages onto his Web site which is
physically located on the host’s ‘server’ - which could best be described as a very
large hard disk that is directly accessible on the Internet. Upon storage on the server
the uploaded documents become instantly available to everyone with a connection
to the Internet. An access provider, in turn, provides access to the Internet. On the
way from host to access provider to end user the transported content passes through
the infrastructure of a network provider, who, apart from providing the physical
facilities to transport a signal, will also transmit and route it to the designated recipient.
It is common for a single legal entity to provide a complete range of these services.
ISPs are instrumental in transmitting or disseminating third party content, but neither
initiate nor take any part in a decision to disseminate particular material. The two
main services provided by ISPs are:
z Web site building and hosting; done by an entity that provides space and
management for individual or business Web sites; and
z Access providing; done by an entity that arranges for an individual or an
organization to have access to the Internet.
13.4 VARIOUS APPROACHES FOR DETERMINING

THE LIABILITY OF ISPs
The liability of ISPs may arise in a variety of legal fields, such as tort law, criminal
law, trade secret law, copyright law, trademark law, unfair competition law, etc.
Worldwide many countries have tried to define the liability of ISPs in disseminating
third party content. Many of these national laws relate to criminal law, information
technology law or copyright law. These statutes have tried to solve the problem by
adopting either of the two approaches; horizontal approach or non-horizontal
approach. The horizontal approach covers not only copyright infringement but also
all other potential areas of law where liability of ISPs might arise. It fixes the liability
regardless of the grounds for illegality of the transmitted material. Whereas, under
non-horizontal approach the potential liability of ISPs is determined under each law
where it might arise. In this case various statutes would determine ISP liability; for
example, adopting non-horizontal approach the copyright statute would address ISP
6
liability that might arise only in relation to copyright violations.
Please answer the following Self Assessment Question. Liability of Internet
Service Providers
Who are ISPs?
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
13.4.1 Horizontal Approach

In this manner the liability of ISPs is determined at one place in a single statute.
There are laws now in force in Germany, Sweden, Japan, etc. which approach the
issue from a horizontal perspective.
Horizontal approach functions through the filtering mechanism i.e. first; the ISPs are
made liable according to the general provisions of law related to the conduct of the
ISP in question. That means if the ISP is accused of defamation then he shall be tried
according to the defamation laws and if the ISP is accused of copyright violation
then his liability will be determined as per the provisions of the copyright law. Further,
in case an ISP is held guilty say under copyright law then his liability is screened or
‘filtered’ through the exemptions granted to the ISPs under the specific provisions
created under a particular statute.
13.4.2 Non-horizontal Approach

Under non-horizontal approach the potential liability of ISPs is determined under
each law where it might arise. In this case various statutes would determine ISP
liability; for example, adopting non-horizontal approach the copyright statute would
address ISP liability that might arise only in relation to copyright violations. The
alternative approach of implementing copyright-specific laws to determine online
ISP liability, has been adopted by some countries such as Hungary, Ireland, Singapore
and the United States of America. We will consider here the approach adopted by
USA.
In order to limit the liability of ISPs, the United States of America amended its
Copyright Act in October 1998 by enacting the Digital Millennium Copyright Act
(DMCA) which adds a new section 512 to chapter 5 of the US Copyright Act. It
establishes ‘safe harbours’ to shelter ISPs from liability for copyright infringement in
certain circumstances.
The DMCA does not define when an ISP is liable for copyright infringement and, in
this respect the existing principles of the US copyright law would apply. But the
DMCA sets down guidelines with respect to copyright infringement online and
specifically states four circumstances where ISPs are exempt from liability for damages.
These four categories of activities are:
7
Management of IPRs in (1) Transitory digital network communications;
Cyberspace
(2) System caching;
(3) Storing information on systems or networks at direction of users;
(4) Information location tools.
Further these limitations would apply provided: the ISP is merely acting as a ‘passive
conduit’, for the information, is not the producer of the information, and has responded
expeditiously to remove or disable access to infringing material upon notice from the
copyright holder (the so-called ‘notice and take down’ provisions).
The ‘notice and take down’ procedures provide that when a copyright owner becomes
aware of infringing material or infringing activity residing or taking place on an ISP’s
system or network that copyright owner may notify the ISP of the infringement and
require the ISP remove or disable access to the infringing material or activity. Upon
receipt of a notification, an ISP will have to take down the material stored on its
servers or stop access to the notified infringing material. The ISP in this case will be
exempt from liability to its subscribers for its good faith removal of or disabling
access to allegedly infringing content residing on its server at the direction of the
subscriber. Under the protections afforded by this section of the DMCA, ISPs may
act on their own initiative or in response to customer or other third-party complaints
to remove or disable access to content believed to be infringing without fear of being
held liable for a legal claim made by the person whose material has been removed or
access disabled. This exemption applies to any claim that could conceivably be
made against an ISP for removing or blocking access to content, such as tort or
breach of contract claims.
This exemption only applies with respect to material residing at the direction of a
subscriber, however, if the ISP “takes reasonable steps promptly to notify the
subscriber that it has removed or disabled access to the material” and thereby allows
the subscriber to respond to the infringement alleged in the notification. A subscriber’s
response is referred to in the statute as a “counter notification”.
Upon receipt of a counter notification, an ISP must promptly provide the original
complainant with a copy of the counter notification and inform him that it will replace
the removed material or cease disabling access to it within ten business days. The
original complainant has to file a suit within the ten-day period to obtain a court
order restraining the subscriber from engaging in infringing activity if it wants to
prevent access to the material from being restored.
State the DMCA’s guidelines with respect to copyright information under which
ISPs are exempt from liability for damages?
................................................................................................................
................................................................................................................
................................................................................................................
8
................................................................................................................
................................................................................................................ Liability of Internet
Service Providers
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
13.5 ISP LIABILITY FOR COPYRIGHT

INFRINGEMENT: INDIAN POSITION
13.5.1 ISP Liability under the Copyright Act, 1957
The Copyright Act, 1957 was obviously drafted in complete oblivion of the
phenomenon called the Internet. Even after its latest amendments it does not contain
any express provision for determining or limiting ISP liability. However, some
provisions in the Act could be interpreted to have some bearing on the liability of
ISPs. As per section 51 (a)(ii), copyright in a work shall be deemed to be infringed,
When any person, without a licence granted by the owner of the Copyright or the
Registrar of Copyrights under this Act or in contravention of the conditions of a
licence so granted or of any condition imposed by a competent authority under this
Act … permits for profit of any place to be used for the communication of the work
to the public where such communication constitutes an infringement of the copyright
in the work, unless he was not aware and had no reasonable ground for believing
that such communication to the public would be an infringement of copyright.
Materially for our purposes section 51 (a)(ii) can be broken down into two parts:
z Permits for profit
z Any place
ISPs allow their servers and other telecommunication facilities for storing user’s
material and for transmitting that material. The computer servers and other
telecommunication facilities are actually located at their business premises and hence
they would readily come under the expression “any place” and could be held liable
for the infringing activities of third parties whose material they store or transmit if
other requirements are fulfilled. Further, the expression “permits for profit” means
that to be held liable the activities of ISP should be for profit meaning thereby that he
should be financially benefiting out of the infringing activities. ISPs normally charge
for their services and even if they offer some services for free, they could indirectly
be making profit out of it, for example, from advertisements that they bundle together
with the transmitted material. So, the above two requirements are fulfilled by ISPs
for most of their activities in case they transmit or store infringing material.
Can an ISP be held primarily or secondarily liable for his contribution to copyright
infringement, and if so, under what circumstances? Interestingly, many copyright
statutes the world over distinguish between so-called primary and secondary liability.
In principle, primary infringers are strictly liable. Secondary infringers, such as mere
distributors and organizers of performances, are considered copyright infringers only 9
Management of IPRs in if they knew or had reason to believe that they contributed to an infringement. Thus,
Cyberspace
presence of some form of fault is necessarily included in the notion of secondary
liability. Though the Copyright Act does not specifically divide liability into primary
and secondary, it could easily be concluded that ISPs could be held only secondarily
liable for the infringing activities of their users because their liability has been based
on the knowledge of the infringement. The expressions used in section 51(a) (ii) “not
aware” and “had no reasonable ground for believing” make it amply clear.
13.5.2 ISP Liability under the Information Technology Act, 2000

In India the provisions relating to the ISPs are specifically legislated in the IT Act,
2000 where an Internet Service Provider is referred to as Network service provider
and Explanation (a) to s. 79 defines it as:
“Network service provider” means an intermediary.
Intermediary again has been defined under section 2(w) as:
“Intermediary” with respect to any particular electronic message means any person
who on behalf of another person receives stores or transmits that message or
provides any service with respect to that message.
Further the Act contains in section 79 a clause which limits the liability of ISPs under
certain circumstances:
Network service providers not to be liable in certain cases.
For the removal of doubts, it is hereby declared that no person providing any service
as a network service provider shall be liable under this Act, rules or regulations
made there under for any third party information or data made available by him if he
proves that the offence or contravention was committed without his knowledge or
that he had exercised all due diligence to prevent the commission of such offence or
contravention.
Define an intermediary?
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
13.5.2.1 Classification of ISPs under the IT Act, 2000

Under IT Act, 2000 no classification of ISP has been attempted. The expression
‘Network service providers’ used in section 79 subsumes within it all kinds of Internet
service providers irrespective of what function they perform in the long chain of
10
intermediaries that transport Internet content to the desired destinations. The ISPs
perform different functions in the task of transporting content and their liability cannot Liability of Internet
Service Providers
be uniform. It has to be based precisely on what function they perform. It is necessary
to categorise the ISPs into functional categories otherwise different ISPs could be
held liable under the IT Act, 2000 for something which they have played no role in or
for the contents over which they have little control. So, in order to give a meaningful
disposition to the limitation on liability of ISPs, for which section 79 has been drafted,
it becomes essential to categorise the ISPs.
13.5.2.2 Filtering ISP Liability through the IT Act
The title of section 79 of the IT Act “Network service providers not to be liable in
certain cases” makes apparent the object behind the section, which is to limit the
liability of ISPs. The liability of ISPs could arise in a number of ways under different
statutes. The liability could be criminal or civil in nature depending on various factors.
It is impractical to define the liability of ISPs which could arise in various forms at
one place.
Equally impractical could be to amend all our laws, which could hold ISPs liable, in
order to limit their liability. The latter has not been attempted in any of the Indian
legislations including the Copyright Act, 1957 till now. The IT Act, 2000 does not
attempt the former but just seeks to create a filtering mechanism for determining the
liability of ISPs. The idea is that the liability of an ISP for his action or omission be
first determined in accordance with the statute under which it arises and then if at all
the ISP is held liable, his liability again be filtered through section 79 of the IT Act.
For example, if an ISP is accused of illegally distributing pirated copies of music,
then his liability be first determined under section 51(a)(ii) and section 63 of the
Copyright Act, 1957. If the ISP is found liable then his liability again be tested on the
touchstone of section 79 of the IT Act, 2000.
In this context, the expression “under this Act” which has been used in section 79
has created some confusion. Apparently, this limitation of liability would be applicable
only when the liability has arisen under the IT Act alone. This could not be the motive
behind drafting section 79 especially when the Act does not attempt to define the
liability of ISPs in any of its provisions; it only talks about limiting their liability.
13.5.2.3 How can an ISP Qualify for Exemption from Liability for Copyright
Infringement?
Section 79 of the IT Act also provides two circumstances under which an ISP can
qualify for exemption from liability:
z Lack of knowledge
z Exercise of due diligence
Lack of Knowledge
Knowledge of the illegal contents on part of the ISP is a prerequisite for holding him
liable under section 79 of the IT Act, 2000. The ISP can escape liability if it could be
proved that he was unaware of all that was stored and passing through his servers.
But if he is put under a notice that some infringing material is either stored or passing
through his servers, he has to take proper action for removing or disabling that material
otherwise he could be said to have knowledge of the infringing material and held
liable. 11
Management of IPRs in Due diligence
Cyberspace
For an ISP to escape liability, section 79 prescribes “due diligence” to be exercised
by him. The provision requires actual knowledge or breach of the duty of care. What
should be the extent of the “due diligence” requirement? Should the ISPs be required
to monitor and judge legality of millions of files that are present or passing through
their servers? Considering the gigabyte that are stored or passing through their
servers this seems to be an impossible task. But, if we say that the ISPs should not
be under an obligation for “due diligence”, it might encourage them to consciously
‘look away’ and evade all liability. It can be safely concluded that ISPs are not liable
for the (infringing) gigabytes that are stored and passing through their servers unless
they are put on notice. If an ISP encounters particularly suspicious circumstances, he
may be subject to “due diligence” i.e. a duty of care to investigate further whether
material he hosts or refers to is unlawful and, where found to be so, to block access.
What are the circumstances under the IT Act when an ISP is exempted from
liability for copyright information?
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
13.6 CRITICISM OF PROVISIONS OF IT ACT VIS-À-

VIS ISP LIABILITY
Since the enforcement of the IT Act, 2000, section 79 has been criticised on a
number of grounds as stated above. The Ministry of Communications and Information
Technology appointed an Expert Committee to propose amendments to the IT Act.
The Expert Committee has proposed revision of section 79. The proposed section
79 is as follows:
79. Exemption from liability of intermediary in certain cases
1. An “Intermediary” shall not be liable under any law for the time being in force,
for any third party information, data, or link made available by him, except
when the intermediary has conspired or abetted in the commission of the unlawful
act.
2. The provisions of sub-section (1) shall apply in circumstances including but not
limited to where:
Intermediary’s function is limited to giving access to a communication network
over which information made available by third parties is transmitted or
12
temporarily stored; or the intermediary: (i) does not initiate the transmission, Liability of Internet
Service Providers
(ii) does not select the receiver of the transmission, and (iii) does not select or
modify the information contained in the transmission.
3. The provisions of sub-section (1) shall not apply if, upon receiving actual
knowledge of, or being notified by the Central Government or its agency that
any information, data or link residing on a computer resource controlled by the
intermediary is being used to commit the unlawful act, the intermediary fails
expeditiously to remove or disable access to that material on that resource.
Explanation: For the purpose of this section:-
(a) Term ‘Intermediary’ has been defined in Chapter I, Section 2(w).
(b) ‘Intermediary’ shall include, but not limited to, telecom service providers,
network service providers, Internet service providers, web-hosting service
providers, search engines including on-line auction sites, online-market places,
and Cyber Cafés.
(c) ‘Third Party Information’ means any information dealt with by an intermediary
in his capacity as an intermediary.
13.7 WHY ARE ISPs SUED FOR COPYRIGHT

INFRINGEMENT ON THE INTERNET?
Most of the time in every set of action that a copyright owner takes against
infringements on the Internet, by and large the action is simultaneously taken against
the ISP as well, apart from the person who actually commits the infringement. There
are reasons behind ISPs being sued so often when it comes to Internet infringements.
It is very easy to trace an ISP. For example a software product is found loaded on
a Web site which anyone is free to download. Let’s presume the Web site actually
operates some kind of bulletin board, i.e. a site where people just upload and
download files and where anyone can contribute as well as can take. In such situations,
often you can trace out the Web site owner but you can’t trace out the actual
contributor. But you definitely can find out the ISP who’s facilities have been used to
upload the software. In digital environment products are priced high and much damage
can occur in less time. So, apart from suing the actual offender people would always
like to sue the ISP as well.
Normally an ISP, as a business entity, has deeper pockets and is also more capable
of paying the damages than is an individual private user. Another reason is that it
deters infringement by other subscribers. If on a Web site there are 15 subscribers,
all of whom can upload and download content to and from that Web site, if you sue
one of them, the next day someone else might upload the same content. But if you
sue the ISP directly it would have to shut off and make it very clear to his subscribers
that the infringing content will not be uploaded on this Web site ever again. So with
the intent of deterring infringement again, suing an ISP is quite practical. It is far
easier to try and stop the copyright infringement by suing the ISP directly because he
controls that network.
13
Management of IPRs in
Cyberspace 13.8 SUMMARY
z ISP is an entity that connects people to the Internet and provides other allied
services such as Web site building and hosting.
z ISPs are instrumental in transmitting or disseminating third party content, but
neither initiate nor take any part in a decision to disseminate particular material.
z The liability of ISPs may arise in a variety of legal fields, such as tort law,
criminal law, trade secret law, copyright law, trademark law, unfair competition
law, etc.
z Internationally the problem has been tackled by adopting either of the two
approaches; horizontal approach or non-horizontal approach.
z In this manner the liability of ISPs is determined at one place in a single statute.
z Under non-horizontal approach the potential liability of ISPs is determined under
each law where it might arise.
z Certain provisions of Copyright Act, 1957 could be used to determine the liability
of the ISPs for copyright violation on the Internet.
z The IT Act, 2000 lays down exemptions for limiting the liability of ISPs.
z For the content owners, it is practical to sue the ISPs as they are in a position of
policing the Internet.
z Amendments have been proposed in the IT Act, 2000 vis-à-vis liability of ISPs.

1. What are the amendments that have been proposed in section 79 of the IT Act,
2000 vis-à-vis the liability of ISPs? Do you think they are desirable and beneficial
in the overall regulation of the Internet? Give reasons.
2. How can ISP qualify for exemption from liability under the IT Act, 2000?
3. Who are ISP and what role they play in the overall communication on the
Internet?

1. ISP is an entity that connects people to the internet and provides other allied
sciences such as web site building and hosting.
2. They are
1) Transitory delegate Network communications.
2) System caching.
3) Strong information on system or networks at direction of users.
4) Information location tools.
3. An intermediary is any person who on behalf of another person receives, stores
or transmits that message or provides any service with respect to that message.
4. a) Lack of knowledge
b) Exercise of due diligence.
Terminal Questions
1. Refer to sub section 13.4.2.2 of the unit.
2. Refer to sub section 13.4.2.3 of the unit.
14 3. Refer to sub section 13.2 of the unit.
UNIT 14 DIGITAL RIGHTS MANAGEMENT
Structure
14.1 Introduction
14.2 Objectives
14.3 Digital Rights Management: Meaning, Purpose and Elements
14.4 Rights Management Information
14.5 Technological Protection Measures
14.6 Legal Protection against Circumvention of Technological Protection
Measures
14.7 Conflict of DRM with Existing Principles of Copyright
14.8 Future of DRM
14.9 Summary
14.1 INTRODUCTION
As a reward for their creativity and investment, the copyright system grants creators
exclusive rights in their works. That means third parties are prohibited from using
works in a manner that is covered by the exclusive rights, without obtaining permissions
from the right owners. Right owners will usually grant such permissions in exchange
for compensation and on the basis of certain terms and conditions of use. These
conditions are recorded in contractual arrangements concluded between right owners
and users. But the popularity of personal computers, the Internet and file sharing
tools have made the distribution of copyrighted digital media files simple. A lot of
digital products like music, films, software, text, images, etc. are available on the
Internet and they are freely available through various network architectures. In the
offline world these products are protected by copyright law and are available for a
price. But on the Internet they are mainly available for free through various P2P
networks. This free distribution and downloading is frequently referred as online
piracy of copyrighted material.
The availability of multiple perfect copies of copyrighted materials is perceived by
much of the media industry as a threat to its viability and profitability, particularly
within the music and movie industries. Digital media publishers typically have business
models that rely on their ability to collect a fee for each copy made of a digital work,
and sometimes even for each performance of said work. This digital technology has
led to a loss of control by the owners over their own copyrighted products. But the
remedy for this loss of control is increasingly being sought in the technology itself.
DRM includes within its ambit the various technological tools designed for digital
media publishers as a means to allow them to control any duplication and dissemination
of their content. The digitization of content, together with the increased reliance by 15
Management of IPRs in rightsholders and intermediaries on technological adjuncts is influencing the traditional
Cyberspace
means of licensing intellectual property rights. This application of technology to facilitate
the exploitation of rights is commonly referred to as “digital rights management”
(DRM). In effect, DRM systems aim to automate the process of licensing works
and of ensuring that license terms are complied with.
Legal support for DRM systems is to be found in the WIPO Copyright Treaty (WCT)
and the WIPO Performances and Phonograms Treaty (WPPT). In 1996, two treaties
were adopted by consensus by more than 100 countries at WIPO: the WIPO
Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty
(WPPT) (commonly referred to as the “Internet Treaties”). The WIPO Internet
Treaties are designed to update and supplement the existing international treaties on
copyright and related rights, namely, the Berne Convention and the Rome Convention.
They respond to the challenges posed by the digital technologies and, in particular,
the dissemination of protected material over the global networks that make up the
Internet.
Because the technology holds the promise of curbing rampant piracy of copyright
works, rights owners have placed a great deal of faith in DRM as a means of enforcing
their rights in the digital environment. Substantial investments and efforts have been
made in recent years with a view to the development and deployment of the DRM
systems.
14.2 OBJECTIVES
z define the meaning of digital rights management;
z explain the elements and purpose of digital rights management;
z describe right management information;
z describe the technological protection measures;
z explain the legal protection against circumvention of technological protections
measures;
z explain the conflict of DRM with principal of Copyright; and
z analyse the future of digital rights management.
14.3 DIGITAL RIGHTS MANAGEMENT: MEANING,

PURPOSE AND ELEMENTS
DRM is a systematic approach to copyright protection for digital media available in
Cyberspace. So, the term DRM includes all the technical systems designed to facilitate
the management of rights in respect of digital content. DRM technologies can be
used in connection with both offline and online media. Examples are copy-protected
CDs or DVDs and download services such as Apple’s iTunes. Figuratively speaking,
DRM systems put up electronic fences in order to keep unwanted visitors away and
only provide access to invited guests.
16
Although online content is protected by copyright laws, policing the Web and catching
law-breakers is very difficult. The purpose of DRM is to prevent illegal distribution
of paid content over the Internet. DRM products were developed in response to the Digital Rights
Management
rapid increase in online piracy of commercially marketed material, which proliferated
through the widespread use of various Internet based technologies like P2P and
hyper linking.
DRM systems are aimed at enforcing certain business rules in respect of the use of
content protected by copyright. Typically, these business rules concern questions
like, who is entitled to access a work, at what price and on which terms. These
terms address questions such as whether a user is entitled to make any copies of the
work; or how long a user is entitled to access a work; whether a user can excerpt
the work or make changes to it; whether a user can access the work on one or on
multiple devices, etc. In effect, DRM systems aim to automate the process of licensing
works and of ensuring that license terms are complied with.
Since people who download contents from the Internet without paying for it are
potentially very many, DRM technology focuses on:
z Identifying the content and its owner
z Making it impossible to steal Web content in the first place which is a much
surer approach to the problem than the hit-and-miss strategies aimed at
apprehending online poachers after the fact
z Making it possible to identify infringements of work and/or who is responsible
for it so as to enforce one’s rights
The elements associated with DRM systems are:
(1) Identifiers, i.e., numbers or codes permitting the unique identification of a piece
of content (comparable to, for example, the ISBN number in case of books);
(2) Metadata, i.e., information about the piece of content which may include, for
example, the identity of the rights holder, the price for using the work, and any other
terms of use of the work; and
(3) Technological protection measures, i.e., systems designed to ensure that certain
usage rules are complied with, in particular those concerning access and copy control.
The first two are classified as ‘Rights Management Information’ and the third as
‘Technological Protection Measures’.
What do you mean by digital rights Management?
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................ 17
Cyberspace 14.4 RIGHTS MANAGEMENT INFORMATION
The primary requirement for the automated grant of rights in a digital context is that
the protected work and subject matter can be identified as such belonging to the
relevant authors and right holders and the licensing terms must also be available
electronically. On the one hand, this information must be easily readable for a potential
user and on the other hand it should not be easily erasable so that it remains embodied
during the subsequent stages of exploitation in connection with the work. In addition,
rights holders must be able to prove their authorship and ownership of rights in case
of infringement; the relevant information should not be discernible to third parties
and should remain embodied within the work even after the latter has been adapted,
or where parts of the work are used.
This is possible only if certain data which identifies the work, the author of the work,
the owner of the work, or information about the terms and conditions of use of the
work which are necessary for licensing and payment of licence fee, are embedded in
the work. This data is classified as ‘rights management information’ in the WIPO
Copyright Treaty (WCT) and the WIPO Performers and Phonograms Treaty
(WPPT).
Article 12(2) of the WCT defines rights management information as, “Information
which identifiers the work, the author of the work, the owner of any right in the
work, or information about the terms and conditions of use of the work, and any
numbers or codes that represents such information, when any of these items of
information is attached to a copy of a work or appears in connection with the
communication of a work to the public.”
If we look on to the offline world ‘rights management information’ is not all that
unknown. Identifiers have been used in case of books and cassettes by way of
putting the name of author, publisher, price tag and ISBN. But in the digital age
copyright products like video films, sound records, software, text, etc. have become
container-less. They increasingly appear as part of ‘information’ in the form of bits
and bytes in cyberspace. So, ‘rights management information’ has to be imbedded in
the work itself.
Moral rights which are a part and parcel of the overall copyright philosophy give
rights to the author of a work to be identified as such and to object to any distortion
or mutilitation of his work. In the digital age it has become very easy and within the
reach of ordinary people to detach the author’s name from the work and put someone
else’s name in its place; manipulate with a work so as to distort or mutilate the same.
So, ‘rights management information’, in this regard, becomes extremely important
from the angle of moral rights as well.
A considerable amount of work is being done on ‘copyright tagging’ and developing
‘unique identifiers’ so that the owners of digital material will be able to identify their
property wherever it is and however it has been modified or distorted. Moreover,
this technology, together with the development of ‘intelligent agents’ or ‘bots’ which
are capable of trolling around cyberspace identifying these tags, will help track the
copyright material across the Internet wherever it may be.
‘Rights management information’, as a technological adjunct providing legal support
to network based rights management systems is expected to enhance the ability of
18
rights holders to exploit their property on the Internet, and allow consumers to rely Digital Rights
Management
on the accuracy of the information they receive so they can feel secure transacting
online.
As this ‘rights management information’ is the result of a technology it is also possible
to erase the same with the help of technology itself. Therefore, legal recognition and
protection to rights management information have been provided in WCT and WPPT
and have come up in a number of national legislations which penalize anybody tampering
with such ‘rights management information’ employed. Contracting parties to the
Internet treaties have agreed to provide legal remedies against any kind of removal
or alteration of any of the above information as well as distribution or communication
to the public of copies of work with such removals or alterations. Art. 12(1) of
WCT states, “Contracting Parties shall provide adequate and effective legal remedies
against any person knowingly performing any of the following acts knowing, or with
respect to civil remedies having reasonable grounds to know, that it will induce,
enable, facilitate or conceal an infringement of any right covered by this Treaty or the
Berne Convention: (i) to remove or alter any electronic rights management information
without authority; (ii) to distribute, import for distribution, broadcast or communicate
to the public, without authority, works or copies of works knowing that electronic
rights management information has been removed or altered without authority.” In
this direction suitable amendments have been proposed be made in the Indian
Copyright Act on lines of the WCT and WPPT.
Define Right Management Information?
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
14.5 TECHNOLOGICAL PROTECTION MEASURES

When a digital product is made available for access on the Internet, anyone in the
world becomes capable to download the product free of charge, use it without
restrictions, incorporate the product into his own product and make the resulting
product available in a global network, hence competing with the product of the creator
himself. This is about how technology can assist a crafty person to exploit someone
else’s work digitally.
In order to fight this loss of control over the product in the digital environment to a
large extent the solution is being sought in technology itself. The problems created by
technologies need to be tackled by technologies. As Charles Clark put it, “the
answer to the machine is the machine”. Such technological systems of protection
include: anti-copy devices, access control, electronic envelopes, proprietary viewer 19
Management of IPRs in software, encryption, passwords, watermarking, electronic lamination, user
Cyberspace
authentication, metering and monitoring of usage, encapsulating copyrighted works
in a tamper-resistant electronic envelope, etc. Several industry and technology
initiatives to set standards in various industries have emerged over the years, although
none have yet established uniform standards for technological protection measures.
The need of technology is not only for preventing the work from being stolen and
misappropriated, but also for detecting infringements and misappropriations. It is
necessary to wait and see whether in future so-called ‘software agents’ will search
the entire global network for authorized and unauthorized usage of works and
communicate the relevant information to rights holders.
The music industry, for example, has developed copy proof compact disc (CD)
technology that prevents CDs being played on computer disc drives. Copyproofing
employs various technologies either by including errors in the data encoded on the
CD, which allows the disc to be played on a standard CD player, but not on a CD-
ROM, or by masking audio files as data files so that the CD-ROM drive cannot
recognise the music.
What are the elements of Digital Rights Managements System?
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
14.6 LEGAL PROTECTION AGAINST

CIRCUMVENTION OF TECHNOLOGICAL
PROTECTION MEASURES
Along with the invention of technical measures for protecting copyright works in the
digital networked environment, counter-technologies are developed to defeat those
protection technologies making it possible to circumvent each and every technical
protection measure by using technical means. No matter how sophisticated the
technological protections employed, none are invulnerable, and it is definite that the
ingenuity of people will increasingly make it their business to hack through encryption,
pick digital locks, steam open electronic envelopes, or obliterate digital watermarks
so that they could make profits by misappropriating valuable intellectual property.
So, the solutions devised by technologists are sought to be protected by law as
otherwise those solutions would be modified by counter technologies, with impunity
rendering the best access control mechanisms and security measures futile in want of
legal sanctions.
In order to protect against the circumvention of technological protections applied to
20 copyrighted products in the digital environment, provisions have been incorporated
in the WCT making it obligatory for member states to provide legal protection against Digital Rights
Management
the circumvention of technological measures that are used by right holders in
connection with the exercise of their rights. Article 11 of WCT states, “Contracting
Parties shall provide adequate legal protection and effective legal remedies against
the circumvention of effective technological measures that are used by authors in
connection with the exercise of their rights under this Treaty or the Berne Convention
and that restrict acts, in respect of their works, which are not authorized by the
authors concerned or permitted by law.”
Article 11 of the WCT and 18 of the WPPT only oblige the member countries to
protect technological measures that restricts acts “not permitted by law”. In other
words, countries need not prohibit users from circumventing technological measures
for the purpose of “permitted” use of the copyrighted work. So, article 11 of the
WCT requires that protection of Technological Protection Measures be granted only
with respect to technologies used by rights owners in connection with the exercise of
a right protected by copyright law. This means that the application of technological
protection measures to public domain material does not fall within the ambit of article
11. In other words, the circumvention of a technological protection measures in
order to use a work while benefiting from one of the exceptions to copyright is, in
principle, not prohibited by article 11 of the WCT.
One of the questions that the WIPO Internet Treaties left open is what types of acts
must be prohibited: the acts of circumvention themselves, the business or trafficking
in circumventing technologies or both? Whereas Contracting Parties were free to
implement the principle set out in articles 11 of the WCT and 18 of the WPPT
according to their national legal traditions, there are significant differences in the
manner in which countries have implemented this obligation.
As per section 65 of the Indian Copyright Act, 1957 knowingly making or possessing
any plate for the purpose of making infringing copies of a copyrighted work is a
punishable offence. The definition of ‘plate’ under the said Act is very wide indeed.
By virtue of section 2(t) it includes, “any stereotype or other plate, store, block,
mould, matrix transfer, negative duplicating equipment or other device used for or
intended to be used for printing or reproducing copies of any work, and any matrix
or other appliance by which sound recording for the acoustic presentations of the
work are or are intended to be made”. This definition to a great extent provides
protection for the technological measures adopted by a copyright owner.
Taking a lead from Article 11 of the WCT some countries of the world have already
enacted anti circumvention provisions like in Digital Millennium copyright Act, 1998
in USA, in Australia in 2000, European Directive 2002 and in Canada and Japan.
The debating point for India is whether to put such provisions in the Copyright Act,
1957? Since anti circumvention provisions come in conflict with some of the existing
principles of copyright law, it becomes necessary to appreciate them first.
Define the term ‘Plate’?
................................................................................................................
................................................................................................................ 21
Management of IPRs in ................................................................................................................
Cyberspace
................................................................................................................
................................................................................................................
................................................................................................................
14.7 CONFLICT OF DRM WITH EXISTING

PRINCIPLES OF COPYRIGHT
Copyright law like any other law is a balancing process — attempting to achieve a
balance between individual rights and society’s interests. So, on the one hand copyright
grants exclusive rights to owners, on the other hand, it creates various limitations on
copyright which seek to balance the exclusivity created in favour of the owner. The
first limitation is that of the term of copyright. For example, copyright in a literary
work lasts for sixty years beyond the life of the author and after this period the work
comes in public domain capable of being freely used and exploited by anyone. The
second limitation is by way of the doctrine of ‘fair use’. Fair use means that there are
certain uses of a copyrighted work for which the user may not take permission from
the owner of the work. For example, right of reasonable quotation and research
rights.
Most DRM schemes can and do enforce additional restrictions at the sole discretion
of the media distributor which go beyond the existing legal restrictions which copyright
law imposes on the owner of the physical copy of a work. Thus, DRM could
conveniently be used to achieve more than the rather limited function of protecting
content from unauthorized use. There is reason to fear that the exercise of legitimate
limitations on copyright may be seriously compromised in the digital networked
environment through the application of technological protection measures. In fact,
the generality of the international obligations regarding the adoption of adequate
legal protection and effective legal remedies against the circumvention of effective
technological measures has left the nations with the difficult task of devising new
rules, which do not fit well in the overall copyright framework.
The intersection between technological protection measures and limitations on
copyright is undeniably the thorniest issue confronting lawmakers around the world
in the field today. While DRM systems are ostensibly designed to protect an author’s
right to control copying, this protection is only half of the bargain between the copyright
holder and the state. DRM systems currently employed are not time limited in this
way, and although it would be possible to create such a system, there is currently no
mechanism to remove the copy control systems embedded into works once they
enter the public domain, after the term of copyright expires.
Technological protection measures allow the exclusion of uses. However, while
copyright is limited in many ways, exclusivity based on technology is potentially
unlimited. It may, for example, be possible by way of technology to exclude others
from using information which is not copyrightable, or to exclude acts which are not
restricted acts under copyright, either because they do not fall under the definitions
of the exclusive rights or because they are explicitly exempted by way of fair use.
It appears to be difficult to reconcile an effective protection of technological measures
with (all) the limitations on copyright. Technology – at this stage – is simply not
22 developed enough to accommodate all the subtleties of the law. The applicability of
many exemptions depends upon the circumstances. To quote the same part of the Digital Rights
Management
same work, for instance, may be permissible in one situation and an infringement in
another. Technology cannot recognise whether a particular quotation is allowed or
not.
DRM does not necessarily respect the deliberately imposed legal limitations of
copyright law. This increase in control and controllability can also have its drawbacks
– particularly for consumers. Stricter controls over how digital content is used and
who can listen to what music how often, when and where, almost inevitably represent
an intrusion on the autonomy, anonymity, privacy and other legitimate interests of
consumers. It is uncertain how the information market will develop. The ‘digital
revolution’ may have more advantages than disadvantages for rightholders.
14.8 FUTURE OF DRM

Because the technology holds the promise of curbing rampant piracy of copyright
works, rightsowners have placed a great deal of faith in DRM, and technological
protection measures in particular, as a means of enforcing their rights in the digital
environment. The case for DRM is that without a strong system in place to ensure
only paying consumers can access media, piracy will run rampant and cut drastically
into profits for producers and distributors. With declining sales, so the argument
goes, creative input will also drop and the overall quality of media produced will
decline.
But DRM systems devised till date have had their failings as well. To date, all DRM
systems have failed to meet the challenge of protecting the rights of the copyright
owner while also respecting the rights of the purchaser of a copy. Just to take an
example, DRM using Physical protection employs separate hardware to ensure
protection. Examples include hardware dongles that had to be attached to the
computer prior to using the content, and USB and smart card devices working in a
similar fashion. Physical protection methods consistently failed in consumer markets
due to compatibility problems and extra level of complexity in content use; however,
they did enjoy limited success with enterprise software. Another example could be
of digital watermarking which allows hidden data, such as a unique disc ID, to be
placed on the media. Then, the name and address of the purchaser would be taken
at the location of sale, and entered into a database along with the unique media ID.
This does not prevent copying, but it ensures that any copies made of the media will
bear the same hidden information—so if the content appeared on a P2P networks,
the ID number could be easily extracted and the purchaser prosecuted. This scheme
is flawed primarily because authenticating the buyer as the infringing party is nearly
impossible as the buyer may give a false name and address or present false
identification at purchase, the infringing party may be someone who purchased or
otherwise obtained the media second hand, the media may have been borrowed or
stolen from the original purchaser before the infringement occurred, etc.
Advocates for civil liberties argue that the use of digital technology should be
unfettered, and that the shift of control to producers even after sales will ultimately
hurt creative expression and damage consumer rights. Most media are protected by
copyright, but have a fair use clause which allows for unhampered use in certain
situations. All existing DRM technologies fail to adequately make concessions for
fair use, leading many civil advocates to argue that they restrict the legal use of
content. Security issues, fair use issues, and issues of creative expression are all at 23
Management of IPRs in the forefront of the DRM battle, and DRM technologies will undoubtedly be fought
Cyberspace
over for many years to come. While many within the media industry believe DRM is
the only way to save their existing business model, predicated upon the idea of
collecting a fee for each use, a number of innovators have begun exploring alternatives,
anticipating an ultimate defeat for DRM.
14.9 SUMMARY
z DRM includes within its ambit the various technological tools designed for digital
media publishers as a means to allow them to control any duplication and
dissemination of their content.
z Legal support for DRM systems is to be found in the WIPO Copyright Treaty
(WCT) and the WIPO Performances and Phonograms Treaty (WPPT).
z DRM includes all the technical systems designed to facilitate the management
of rights in respect of digital content.
z The purpose of DRM is to prevent illegal distribution of paid content over the
Internet.
z By ‘rights management information’ is meant all the embedded data in any digital
product which identifies the work, its author and owner and the terms and
conditions its of sale/use.
z Technological protection measures include the technical means which attempt
to restrict the use of a digital product only to an authorized person.
z In addition to the existing copyright protection various legal systems have
incorporated provisions in their copyright laws that prohibit and/or penalize the
circumvention of the technological protection measures.
z These anti-circumvention provisions have come in sharp conflict with the already
existing limitations on copyright system.

1. What do you mean by Rights Management Information?
2. How do you look at the future of Digital Rights Management tools?
3. How Technological Protection Measures come in conflict with the fair use
principles inherent in the copyright system?

1. A systematic approach to copyright protection for digital media available in
Cyberspace.
2. See super section 14.2
The elements associated with DRM systems are
(1) Identifies
(2) Metadata
24 (3) Technological Protection Measures.
3 Article 12(2) of the WCT defines right management information as “Information Digital Rights
Management
which identifies the work, the author of the work, the owner of any right in the
where or information about the terms and conditions of use of the work, and
any number of codes that represents such information, when any of these items
of information is attached to a copy of a work of appears is connection with the
communication of a work to the public.”
4. Plate is an inclusive definition which includes any stereotype or other plate,
store, block, mould, matrix transfer, negative Duplicating equipment of other
device used for of intended to be used for printing or reproducing copies of any
work and any matrix of other appliance by which sound recording for the acoustic
presentation of the work are of one intended to be made.
Terminal Questions
25
UNIT 15 SEARCH ENGINES AND THEIR
ABUSE
Structure
15.1 Introduction
15.2 Objectives
15.3 What are Search Engines?
15.4 The Process: How a Search Engine Works
15.4.1 Web Crawling
15.4.2 Indexing
15.4.3 Searching
15.4.4 Ranking of Web Pages by Search Engine
15.5 Abuse of the Process: Spamdexing

15.5.1 Hidden or Invisible Text
15.5.2 Keyword Stuffing
15.5.3 Meta Tag Stuffing
15.5.4 Cloaking
15.5.5 Page Hijacking
15.5.6 Link Spam
15.6 Controlling Abuse of Searching Process through Law

15.7 Keyword-Linked Advertising and Trademark Infringement
15.8 Summary
15.1 INTRODUCTION
Information and Internet are synonyms. It is difficult to conceive the gigantic quantum
of information present on the Internet. It runs in many billions of pages and still
growing. According to some estimates the Internet is doubling its size every four
months and with this increase in size comes a proportional increase in information.
Search engines have come to acquire a unique and important position on the overall
Internet system. They have become the presenters of information that is provided by
others. It is really interesting to know where all this information comes from or how
it is being sorted and selected by those who make it available to us.
All good search engines index hundreds of millions of pages, and respond to tens of
millions of queries each day. Google being the most used search engine today, in a
lot of respects ‘Googling’ has become synonymous with searching on the Internet. It
has become an autonomous concept and an independent form of leisure activity,
similar to ‘zapping’ through television channels. Anybody who cannot be found via
Google does not exist because of the Internet proverb, “if you are not indexed by a
26 search engine you simply do not exist”.
As search engine traffic achieved greater significance in online marketing plans, Search Engines and their
Abuse
consultants were brought in who were well versed in how search engines perceive a
web site. These consultants used a variety of techniques (legitimate and otherwise)
to improve ranking for their clients. The disputes arose when people started using
dishonest methods to manipulate the result of a search engine so as to get the best
ranking on a search engine.
How far are search engines regulated? Is any regulation necessary or desirable?
Search engines hardly find a mention in legal circles. However, search results that
are tendered by a search engine upon a query could often be manipulated and
distorted. The ones who obtain the highest position on a search engine may be using
clever tactics to mislead search engines. Legal consideration of various issues
surrounding search engines is indeed necessary to counter the abuse and to make
search engines more transparent and dependable and trustworthy. It is important for
users and consumers who depend on the information supplied by the search engines
to understand and be aware of the working of search engines.
15.2 OBJECTIVES
z describe the term search engine;
z explain the working of a search engine;
z explain the different ways of the abuse of the process; and
z discuss the ways how abuses of search engine be controlled through law.
15.3 WHAT ARE SEARCH ENGINES?

A search engine is a program designed to help find information stored on a computer
system such as the World Wide Web, or a personal computer. The search engine
allows one to ask for content meeting specific criteria, typically those containing a
given word or phrase and retrieves a list of references that match those criteria.
World Wide Web search engines are special sites that are intended and designed to
help people find information stored on other sites. A search engine’s main function is
that of enabling access; it is a gateway to possibly relevant information on the Internet.
Let us analogise the Internet of today with a giant multidisciplinary library. The library
will be of little use to anyone without a good cataloguing and indexing system. This
system guides a visitor to the labyrinths of the library. When we consider Internet as
a giant library then search engines take up the role of catalogues and librarians
together. So, we are not alone when we look towards the Internet for a particular
news or material. There are search engines to help us in our task and they are much
faster in their operation than any other catalogue that we have known till now. In this
manner search engines are responsible for making information on the Internet easily
accessible. Search engines play an important role in information synthesis and
acquisition in today’s information society.
27
Management of IPRs in Please answer the following Self Assessment Question.
Cyberspace
Define the term search engine?
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
15.4 THE PROCESS: HOW A SEARCH ENGINE

WORKS
There are mainly two ways in which people obtain access to any content on the
Internet; first, they may either type in the URL of a web site on the location bar of
their browser. The browser then takes you to the desired web page containing the
content that you were looking for. The other way is to use a search engine. Search
engines have become an integral part of the process through which virtually all Internet
users seek to access information in cyberspace. Many times searching desired content
may be the only option available with the users.
It is interesting to know how a search engine works. When you type an expression
say “law schools in India” in the Google search engine, it gives you about 29,900,000
results and ranks them according to some criterion and it gives you this list in a flash
— it takes hardly a second. Is the search engine attempting to search the entire
WWW when you ask for a particular expression? Definitely no. Had it been so it
would not have taken so less a time to complete the search process. But then what
is the process? The process is essentially composed of three elements — web
crawling, indexing and searching.
15.4.1 Web Crawling

This automated process uses intelligent ‘sleuths’ called spiders, bots or crawlers.
These sleuths surf the Internet using criteria set previously by the search-engine
provider. Their task is to find various words and expressions that have been used on
the Internet and also noting on which web site they appear. Web search engines
work by storing information about a large number of web pages, which they retrieve
from the WWW itself.
15.4.2 Indexing
After web crawling is done, indexing determines what counts as relevant words or
combinations of words; and non-relevant information, such as fillers and punctuation
marks, is deleted. The contents of each page are then analysed to determine how it
should be indexed (for example, words are extracted from the titles, headings, or
special fields called meta tags). Data about web pages is stored in an index database
28 for use in later queries. This enriched information forms the ultimate basic material
for the search engine. Some search engines, such as Google, store all or part of the Search Engines and their
Abuse
source page (referred to as a cache) as well as information about the web pages,
whereas some store every word of every page it finds, such as AltaVista. By no
means all the information that is present on the Internet is found and indexed by
search engines. According to some estimates, individual search engines index only
about 15% of all the information present on the Internet and all the search engines
together cover no more than 40% of all the available information.
Name the different ways how a search engine works?
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
15.4.3 Searching
When a user comes to the search engine and makes a query, typically by giving key
words, the engine looks up the index and provides a listing of best-matching web
pages according to its criteria, usually with a short summary containing the document’s
title and sometimes parts of the text.
15.4.4 Ranking of Web Pages by Search Engine

The usefulness of a search engine depends on the relevance of the results it gives
back. While there may be millions of Web pages that include a particular word or
phrase, some pages may be more relevant, popular, or authoritative than others.
Most search engines employ methods to rank the results to provide the ‘best’ results
first. How a search engine decides which pages are the best matches, and what
order the results should be shown in, varies widely from one engine to another. The
methods also change over time as Internet usage changes and new techniques evolve.
Google is currently the most popular search engine. Its success was based in part on
the concept of link popularity and PageRank. How many other web sites and web
pages link to a given page is taken into consideration with PageRank, on the premise
that good or desirable pages are linked to more than others. The PageRank of linking
pages and the number of links on these pages contribute to the PageRank of the
linked page. Google and most other web engines utilize not only PageRank but more
than 150 criteria to determine relevancy.
15.5 ABUSE OF THE PROCESS: SPAMDEXING

‘Search engine optimisation’ is a set of methods aimed at improving the ranking of a
website in search engine listings. Search engine optimisation practices should
legitimately focus on building better sites, and using honest methods of promotion. 29
Management of IPRs in But eager to achieve the highest rankings sometimes the whole process of search
Cyberspace
engine optimisation is abused. Moreover, what constitutes an honest, or ethical,
method is an issue that has been the subject of numerous debates. This abuse of the
process is known as spamdexing. ‘Spamdexing’ is a combination of two words
‘spamming’ and ‘indexing’.
Spamdexing or search engine spamming is the practice of deliberately and dishonestly
manipulating search engines to increase the chance of a web site or a Web page
being placed close to the beginning of search engine results, or to influence the
category to which the page is assigned. Since high ranking is what is desired by most
web sites, many designers of web pages try to get a good ranking in search engines
and design their pages accordingly. Spamdexing refers exclusively to practices that
are dishonest and mislead search and indexing programs to give a page a ranking it
does not deserve. It has to be seen in contradistinction of search engine optimisation
which includes techniques for making a website indexable by search engines, without
misleading the indexation process. Following are some of the ways in which
spamdexing is practiced:
What is spamdexing?
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
15.5.1 Hidden or Invisible Text

One way of fooling a search engine is to match certain keywords by making them the
same colour as the background or by using a tiny font size or hiding them within the
HTML code such as “no frame” sections. This is useful to make a page appear to be
relevant for a web crawler in a way that makes it more likely to be found. Hiding text
out of view of the visitor could be done in many different ways. Text coloured to
blend with the background, positioning keywords to place text “behind” an image
&mash; and therefore out of view of the visitor are all common techniques. But as of
2005, some of these invisible text techniques can be detected by major search engines.
15.5.2 Keyword Stuffing

Keyword stuffing is considered to be an unethical Search engine optimisation
technique. Keyword stuffing occurs when a web page is loaded with keywords in
the content. This involves the insertion of hidden, random text on a webpage to raise
the keyword density or ratio of keywords to other words on the page. Keyword
stuffing used is to obtain maximum search engine ranking and visibility for particular
phrases. Inserted text sometimes includes words that are frequently searched such
30
as ‘sex’ even if those terms bear little connection to the content of a page, in order to Search Engines and their
Abuse
attract traffic to advert-driven pages.
Older versions of indexing programs simply counted how often a keyword appeared,
and used to determine relevance levels. A word that is repeated too often may raise
a red flag to search engines. Most modern search engines have the ability to analyse
a page for keyword stuffing and determine whether the frequency is above a ‘normal’
level.
15.5.3 Meta Tag Stuffing

A meta tag is a coding statement in the Hypertext Markup Language (HTML) that
describes some aspect of the contents of a Web page. The meta tag is placed near
the top of the HTML in a Web page as part of the heading. The information that you
provide in a meta tag could be used by search engines to index a page so that
someone searching for the kind of information the page contains will be able to find
it. There are several kinds of meta tags, but the most important for search engine
indexing are the keywords meta tag and the description meta tag. The keywords
meta tag lists the words or phrases that best describe the contents of the page. The
description meta tag includes a brief one- or two-sentence description of the page.
Meta tagging could also be used with a dishonest intention whereby a web site uses
a trademark of another business entity thereby wishing to divert web traffic to his
own site.
Meta tags such as these have been the focus of a field of marketing research in
search engine optimisation. In the mid to late 1990s, search engines were reliant on
meta tag data to correctly classify a web page. Webmasters quickly learned the
commercial significance of having the right meta tag, as it frequently led to a high
ranking in the search engines - and thus, high traffic to the web site. In the early
2000s, search engines have veered away from reliance on meta tags since many
web sites used inappropriate keywords in order to increase their search engine ranking.
Many search engines, however, still take meta tags into consideration when delivering
results. Currently, Google does not use meta tags to index web sites. Techniques
have also been developed by some search engines in order to penalize web sites
considered to be cheating the system. For example, a website repeating the same
keyword several times may have its ranking decreased by a search engine trying to
eliminate this practice.
15.5.4 Cloaking
Cloaking is another search engine optimisation technique in which the content
presented to the search engine crawler is different from that presented to the users’
browser. cloaking is often used as a spamdexing technique, to try to trick search
engines into giving the relevant site a higher ranking; it could also be used to trick
search engine users into visiting a site based on the search engine description which
turns out to have substantially different – or even illegal – content.
Primarily when a web page is designed it is designed keeping in mind the end user.
But now, in order to get the attention of a search engine, webmasters also keep in
mind the search engine while designing a web page. This results in pages with too
many keywords and other factors that might be search engine ‘friendly’, but make
the pages inconvenient for actual end users to consume. So, designers sometimes
design pages solely for the search engines backed by pages for actual end users. As 31
Management of IPRs in such, cloaking is an important technique to allow webmasters to split their efforts
Cyberspace
and separately target the search engine spiders and end users. This technique also
has a potential to be used illegally.
15.5.5 Page Hijacking

Page hijacking is a form of spamdexing. It is the act of copying a random but popular
webpage with the intent to feed the copied page to web crawlers. The intent is that
the copied page appears in search engine results, and when the users click on it, the
visitors are redirected to a different, often unrelated, website. Page hijacking is a
form of cloaking, and it is possible because web crawlers detect duplicates as they
index web pages, and if two pages have the same content, they keep only one of the
URLs and reject the other. So, there is a chance that the original Web Page is rejected
by a search engine while taking the duplicate.
15.5.6 Link Spam

Link spam takes advantage of link-based ranking algorithms, such as Google’s
PageRank algorithm, which gives a higher ranking to a website the more other highly-
ranked websites link to it. This has led to another spamdexing practice known as
link farm. On the World Wide Web, a link farm is any group of web pages that all
hyperlink to every other page in the group. Search engines such as Google recommend
that webmasters request relevant links to their sites that is conduct a link campaign,
but avoid participating in link farms. Search engines try to identify specific attributes
associated with link farm pages and filter those pages from indexing and search
results. In some cases, entire domains are removed from the search engine indexes
in order to prevent them from influencing search results.
a) Define cloaking?
................................................................................................................
................................................................................................................
................................................................................................................
b) Define page hijacking?
................................................................................................................
................................................................................................................
................................................................................................................
15.6 CONTROLLING ABUSE OF SEARCHING

PROCESS THROUGH LAW
Abuse of searching process or various forms of spamdexing have been countered
by the owners of trademarks by using the trademark doctrine of “initial interest
confusion”. While the benchmark of trademark infringement traditionally has been a
demonstration that consumers are likely to be confused by the use of a similar or
32
identical trademark to identify the goods or services of another, the doctrine called
initial interest confusion allows liability for trademark infringement solely on the basis Search Engines and their
Abuse
that a consumer might initially be interested, attracted, or distracted by a competitor’s,
or even a non-competitor’s, product or service.
In a hypothetical Internet situation a user searches for a trademark ‘Tata’ but by
using the above stated spamdexing tools, like stuffing the trademark Tata within the
contents of his site or by including it in its meta tags, a competitor achieves a search
engine listing even higher that the actual site of Tata. Now, the user who attracts web
traffic which was meant for Tata is not ultimately confusing the user as when the user
visits his site he comes to know that it is not that of Tata’s. But the user may settle to
buy competing products from that site only. Such a situation could be an actionable
claim under this theory of initial interest confusion. Initial interest confusion is being
used with increasing frequency, especially on the Internet, to shut down speech critical
of trademark holders and their products and services, to prevent comparative
advertisements and to otherwise limit information and choices available to consumers.
In Brookfield Communications v. West Coast Entertainment [174 F.3d 1036,
1062 (9th Cir. 1999).], West Coast Entertainment registered the domain name
www.moviebuff.com despite the fact that Brookfield had a registered trademark for
its entertainment industry software product ‘MovieBuff.’ The United States Court
of Appeals for the Ninth Circuit found that although users arriving at West Coast’s
moviebuff.com website would realise that the site was not associated with Brookfield’s
MovieBuff software, the initial interest confusion caused by West Coast’s use of the
mark caused some damage to Brookfield. The court noted that “the use of another’s
trademark in a manner calculated ‘to capture initial consumer attention, even though
no actual sale is finally completed as a result of the confusion, may be still an
infringement”. This holding shows that any action taken to divert the consumer’s
attention to one’s product by using the name and reputation of a competitor’s product
is improper for the fact that there is only initial consumer confusion does not alter the
fact that the infringer would be misappropriating the trademark-holder’s acquired
goodwill.
But it is not always that a party alleging initial interest confusion will be successful in
a court of law. In Playboy Enterprises, Inc. v. Terri Welles [279 F.3d 796, 801
(9th Cir. 2002)] the defendant was a former Playboy playmate who described herself
as such on her personal website. Playboy asserted that the use of the ‘Playboy’ and
‘Playmate’ marks may give visitors to Welles’ site the wrongful impression that the
site was sponsored by Playboy. The court thought otherwise and held that the use of
Playboy’s marks both on the website and in the website’s metatags was purely
nominative and therefore fair use.
15.7 KEYWORD-LINKED ADVERTISING AND

TRADEMARK INFRINGEMENT
Keywords advertisement is a practice adopted by search engines which allows one
to display one’s advertisements along with search results about a particular keyword.
Keyword-linked advertising is a way to provide relevant, client-specific
advertisements to Internet users. When visitors to a search engine enter their search
terms, advertisements are placed on the search results page depending on the search
terms entered. For example, a user is seeking to search for “sports shoes in India”.
A few shoe making companies have placed their bid for such keywords and their 33
Management of IPRs in advertisements are displayed along with the search results. This is quite a harmless
Cyberspace
exercise. But the difficulty arises only when someone is searching for a trademark
say “Bata” and a competing shoe making company has bid its own advertisements
to appear along with the search results.
A major source of income for many of the most popular search engines is the sale of
advertisements placed on the search results page. In April 2004 Google began to
allow advertisers to purchase the right to have their advertisements linked to
trademarked terms entered into the search field, even if the advertisers were not the
trademark holders. However, the search engines’ practice of selecting advertisements
to display based on the search terms entered by the user has recently come under
fire for being violative of trademarks owner rights. Trademark owners are unhappy
when competitors’ advertisements are linked to the owner’s trademarks. They allege
that search engines are allowing competitors to take unfair advantage of interest
associated with the marks.
But does it mean that all kinds of advertisement linked to keyword search are unlawful.
It may be unlawful in certain situations and perfectly in harmony with trademark law
in other. The primary issue in online advertising cases tends to be whether the
advertisement creates confusion as to its source. The likelihood of confusion plays
an important role in determining whether a competitor’s use of a mark is an infringing
use. Courts internationally have found that the initial confusion as to the source of a
product or service may still be enough to assess liability for trademark infringement.
The test in Brookfield case is whether the accused infringer used the plaintiff’s mark
“in a manner calculated to capture initial consumer attention” would be applicable in
such situations as well.
In the context of keyword-linked search results, infringing advertisements are the
ones that fail to identify the true source of the advertisement, either by falsely identifying
the advertisement as being from the trademark holder or by giving no indication as to
the source of the advertisement. If there is no uncertainty as to the source of the
advertisements, there is no likelihood of confusion.
Since the search engines are not themselves performing the infringing activity, the
basis for liability would be as a contributor to infringement. The search engine would
be liable if it intentionally induces another to infringe a trademark, or if it continues to
supply its product to one whom it knows or has reason to know is engaging in
trademark infringement. Many search engines themselves have come forward to
help the trademark owners in this regard. Google has been willing to perform a
limited investigation and respect ‘reasonable’ requests to remove trademark terms
from the bidding process. Search engine provider Yahoo limits its keyword-linked
advertisement sales even further, only permitting use by an advertiser whose website
refers to the trademark or its owner in a permissive nominative manner without creating
confusion, or if the keyword is generic or merely descriptive. Such practices that
take an active, although responsive, approach to preventing infringement could ensure
that legitimate competitive uses of the keyword-linked advertising are protected.
15.8 SUMMARY
z Search engines have come to acquire a unique and important position on the
34
overall Internet system.
z World Wide Web search engines are special sites that are intended and designed Search Engines and their
Abuse
to help people find information stored on other sites.
z A search engine’s functioning is essentially composed of three elements—web
crawling, indexing and searching.
z Spamdexing refers exclusively to practices that are dishonest and mislead search
and indexing programs to give a page a ranking it does not deserve.
z Keyword stuffing, meta tag stuffing, cloaking, page hijacking and link spam are
some of the means through which spamdexing is practised.
z Through the trademark doctrine of ‘initial interest confusion’ abuse of search
engine’s process can be countered.

1. Why getting good ranking on search engines is so important in today’s business
world?
2. How the process of search engines can be abused and what all remedies are
available to counter the same?
3. In which situations keyword linked advertising can lead to trademark
infringement?

1. A search engine is a program designed to help find information stored on a
computer system such as the world wide web or a personal computer.
2. Web crawling, Indexing, Searching.
3. Spamdexing or search engine spamdexing is the practice of differently and
dishonestly manipulating search engine to increase the chace of a web site of a
web page being placed close to the begnning of search engine results to influence
the category to which the page is assigned.
4. a) Cloaking is search engine optimisation technique in which the content
presented to the search engine is different from that presented to the user’s
browser.
b) Page hijacking is the act of copying a random but popular web page with
the intent to feed the copied page to web crawling.
Terminal Questions
2. Refer to sections 15.4 and 15.5 of the unit.
35
UNIT 16 NON ORIGINAL DATABASES
Structure
16.1 Introduction
16.2 Objectives
16.3 What are Databases?
16.4 Protection of Databases through Intellectual Property Laws
16.4.1 Copyright Protection of Databases
16.4.2 Protection of Databases with Technological Protection Measures
16.4.3 Sui Generis System for Protecting Databases
16.4.3.1 European Union Directive on Databases
16.4.3.2 The WIPO Draft Database Treaty
16.5 Other Legal Tools to Protect Databases
16.5.1 Database Protection under the Law of Contract
16.5.2 Database Protection under Tort Law
16.5.3 Database Protection under the Information Technology Act
16.6 Debate on Sui Generis Protection of Non Original Databases
16.7 Summary
16.1 INTRODUCTION
In the latter half of the 20th century, a new database industry came forth with the
development of computer science and communication technology. How to guarantee
and even accelerate the growth of this new industry has now become one of the
problems that demand prompt solution by policy-makers. In the database industry,
developers have to spend lots of human and material resources in collecting, sorting
out and arranging raw data before providing them to the public in an appropriate
way.
With the advent of the digital era and the consequent increase in the creation and
dissemination of electronic databases, calls have been made for a regime that would
protect even unoriginal databases, i.e. databases that lack the requisite originality/
creativity to qualify for copyright protection, but that nonetheless, involve a substantial
investment/effort. The database owners are constantly required to make substantial
investments to keep pace with the new developments. However it is argued that the
traditional intellectual property regimes have failed to protect the interests of the
database owners. Thus the database providers have lobbied with the lawmakers
across the world to provide sui generis right in the contents of their database so as
to safeguard the investments that they have to make in the collection, compilation
and management of the databases. While laying down an appropriate mode of
protection one must strike a balance among the interests of database developers,
their competitors and the public, by protecting the developers from competitors’
free ride on the one hand, and preventing the creation of any monopolisation on data
36 on the other.
In the digital world databases are difficult to make but very easy to copy and Non Original Databases
disseminate. Piracy or unauthorized use/copying are a potential disincentive to the
creation of new value-added databases. There is need for effective legal protection
of databases so that the database providers have confidence to willingly disseminate
data and thus make the information more readily accessible. Therefore, the main
concern of the database industry while soliciting enhanced protection has been an
effective remedy against the problem of infringement.
16.2 OBJECTIVES
z describe databases;
z explain the ways of protection of databases through intellectual property laws;
and
z discuss the issue on sui generis protection of non original databases.
16.3 WHAT ARE DATABASES?

A database is an organized collection of data. Databases are collections or
compilations of records that are organized for easy access and retrieval. The term
originated within the computer industry, but its meaning has been broadened by popular
use, to the extent that the European Database Directive (which creates intellectual
property rights for databases) includes non-electronic databases within its definition.
There is no uniform definition of what is meant by databases from the legal or economic
point of view. It is interesting to highlight that the definition in European Directive 96/
9/EC, article 1.2, is extremely broad, characterising a database as “a collection of
independent works, data or other materials arranged in a systematic or methodical
way and individually accessible by electronic or other means”. Article 2(i) of the
draft WIPO Database Treaty has defined a database in a similar fashion. Taking this
broad approach, databases even extend to telephone directories or educational
courses, including things as diverse as genetic or satellite information banks,
dictionaries, meteorological records, horse racing results, TV program guides,
collections of legal, commercial or financial information, newspapers, libraries,
company brochures, compilations of natural or experimental observations in the fields
of physics, chemistry, biology, indexes made by Internet search software agents may
also come under this definition, etc.
The databases are a vital element in the development of a global information
infrastructure and an essential tool in promoting economic, cultural and technological
advancement. The database industry has been one of the most important bases of
information industry, and a key element to measure the level of the modernisation of
one country. Today the database industry means various commercial and
noncommercial activities relating to the bibliographic, textual and statistical databases
as well as the information, education and entertainment materials in the electronic
form including audio, video and multimedia forms. The producers of databases usually
include government agencies, State-owned enterprises, private companies, and other
organizations such as research institutes, academies and universities. In the past years,
government agencies or entities financed by the government were the main database
producers in India. 37
Management of IPRs in In an information society, databases containing and cross-referencing all types of
Cyberspace
information and presenting such information in an easily accessible form and are of
immense value. The use of digital and information technologies have made it
economically feasible to collect, store, manage and deliver huge amounts of data at
a time when continuously expanding databases have become the building blocks of
knowledge. As a result of this the overall landscape of the database industry has
altered considerably. Although databases can be in a variety of formats, the growth
of databases in electronic formats, both as standalone products on media such as
CD-ROMs and as online products and services, has increased the need for their
legal protection.
What are databases?
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
16.4 PROTECTION OF DATABASES THROUGH

INTELLECTUAL PROPERTY LAWS
Databases are protected as literary works within the copyright system. But for getting
copyright protection a database has to pass the test of originality. And many of these
databases are “unoriginal” in the sense that they do not meet the originality criterion
under the principles of copyright recognised in the Berne Convention and the WIPO
Copyright Treaty. As a result such databases are not protected by copyright. So,
what should be the mode of protection of these non original databases? They can be
protected using various tools of law and there is a great demand from the database
industry for a sui generis system of protection which will grant them property rights
over non original databases akin to the one granted under the copyright system. Let
us discuss these modes of protection.
16.4.1 Copyright Protection of Databases

Under the national laws on copyright of most countries, databases that constitute an
intellectual creation by reason of the selection or arrangement of its contents are
protected.
The subject matter of copyright protection in India is provided in section 13 of the
Copyright Act, 1957 which says, “Subject to the provisions of this section and the
other provisions of this Act, copyright shall subsist throughout India in the following
classes of works, that is to say; a. original literary, dramatic, musical and artistic
works; b. cinematograph films; and c. sound recording.” Databases are protected
38 under the Act as they come within the definition of literary works by virtue of section
2(o) of the Act which says, “‘literary work’ includes computer programs, tables and Non Original Databases
compilations including computer databases”. The Indian copyright law thus
specifically recognises copyright protection for compilations and computer databases
as literary works. But the rider of originality is appended to a literary work to be
worthy of protection under section 13. That means only those databases which are
original can be protected under copyright in India. If a database comes within the
framework of the Act it will grant a bundle of exclusive rights on the owner of a
database, namely: the right of reproduction in any material from including the storage
on any medium by electronic means; right of publication; right of communication to
the public or public performance; right to make a film or sound recording; right to
make translations or adaptations. The first owner of copyright in a work is the author
of the work. The author in relation to a database would either be the creator of the
same and if the database is computer-generated then under section 2(d)(vi) of the
Act, the person who causes the work to be created. This would mean the person
who takes the initiative and responsibility for creating the database would be the
author.
The next issue is to the exact purport of originality for a work to be thus protected
under copyright. There are various approaches to it worldwide. One approach is the
“sweat of the brow” doctrine, prevalent more in commonwealth countries, which
makes compilations having just minimal originality worthy of copyright protection.
The argument given in support is that “no man is entitled to steal or appropriate for
himself the result of another’s brain, skill or labour even in such works”. This rationale
has been followed in several cases in India whereby it has been held that a compilation
of addresses developed by anyone by devoting time, money, labour and skill though
the source may be commonly situated amounts to a ‘literary work’ wherein the author
has a copyright.
The United States’ Supreme Court in Feist v Rural Telephone (1991), overruled
the ‘sweat of the brow’ doctrine for copyright protection of factual compilations.
The Court held that the criterion of originality is a Constitutional mandate and though
not stringent, has to be satisfied. Thus it was decided that there is no copyright in
Rural’s white pages holding that the end product is a garden-variety white pages
directory, devoid of even the slightest trace of creativity. The Court raising the threshold
of originality to more than a de minimis quantum of creativity held that though
Rural’s selection of listings is selection of a sort, but it lacks the modicum of creativity
necessary to transform mere selection into a copyrightable expression.
Courts in India have been generally liberal while adjudging what is original and what
is not. But in a case before the Delhi High Court [Eastern Book Company & Ors.
v Navin J. Desai & Anr.] involving law reports including copy-edited judgments,
the strict doctrine propounded in Feist was preferred. The plaintiffs had also pleaded
that the entire law report is a compilation or a database and entitled to copyright
protection because it involved selection, collation, arrangement and coordination of
various judgments which requires tremendous input of skill, labour, discretion,
judgment and expenditure. The court held that changes in law reports consisting of
changes of spelling, addition of quotations and corrections of typographical mistakes
are trivial and no copyright exists therein. Though the court did not give a specific
finding on the point of database protection, but the eventual refusal to recognise
copyright in law reports suggests that copyright may not be always successful in
protecting non-original databases. 39
Management of IPRs in Internationally, copyright protection of original databases is well established and
Cyberspace
harmonised through international treaties to that effect, such as the Berne Convention
for the Protection of Literary and Artistic Works, 1886 (Berne Convention), the
Agreement on Trade-Related Aspects of Intellectual Property Rights, 1994 (TRIPS
Agreement) and the WIPO Copyright Treaty, 1996 (WCT).
Article 2(5) of the Berne Convention provides as follows: “Collections of literary
and artistic works such as encyclopaedias and anthologies which, by reason of the
selection and arrangements of their contents, constitute intellectual creations shall be
protected as such, without prejudice to the copyright in each of the works forming
part of such collections.” So, the Berne Convention limits its scope to original
collections of literary and artistic works. Does this mean that there is no basis in the
Berne Convention for the protection of original collections of other material, such as
mere data? In recent years, a general consensus seems to have emerged that
collections of material other than literary and artistic works are indeed subject to
copyright protection under the Berne Convention, provided, of course, that they can
be considered “works,” that is, that they are original.
Article 10(2) of the TRIPS Agreement states, “Compilations of data or other material,
whether in machine readable or other form, which by reason of the selection or
arrangement of their contents constitute intellectual creations shall be protected as
such. Such protection, which shall not extend to the data or material itself, shall be
without prejudice to any copyright subsisting in the data or material itself.” The WCT
was concluded in December 1996, with the aim of updating international copyright
norms, and came into force in March 2002. The WCT contains in its Article 5 a
provision on copyright protection of databases, which, under the title “Compilations
of Data (Databases)” provides, “Compilations of data or other material, in any form,
which by reason of the selection or arrangement of their contents constitute intellectual
creations, are protected as such. This protection does not extend to the data or the
material itself and is without prejudice to any copyright subsisting in the data or
material contained in the compilation.” The Diplomatic Conference also adopted, by
consensus, the following agreed statement: “The scope of protection for compilations
of data (databases) under Article 5 of this Treaty, read with Article 2, is consistent
with Article 2 of the Berne Convention and on a par with the relevant provisions of
the TRIPS Agreement.” Article 2 of the WCT, to which the agreed statement refers,
states, under the heading “Scope of Copyright Protection”, as follows: “Copyright
protection extends to expressions and not to ideas, procedures, methods of operation
or mathematical concepts as such.”
This means that copyright protection might not be available for certain databases,
depending on the level of originality required under the copyright law of a particular
jurisdiction, even if substantial investments have been made to produce them.
Databases that contain comprehensive information without selection in a
straightforward manner, such as alphabetical or numerical order, may not be
protected under copyright in all countries.
16.4.2 Protection of Databases with Technological Protection

Measures
When a database is made available for access on the Internet, anyone in the world
becomes capable to download the same free of charge, use it without restrictions,
40 incorporate it into his own product and make the resulting product available in a
global network, hence competing with the product of the creator himself. In order to Non Original Databases
fight this loss of control over the database in the digital environment to a large extent
the solution is being sought in technology itself. Such technological systems of
protection include: anti-copy devices, access control, electronic envelopes,
proprietary viewer software, encryption, passwords, watermarking, electronic
lamination, user authentication, metering and monitoring of usage, encapsulating
copyrighted works in a tamper-resistant electronic envelope, etc. Several industry
and technology initiatives to set standards in various industries have emerged over
the years, although none have yet established uniform standards for technological
protection measures. The role of technology here would not only be for preventing
the work from being stolen and misappropriated, but also for detecting infringements
and misappropriations.
Along with the invention of technical measures for protecting copyright works in the
digital networked environment, counter-technologies are developed to defeat those
protection technologies making it possible to circumvent each and every technical
protection measure by using technical means. So, the solutions devised by
technologists are sought to be protected by law as otherwise those solutions would
be modified by counter technologies, with impunity rendering the best access control
mechanisms and security measures futile in want of legal sanctions. In this context
Article 11 of the WIPO Copyright Treaty, 1996 obligates the members to provide
“adequate legal protection and effective legal remedies against the circumvention of
effective technological measures that are used by authors in connection with the
exercise of their rights under that Treaty or under the Berne Convention and that
restrict acts, in respect of their works, which are not authorized by the authors
concerned or permitted by law”.
The Copyright Act, 1957 in its present form does not provide legal remedies against
the circumvention of technological measures, the impending amendment in the law is
expected to incorporate such a provision. The Drafting Committee set up by the
Core Group on Amendments to the Copyright Act, 1957 has in the draft amendments
incorporated a section for the Protection of Technological Measures. Therefore, if
and when the Copyright Act is amended to include the said provision, the protection
of databases through technological measures would also be enhanced. Though this
kind of protection will be available only to those databases which qualify for copyright
protection based on the principle of originality.
16.4.3 Sui Generis System for Protecting Databases

The database industry worldwide has consistently demanded for protection of
databases that do not conform to the norms of copyright through another sui generis
system of intellectual property protection. These demands have led to efforts and
debates worldwide towards creating such a system. Prominent among them are the
EU Directive on Databases and the WIPO draft treaty on Databases which are
being discussed below.
16.4.3.1 European Union Directive on Databases
The European Union (EU) directive 96/9/EC of the European Parliament and of the
Council of 1996 on the legal protection of databases is an intellectual property
directive requiring EU member states to protect databases both by copyright and by
a sui generis right that controls extraction and re-utilization of the contents of a
41
Management of IPRs in database. This directive introduces a sui generis right, explicitly protecting collections
Cyberspace
of facts regardless of any creativity. It also confirms that, if there is creativity involved
in the creation of a database, that database is protected by copyright.
The Directive protects “databases in any form”. This definition not only covers
electronic databases, but also paper databases such as telephone books, or microfilm
collections. To qualify for the sui generis database protection, the creator of the
database must show that there has been qualitatively and/or quantitatively a substantial
investment in either the obtaining, verification or presentation of the contents. This is
purely a “sweat of the brow” protection regime.
The owner of a protected database has the right to prevent extraction and/or re-
utilization of the whole or of a substantial part, evaluated qualitatively and/or
quantitatively, of the contents of that database. “Extraction” means the permanent or
temporary transfer of all or a substantial part of the contents of a database to another
medium by any means or in any form. The act includes downloading, copying, printing
or any other reproduction in any form, electronic or not, temporary or not. In other
words, also copying the database itself is “extraction” of the database. “Re-utilization”
means any form of making available to the public all or a substantial part of the
contents of a database by the distribution of copies, by renting, by on-line or other
forms of transmission. This basically covers putting up a search and retrieval interface
to the database, so that others can extract information from it. The accrual of a sui
generis right to the database maker does not require the showing of a creative
achievement or a novel contribution to the prior art; rather it accrues on merely
showing that there has been qualitatively and/or quantitatively a substantial investment
in the obtaining, verification or presentation of the contents. On this issue the Directive
has come in for a lot of criticism and commentators have gone to the extent of saying
that the fear of market failure and of chronic under protection that initially motivated
the quest for a sui generis regime to protect electronic databases has thus given way
to the creation of “mini-monopolies over information”. Though the term of the sui
generis right in a database has been fixed at fifteen years, any substantial change in
the database would qualify it for its own term of protection. In spite of all the criticisms,
the Directive with its reciprocity provisions has triggered off strong demands from
the database industry across the world for similar protective regimes.
16.4.3.2 The WIPO Draft Database Treaty
The Standing Committee of Copyright and Related Rights of the World Intellectual
Property Organization (WIPO) has been discussing the possibility of introducing
intellectual property protection of non-original databases through new international
norms. It has been examining whether databases that do not presently qualify for
copyright protection should also be protected. A draft treaty on Database protection
was introduced at the WIPO Diplomatic Conference in December 1996, but it was
not adopted because a number of delegations felt the need for further study of the
subject before taking any decision.
In which case was the ‘sweat of the brow’ doctrine overruled?
................................................................................................................
42
................................................................................................................ Non Original Databases
................................................................................................................
................................................................................................................
16.5 OTHER LEGAL TOOLS TO PROTECT

DATABASES
16.5.1 Database Protection under the Law of Contract
A contract is a “promise” or an “agreement” that is enforced or recognised by the
law. With the advent of online databases, it is possible to make the end-user agree to
the contractual obligations as deemed fit by the database provider. Thus, if the end-
user fails to conform to any of the obligations stipulated in the contract, it could
amount to breach of contract under the Indian Contract Act, 1872. Typically, the
remedy for breach of contract is an award of money damages. The most common
way of determining damages is to arrive at a sum which would restore the injured
party to the economic position that he expected from performance of the promise.
16.5.2 Database Protection under Tort Law

A tort is a civil wrong, other than a breach of contract, for which the law provides a
remedy. A tort is a breach of a non-contractual duty potentially owed to the entire
world, imposed by law. Misappropriation, as a kind of tort, is the intentional, illegal
use of the property or funds of another person for one’s own use or other unauthorized
purpose. This law of misappropriation is also proposed as an effective remedy for
database protection. The law of unfair competition which seeks to promote economic
and business competition by prohibiting anti-competitive behaviour and unfair business
practices is based on the tort doctrine of misappropriation. This can also be resorted
to in the event of database being abused.
16.5.3 Database Protection under the Information Technology

Act
Database protection has been conceived under the IT Act, 2000. Section 2(1)(o) of
the Act defines “data” as “a representation of information, knowledge, facts, concepts
or instructions which are being prepared or have been prepared in a formalised
manner, and is intended to be processed, is being processed or has been processed
in a computer system or computer network, and may be in any form (including
computer printouts magnetic or optical storage media, punched cards, punched tapes)
or stored internally in the memory of the computer”. Further Explanation (ii) to section
43 defines a database as “a representation of information, knowledge, facts, concepts
or instructions in text, image, audio, video that are being prepared or have been
prepared in a formalised manner or have been produced by a computer, computer
system or computer network and are intended for use in a computer, computer
system or computer network”.
It is clear that data and database have been given a wide definition by the IT Act.
Section 43 which talks about cyber contraventions runs like this, “43. Penalty for
damage to computer, computer system, etc.–If any person without the permission
of the owner or any other person who is in charge of a computer, computer system
43
or computer network,–
Management of IPRs in (b) downloads, copies or extracts any data, computer database or information from
Cyberspace
such computer, computer system or computer network including information or data
held or stored in any removable storage medium; he shall be liable to pay damages
by way of compensation not exceeding one crore rupees to the person so affected.”
Basically this provision of the IT Act incorporates the tort principle of wrongful damage
and loss. The protection thus granted to databases is a broad one and is not dependant
on whether the database was original or not within the sense of copyright. The focus
of this provision is to prevent any unauthorized copying or appropriation of computer
data.
Define ‘data’ under the IT Act, 2000?
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
................................................................................................................
16.6 DEBATE ON SUI GENERIS PROTECTION OF

NON ORIGINAL DATABASES
The debate on the intellectual property of non-original databases can be traced back
to the case of Feist v. Rural Telephone Service (1991), in which the Supreme
Court of the USA found that compilations of data that did not meet the conditions of
originality and/or creativity (that is, that were based merely on “industrious effort” or
“sweat of the brow”) did not merit protection under the relevant copyright legislation.
In Indian context, the Delhi High Court ruling in Eastern Book Company & Ors. v
Navin J. Desai & Anr. has raised the threshold of the requirement of originality from
that of skill, labour and judgment to a minimum level of creativity, which most
databases would not be able to satisfy. Thus, there is bound to be a strong argument
that since the law of copyrights has failed to protect the collections, there should be
an alternate stronger protection. In fact it has been acknowledged by the IT Taskforce
in its proposed National IT Policy that effective intellectual property protection system
is a pre-requisite for development of creative works in the electronic medium.
The main concern of the database industry while soliciting enhanced protection has
been an effective remedy against the problem of infringement. It is most vehemently
contended that infringement/piracy could become a potential disincentive to the
creation of new value-added databases. The advent of electronic databases has
amplified the problem of piracy with the databases being expensive to make but
cheap to copy. The calls by the database industry for additional protection have
sparked off a vociferous debate on the level of protection justified so that the access
44
to information is not unduly hampered.
The scientific and academic community has all along countered the demands of the Non Original Databases
database industry for additional protection. It is argued by them that the facts and
ideas are building blocks of intellectual discourse and should not be removed from
the public domain. These communities fear that the extent of protection sought by
the database industry would inevitably lead to mini-monopolies over information.
The scientific community argues that there is no justification for additional avenues of
protection for databases, as the existing legal remedies are sufficient for the effective
protection of database providers. The academic community therefore fears that IPRs
in databases create an obstacle, through price rises and/or private appropriation, to
the free circulation of ideas and information that has been the norm in the advancement
of science over the last two hundred years.
The first case on the IP of non-original database is .....................................
16.7 SUMMARY
z Databases are collections or compilations of records that are organized for
easy access and retrieval.
z The databases are a vital element in the development of a global information
infrastructure and an essential tool in promoting economic, cultural and
technological advancement.
z Under the national laws on copyright of most countries, databases that constitute
an intellectual creation by reason of the selection or arrangement of its contents
(original databases) are protected.
z The criterion for determining originality varies from country to country.
z The database industry worldwide has consistently demanded for protection of
databases that do not conform to the norms of copyright through another sui
generis system of intellectual property protection.
z Apart from IPRs databases can also be protected using the legal tools of
contract, tort and unfair competition.

1. How can you use the provisions of the Information Technology Act, 2000 for
protecting non original databases?
2. How databases can be protected under the copyright system?
3. Write an essay on the debate worldwide as to granting a sui generis intellectual
property right to non original databases.
45
Cyberspace 16.9 ANSWERS AND HINTS
1. A database is an organized collection of data. Databases are collections of
compilations of records that are organized for easy access and retrieval.
2. Feist v Rural Telephone (1991).
3. Section 2(1)(o) of the IT Act, 2000 defines ‘data’ as a representation of
information, knowledge, facts, concepts or instructions which are being prepared
of have been prepared in a formalised manner and is intended to be processed,
is being processed or has been processed in a computer system of computer
network, and may be in any form (including computer printout magnetic or
optical storage media, punched cards, punched tapes) or stores internally in the
memory of a computer.
4. Feist vs Rural Telephone services (1991).
Terminal Questions
46

MIR-013 Commerce and Cyberspace

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

MIR-013 Commerce and Cyberspace

Uploaded by

Copyright:

Available Formats

UNIT 1 E-COMMERCE: EVOLUTION,

MEANING AND TYPES

1.5 Types of E-commerce Models

1.6 E-commerce: The Future

1.4 DEFINING E-COMMERCE

1.4.1 Difference between E-commerce and E-business

1.4.2 E-commerce Definitions

1.5 TYPES OF E-COMMERCE MODELS

Consumer C2B C2C

These models represent ‘online’ commercial transactions and are comparable to

1.5.1 Business-to-Business (B2B)

1.5.2 Business-to-Consumer (B2C)

1.5.3 Consumer-to-Business (C2B)

1.5.4 Consumer-to-Consumer (C2C)

1.6 E-COMMERCE: THE FUTURE

1.8 TERMINAL QUESTIONS

1.9 ANSWERS AND HINTS

Investor 58. Aug.1996.

2. Electronic Messaging Services Task Force. The Commercial Use of Electronic

Data Interchange: “A Report and Model Trading Partner Agreement”. 45 Bus.

Law 1645. 1990.

3. US Small Business Administration. Office of Advocacy. E-commerce: Small

Business Venture Online. at 3 July. 1999.

4. US Department of Commerce. US Census Bureau. E-Stat. at (Mar. 18. 2002).

8. Sharma, Vakul. “E-commerce: A New Business Paradigm”. in Legal Dimensions

2.4 Online Payment Mechanism

2.5 Online Payments and the Information Technology Act, 2000

2.6 Future of E-money

2.3 ELECTRONIC FUND TRANSFER (EFT)

2.3.1 How Electronic Fund Transfer Works?

2.3.2 Different Mode of EFT Mechanism

2.3.3 The Electronic Clearing Services (ECS)

2.3.4 RBI EFT

2.3.6 Structured Financial Messaging System (SFMS)

2.3.7 Real Time Gross Settlement System (RTGS)

2.4 ONLINE PAYMENT MECHANISM

2.4.1 How Online Payment Mechanism Works?

Payment Gateway Bank

2.4.2 Electronic Cash

2.4.3 Electronic Wallets

2.4.4 Smart Card

2.4.5 Digital Cheques

2.4.6 Digital Signature

2.5 ONLINE PAYMENTS AND THE INFORMATION

2.5.1 Online Payments and Negotiable Instruments

2.5.2 Establishment of Public Key Infrastructure (PKI)

2.6 FUTURE OF E-MONEY

2.8 TERMINAL QUESTIONS

2.10 REFERENCES AND SUGGESTED READINGS

owned by its bank participants and used to transmit financial instructions in

Clearing House Association. It is used primarily for high-value, cross-border

4. According to Power Shopper Report - IOAI Ecommerce Report 2005. 62%

of online shoppers have used ‘credit cards’ for online purchase.

7. Rowley Jennifer. “E-business – Principles & Practice”. p.249. Palgrave. 2002.

9. Sharma Vakul. 2004 “E-commerce: A New Business Paradigm”. in Legal

3.5 Online Advertising: Boon or Bane?

3.3 ONLINE ADVERTISING

Traditional Media Online

Online advertising is specifically meant for online consumers. It is technology driven

3.4 FORMS OF ONLINE ADVERTISING

3.4.3 Cookies as an Advertising Tool

3.4.4 Google AdWords: Pay Per Click

3.4.5 Other Advertising Tools

3.5 ONLINE ADVERTISING: BOON OR BANE?