Lately many e-commerce platforms, especially in India, have frequently crossed swords with various IP rights owners, not only putting light on issues faced by trade mark and copyright holders, but also consumers. A lot of instances have come into limelight highlighting counterfeiting and trade mark infringement by unethical sellers, putting the end-buyers at risk and harming the image of well-developed brands. Although, a few platforms like Amazon do have transparent privacy policies, takedown policies, and IP policies, however, some e-commerce platforms have not taken all these steps, seriously and the repercussions are being faced by all. There are instances where, some platforms raise invoices in the name of the service provider, but payments are collected by the platforms. Also, there are several online marketplaces which simply provide a platform for the user to upload the information for further dissemination. For example, auction websites, where one user uploads the photos of his products, and labels it with a price, and another user simply accepts to purchase it from the said seller. Such a record of that product could be transmitted through the website and would constitute receipt, storage, or transmission. Thus, the question which is always debatable is whether in these cases the operators of these platforms can continue to qualify as intermediaries or not.
In this article, the authors have tried to analyse the following:
(1) What makes an online/e-commerce platform qualify as an intermediary?
(2) What are the applicable laws for regulating such intermediaries in India?
(3) What is the liability of an intermediary mandated under the laws (national and international) while operating online?
Applicable IT Laws
The provisions pertaining to intermediary liability were introduced by way of an amendment1 to the Information Technology Act, 2000 (the IT Act)2 in 2008 where under Section 2(1)(w)3 of the IT Act, an “intermediary” was defined as any person who receives, stores or transmits an electronic record on behalf of another person, or provides any service with respect to that record. The primary provision pertaining to intermediary liability was made under Section 794 of the IT Act, according to which an intermediary will not be liable for any third-party information made available or hosted by them, provided that the function of the intermediary is limited to providing access, and the transmission is not initiated, selected, or modified by it. To claim such an exemption, it is also necessary that the intermediary observes “due diligence” while discharging its duties as provided by the IT Act or other guidelines.
However, as per Section 79(3) of the IT Act, an intermediary will not be exempted from liability if it has induced, conspired, abetted or aided in the commission of the unlawful act, or if it fails to expeditiously remove or disable access to the unlawful material upon receiving “actual knowledge” or on being notified by the appropriate government agency about the said data being used to commit the unlawful act. In the context of e-commerce, some have termed these provisions as a legal “subsidy” extended towards e-commerce companies, allowing them to scale rapidly, with relatively low costs and little legal compliance involved.
In addition to the standards already laid out in the IT Act, Rule 3 of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 20215 specifies the due diligence to be observed by an intermediary. An intermediary is directed to publish rules and regulations, a privacy policy, and a user agreement for its users. Inter alia, the rules and regulations must inform the users not to share any information which infringes any patent, trade mark, copyright or other proprietary rights. Further, the intermediary must, upon obtaining knowledge by itself or being provided actual knowledge by an affected person in writing, disable access to such information within thirty-six hours.
Moreover, Rule 3(2)(a) states that the intermediary shall prominently publish on its website, mobile based application or both, as the case may be, the name of the Grievance Officer and his contact details as well as mechanism by which a user or a victim may make complaint against violation of the provisions of this rule or any other matters pertaining to the computer resources made available by it. The complaint needs to be acknowledged within 24 hours of the receipt and also resolve such complaint within a period of fifteen days from the date of its receipt. Moreover, the new amendment also made a provision for forming a Grievance Appellate Committee by the Central Government within 3 months of the amendment and any person aggrieved by a decision of the Grievance Officer may prefer an appeal to it within a period of 30 days from the date of receipt of communication from the Grievance Officer. The Grievance Appellate Committee shall deal with such appeal expeditiously and make an endeavour to resolve the appeal finally within 30 days from the date of receipt of the appeal.
Despite the operations of the online portals who qualify as an intermediary are rightly guided under the aforementioned laws, there are still a lot of practical issues which remains unresolved and unregulated, which are dealt in detail below.
Issues involved
“Uncontrolled” sale of counterfeit products. — It is a usual practice that the products sold by various sellers on the e-commerce platforms are original articles manufactured by the right holders that have been secured from the open market by unauthorised means or via leakages in the claimant’s supply chains.
IP infringement. — In the recent past, a series of cases concerning IP violations have cropped up where internet intermediaries have been made parties for infringing content uploaded by third parties. The selling of the counterfeit products on these platforms directly leads to the infringement of rights of the IP holders on these products. For instance, counterfeit shoes bearing the registered trade mark of the well-known XYZ brand is listed and sold on these platforms. This ultimately creates misrepresentation and causes damage to the goodwill of the registered IP owner.
Intermediary liability. — Establishing the liability of the intermediaries is always a point of concern where there has been a lot of litigation debating on the effect of cease and desist (C&D) notice as well as interpreting the term “actual knowledge” mentioned under Rule 3(1)(d) of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021. Moreover, if the sellers themselves are located on foreign shores and the trade mark owner cannot exercise any remedy against the seller who is selling counterfeits on the e-commerce platform, then the trade mark owner cannot be left remediless.
Direct selling. — The sellers on the e-commerce platforms tend to continuously sell the counterfeit products since there is less vigilance on them despite many e-commerce websites having Terms of Use (ToU). The Court variously refers to “direct selling” as a unique system and having unique character and impact. Direct sellers are also bound by a code of ethics or use, but this is little else, but a stack of contractual conditions tacked on to the contract between the manufacturer and the distributor. Some of which may deal with banning the sale of the counterfeit products that infringes upon or violates any third-party’s rights including, but not limited to, intellectual property rights, rights of privacy, etc.
Safe harbour defence. — With this immunity given to the e-commerce platforms for unlawful content originating from third parties over which they have limited or no control, a reasonable defence has been given to the internet intermediaries in cases of online violations. Further, intermediaries often claim that they are only the “facilitators” and not an active participant, hence the providing of facilitation services does not take away their intermediary status.
Temporary freezing/suspension of sellers account on the platform. — Courts in India generally do not pass orders or Mareva injunction in IP infringement directing the e-commerce platforms to freeze or suspend the accounts of the sellers till the pendency of the suit and thereby opening the window for the seller to withdraw all the revenue from the account earned from selling of the counterfeit products.
Judicial stand in India
One of the first decisions that specifically addressed the liability of internet intermediaries in a case of copyright infringement was the judgment in Super Cassetes Industries Ltd. v. Myspace Inc.6 The Court ruled definitively that internet intermediaries are not completely immune from accountability under Section 79 of the IT Act. The conditions under Section 79 must be met in order to hold an intermediary accountable, specifically, an intermediary must not have exercised due diligence upon obtaining information regarding infringing content.
Further, in Luxottica Group SPA v. Mify Solutions (P) Ltd.7, 2018 the Delhi High Court directed the defendant to disclose the complete details of all its sellers, their addresses, and contact details on its website and to obtain a certificate from its sellers that the goods are genuine. Further, upon being notified by the plaintiff 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 and notify the plaintiff of the same, as per the Information Technology (Intermediaries Guidelines) Rules, 2011.8
In Christian Louboutin v. Nakul Bajaj9, 2018 the Court observed that e-commerce platforms that actively conspire, abet, or aid, or induce commission of unlawful acts on their website cannot get away with it. The obligation to observe due diligence is coupled with the intermediary guidelines, which specifically state that such due diligence also requires that the information which is hosted does not violate IP rights. By applying a stringent interpretation of Section 79, Darveys.com was denied the immunity provided to intermediates by the IT Act and was instead not considered to be an intermediary.
Also, in Kent RO Systems Ltd. v. Amit Kotak10 the Court adopted the position of the Myspace case11 for a design infringement issue and held that an intermediary is not required to make a self-determination of infringing products sold on its website but is required to take down the same after a complaint is received from the original IP right owner.
Furthermore, in Kent RO Systems (P) Ltd. v. Amazon Seller Services (P) Ltd.12, the Court upheld the interim order directing Amazon to take down the listings of the impugned Kent’s trade mark and registered designs within the period of 48 hours and/or two working days of the communication by the plaintiff.
In Cartier International AG v. Gaurav Bhatia13, 2016 a decree for permanent injunction was given for manufacturing, selling and/or offering for sale by the defendants on its online platform along with punitive damages up to Rs 1 crore in favour of the plaintiff. The Court also observed that it is an absolute case of dishonesty where the piracy committed by the defendants is apparent on the face of the record where it chooses to stay away from the court proceedings.
Thus, it can be observed that even after many judicial decisions, it is difficult for an IP owner to get an immediate remedy against the infringement on the e-commerce platform. Though, recently new amendments to the IT Guidelines have been introduced but their effect on the ground is yet to be seen.
Comparison with international counterparts
The challenges of selling the counterfeit products on the e-commerce platforms are being faced globally where even the developed countries are continuously dealing with it. In USA brands typically obtain a temporary restraining order (TRO) to freeze the proceeds of the seller on the e-commerce website by asserting that the brand will suffer irreparable injury and loss if this order is not granted.
Similar to India, in the United Kingdom also there is no practice of giving any restraining order freezing the proceeds of the seller. There is probably no better case study than the French LVMH v. eBay, as opposed to the US Tiffany (NJ) Inc. v. eBay Inc.14, to illustrate the divergence in approaches to the question of the potential liability of online marketplaces for third-party content posted on their websites.
In Tiffany (NJ) Inc. v. eBay Inc.15, Tiffany brought an action against eBay after noticing that thousands of counterfeit pieces of silver “Tiffany” jewellery had been sold on eBay. The court in order to determine the liability of the platform for facilitating third parties infringing sales, concentrated on whether eBay continued to supply its services to sellers when it knew or had reason to know they were engaging in trade mark infringement. Since the plaintiff was not able to show that eBay had specific knowledge of specific items infringing its rights, the court ruled that eBay did not have any affirmative duty to remedy the situation. However, the following decision is contrary with the position adopted by some domestic courts in Europe in similar circumstances, notably in the French decision LVMH v. eBay. Here, the Court held that eBay was not a mere passive host but rather an active broker that played important role in the commercialisation of counterfeit products and profiting from these sales and thus cannot take the defence of lack of knowledge with reference to the information transmitted on its site.
Legal steps against infringement
Investigation. — Here, the staff or marketing department of a company will give a lead in order to identify the infringing goods and report it to the appropriate management. This would typically constitute a lead. Thereafter, an adequate investigation is done to get any relevant information to bring an action such as details of the person responsible, source of the goods including the location of factories, etc.
C&D notice. — Thereafter as a general practice a cease and desist notice is sent to the e-commerce platform demanding it to take down the counterfeit products from its platform and also demanding permanent termination of the seller’s licence given by the platform. In case, the platform does not take any action or acknowledges the request, taking legal action is the only remedy left. But in most of the cases the platforms usually do not respond to the cease and desist notice by taking advantage of the loopholes of the IT Act, 2000 and thereby leaving no other option but to approach the court.
Injunction petition. — As an interim measure, an ex parte temporary injunction application under Order 3916 is filled along with the infringement suit in order to restrain the platform from selling counterfeit products. Also, a Mareva injunction similar to TRO in America can be demanded to freeze the proceeds of the seller on the e-commerce platform.
Damages. — In order to remedy the irreparable loss and injury caused to the brand on account of the defendant’s acts of selling counterfeit products bearing the plaintiff’s trade marks, appropriate punitive damages can be demanded.
Conclusion and suggestions
Although the present framework mandates that e-commerce platforms take action in cases of IP violations after receiving actual knowledge from the IP holders, a counterargument that frequently surfaces contends that these platforms should be required to appoint an investigation body for performing a preliminary check of the infringing material uploaded on their platforms. Since virtually every intermediary uses technology to monitor online data, they are capable of monitoring and, to a small degree, analyse the content submitted to their resource using their technological capabilities.
Even though some e-commerce websites does mention in its terms of use that the sellers should not infringe any patent, trade mark, copyright or other proprietary rights of a third-party or involve the sale of counterfeit or stolen products but it is ground implementation is different. Thus, the following suggestions shall be looked into:
(a) It is imperative that the e-commerce platforms should acknowledge the C&D notice sent by the IP owners and subsequent to takedowns, e-commerce marketplaces must intimate the seller that the listing has been taken down.
(b) Access to the infringing goods must be temporarily removed after which the distributor must be notified and given an ultimatum to defend the claim.
(c) If the defence of the seller is satisfactory, the product may be reinstated with notice to the brand owner, providing reasons and thereby ensuring that the implementation of takedowns is balanced.
(d) The current status of Section 79 and its applicability in circumstances of online IP infringements and violations should be expressly clarified by the law in the form of a clearer and more defined language.
† Managing Partner at KAnalysis, Delhi.
†† Associate at KAnalysis, Delhi. Author can be reached at rishabh@kanalysisindia.com.
1. Information Technology (Amendment) Act, 2008.
2. Information Technology Act, 2000.
3. Information Technology Act, 2000, S. 2(1)(w).
4. Information Technology Act, 2000, S. 79.
5. Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021.
8. Information Technology (Intermediaries Guidelines) Rules, 2011.
14. 2010 SCC OnLine US CA 2C 1.
