India: Delhi High Court rules on role of intermediaries

January 02, 2019

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. <darveys.com>, <kaunsa.com> and <shopclues.com>, 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.