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NO PLACE TO HIDE – Delhi High Court Examines Intermediary Liability

04

JAN

2019

Introduction

The internet is an intrinsic part of our lives today. From ordering food to paying bills, numerous tasks can be performed upon the click of a button with utmost ease. Tapping into its ever expanding scope, various businesses have introduced online shopping websites which allow customers to make purchases from the convenience of their homes. Apart from the exponential variety of products and services available in the virtual world that may not be so easily accessible in physical market places, many such websites also provide eye-catching deals and lightning fast delivery to customers, further adding to the attractiveness of the whole process.

But with the several advantages associated with such e-commerce businesses, there is also the rising danger of counterfeits. A counterfeit is a fraudulent imitation, often sold at a much lower price than the original product. The discounted price is one of the main factors, which attracts unsuspecting customers into buying fake products, under the impression that the original product is being sold at a lower or discounted price. Such counterfeits can have catastrophic repercussions for business. Besides the obvious monetary implications, it can also result in dwindled public confidence and tarnished reputation of the concerned company.

The factual matrix

So how does one tackle the issue of counterfeits sold online? Is the e-commerce site accountable? The Delhi High Court grappled with this subject recently in Christian Louboutin SAS vs. Nakul Bajaj and Ors.

Christian Louboutin SAS (“Louboutin”), a luxury brand and owner of the famed ‘red sole’for shoes, filed a suit against Nakul Bajaj and Ors. (“the defendants”), who operate the online shopping website www.darveys.com. Louboutin alleged that the defendants were selling counterfeit or at least impaired products, under the former’s brand name, on their website. Louboutin further claimed that the defendants were using the image of Christian Louboutin on their website creating an impression that the website was in some manner associated with or had sanction from Louboutin to sell its products. This tarnished Louboutin’s reputation and resulted in infringement of its trademarks. The court granted a temporary injunction in favour of Louboutin in September 2014 restraining the defendants from directly or indirectly dealing in goods bearing the registered trademarks of Louboutin.

The defendants maintained that products available on their website were genuine – they did not change the physical condition of any product and hence, there was no impairment. No articles were purchased by them for resale; they argued that they only booked orders on behalf of the sellers whose products they displayed on their platform and whose names were correctly displayed on their website. Essentially, the defendants said that they were a mere intermediary and exempt from liability under Section 79 of the Information Technology Act, 2000 (“IT Act”). The said Section 79 is a safe harbour provision which states that intermediaries are not, subject to certain conditions, liable for any third party information, data, etc. made available or hosted by them.

The court was thus confronted with two questions - whether the use of Louboutin’s marks / image by the defendants was protected under Section 79? If not, what was the relief Louboutin was entitled to?

Indian law on intermediary liability

To begin with, the definition of an intermediary was examined. Under Section 2(1)(w) of the IT Act, the term has been defined thus: “intermediary, with respect to any particular electronic records, means any person who on behalf of another person receives, stores or transmits that record or provides any service with respect to that record and includes …. online-market places….” The defendants, an online marketplace, fell within this definition.

Next looking to Section 79 of the IT Act, the court held that it grants immunity if:

  • the intermediary’s function is limited to providing access to a communication system over which information made available by third parties is transmitted or temporarily stored or hosted; or
  • the intermediary does not –
  1. initiate the transmission,
  2. select the receiver of the transmission, and
  3. select or modify the information contained in the transmission; and
  • the intermediary observes due diligence while discharging its duties.

Due diligence on part of an intermediary is a subject covered extensively under the Information Technology (Intermediaries Guidelines) Rule, 2011. Obligations include publishing rules and regulations, a privacy policy and a user agreement, which all persons looking to access or use the intermediary's computer resource must sign up to. These documents must caution users (specifying penalties) against hosting/ displaying/ uploading/ sharing any information that is unlawful including material that may infringe any patent, trademark, copyright or other proprietary rights.

Also, an intermediary loses immunity if it conspires or abets or aids or induces in the commission of the unlawful act or, if upon receiving actual knowledge of information residing of an illegal activity, it fails to expeditiously remove the offending material.

Did Darveys fall outside the scope of immunity?

Examining previous judgments on intermediary liability, the Delhi High Court found that violation of trademark rights by e-commerce platforms was a subject that Indian courts had yet to deliberate upon in detail. So it began its analysis by considering 26 points to determine if an e-commerce website should qualify as an intermediary. These included whether the entity in question was offering the following services:

  • Identification of the seller and providing details of the seller;
  • Uploading the entry/ providing reviews of a product;
  • Providing quality assurance after reviewing a product/ providing authenticity guarantees;
  • Enrolling members upon payment of membership fees / offering them discounts;
  • Promoting/ advertising the product amongst its dedicated database of customers;
  • Providing assistance for placing a booking of the product, including collecting payment and offering call centre assistance;
  • Packaging the product with its own packing, instead of the original packing of the trademark owner or changing the packaging in which the original owner's product is sold;
  • Transporting the product to the purchaser;
  • Transmission of the payment to the seller after retaining commission;
  • Promoting its own affiliated companies on the basis of more favourable terms than other sellers;
  • Entering into favourable arrangements with various sellers;
  • Arranging for exchange of the product if there is a customer complaint; etc.

Further, the court pointed to the role of certain policies put in place by e-commerce websites to ensure that no illegal activities were committed by sellers. It listed the following factors for consideration - the terms of agreement entered between the website and the sellers, enforcement of the terms, consequences resulting from violation of the terms, whether suitable measures were in place to ensure that rights of trademark owners were protected, and if the website was aware of any unlawful activity.

If the facts of a particular case showed the presence of a large number of elements enumerated in the first instance above, and a lack of appropriate policies enumerated in the subsequent paragraph to curb illegal activity, the court said that the entity in question could be said to cross the line from being an intermediary to an active participant.

In the present case, the court took into consideration that sellers of the products were based in foreign countries, whose details were not made available by the defendants on their website. Also, it was not very clear as to whether the sellers were in fact selling a genuine product. Customers could effectuate a purchase only upon acquiring membership of the website on payment of a non-refundable fee. Further, the defendants guaranteed that all products available on their website were genuine and in case of any product turning out to be fake, twice the money would be returned to a customer. The court thus concluded that the defendants were actively involved in the selling process and could not be relegated to the position of an intermediary.

So on the first question it ruled that the defendants could not claim immunity under Section 79.

On the question of relief, the court, inter alia, directed the defendants to make information about sellers available on their website and obtain certificates from the sellers evidencing that the products were genuine. In addition, they were to seek a guarantee from the sellers that all the warranties and guarantees of the plaintiff were applicable and would be honoured by the seller. In addition, in case the defendants were made aware by Louboutin of any counterfeit being available on their website by Louboutin, immediate action was to be taken to obtain some form of evidence from the seller to corroborate the authenticity of the product and in case no evidence was made available by the seller, the concerned listing was to be removed and Louboutin be informed of the same. The court further directed the defendants to remove all meta-tags consisting of Louboutin’s trademarks. With regard to damages, since none of Louboutin’s products had been sold by the defendants, the court did not grant any damages in favour of Louboutin.

Incidentally, following this decision on November 2, 2018 the Delhi High Court revisited the issue in its November 12, 2018 decision in L’Oreal v. Brandworld & Anr. In this case, the sellers' details were contained in the invoice and the same were also visible on the website (even though the e-commerce site was facilitating payment and allowing sellers to use its partners for logistical support). It also had a take-down policy for counterfeit goods. However, in the opinion of the court there were several other features of the website that pointed to the fact that it was not merely an intermediary. For example: i. the website guaranteed that "all products are 100% genuine"; ii. repeated sales of counterfeits were encountered on the website; iii. despite several infringement actions against it, the website did not seem to be taking precautions to stop sale of counterfeits; iv. there was a separate category for replicas on its website - on this window, various lookalike products were advertised and sold. While the take-down policy was in favour of the e-commerce site, the display of a replica window was considered an abetment of the violation of intellectual property. Thus, the website could not avail the safe harbour provision under Section 79 of the IT Act.

Conclusion

This decision from the Delhi High Court is welcome for it makes a good start at analysing the role of intermediaries. However, some factors it discussed deserve a more detailed examination – for example, the basis of the 26 point test. Also, after considering unlawful offences such as falsifying and falsely applying trademarks – the court did not reach a finding on the genuineness, or lack thereof, of the products sold on the defendants’ website – yet it passed a decree observing that a trademark owner must not be left ‘remediless’ by extending safe harbour provisions to ‘active participants’. Accordingly, it will be interesting to see further jurisprudence on the subject in the times ahead.

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