The online marketplaces set by e-commerce portals claiming to be Intermediaries were under scrutiny by the Delhi High Court.  The portals currently enjoy immunity under safe harbour provisions laid out in the Information Technology (IT) Act, 2000. This was examined by the Single Judge of the Delhi High Court in a series of cases brought by Christian Louboutin SAS, Luxottica Group S.P.A., Skullcandy Inc. and L’Oreal. The court looked at the practices followed by e-commerce portals in selecting and enrolling sellers on their platform. Further, it examined if such practices made them an active participant as opposed to being an ‘Intermediary’. The brand owners in each of the cases listed below questioned the role of e-commerce operator in controlling sale of counterfeit goods on their platform.

• Christian Louboutin SAS vs. Nakul Bajaj and Ors. [CS (COMM) 344/2018] on November 02, 2018
• Luxottica Group S.P.A. and Ors. vs. Mify Solutions Pvt. Ltd. and Ors. [CS (COMM) 453/2016] on November 12, 2018
• Skullcandy Inc. vs. Shri Shyam Telecom and Ors. [CS (COMM) 979/2016] on November 12, 2018 and
• L’Oreal vs. Brandworld and Ors. [CS (COMM) 980/2016] on November 12, 2018

Background

According to Sec 2(w) of the Information Technology (IT) Act, 2000, “intermediary” is defined as any person who on behalf of another person receives, stores or transmits the particular electronic message or provides any service with respect to that message. This definition includes online marketplaces and online auction sites. 

Sec 79 of IT Act, 2000 exempts intermediaries from liability in certain cases where it is merely a reservoir of information or third-party data and does not initiate, select or modify the transmission or the information contained in the transmission, or select the recipient of the transmission. 

The duties of intermediary include observing due diligence; disabling or removal of unlawful content from its portal upon receipt of actual knowledge and not taking part in conspiring or abetting or aiding or inducing the commission of the unlawful act.

Court Ruling

The Court while examining the procedure followed by e-commerce portals in enrolling the seller and executing the order placed on platform, culled out 26 tasks listed below which if performed (most or all), by online marketplace in course of their business and their failure to observe due diligence, would take them out the ‘safe harbour’ of Section 79 of IT Act, 2000 and render them active participant. In other words, they will no longer be treated as intermediaries in online transactions between buyer and seller. Thus, liable for unlawful act/activities including IP violations.

1. Identification of the seller and providing details of the seller;
2. Providing transport for the seller to send his product to the platform’s warehouse;
3. Uploading the entry of the said product;
4. Providing quality assurance after reviewing the product;
5. Providing authenticity guarantees;
6. Creation of the listing of the said product;
7. Providing reviews or uploading reviews of the product;
8. Enrolling members upon payment of membership fees;
9. Promoting the product amongst its dedicated database of customers;
10. Advertising the products on the platform;
11. Giving specific discounts to members;
12. Providing assistance for placing a booking of the product, including call centre assistance;
13. Accepting an order on a particular payment gateway promoted by the platform;
14. Collecting the payment through users registered for electronic payment modes;
15. Packaging the product with its own packing, instead of the original packing of the trade mark owner or changing the packaging in which the original owner’s product is sold;
16. Transporting the product to the purchaser;
17. Employing delivery personnel for delivering the product;
18. Accepting cash for sale of the product;
19. Transmission of the payment to the seller after retaining commission;
20. Promoting its own affiliated companies on the basis of more favourable terms than other sellers;
21. Entering into favourable arrangements with various sellers;
22. Arranging for exchange of the product if there is a customer complaint;
23. Providing/arranging for service if the product requires the same;
24. Booking ad-space or ad-words on search engines;
25. Using trade marks through meta-tags or in the source code of the website in order to attract traffic;
26. Deep linking to the trade mark owner’s website;

The Court observed that sale of counterfeit product results in dilution of brand equity with no consequences upon the seller. The court noted the primary purpose of Section 79 of the IT Act, 2000 is to protect genuine intermediaries, however it cannot be used as a defence and protect the persons that describe themselves as intermediaries but are active participants in the unlawful act.

On going through the terms of ‘user agreements’ and policies of the online marketplaces in the cases before the court i.e. <darveys.com>, <kaunsa.com> and <shopclues.com>, the Court decreed the suits and directed them to:

1. Disclose the complete details of all its sellers- addresses and contact details on its website;
2. Obtain a certificate from its sellers that the goods are genuine;
3. Prior to uploading a product bearing the involved Plaintiff’s marks, it shall notify the Plaintiff and obtain concurrence before offering the said products for sale on its platform;
4. Enter into a proper agreement with its various sellers and obtain guarantee as to authenticity and genuinity of the products as also provide for consequences of its violation;
5. Upon being notified of any counterfeit product being sold on its platform, it shall notify the seller and if the seller is unable to provide evidence that the product is genuine, it shall take down the listing as per the Intermediary Guidelines, 2011;
6. Seek a guarantee from the sellers that the product has not been impaired in any manner and that all warranties and guarantees of the Plaintiff are applicable and shall be honoured by the seller.

Our comments:

The judgement reinforces that stricter measures are needed for curbing sale of counterfeit products on online marketplaces/portals which is a growing menace.

Interestingly, the 26 tasks identified seem to apply to most of the popular online marketplaces operating in India namely Myntra, Flipkart, Amazon, Snapdeal, Jabong etc. Thus, as per the Court ruling the portals can be construed to be playing an active role in trading rather than a mere facilitator. It will be good to see how the online marketplaces evolve in light of this judgement or will they Appeal the order?

** As appeared in MIP