AMWAY v. AMAZON- Delhi HC's Observations On Merits Of The Contentions Should Not Affect The Pending Trial: Supreme Court

In connection with the Amazon v. Amway direct selling case, the Supreme Court on Tuesday directed that while both the division and single benches of the Delhi High Court had made observations on merits of the contentions, this should not affect the pending trial."We direct that trial proceedings may not be affected by any of the observations made. We have not expressed any observations on the merits of the case," said the Court.The bench of Justices D. Y. Chandrachud, Surya Kant and Vikram Nath was hearing an SLP against a January, 2020 decision of a division bench of the Delhi High Court holding that products of 'Direct Selling Entities' such as Amway, Oriflamme, etc. may be offered for sale on e-commerce platforms, as the Direct Selling Guidelines are merely advisory in nature. In doing so, the division bench of Justice S. Muralidhar and Justice Talwant Singh have overruled the judgment rendered by a single-Judge of the high court in July, 2019, whereby Amazon (originally respondent) was injuncted from selling the goods of Amway (originally Plaintiff), in terms of the Model Framework for Guidelines on Direct Selling (DSGs), dated October 26, 2016 issued by the Department of Consumer Affairs."The SLP arises from the order of a division bench of the Delhi High Court of January, 2020 by which an order of single judge dealing with interim relief has been set aside. The SLP was instituted in this court after a year, in January, 2021. Since the SLP arises from an interlocutory order, there is evidently no grave urgency to get into merits of the orders passed by the single and division benches", the Court recorded on Tuesday in disposing off the SLP.The Delhi High Court division bench held that the impugned judgment was passed without considering whether the grant of injunction would have an adverse impact on online marketing."What was not considered is whether the requirement of online marketing entities to seek prior consent of the DSEs would not deprive the consumer of exercising the choice to buy such products on online platforms, while ensuring free flow of trade," the court said.The judgment is significant as it addresses the legal issue pertaining to obligation of intermediaries to ensure that products of direct selling entities are not sold on their marketplaces without the authorization of such direct selling entities.The division bench, while setting aside the impugned judgment, observed that the single-Judge of the high court had held that DSGs were binding in nature since they do not impinge on any fundamental rights of either the sellers or the platforms. However, the division bench has clarified that DSGs are not law and thus, are not enforceable."Merely because the DSGs are notified in the Gazette, they do not attain the status of "law" within the meaning of Article 13 of the Constitution. The source of the power to frame such guidelines is traceable only to the CPA. With the CPA, 2019 itself not having been notified, these draft guidelines could not have attained the character of ―binding Rules under the CPA, 2019, or for that matter, even under the CPA, 1986," it held.The High Court further held that once the title to a product passes through sale, no further condition can be imposed on the buyer to restrict "post-sale alienation"."Once the title passes to the ABO, no condition could be further imposed upon the buyer. Clause 7 (6) of the DSGs imposes one such condition on the buyer that the buyer cannot resell the product online. With such a condition not being an enforceable law vis-a-vis the third party, even if it were to be considered binding as such, by means of the contract between Amway and the ABO, Amway can at best seek to proceed against the ABO for breach of such condition. This is because there is no privity of contract between Amway, or for that matter between Oriflame and Modicare, with the online platforms," the court explained.In fact, the high court held, "by permitting private entities like Amway to restrict downstream distribution of genuine goods, by enforcing contractual stipulations against third parties, the judgment of the learned Single Judge recognizes a monopoly that can be exercised in perpetuity. There is also force in the contention that this runs contrary to the legal position explained in Kapil Wadhwa v. Samsung Electronics (supra)."Notably, the single-Judge had also found Amazon to be guilty of infringing Amway's trademarks and of diluting it and passing off as their own, thus misrepresenting their association with Amway.Making an observation to the contrary, the division bench said that the Amway had not asserted or even mentioned anything about trademark registration in its plaint. It said,"There was no occasion for the Plaintiffs to assert ownership of such trademarks. In fact, there is no such pleading to that effect at all. How the learned Single Judge could have come to such a conclusion and, that too, in a categorical manner, in the absence of any...

AMWAY v. AMAZON- Delhi HC's Observations On Merits Of The Contentions Should Not Affect The Pending Trial: Supreme Court

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