Top
Columns

Amazon v. Amway: Managing Conflicts and a Case for Balancing Safeguards (Part 3)

Eashan Ghosh & Afzal B. Khan
11 Aug 2020 2:28 AM GMT
Amazon v. Amway: Managing Conflicts and a Case for Balancing Safeguards (Part 3)
x
Your free access to Live Law has expired
To read the article, get a premium account.
    Your Subscription Supports Independent Journalism
Subscription starts from
599+GST
(For 6 Months)
Premium account gives you:
  • Unlimited access to Live Law Archives, Weekly/Monthly Digest, Exclusive Notifications, Comments.
  • Reading experience of Ad Free Version, Petition Copies, Judgement/Order Copies.
Already a subscriber?

In Part 1 of this essay, we offered a background to the January 2020 Delhi High Court ruling in the Amway cases and discussed the issue of consent of direct selling entities to subsequent third party sales of their products. In Part 2, we evaluated whether and under what conditions direct selling entities can oppose commercial dealing of their products by third party sellers under the Trade Marks Act.

In Part 3, we consider the third principal finding from Amway: on whether and to what degree e-commerce platforms can be held liable for violation of direct seller rights. We evaluate the loose ends of this finding, in the context of a promising blueprint for such cases recently advanced in Europe. We conclude with a case for balancing consumer protection safeguards with the requirements of the direct selling and e-commerce industries.

§8 The Intermediaries Question

The Amway Courts thus split down the middle both on the applicability of the Direct Selling Guidelines and the sustainability of the Plaintiffs' case for trade mark infringement. This left one question to resolve: what would be the fate of the e-commerce platforms as Defendants?

The functions and services offered by the Defendants to second sellers on their platforms meant that the answer lay within the walls of intermediary liability under Sections 2(1)(w) and 79 of the Information Technology Act, 2000.

Remarkably, here too, the opinion of the Amway Courts was divided.

The Single Judge returned factual findings on a host of the Defendants' activities. These included the use of the Plaintiffs' trade marks in their advertising, promotion, sale offers, and meta-tags, aside from offering warehousing, transport and other logistical facilities to execute second sales.[1] To be exempt from liability, ruled the Single Judge, two factors were key: one, that the e-commerce platform must merely be providing access to a communication system,[2] and two, the platform must demonstrate a lack of knowledge of the infringing activity.[3] In sum, the Single Judge urged that a passive intermediary may claim Section 79 protection but an active intermediary would not.[4]

The Single Judge ruled against the Defendants on both points. The intermediary inquiry was reduced to an arresting bottom line: there was no way for the end-consumer or the first seller to ensure that the products being sold on the e-commerce platform were genuine,[5] or that they were being sold under conditions that would preserve their value and reputation.[6]

The Division Bench, on appeal, approached the issue from the opposite end. It set forward the view that, as a general matter, Section 79 is a safe harbour for e-commerce platforms.[7] To hold otherwise would, in its view, fasten the platform with "liability for non-compliance and/or violation of law by a seller."[8]

In doing so, it rejected out of hand the distinction between passive and active intermediaries as it was not recognized by statute. [9] To be clear, this is a stance with some merit. It does not, however, engage with the substance of the finding of the Single Judge that the conduct of the e-commerce platforms here had overshot Section 79 protection. Indeed, this conclusion by the Single Judge finds some support in a prominent European Court of Justice (ECJ) decision in L'Oréal v. eBay International.[10] Here, the ECJ had ruled, consistent with a robust European approach discussed at §9 infra, that safety from intermediary liability for e-commerce platforms is influenced by whether the operator plays an active role allowing it to have knowledge or control of the data stored.

Instead, the Division Bench opted, yet again, to take the sting out of the lower court ruling by holding that the question of whether the e-commerce platforms qualified as intermediaries is factual and requires trial.[11]

In sharp contrast to the hesitation of the Division Bench on intermediary liability, the approach of Indian consumer courts has been decisive. Indeed, some recent decisions reveal an aggressive willingness to fasten liability upon a variety of e-commerce service providers, including portals for travel bookings and trade in movable products.[12]

This suggests a remarkable divergence between the approaches of trade mark courts and consumer courts on issues that could, as we have seen at §6 supra, easily arise from the same transaction. It is therefore a divergence that Indian courts must act quickly to resolve.

§9 A European Blueprint?

An instructive way of doing so may well have been recently uncovered by the ECJ.

Coty Germany v. Amazon Services Europe,[13] decided on 02 April 2020, asks a pointed question. If an e-commerce platform, on behalf of a third party, stores and stocks products in order for the third party to put them on the market, and those products infringe trade mark rights without its knowledge, would the platform be liable for infringement?

This is a query so specific that it answers to nearly all the constraints of the Amway facts. As such, the Coty ruling invites interest from an Indian standpoint.

The decision rests on two key findings.

First, it makes a decisive and conceptually sound distinction between affirmative acts of infringing use by an e-commerce platform and the offering of services by such a platform which enable or create the technical conditions necessary for such use by another party.[14] We may recall here that the Amway Single Judge verdict identified and isolated potentially infringing acts by e-commerce platforms but struggled to shoehorn these acts into conceptual categories of intermediary liability. Conversely, the Amway Division Bench ruling gave a wide berth to the process of isolating potentially infringing acts but was perhaps too eager to offer e-commerce platforms the benefit of safe harbour.

The Coty decision, unburdened by the constraints of Section 79, instantly fills a gap between the two Amway rulings. It offers a conceptual sieve through which to pass Amway-like facts, without being slanted to either a pro-liability or anti-liability position on e-commerce platforms as intermediaries.

Second, the Coty decision offers a more general, ingredient-based test for intermediary liability with particular promise from a consumer protection standpoint. It holds that, if the third party alone intends to put the infringing products on the market, then any contributory acts such as stocking and storage made by the platform without awareness of infringement will not invite liability. Refashioned in consumer protection terms, two key ingredients thus emerge from Coty: pursuing the aim of putting the product on the market (as distinct from merely performing contributory acts) and awareness of the infringement, wrongfulness or deficiency of the product itself.[15]

These are touchstones so ripe for assimilation into Indian consumer protection law that they could hardly have been better designed for the purpose. They are specific enough to separate the seller from the service provider while also being flexible enough for adaptation to address consumer complaints.

It is in these fruitful directions that the role and liability of e-commerce platforms, especially in direct selling cases, should be explored.

§10 Conclusion

The Amway Division Bench decision may not offer clear-cut answers, but it does offer direction.

For instance, though the application of the Direct Selling Guidelines was scuppered on facts in Amway, its application in future cases is surely a fait accompli. Similarly, it would be naïve to suggest that the Amway outcome will succeed in keeping the architectures of trade mark infringement and intermediary liability from abutting into future litigation. It is critical, therefore, to attempt a balance between competing interests in the direct selling and e-commerce industries.

From the standpoint of direct selling entities and their networks, the Direct Selling Guidelines show a clear path forward. As we highlighted in Part 1, they recognize that the relationship between direct selling entities and the rest of the marketplace has to be quid pro quo. The synergy built into the Guidelines is that the direct selling entities' interest in ensuring that authentic products and services reach consumers with no loss of quality is naturally aligned with consumers' interest in achieving the same outcome.

The apprehensions have to do with the insertion of third party sellers who are unauthorized at best and counterfeiters at worst.[16] However, here again, the impetus lies very much with direct selling entities themselves, to proactively stamp out objectionable sellers. The prospects of consumers in an unregulated market of this nature, as we saw in Part 1, are considerably more secure owing to the incorporation of the product liability clauses under the 2019 Consumer Protection Act.

The perspective of e-commerce platforms to this balancing act will understandably skew towards narrowing the scope of their liability as service providers.

It is here, of course, that the Coty learnings assume greatest relevance. It is worth endorsing the adoption of a gateway 'pursuit of aims' test to save e-commerce platforms that merely intend to facilitate, to run alongside a heftier standard of awareness of infringement or product deficiency. These are, as we have already noted, primed for absorption into Indian law.

However, there is another aspect of the role of e-commerce platforms viz., that of the relationship with consumers. It is evident that the customers of e-commerce platforms, in the form of product sellers as well as buyers, lie at both ends of the online marketplace. While product liability safeguards now secure consumers against sellers of all descriptions, the scope for error or deception between e-commerce platforms and consumers (as buyers) remains considerably more open. There are, of course, ongoing efforts to bridge this gap, but it remains a gap to be wary of. This is especially so since the avenues for consumers to raise consumer complaints against e-commerce platforms remain remarkably (and justifiably) open.

The role of third party sellers – or second sellers, as the case may be – is perhaps the simplest to resolve. Unfortunately, this owes much to their de-prioritization in the face of more formalized competing interests by manufacturers and brand owners.

Nevertheless, there is no gainsaying that their presence is of essence to a free marketplace. This is not just in principled terms but also, as we observed in Part 2, because of the range of genuine benefits they can offer consumers, whether in substitution of formal sales networks or as a complement to them.

On the other hand, the conceptual room afforded to them, perhaps out of necessity, remains constricted. Even so, as Part 2 showed, Section 30(3)(b) read with the Wadhwa conditions under Section 30(4) are certainly secure enough for such third party sellers to run a fair and honest trade. That they have additionally been burdened with heavier obligations under the Consumer Protection Act, 2019 is undoubtedly harsh, but its objective of securing better consumer protection is one that such sellers can hardly take issue with.

This leaves us, finally, to consider how these disparate legal sub-systems can be moulded into co-operation.

One possibility, as we mooted above, is simply to use a provision or case ruling from one regime to fill a gap in another. Another possibility, often offered up in Indian law, could be to treat these sub-systems in silos and resolve conflicts only when no harmonious reading is possible.

However, these possibilities do a disservice to the simple diagnosis we flagged at the start: that the point of inflection and agreement of all these sub-systems is their willingness, in the first instance, to protect the interests of consumers. So long as this objective is realized and given effect, even a wide variance in approach between individual cases may well be permissible. The Amway rulings have certainly offered a live demonstration of this approach in action.

That this approach must, by sheer weight of circumstance, be cross-disciplinary is now certain. We hope that the need for the approach to balance between the competing interests of the actors in the marketplace has, through this essay, become equally clear.

***

Eashan Ghosh is a practitioner and consultant specializing in Indian intellectual property law. He is the author of Imperfect Recollections: The Indian Supreme Court on Trade Mark Law, and writes about Indian intellectual property law at: https://medium.com/@eashanghosh.

Afzal B. Khan is an advocate practicing in intellectual property law and commercial disputes before the Delhi High Court.



[1] The Court (at ¶279, 289-290) was unconvinced that these activities were, as the Defendants contended, merely value added services, or that they were unaware of instances of product tampering.

[2] Under Section 79(2)(b) of the Information Technology Act, an intermediary cannot be involved in initiating the transmission, selecting the receiver of the transmission or modifying the information transmitted. These conditions were faithfully recanted by the Amway Single Judge here, at ¶294.

[3] See Note 1, at ¶265 and 303, distinguishing Milo & Gabby v. Amazon Case No. 2016-1290 (Fed Cir, 2017), on the liability of e-commerce entities as sellers of the goods.

[4] Much of the ground work for this finding had been laid by the same judge in 2018 in Christian Louboutin v. Nakul Bajaj 2018 (76) PTC 508 (Del).

[5] See Note 1, at ¶266, distinguishing Matrix Essential v. Emporium Drug Mart 756 F. Supp. 280 (W.D. La, 1991) and Matrix Essentials v. Emporium Drug Mart 988 F2d 587 (5th Cir, 1993).

[6] See Note 1, at ¶274, relying on Copad v. Christian Dior [2009] ECR I-3421, at ¶24-26. See also Parfums Christian Dior v. Evora [1997] ECR I‑6013, at ¶42.

[7] There are, of course, reservations with setting this out as a general position. Not least of them is that the requirement that the intermediary must not play an active role allowing it to have knowledge or control of the data/information at issue is well-recognized today. See Article 14 of the European Directive 2000/31/EC on Electronic Commerce, and L'Oréal v. eBay International [2009] RPC 21.

See also Shreya Singhal v. Union of India (2015) 5 SCC 1 and Google India v. Visakha Industries AIR 2020 SC 350.

[8] This begat a technical distinction: that the Plaintiffs had failed to show that their rights had been violated by the e-commerce platforms, rather than by the sellers. In light of this failure, said the Division Bench (at ¶142, 144), there was no occasion to consider the "affirmative defence" of the e-commerce platforms under Section 79.

This distinction was also informed by another position taken by the Division Bench elsewhere (at ¶107). It had held that, once the title in the products passed from the Plaintiffs to their direct sellers under the contractual terms between them, no further condition could be imposed, per Section 19 of the Sale of Goods Act, 1930. This, in effect, rendered Clause 7(6) of the Direct Selling Guidelines unenforceable against the direct sellers. Further, even if these contractual terms were to be taken strictly, there could be no action against the e-commerce platforms themselves owing to a lack of privity of contract.

See also Case C‑230/16 Coty Germany v. Parfümerie Akzente ECLI:EU:C:2017:941, at ¶15, 25, setting out the European equivalent of this legal position.

[9] However, this conclusion was bunched together with the difficulty that the Division Bench simply took the e-commerce platforms at their word that their value-added activities did not trigger Section 79 obligations.

[10] [2011] ECR I-6011.

[11] There is some confusion over what this means in administrative terms. It is possible to read this in one of two ways: either that the question of whether e-commerce platforms are intermediaries is a factual one or that the finding of the Single Judge that e-commerce platforms are not, in fact, intermediaries necessitates a trial.

Leaving aside the prudence of deferring the question to trial, it is imperative that the intermediary discussion should be as broad-based as possible.

It should, at a minimum, assess whether the e-commerce platform had knowledge of third party trade mark infringement or product tampering, was encouraging or facilitating such acts, or stood to profit from such acts in any way. It should also ideally consider second-degree effects such as whether the platform had a role in modifying, optimising or selecting the presentation of products – through internet search words, advertisements, offers for sale, and the like – that would create a false impression among consumers of economic linkage between the trade mark proprietor and a third-party seller. Finally, it should also consider the degree to which these acts are attributable to sellers and consumers, who are both customers of the platform rather than the platform itself.

[12] See, illustratively, Hello Travel v. HC Jain Rev Pet No. 45/2020 (NCDRC, 27 February 2020), per Singh J, and Rediff.com India v. Urmil Munjal (2013) II CPJ 522 (NC), confirmed in Rediff.com India v. Urmil Munjal SLP (Civ) Nos. 26744-26745/2013 (Supreme Court of India, 28 April 2014), per Prasad and Ghose JJ. However, see also Narain v. LG Electronics India Case No. 270/2010 (SCDRC Delhi, 21 May 2015), per Yadav J, which found that an e-commerce platform was not a necessary party to a consumer complaint rooted on defective product quality.

[13] Case C‑567/18, ECLI:EU:C:2020:267.

[14] See Coty, at ¶37, relying on L'Oréal, supra note 67, at ¶103, and Google France v. Louis Vuitton [2010] ECR I-2417.

[15] This Court (at ¶49, 53) does leave open the applicability of other regulations to assess the role of an economic operator, where it has enabled another operator to make use of the trade mark.

[16] The gains made by the Indian counterfeiting market in recent years are nothing to be sneezed at. A 2012 estimate placed losses to Indian industry due to counterfeiting activities at approximately US$ 13.3 billion and losses to the exchequer to the tune of US$ 4.7 billion, across seven key product segments.

Federation of Indian Chambers of Commerce & Industry, "Intellectual Property Toolkit for Police Officials", <http://ficci.in/events/22449/ISP/IP-Tool-Kit-for-Police-Officials.pdf>, ¶1.2, at p. 8.

Next Story