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E-Commerce Platforms Are Barred From Selling Products Of Companies Engaged In Direct Selling: Delhi HC

Karan Tripathi
9 July 2019 1:48 PM GMT
E-Commerce Platforms Are Barred From Selling Products Of Companies Engaged In Direct Selling: Delhi HC
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The Delhi High Court has barred e-commerce websites from selling products of companies which are engaged in direct selling. The court held that the products are being sourced through unauthorized channels and that they are tampered and impaired which violates the rights of the Petitioners under the Trademark Act. The court had to rule upon the following issues: ...

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The Delhi High Court has barred e-commerce websites from selling products of companies which are engaged in direct selling. The court held that the products are being sourced through unauthorized channels and that they are tampered and impaired which violates the rights of the Petitioners under the Trademark Act.

The court had to rule upon the following issues:

  1. Whether the Direct Selling Guidelines, 2016 are valid and binding on the Defendants and if so, to what extent?
  2. Whether the sale of the Plaintiffs‟ products on e-commerce platforms violates the Plaintiffs‟ trademark rights or constitutes misrepresentation, passing off and results in dilution and tarnishes the goodwill and reputation of the Plaintiffs‟ brand?
  3. Whether the e-commerce platforms are "intermediaries" and are entitled to the protection of the safe harbour provision under Section 79 of the Information Technology Act and the Intermediary Guidelines of 2011?
  4. Whether e-commerce platforms such as Amazon, Snapdeal, Flipkart, 1MG, and Healthkart are guilty of tortious interference with the contractual relationship of the Plaintiffs with their distributors/direct sellers?

While answering the first issue in affirmative, the court opined that 'The Direct Selling Guidelines are law. While the Defendants' platforms and sellers insist on their Article 19(1)(g) rights being jeopardised, what is lost sight of is the fact that the Plaintiffs‟ right to carry on business is being affected. Further, the rights of genuine consumers are being affected, as is evident from the various comments, which consumers have put up on these platforms, after purchasing the Plaintiffs‟ products

from the said platforms'

Under the second issue, the court highlighted that in order to be able to use the Plaintiffs' marks, for the purpose of advertising, promotion and to depict the Plaintiffs as the source of the products, on the websites, the products have to be genuine, untampered and consent would be required. In the absence of the same, there is clear infringement of the Plaintiffs' trademarks and the doctrine of exhaustion does not come to the aid of the Defendants.

Further it was opined that none of the sellers have been able to show any consent given by the Plaintiffs for sale of the products on the platforms. The sellers are in fact going out of the way to hide their identity. The manner in which the Plaintiffs‟ products are portrayed on the websites also constitutes misrepresentation.'Sellers have no rights if owners have not given consent', the court noted. Therefore, it was held that use of the mark by the sellers and by the platforms is violative of the Plaintiffs' trademark rights and the Defendants are not entitled to the defence under Section 30. The manner of sale on the e-commerce platforms also constitutes passing off, misrepresentation and dilution/tarnishment of the Plaintiffs‟ marks, products and businesses.

Under the third issue the court noted that as per section 79(2)(c) of the IT Act due diligence would have to be observed by the intermediaries in terms of setting up proper polices for IPR protection and for taking down of objectionable content in terms of the Intermediary Guidelines, 2011. The court relied on the ratio laid down in MySpace Inc. and Shreya Singhal to hold that in order for the platforms to continue to enjoy the status of intermediaries, subject to adjudication at trial, the due diligence

requirements would have to be met and complied with, as per the Platforms‟ own policies, and as per the Intermediary Guidelines, 2011. Non-compliance

with the Platforms‟ own policies would take them out of the ambit of the safe harbour.

Under the fourth issue, the e-commerce platforms argued that they are not directly involved in the sale of these products and it is the sellers themselves, who are displaying, offering and selling the Plaintiffs‟ products on its platform, as they are merely `intermediaries'. However, the court rejected this claim by relying on Aasia Industrial Technologies and held that the interference with contractual relationships need not only bedirect, but it could also be indirect interference. It opined that e-commerce websites are not merely passive non-interfering platforms, but provide a large number of value-added services to consumers and users. Upon being notified by the Plaintiffs of unauthorised sales on their platforms, they have a duty to ensure that the contractual relationships are not unnecessarily interfered with by their businesses.

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