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Liability of e-commerce service providers

[First published in World Intellectual Property Review on 4th April 2019. To read Article in WIPR click here]





Scope of liability of e-commerce service providers as ‘Intermediaries’ in the context of sale of counterfeit products under Indian Laws

The Indian B2C e-commerce market is growing exponentially and the rapid digitalization is fuelling its further growth. Most e-commerce platforms in India are a marketplace, and they are to deal with the menace of counterfeit or infringing products, and this article examines the scope of liability of e-commerce service providers in case of sale of counterfeit goods through their platforms.

The statutory provision that lays down the framework to decide the liability of e-commerce platforms is contained in Section 79 of the Information Technology Act, 2000. Section 79 is a provision that is applicable for `intermediaries engaged in transactions by means of electronic data interchange and other means of electronic communication and includes by reference ‘online-market places’. In this article, `intermediary’ and `e-commerce platform’ are used interchangeably.

Section 79 lays down the safe harbour principles exempting an intermediary in certain cases. The intermediary is not liable in two situations, viz: (a) if its function is limited to provide access to a communication system over which the information made available by third party is transmitted or hosted; (b) if it does not initiate or select the receiver of the information, and does not modify the information.

The intermediary is made liable if it is an active participant or is contributing in the commission of the unlawful act or where the intermediary fails to expeditiously take down information or data or link upon receiving information.

A review of the judgments on Section 79 shows that e-commerce platforms have been exempted from copyright infringement and violation of design rights when content has been uploaded by users.

In the context of sale of infringing or counterfeit products through e-commerce platforms, the courts have analysed the factors as to whether sale of counterfeit products amounts to ‘use’ of a mark under Section 2(2)(c) of the Trademarks Act, 1999, or ‘falsification of a mark’ or ‘false application of a mark’ under Sections 101 and 102 of the Trademarks Act, 1999, and when answered in the affirmative, leads to the e-commerce market place not being entitled to the exemptions granted under Section 79.

In this regard, the courts have held that the important test when an e-commerce platform is to be exempted from liability, is to determine that it does not have an active participation in the selling process in relation to the sale of counterfeit / infringing goods.

In Christian Louboutin SAS Vs. Nakul Bajaj and Ors., decided in 2018, the Delhi High Court enumerated about 26 tasks to determine whether there is an active participation by the e-commerce site. Some of them are:

  • Identification of the seller and providing details of the seller
  • Providing authenticity guarantees;
  • Providing quality assurance after reviewing the product;
  • Promoting the product amongst its dedicated database of customers;
  • Accepting an order on a particular payment gateway promoted by the platform;
  • 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;

The above principle was followed by the High Court of Delhi, in other recent judgements too: L’Oreal Vs. Brandworld and Ors., Skullcandy Inc. Vs. Shri Shyam Telecom and Ors., both decided in 2018, and Luxottica Group S.P.A. & Anr Vs. Mify Solutions Pvt Ltd & Ors., decided in 2019 and held that if the business model of an e-commerce site responds in the affirmative to a large number of elements enumerated above and the 20 others, it crosses the line from being an intermediary to an active participant, and thereby become liable for infringement of trademarks in view of its active participation.

Thus, so long as an e-commerce platform is a conduit or passive transmitter of the records or the information, they continue to be intermediaries exempt from liability under the Information Technology Act. The true intent of Section 79 is to ensure that the liability of intermediaries is in line with globally accepted standards and to further digital trade and economy in India.

With e-commerce growing, the Ministry of Commerce and Industry, has now circulated a draft national e-commerce policy, that prescribes various guidelines and requirements to be adhered to by intermediaries in relation to listing and sale of products through their platforms, and this will also help in reducing counterfeit products on e-commerce market places.

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