Digital intermediary rules confuse more than clarify

Photo: Bloomberg
Photo: Bloomberg


India’s new rules for big online services apply so broadly that they could result in net value reduction

When the Indian government notified its Information Technology (Guidelines for Intermediaries and Digital Media Ethics Code) Rules, 2021—its intermediary guidelines, for short—last February, it gave significant social media companies three months to comply with its additional due-diligence requirements under the new rules. That grace period just ran out, and from today these companies are going to be held to far higher standards than ever before.

As soon as the intermediary guidelines were notified, I pored over its provisions to try and figure out how exactly these new regulations would affect the wide range of businesses they applied to. The deeper I dug, the more obvious it became that rather than clarity being provided, things were about to become significantly more confused.

To start with, let’s take a closer look at the threshold above which a social media intermediary will be deemed to be ‘significant’. Shortly after the intermediary guidelines were notified, the government announced that social media intermediaries with more than 5 million registered users in India were to be classified as significant social media intermediaries. While this might appear to be a clear standard, there are several practical challenges that arise while trying to apply that standard.

For instance, many social media intermediaries have informed me that even though they have more than 5 million registered users in India, the number of active users on their site is far lower. Platforms that offer effortless online publishing facilities have thousands of registered users who, having set up their website, are no longer actively tending to them. Platforms that offer once-in-a-lifetime services (online matrimonial sites, for example), actually consider it a measure of how good they are at what they do if they have more inactive users registered than active. Yet, all these entities will now have to comply with the onerous obligations of being significant social media intermediaries simply because the size of their registered user base in India is greater than 5 million.

And then there is also ambiguity around what constitutes a messaging service. Under Rule 4(2), significant social media intermediaries that provide services “primarily in the nature of messaging" are required to comply with various stringent obligations. In a previous article, I discussed why I believe that the traceability obligations that these provisions impose are antithetical to our constitutional notions of liberty. But even if we set that aside for a moment, by making the rule applicable to entities whose services are primarily in the nature of messaging, the new rules could well apply to businesses that allow messaging as just an ancillary offering. Every online service has a messaging feature. As a result, even if it is not the primary focus of the service, direct messages on a popular online service could constitute a significant channel for communication. This lack of clarity as to whether in-app messaging would also be subject to the obligations of Rule 4(2) is a cause for concern.

There is also a new, rather inexplicable, obligation to offer users the ability to voluntarily verify themselves. Why voluntary verification? If the government’s real objective was to be able to trace online activity back to a real-world identity, it should have insisted on the mandatory verification of all users. Given its insistence that these platforms ensure everyone who wants to be verified actually does get verified, I can’t help but wonder whether this is just a case of some official being sore about not getting a blue tick.

The reason all this is so important is that any business which qualifies as a significant social media intermediary is obliged, under the new intermediary guidelines, to significantly localize its operations. Not only are they required to have a physical address in India, they are also required to appoint a chief compliance officer, nodal contact persons for coordination with law enforcement, and a grievance officer, all of whom must be physically resident in India. Many of the companies that qualify under the thresholds set out under the guidelines—such as those that provide repository services for code (like Github) or offer niche collaborative services within organizations (like Slack)—simply do not need to be in India to provide their services. As large as their registered user base in India is, their operations are designed to be neutral on where users reside, since the core service they offer is truly virtual. Now that India’s new intermediary guidelines are in force, all these entities will have to either reduce the number of registered users in India to under 5 million or actually set up operations here.

I can understand the government’s interest in regulating social media companies more strictly. We are all witness to the power and influence some of these platforms wield—the manner in which their algorithms shape the news we consume and also the products we purchase. And yet, as much as these platforms deserve to be regulated, we need to do so with finesse. If we really want to design regulations so that they influence societal interactions, we need to fashion them like a scalpel—finely honed, so that they can excise the patterns of behaviour we are trying to change with due precision. In contrast, the intermediary guidelines, I am sorry to say, are a blunt instrument that—if enforced—will end up destroying more value than it creates.

Rahul Matthan is a partner at Trilegal and also has a podcast by the name Ex Machina. His Twitter handle is @matthan

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