Online marketplaces established by e-commerce portals
claiming to be intermediaries have come under scrutiny from 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 a single judge of the
Delhi High Court in a series of cases brought by Christian
Louboutin SAS, Luxottica Group SPA, 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 or an intermediary. The brand owners in each of the
cases listed below questioned the role played by the e-commerce
operator in the sale of counterfeit goods on its platform.

  • Christian Louboutin SAS v Nakul Bajaj and Ors.
    [CS (COMM) 344/2018] on November 2 2018;
  • Luxottica Group S.P.A. and Ors. v Mify Solutions Pvt.
    Ltd. and Ors
    . [CS (COMM) 453/2016] on November 12
    2018;
  • Skullcandy Inc. v Shri Shyam Telecom and Ors.
    [CS (COMM) 979/2016] on November 12 2018; and
  • L’Oreal v Brandworld and Ors. [CS (COMM)
    980/2016] on November 12 2018

Background

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

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

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

Court ruling

The Court examined the procedure followed by e-commerce
portals in enrolling the seller and executing the order placed
on the platform and set out 26 actions. If most or all of these
are performed by online marketplaces in the course of their
business along with failure to observe due diligence,
e-commerce portals will be taken out of the safe harbour of
Section 79 of the IT Act, 2000 and considered active
participants. In other words, they will no longer be treated as
intermediaries in online transactions between buyer and seller.
They will therefore be liable for unlawful acts/activities,
including IP violations. The 26 actions are listed below:

1. identification of the seller and providing the 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 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 among 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 the sale of counterfeit products
results in dilution of brand equity with no consequences for
the seller. The Court noted that the primary purpose of Section
79 of the IT Act, 2000 is to protect genuine intermediaries.
However, it cannot be used as a defence to protect people that
describe themselves as intermediaries but are active
participants in the unlawful act.

Upon going through the terms of user agreements and the
policies of the online marketplaces in the cases before the
court i.e. , and
, the Court decreed the suits and directed
the marketplaces to do the following:

a) Disclose the complete details of all their sellers –
addresses and contact details on their websites.
b) Obtain a certificate from their sellers that the goods are
genuine.
c) Prior to uploading a product bearing the involved
plaintiff’s marks, they shall notify the plaintiff and obtain
agreement before offering the products for sale on their
platforms.
d) Enter into a proper agreement with their various sellers and
obtain a guarantee as to authenticity and genuineness of the
products. Also, provide for consequences of violation.
e) Upon being notified of any counterfeit product being sold on
their platforms, they shall notify the seller and if the seller
is unable to provide evidence that the product is genuine, they
shall take down the listing as per the Intermediary Guidelines,
2011.
f) 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.

Comments

The judgment reinforces that stricter measures are needed
for curbing the sale of counterfeit products on online
marketplaces/portals – 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 as playing an
active role in trading rather than just acting as a mere
facilitator. It will be interesting to see how online
marketplaces evolve in light of this judgment or whether they
decide to appeal the order.

Ranjan Narula   Akanksha Kar
Ranjan Narula and Akanksha Kar

RNA, Technology and IP Attorneys
401-402, 4th Floor, Suncity Success Tower, Sector
– 65,
Golf Course Extension Road,
Gurugram – 122 005, India
Tel: +91-124-2841 222
Fax: +91-124-2841 144

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