Liability Of E-Commerce Websites In IP Infringement: Redefined By Latest Delhi HC Judgments

Abhiraj Jayant

24 Sep 2019 4:48 AM GMT

  • Liability Of E-Commerce Websites In IP Infringement: Redefined By Latest Delhi HC Judgments

    The boom in E-commerce has made things easier for customers, who have the luxury of buying things, sitting at their home or office, at their beck and call. But it has also opened the floodgates, a plethora of problems for businesses and E-commerce websites. Businesses (including individuals, companies, LLP, partnerships) who are bonafide proprietors of their respective trademarks, now...

    The boom in E-commerce has made things easier for customers, who have the luxury of buying things, sitting at their home or office, at their beck and call. But it has also opened the floodgates, a plethora of problems for businesses and E-commerce websites. Businesses (including individuals, companies, LLP, partnerships) who are bonafide proprietors of their respective trademarks, now have to face the problem, of products being sold on online portals, having deceptively similar trademarks and/or trade dress. What made this even more difficult, was the number of E-commerce websites, mushrooming in India. Even the major stakeholders of the E-commerce, including Flipkart, Amazon, Snapdeal etc have hundreds of thousands of products listed on them and weeding out the counterfeit ones, was a mammoth task for both, the websites and the bonafide proprietors. The E-commerce websites, who sell a very small fraction of their products directly, rely on their sellers, who then send the goods to the customers, using the packaging of the E-commerce website. The business models, may not be the same of each website, but the core problem , remains the same. The E-commerce websites, rely on smaller businesses and traders to supply them goods. This E-commerce websites, who are in a constant race with each other, to always out do each other, have a larger market space, have more variety of products catering to different price ranges, have a better quality of products. Until now, the websites, in pursuit of their goals, were not interested in countering counterfeit and deceptively similar, products. Their legal liability was also thrown under the carpet, by the judgment of Shreya Singhal V Union of India AIR 2015 SC 1523 . The Supreme court, declared Section 66A to be unconstitutional and also read down the provisions of Section 79(3)(b).

    Section 79 says that:

    "79. Exemption from liability of intermediary in certain cases.-(1) Notwithstanding anything contained in any law for the time being in force but subject to the provisions of sub-sections (2) and (3), an intermediary shall not be liable for any third party information, data, or communication link made available or hosted by him.

    (2) The provisions of sub-section (1) shall apply if-

    (a) the function of the intermediary is limited to providing access to a communication system over which information made available by third parties is transmitted or temporarily stored or hosted; or

    (b) the intermediary does not-

    (i) initiate the transmission,

    (ii) select the receiver of the transmission, and

    (iii) select or modify the information contained in the transmission;

    (c) the intermediary observes due diligence while discharging his duties under this Act and also observes such other guidelines as the Central Government may prescribe in this behalf.

    (3) The provisions of sub-section (1) shall not apply if-

    (a) the intermediary has conspired or abetted or aided or induced, whether by threats or promise or otherwise in the commission of the unlawful act;

    (b) upon receiving actual knowledge, or on being notified by the appropriate Government or its agency that any information, data or communication link residing in or connected to a computer resource controlled by the intermediary is being used to commit the unlawful act, the intermediary fails to expeditiously remove or disable access to that material on that resource without vitiating the evidence in any manner. Explanation.-For the purposes of this section, the expression "third party information" means any information dealt with by an intermediary in his capacity as an intermediary.]"

    The headnote of Section 79 IT Act 2000, says 'Exemption from liability of intermediary in certain cases'. The focus is to be laid on clause (3) of the section, when the intermediaries will be liable, and sub clause (b) states that the intermediaries shall be liable, if the intermediaries receive information, as to any information being controlled /hosted by it, is being used to commit some unlawful activity, and fail to remove or disable it. In Intellectual property and E-commerce parlance, the E-commerce websites had the liability of removing such deceptively similar/ counterfeit products from their website, whenever they received any information about such Intellectual Property Infringement.

    The Supreme court read down the provisions of Section 79(3)(b) in para 119 of the judgment, in the following words :

    " Section 79 is valid subject to Section 79(3)(b) being read down to mean that an intermediary upon receiving actual knowledge from a court order or on being notified by the appropriate government or its agency that unlawful acts relatable to Article 19(2) are going to be committed then fails to expeditiously remove or disable access to such material."

    The result of this interpretation of Section 79(3)(b)meant that, E-commerce websites would now, not remove such infringing products being sold on their website, even if they received any information as to its infringement from the bonafide proprietor . The only instance , in which they could be bound to remove such Infringing material, would be, when a court has ordered the same and upon receiving any information of infringement /passing off/counterfeit products, would urge the proprietors to produce a court order . This interpretation, not only became a shield for E-commerce websites , to keep their website stocked with thousands of products, and shield the infringers, but it also meant that, now the bonafide proprietors would have to institute a suit, and get an injunction from the court , to stop its sale. This meant increased costs for bonafide proprietors , a more tedious and long process, to protect their trademarks and other intellectual property. People already working in the industry, are well aware as to, how the E-commerce websites won't budge, even after being served legal notices and threats of litigation.

    But recently, in the case of Christian Louboutin SAS V NAKUL BAJAJ and Ors CS (COMM) 344/2018,the Delhi High court, where the suit was instituted against the website, for selling, offering for sale, advertising counterfeit products bearing the plaintiff's trademark, imparted some clarity to remove the aforesaid predicament. For the sake of brevity, following are some takeaways from the judgment:

    1. The judgment in Shreya Singhal V Union of India AIR 2015 SC 1523 was not in context of e-commerce platforms, but social media platforms like Facebook, where users post their own images and comments. Acts which are beyond article 19(2) of the constitution cannot form part of section 79 of the IT Act 2000.
    2. In determining liability of E-commerce platforms, factors such : as terms of an agreement between seller and the platform, enforcement, consequence of violation of terms, measures taken to protect intellectual property, whether platforms have knowledge of unlawful acts of the seller, shall be taken into consideration
    3. Protection granted under section 79(3) is not absolute check
    4. Exemption under section 79(1) would not apply , if the platform is an active participant, or is contributing to the unlawful act.
    5. Storing of, Giving invoice of, Advertising, Selling, Offering for sale with own packaging, of counterfeit products, would constitute ' aiding infringement or falsification, and E-commerce websites would not be entitled to exemption from liability under section 79 of IT ACT 2000.

    This judgment has now marked a paradigm shift in Intellectual Property Protection, and the Delhi High court must be applauded for differentiating the interpretation given to section 79(3)(b) in Shreya Singhal V Union Of India AIR 2015 SC 1523, where the issue was about free speech, from this case, where the issue was about Intellectual Property protection and liability of E-commerce websites for secondary infringement. E-commerce websites will now have to remove any such infringing material from their website, when they are made aware of it, by bonafide proprietors, and cannot feign ignorance of the same, else they risk themselves being liable for infringement, should the bonafide proprietor opt for litigation.

    Earlier, E-commerce websites, used section 79 of the IT act as an impenetrable shield, to shrug off any liability from their shoulders. But this judgment has now, shaken and thrown off these websites, from their high chairs. In this case, the Defendants contended that they were 'intermediaries' under section 79 of the IT Act and hence not liable for the information being displayed on their website. But the court was of a different opinion, and considered many factors which ultimately lead it to uphold that the Defendant was not merely an intermediary and much more than that. The Single Judge took into consideration the fact that, was advertising products exclusively on its website, it assured its users of authentic and genuine products, offered a 200% of the refund if the products were found to be counterfeit, transportation was arranged by them, and the prices changed according to their discretion.

    The Ld. Single Judge addressing the controversy, whether the Defendant was an intermediary or not, stated :

    "So long as they are mere conduits or passive transmitters of the records or of the information, they continue to be intermediaries, but merely calling themselves as intermediaries does not qualify all e-commerce platforms or online market places as one"

    Resultantly the suit was decreed, with the following specific instructions to the Defendant :

    1. That the Defendant website must disclose the complete details of all its sellers, their addresses and contact details on their website.

    1. That Darveys must obtain a certificate from all its sellers to the effect that the goods supplied by them are genuine

    1. That if the sellers are not located in India, Darveys must notify the plaintiff and obtain their concurrence over the authenticity of the products.

    1. That if the sellers are located in India, darveys must enter into a formal agreement with the sellers and wherein the sellers have to guarantee as to the authenticity and genuinity of the products. The agreement must also contain a clause for consequences of the violation of this guarantee.;
    2. If the Darveys is notified by the Plaintiff of any counterfeit product, they must first notify the seller and if the seller is not able to provide any evidence that the product is genuine, the said listing must be taken down;
    3. That Darveys must obtain a guarantee from the sellers that the products are not impaired in any manner and the warranties/guaranties shall be honoured by the seller. Also Darveys musnt list products of those sellers who cannot furnish such guarantee.
    4. Darveys was also directed to remove all meta tags of the Plaintiff.

    Though these directions were issued specifically to the Defendant in this suit, and no such directions were made that it must be followed by all E-commerce websites. But the same directions were issued to the Defendant in another suit, namely L'oreal v Brandworld CS(COMM) 980/2016 , wherein the Defendant was who was allegedly selling counterfeit goods of L'oreal. Though not codified, these directions to E-commerce websites in cases, can be deemed to be the bible they must adhere to protect themselves from liability in any Intellectual property Litigation.

    It is suggested that , E-commerce websites should adopt the following practices in light of these developments ( most of these are have already been adopted by several websites, and are statutory requirements under the IT Act 2000, Intermediary Guidelines 2011) :

    1. Have a team of IP protection, which before registering a new seller on their portal, should conduct some research about the goods and the brand purported to be sold by the Seller. This should include, conducting a search of the mark purported to be applied on the goods and also for any similar trademarks and informing the actual owner of the trademark about the registration of the seller on their portal.

    1. Enter into a proper agreement with the sellers, with the caveat that if the website receives any information from the trademark owner of counterfeit goods/ similar goods, the listing can be removed with immediate effect. Obtain an undertaking from the? text

    1. Have an IP Infringement policy in place, displayed on its website. This must contain the manner in which a person can register their grievance with the website, and also have a structured step by step dispute resolution policy to be followed in such cases.

    1. E-commerce websites must also reduce the processing time of disputes. Usually these processes take about 30-45 days. The shortening of this period becomes all the more important, because of the high volumes of goods being sold through E-commerce websites these days. Even if a seller is registered on its platform and the legitimate intellectual property owner informs the E-commerce website about it on the same day, if the counterfeit/ infringing product is allowed to be sold till the finality of the decision, the damage is already done.

    The question of liability of E-commerce websites and IP protection, once again arose in the combined Judgment of the Delhi High Court in Amway India Enterprises v 1mg Technologies Ltd & Anr. CS(OS) 410/2018. Though the issue in this judgment was also the same, but the nature of the aggrieved parties was different. The plaintiffs in these cases, were aggrieved of the same problem, that their counterfeit goods were being offered for sale on the E-commerce websites which was diluting their business. The main contentions of the Plaintiffs was that they are direct selling entities, and were dealing with the customers exclusively and directly. Their business model is not like other companies who have a pyramid like setup in which goods are passed on from the company to the wholesaler to the distributor to the retailer and then finally to the customer. It was the contention of the aggrieved plaintiffs ,that E-commerce websites by selling these goods on E-commerce platforms, even if original , was diluting their business model, as they are known for their exclusive dealing with the customer. The Plaintiffs mainly relied on Rule 6 of Para 7 under the heading "Conduct for the protection of Consumer" of the Direct Selling guidelines 2016 which states that

    "6. Any person who sells or offers for sale, including on an e-commerce platform / marketplace, any product or service of a Direct Selling Entity must have prior written consent from the respective Direct Selling Entity in order to undertake or solicit such sale or offer"

    The court also relied upon the fact that the E-commerce platforms were allowing their own warehouses to be used by multiple sellers and their own employees were engaged in the opening of packages, their tampering, and repackaging. It also went on to conclude that the platforms claim immunity under Section 79 of the IT Act, but don't do justice to their IP Protection policy, which requires sellers to obtain permission from actual IP holders. Moreover, the E-commerce platforms were not informing consumers on their website that a particular seller has not been authorized by the actual manufacturing company and that a normal consumer would have to possess extraordinary investigative capabilities to ascertain the same. The allegations of the plaintiffs were also corroborated by actual findings in the Local Commissioner Reports.

    The applications were disposed off, restraining all the impugned platforms from selling goods of various aggrieved direct selling entities and even when they were to be sold on their platform, they must ascertain that the seller must have explicit permission from the Direct Selling Entity. This judgment has added another layer of concern for E-commerce websites, as now they must also ascertain before registering a seller on their platform, that the brand of goods he purports to sell, are being sold by a Direct Selling Entity ?

    These two decisions of the Delhi High Court have been welcomed by the trading and business community as it means they can now have a better control over their trade channels and business strategy. It also automatically means that they can have a better IP protection and reduce the dilution of their goodwill and intellectual property. But there are still issues plaguing the E-commerce industry and affecting the interests of actual manufacturers. The issue of E-commerce websites offering deep discounts on their products, often below the MRP is a casue for concern as this is affecting the trade channels established by the manufacturers. The E-commerce platforms are being funded by Venture Capital firms with deep pockets who can bear losses to earn their customer, but it actually impacts the business and trade channels of the manufacturers. This issue has already been partly addressed in Kapil Wadhwa & Ors. v. Samsung Electronics Co. Ltd. & Anr. MIPR 2012 (3) 0191, but in my opinion needs a relook, given the way E-commerce has taken the market by storm. Afterall John F Kennedy said " Change is the Law of Nature".

    [The opinions expressed in this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of LiveLaw and LiveLaw does not assume any responsibility or liability for the same]

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