Can platforms be sued for hosting third-party listings with false claims?

In the rapidly growing world of e-commerce, platforms like Amazon, Flipkart, and Snapdeal host listings from third-party sellers. These sellers may sometimes make false claims or mislead consumers about their products whether it's about product quality, authenticity, benefits, or pricing. A key question is: Can the platform be sued for hosting these misleading listings and false claims?

Under Indian law, online platforms are often seen as intermediaries and may not be automatically responsible for third-party content. However, they do have a responsibility to ensure the accuracy and authenticity of the listings they host. Platforms must follow due diligence procedures, and failure to do so could expose them to legal consequences.

Legal Framework for E-Commerce Platforms and Liability

The Information Technology Act, 2000 (IT Act)

• Section 79 of the IT Act provides safe harbor protection to online platforms, meaning they are generally not liable for third-party content unless they are actively involved in the creation or promotion of that content.
• However, safe harbor protection is conditional. Platforms are required to follow due diligence and take action when notified of illegal or misleading content.
• If the platform receives a notice of a false or misleading listing (e.g., from the product's trademark holder, consumer, or regulatory body), it must act promptly to remove or correct the listing. Failure to do so can lead to the loss of safe harbor protection.

The Consumer Protection Act, 2019

• The Consumer Protection Act, 2019 provides a strong legal framework to protect consumers from unfair trade practices and misleading advertising. This includes false claims made by sellers on e-commerce platforms.
• Section 2(47) of the Consumer Protection Act defines misleading advertisements as those that deceive consumers regarding the quality, price, or benefits of a product.
• E-commerce platforms have a responsibility to prevent false claims or take corrective action when they are made aware of such claims. If they fail to do so, they may be subject to penalties, including fines or even consumer lawsuits.

The Consumer Protection (E-Commerce) Rules, 2020

• The E-Commerce Rules, 2020, which came into effect under the Consumer Protection Act, impose specific obligations on platforms hosting third-party sellers. They must:
• Ensure the accuracy of the information provided by sellers.
• Ensure transparent and truthful advertising by sellers and manufacturers.
• Remove misleading product listings when they are made aware of false claims.
• If a platform knowingly hosts a misleading product listing and does not act, it may be found in violation of the E-Commerce Rules.

Liability of Platforms for False Claims

• Active vs. Passive Role: Platforms can be held liable if they play an active role in promoting or advertising false claims. For example, if the platform itself highlights a misleading product or promotes a seller's false claims in a way that affects consumers’ decisions.
• Due Diligence Requirement: If a platform is passive in its role as an intermediary (i.e., not involved in the creation or promotion of content), it can claim safe harbor protection. However, if the platform is made aware of false claims and fails to act, it could be held liable for negligence or complicity.

Can Platforms Be Sued for Hosting False Listings?

• If the Platform Is Made Aware of False Claims: Under Section 79 of the IT Act, platforms must follow due diligence. If they are notified of false claims by a consumer, regulatory body, or another stakeholder (e.g., a trademark holder or product manufacturer), they must take prompt action to remove or correct the listing. Failure to do so can expose the platform to legal liability.
• If the Platform Has Knowledge of Misleading Content: If the platform has knowledge of a false claim and does not take action, it could be sued under the Consumer Protection Act for failing to protect consumer rights. Consumers can file complaints against the platform for misleading advertising or fraudulent practices.
• Vicarious Liability for Sellers: In some cases, the platform may be vicariously liable for a third-party seller’s actions. If the platform facilitates the sale of counterfeit or fraudulent products and does not act, it can be seen as aiding and abetting the seller's unfair trade practices. This would make the platform jointly liable along with the seller.
• Intellectual Property Infringement: If the false claims involve intellectual property infringement (e.g., selling counterfeit goods or products with misleading trademarks), the intellectual property owner can sue both the seller and the platform hosting the listing. This is governed by IP laws such as the Copyright Act and Trade Marks Act.

Example Case

• Scenario: An e-commerce platform hosts a listing for a luxury watch sold by a third-party seller. The listing claims that the watch is authentic and made with high-quality materials, but in reality, it is a counterfeit product made with substandard materials. A consumer buys the watch, believing the false claims, and later discovers that the product is fake.
• Action Taken:
• The consumer files a complaint with the platform and reports the seller for providing false claims.
• The platform fails to take action, and the consumer files a complaint under the Consumer Protection Act for misleading advertising and fraudulent practices against both the seller and the platform.
• Outcome:
• The e-commerce platform may be found vicariously liable for not removing the false listing after receiving notice.
• The platform could be ordered to compensate the consumer and pay fines for violating consumer protection laws.
• The seller could face penalties for selling counterfeit goods, and the platform may be asked to take corrective action and implement better monitoring mechanisms to prevent similar issues in the future.

Conclusion

• Yes, online platforms can be sued for hosting third-party listings that make false claims. While platforms may have some safe harbor protection under the IT Act, they still have a legal responsibility to ensure the accuracy of third-party listings. If the platform is made aware of false claims and fails to act, it could be held liable for misleading advertising, fraudulent practices, or consumer harm.
• Platforms must implement due diligence measures to avoid legal liability and ensure consumer trust in their marketplace.