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Liabilities and Exemptions of E-Commerce Platforms in India

March 8, 2019 / Blog, Case Comment

Article researched and written by Darts-ip Legal Analysts Ruby Naz & Manikuntala Mookerjee

Internet use in India has been on the rise ever since its introduction by VSNL in the 1990’s, causing a dynamic consumer shift from physical markets to virtual ones. According to government data,  [1] But innovation in technology can create unforeseen dangers, with the online marketplace being no exception. Over time these online portals, who act as intermediaries to a buyer and a seller, are being brought to courtrooms due to the sale of counterfeit goods. Famous brands like Christian Louboutin, L’Oreal and Skullcandy have filed suits for infringement of their intellectual property as a result of the sale of these counterfeit goods via online portals.

In order to control this menace, the Delhi High Court has delivered a landmark judgment in Christian Louboutin v. Nakul Bajaj and Ors. [CS (COMM) 344/2018] wherein it has discussed the liability of these web portals and has laid down strict guidelines for the intermediaries to follow.

On the 2nd of November 2018, the court, while passing the judgment in favor of the French brand Christian Louboutin, made it clear that an online marketplace does not fall under the category of intermediary under Section 79 of the Information Technology Act 2000 and hence exemptions as provided under Section 79 of the Act cannot be applied to these entities.

Christian Louboutin, the luxury brand known worldwide for its red-soled shoes moved to court with a grievance that the defendants are selling ‘impaired’ and ‘counterfeit’ products bearing their name and mark. They are also exploiting meta-tags of the words “Christian” and “Louboutin” to direct the web traffic to their website in order to draw the attention of consumers to their counterfeit products. Moreover, on their website, they have shared a catalogue claiming the products to be ‘100% genuine’. The plaintiffs claimed that the defendant’s actions lead to infringement of a registered and well-known trademark, as well as the personality right of the fashion designer Christian Louboutin himself. The plaintiff claimed to be selling its products only through authorized distributors and has only two outlets, one in Mumbai and the other in Delhi. To this allegation, the defendant, (Darveys) – a website selling luxury goods, claimed that the products sold are authentic and also shrugged all liability for trademark infringement claiming itself to be a mere intermediary.

The following issues arose from the decision in the above-mentioned case[2]:

  1. a) Is the Defendants’ use of the Plaintiff’s mark, logos and image protected under Section 79 of the Information Technology Act, 2000?
  2. b) Is the Plaintiff entitled to damages, and if so, in what terms?

In this context, Delhi High Court Justice Prathiba M. Singh went on to examine whether Darvey’s website can be termed as an intermediary under the Section 79 of Information Technology Act, 2000 and if so, can they seek exemption from the liabilities.

The e-commerce company merely sources the products from the sellers and stores them in its warehouses. Inventory is maintained by the e-commerce platform. Thus, the e-commerce platform plays a much more active role[3].

The question which comes to mind is that when can an e-commerce platform be known as the intermediary? As per the Information Technology Act, 2000 (hereinafter, ‘IT Act‘) an `intermediary[4] is defined as under:

“Section 2(w) “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 telecom service providers, network service providers, internet service providers, web-hosting service providers, search engines, online payment sites, online-auction sites, online-market places and cyber cafes.”

The court had laid down certain guidelines to understand the concept of intermediaries. Hence when an e-commerce platform performs functions such as receiving information, storing them and transmitting to provide any service with respect to the information, they can be termed as intermediaries.

But Section 79 of the Information Technology Act, 2000 also contains the provisions of exemptions from liability in certain cases. Under-section 79(1) of the Information Technology Act, 2000, an intermediary shall not be held responsible for any third-party information, data, or communication link made by it.  Section 79(1) should be read in conjunction with sub-sections (2) and (3) which lays down certain conditions under which intermediaries can and cannot be held liable.

Under section.79(2)(a), an intermediary is exempted if it is providing access to a communication system through which information is available to third parties is transmitted or temporarily stored. Furthermore, under section 79(2) (b) an intermediary shall not be held liable if it does not initiate the transmission, select the receiver of the transmission and select or modify the information contained in the transmission. Lastly, section 79(2) (c) requires the intermediaries to observe due diligence while discharging its duties.

Section 79(3) illustrates two grounds where the provisions of section 79(1) shall not apply:

  1. If it has been an active participant in the commission of the unlawful act which includes conspiracy, abetment, aiding or inducing, whether by threats and promise.
  2. If it comes to know or is notified by the Government or its agencies that certain information, data or communication link in the e-commerce platform controlled by the intermediaries is being used to commit the unlawful act and the intermediary fails to expeditiously remove or disable access to that material on that resource without vitiating the evidence in any manner.

The High Court while deciding this case stated that the terms “conspired”, “abetted” “aided” or “induced” as used in section 79(3) have to be examined on the basis of how the platform runs its business and not by a mere claim.

While examining the Darvey’s platform, Justice Prathiba M. Singh found out that it was storing counterfeit goods and using the mark to prepare invoices for the counterfeit goods. Moreover, it was providing advertising and packaging for those goods. This supported the trademark infringement claim of Christian Louboutin and hence Darvey’s could not be exempted under Section 79 of the Information Technology Act, 2000. Thus, the court ruled in favour of the Plaintiff and against the Defendant, with orders laid down which the defendants were required to follow. However, since no product of the Plaintiff was in fact sold on its platform, though the website did advertise and promote the products using the Plaintiff’s brand, no order for damages/rendition of accounts or costs was passed.

This decision has been a big step towards understanding the meaning of the term intermediaries and the extent intermediaries play a role in e-commerce. Earlier e-commerce companies had sought protection stating the products uploaded by sellers on their websites were not their liability. But after this judgment, the ambit of e-commerce and intermediaries have changed. Intermediaries in India are now under the obligation to conduct due diligence while discharging their duties.

  • [1]              https://www.bloombergquint.com/law-and-policy/can-victims-of-counterfeiting-look-to-e-commerce-giants-for-relief
  • [2]              (CS(COMM) 344/2018) darts-736-412-F-en
  • [3]              (CS(COMM) 344/2018) darts-736-412-F-en
  • [4]              Information Technology Act 2000 § 2, cl. w

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