This article is written by Harshita Shah, pursuing a Diploma in Cyber Law, FinTech Regulations and Technology Contracts from LawSikho.com.

Introduction

E-commerce platforms first emerged in India in 1999 with fabmart.com, followed by bazee.com, however, only after the launch of 4G smartphones in 2012, e-commerce business flourished. It started growing largely after 2014. In 2017, Indian B to C e-commerce was valued at 38.5 billion and is estimated to rise to USD 200 billion in 2026. However, the regulatory framework around e-commerce trade is not well developed in India. Time and again e-commerce platforms have infringed trademark and other IPR rights of owners. They have also engaged in tampering, counterfeiting and falsifying products of well-established brands. Due to lack of understanding of how e-commerce websites operate, the extent of control of e-commerce companies on their websites, the extent of the relation between sellers on e-commerce platforms and e-commerce companies itself, it has led to weak establishment of the liability regime around e-commerce companies. Despite regulatory lacuna, jurisprudence around intermediary liability has been well developed. In this article an attempt is made to analyse the extent of safe harbour protection as decided by judicial interpretation in various case laws and the lacuna that current provisions around intermediary liability has.  

Judicial interpretations regarding intermediaries by Indian courts

“Amway India Enterprises PVT Ltd v/s 1Mg Technologies Pvt Ltd. & Another

The plaintiff Amway India Enterprises PVT Ltd filed suit against well-known e-commerce platform Amazon for selling Amway branded products on its website without Amway`s consent. Amway contended that Amazon was engaged in tampering, counterfeiting various products of Amway, and selling them on its website at a much cheaper price. Hence to bring this fact to the knowledge of Amazon, Amway wrote cease and desist letters to Amazon, clearly mentioning that the trademark and trade name were being used by it without Amway`s consent which constituted infringement to Amway`s intellectual property rights. The products were sold in violation of direct selling guidelines since Amway never gave consent to its sellers to sell products on any e-commerce platform. Usage of Amway logo, trademark, on Amazon website misleads consumers by portraying the connection between Amway and Amazon, thus creating a misleading representation that amazon was authorized to engage in the sale of Amway products. Amazon had refused to comply with the requisitions made by Amway on the grounds of being an intermediary that only facilitated transactions between buyers and sellers and that the direct sellers of Amway were under obligation to comply with the direct selling guidelines. The court ruled that e-commerce platforms are not entitled to the protection of a safe harbor provision under section 79 of the Information Technology Act because they were engaged in storing,  tampering and, counterfeiting of plaintiff`s products. The listings were also misleading as they use the Plaintiffs product images, marks, logos, names, etc. giving the impression that the products are sold by the Plaintiffs themselves. The consumer does not know that the seller is not authorized by the Plaintiffs to sell the said products. Thus, the plaintiff’s trademark rights were infringed. 

Amazon Sellers Services Private Limited v/s Amway India Enterprises PVT Ltd. & Others 

The decision in above judgment was reversed on appeal before 2 judge bench of Delhi High Court. The two bench judges parted with the findings of Single-judge bench in the original suit stating that the sale of the Plaintiffs’ products on e-commerce platforms doesn`t violate their trademark rights, or constitutes misrepresentation, neither it results in the dilution and tarnishing of the goodwill and reputation of the Plaintiffs’ brand as expressed by the single judge in terms of section 30 (3) r/w30 (4) of Trademark act. Amazon provides services in addition to access, and hence e-commerce platforms such as Amazon have to show compliance with Section 79 (2) (b) of the IT Act. In other words, they have to show that they (i) do not initiate the transmission (ii) do not select the receiver of the transmission and (iii) do not select or modify the information contained in the transmission. The case of these Defendants is as follows. Where there is a potential customer who is accessing the site, so long as it is he who clicks the button, it is the customer who is initiating the transmission. Amazon, Snapdeal, or Cloudtail does not select the receiver of the transmission, which is the buyer. They do not modify the information contained in the transmission, such as the choice of the product, the number of units, and so forth and hence they are entitled to safe harbor protection under IT act.    

Christian Louboutin Sas v/s Nakul Bajaj & Ors 

According to the court, the safe harbour protection under section 79 of the IT act would not be available to e-commerce platforms who knowingly allow storing of counterfeit products because that would constitute falsification of the mark. E-commerce websites who have the knowledge that the product is counterfeited, and still display and advertise the same on their websites are clearly giving the impression that the product is genuine. All this constitutes an active involvement in unlawful acts and hence bars them to claim as intermediaries.     

Judicial interpretation of intermediaries by European court

 L’Oréal v. EBay 

In this case, L’Oréal brought four simultaneous lawsuits against eBay for trademark infringement, negligence, and violation of its selective distribution networks in France, Belgium, England, and Spain. Among other arguments, L’Oréal claimed that EBay, by failing to set up efficient measures and/or filtering tools to prevent the sale of counterfeit perfumes on its websites and by benefiting from these sales, was, directly and indirectly, liable for trademark infringement, unfair competition, and negligence under a general theory of tort. The Court ruled that eBay may not be exempt from liability since it plays an active role in the sale of goods by optimizing the presentation of the offers or promoting them. 

Are all e-commerce platforms passive intermediaries?

If intermediaries only transmit, host and retain electronic records without having a control to monitor or exercise due diligence, they can be classified as passive intermediaries. But e-commerce websites have greater control over their websites, they even monitor the list prices of sellers against prices found on the websites or offered by other sellers. In order to provide fulfillment services they have their own warehouses where they maintain inventory of sellers. They have their own return/refund policy. They are involved in the offering of services which are more than just an electronic record. They maintain the catalogues of products on the website and have all the sellers registered with them. E-commerce platforms are either actively involved or passively involved in providing services. Those acts which constitute passive involvement and active involvement must be identified. Subsequent active involvement shall be enough to bar them to claim as intermediaries. 

Do direct selling guidelines have the force of law?

The 2 bench judges in Amazon Sellers Services Private Limited v/s Amway India Enterprises PVT Ltd overlooked the fact that Amway is a direct selling entity and is governed by direct selling guidelines (DSGs). They ruled that direct selling guidelines have no force of law. However, where the issue involves a fundamental question regarding any wrong which, if not decided correctly, has the impact of undermining the public purpose for which such guidelines were issued, then such guidelines have the force of law. Also, the guidelines were not issued in isolation; they are issued under the Consumer Protection Act. As per clause 7 of DSGs any person who sells or offers for sale, including on an e-commerce platform any product or service of a direct selling entity must have the prior written consent of the direct selling entity to undertake such sale or offer such products for sale. As per the consumer protection act “person” includes any corporation, company or, the body of individuals whether incorporated or not. Thus, even Amazon is obliged to obtain consent from Amway. Therefore the judges have committed an error by giving no legal status to DSGs, which gives a liberty to e-commerce platforms to exploit direct selling entities and their IPR rights.  

Intermediary Guidelines, 2011

Clause 3 of Intermediary guidelines, 2011 obliges intermediaries to publish rules and regulations, terms and conditions or user agreement which shall inform the users of computer resource not to host, display, upload, modify, publish, transmit, update or share any information that infringes any patent, trademark, copyright or other proprietary rights. In the case of non-compliance by the users, the intermediary has the right to terminate the access of users to the computer source and remove the non-compliant information. Now, without performing the necessary due diligence to screen any such infringing element or implementing computer programs that screen for such non-compliant information, how can e-commerce platforms be given complete exemption from liability. In terms of Section 79 of the IT Act, it seems that the wordings of the provision are restricted to passive intermediaries so far as the availability of the safe harbor provisions is concerned. An intermediary shall not be liable for any third-party information, data or communication link made available or posted by it, as long as it complies with Sections 79 (2) or (3) of the IT Act. Even after serving notice, the respondents in Amway India Enterprises v/s 1Mg Technologies Pvt. Ltd. & another refused to take down the products listings. They failed to comply with intermediary guidelines, 2011 by not disabling such information within 36 hours which effectively bars them to the relief of safe harbour protection.  

US legislation

The US jurisprudence around intermediaries is developed before the internet era where intermediaries were held liable for their actions under tort law. However, even after the evolution of Digital Millennium Copyright Act, judicial pronouncements for determining liability of intermediaries based on tort law can be found. Under Tort law, Liability is mainly determined as vicarious Liability or contributory liability. Post technological advancements, US courts also evolved inducement theory in the Grokster case. Inducement theory is based on the intent of the defendant to promote the use of devices for copyright infringement. The US Digital Millennium Copyright Act`s title 2, Online Copyright Infringement Liability Limitation Act (OCILLA) is designed to protect service providers by creating four grounds of safe harbour protection and section 512(c) of the act makes intermediary liable for any infringing material if they receive financial benefit due to such infringing activity. This title gives rights to the copyright owners to obtain a subpoena from a federal court ordering service providers to disclose the identity of a subscriber who is engaged in infringing activity. This is a dual remedy which can help to take down the product listings and directly bring action against subscribers. 

Conclusion

E-commerce can seek shelter under Safe harbour provision as long as it remains a passive intermediary. Hence, in order to come to the conclusion whether e-commerce platforms are an active or passive intermediary is a work of fact finding and laying evidence. As defined in section 2 (w) of IT act an e-commerce platform today is not only engaged in storing, receiving, or transmitting any electronic record received from its user. It is actively engaged in the management of the website, operation of the business, functioning of the platform, etc. Hence, it is important to distinguish and break down different activities and services that e-commerce serves, to identify their passive involvement and active involvement. Recognising the growth of e-commerce, a draft of amendment to Intermediary guidelines, 2018 and Draft of National e-commerce policy is expected to fill the lacunas around the regulatory regime. The draft policy gives trademark owners including licensees of trademark, the right to directly register themselves with e-commerce companies so that when the products are uploaded for sale, the platforms can directly inform the trademark owners. E-commerce platforms cannot list products of TM owners without their permission. Thus, a strong regulatory regime can help to keep a check on flourishing e-commerce business. 

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