10 January 2019

Liabilities of an intermediary – The Indian perspective

By R. Parthasarathy & Godhuli Nanda

Electronic commerce or e-commerce, as is commonly known, is a transaction between the buyer and the seller which takes place online i.e. the purchase-sale of goods/services and not from physical brick and mortar shops, malls or kirana stores. The goods are sold through online platforms where the products are displayed and offered for sale. A customer, who wishes to purchase the product, can visit the website, browse the hundreds of choices that exist, identify the products and book an order[See endnote. 1] 

A Single Judge of the Delhi High Court vide judgment dated November 02, 2018, while deciding the suit filed by Christian Louboutin SAS (hereinafter referred to as the ‘Plaintiff’) against Nakul Bajaj and others (hereinafter referred to as the ‘Defendants’)  for infringing the trademark of the Plaintiff, for violation of personality rights of Mr. Christian Louboutin and for dilution of the luxury status enjoyed by the products and brands of the Plaintiff, confirmed an ex-parte ad-interim injunction in favor of the Plaintiff. The single Judge while delivering its judgment discussed the rights and exemptions conferred upon an intermediary and the conditions under which the said exemptions are to be allowed.   

Brief facts and contentions of the parties:

The Plaintiff, Christian Louboutin SAS, manufacturer of luxury shoes is named after its founder – Christian Louboutin, a famous designer of high-end luxury products. The Plaintiff’s products are sold only through an authorized network of exclusive distributors and at present, in India there are only two stores; one in Mumbai and the other in Delhi which have been authorized by the Plaintiff. The Plaintiff filed the present suit for infringement of trademarks, publicity rights, passing off, unfair competition, dilution, damages, rendition of accounts and delivery up against the Defendants, Nakul Bajaj and others. The Plaintiff claimed that the Defendants’ website www.darveys.com (operated by the Defendants) offered for sale various products bearing the luxury brands/names of the Plaintiff and contained the complete Christian Louboutin product catalogue. The said website further claimed that the products were 100% authentic. According to the Plaintiff the goods of the Defendants were impaired and were counterfeits. The Plaintiff further claimed that apart from the sale of the counterfeit products, the Defendants’ website also reflected the image of the founder of the Plaintiff and the terms ‘Christian’ and ‘Louboutin’ were also used as meta tags through which the Defendants attracted traffic to their website.

The Plaintiff had also filed an application for interim injunction under Order 39 Rule 1 and 2 of the Code of Civil Procedure, 1908 (CPC). On September 26, 2014, the Plaintiff was granted an ex-parte ad-interim injunction. Thereafter, the Defendants filed their written statement and claimed that they themselves did not sell the goods but merely enabled bookings of orders through their online platform. That they did not purchase any articles for sale, but only booked the orders on behalf of the sellers whose products they displayed on their platform. The Defendants denied that the products sold by them were fakes or counterfeits and further claimed that the goods of the Plaintiff were only offered for sale on their website and that the responsibility with respect to the same was on the sellers on whose behalf the goods were offered for sale.

Observations of the court:
After perusing the pleadings submitted by the parties, the Court was of the view that no factual issue arose for determination and proceeded to frame the following issues:

(1) Whether the Defendants’ use of the Plaintiff’s trademarks, logos and image is protected under Section 79 of the Information Technology Act, 2000 (IT Act)?
(2) Whether the Plaintiff is entitled to relief?

The Court, to have a comprehensive analysis of the liabilities of an intermediary, perused several Indian precedents which dealt with issues pertaining to intermediaries and also discussed precedents dealing with intermediary liability of other jurisdictions such as the European Union and the United States of America. After an in-depth examination, the Court concluded that even though there was no uniformity in the treatment of intermediaries in different jurisdictions, the underlying principles appeared to be the same. The liability of an intermediary could be determined on the basis of the role of the intermediary while providing its service i.e. whether it was active or passive. The degree or requirement of compliance will be higher in case of an intermediary having active participation as compared to one having passive participation.

Thereafter, the Court examined Section 79 of the IT Act (exemption from liability of intermediary in certain cases). An analysis of Section 79(1) showed that an intermediary was not liable for third party information, data, links hosted on its platforms. However, Sections 79(2) and 79(3), are exceptions to Section 79(1). Under Section 79(2)(b) the intermediary should not initiate the transmission, select the receiver of the transmission and select or modify the information contained in the transmission. If any of these actions is done by the intermediary, it may lose the exemption to which it is entitled.  In terms of Section 79(3), the exemption under Section 79(1) would not apply if a platform is an active participant or is contributing in the commission of the unlawful act. The words conspired, abetted, aided or induced have to be tested on the basis of the manner in which the business of the platform is conducted and not on a mere claim by the platform. Section 79(3) limits the exemption only to those platforms and online market places which do not aid or abet or induce the unlawful act. Any active contribution by the platform or online market place completely removes the ring of protection or exemption which exists for intermediaries under Section 79. The Court also observed that in order to decide whether there is abetment, aid or inducing or authorizing communication of an unlawful act by an intermediary, Section 101(Falsifying and falsely applying trade marks) and 102 (Penalty for applying false trademarks, trade descriptions, etc.)) of the Trade Marks Act, 1999 can also be considered.

Decision of the court:

The Court held that any online market place or e-commerce website, which allows storing of counterfeit goods, would be falsifying the mark. Any service provider, who uses the mark in an invoice thereby giving the impression that the counterfeit product is a genuine product, is also falsifying the mark. Displaying advertisements of the mark on the website so as to promote counterfeit products would constitute falsification. Enclosing a counterfeit product with its own packaging and selling the same or offering for sale would also amount to falsification. All these acts would aid the infringement or falsification and would therefore bring the e-commerce platform or online market place outside the exemption provided under Section 79(1) of the IT Act.

The Court observed that when an e-commerce company claims exemption under Section 79 of the IT Act, it ought to ensure that it does not have an active participation in the selling process. The presence of any elements which shows active participation could deprive intermediaries of the exemption.

The Court further observed that in the present case the Defendants were involved in the promotion and sale of luxury products to its members who sign up for membership. Without having such a membership, one could not make a purchase on the Defendants’ website. Further, the sellers were located in foreign jurisdictions and therefore it was not even clear as to whether the sellers were in fact selling a genuine product or not. In such cases giving exemption under Section 79 would in fact amount to legalizing the infringing activity. The Defendants even though have claimed that the details of the sellers were available in their website, the said details were not reflected. Therefore, it was quite clear that the sellers were not known and the persons from whom the sellers buy these products were also not known. It was also not known if the products were genuine or not, though the Defendants represented the same to be genuine. In view of these factors, the Court held that the Defendants could not be termed as an intermediary entitled to protection under Section 79 of the IT Act.

The Court held that the use of the mark, Christian Louboutin, without the permission of the Plaintiff and without ensuring that the products which were sold, were in fact genuine, would constitute a violation of the Plaintiff’s rights.

The Court observed that when any product turns out to be counterfeit or not up to the mark, then it is the trademark owner’s brand equity which is diluted. The seller himself does not suffer. If in such situations immunity is conferred on the intermediary, then such immunity is beyond what is contemplated to intermediaries under Section 79 of the IT Act. While Section 79 of the IT Act is to protect genuine intermediaries, it cannot be abused by extending such protection to those persons who are not intermediaries, are active participants in the unlawful act. In the present case, where the sellers were located on foreign shores and the Plaintiff did not have any option of exercising any remedy against the said sellers, it was observed that the Plaintiff should not be left remediless.

In view of the above findings, the ad-interim injunction granted in favour of the Plaintiff was made absolute and the suit and other interim applications were disposed of. However, no order for damages or rendition of accounts or costs was passed. The Defendants were directed inter alia to disclose the complete details of its sellers, to obtain a certificate from its seller that the goods are genuine, to give prior intimation to the Plaintiff before uploading any of its products and to remove all meta tags consisting of the Plaintiff’s trademarks.

When an e-commerce website is involved in conspiring, abetting, aiding or inducing to sell counterfeit products or conducts its business in such a manner, it could be said to cross the line from being a mere intermediary to an active participant. In such a case, the platform or the online marketplace could be liable for infringement in view of its active participation. E-commerce websites and online marketplaces ought to operate with caution if they wish to enjoy the immunity provided to the intermediaries.

[The authors are Principal Partner & Senior Associate in IPR Practice Team, Lakshmikumaran & Sridharan, New Delhi] 

1. CS (COMM) 344/2018, I.As. 19124/2014, 20912/2014, 23749/2014 and 9106/2015; Order dated 02nd November 2018, passed by a Single Judge of the Delhi High Court

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