India jurisdiction report: Courts don’t buy sellers’ appeal

The liability of e-commerce platforms acting in the capacity of intermediaries has been subject to judicial scrutiny in India in the recent past under various business scenarios.

Ease of access to technology for consumers has made e-commerce platforms the preferred marketplace for buyers and sellers alike. The availability of various products on e-commerce platforms has also led to the increased availability of counterfeits and ‘grey market’ sales of unauthorised products of direct selling entities (DSEs) and consequential infringement liability for intermediaries.

DSEs such as Amway, Oriflame and Modicare have a direct selling business model that involves the sale of DSEs’ products directly by authorised sellers.

In this article we analyse the latest judgment of the High Court of Delhi, delivered on appeal, which inter alia defined the trademark infringement liability of intermediaries arising from sale of DSEs’ products by unauthorised sellers through platforms such as Amazon, Snapdeal, Flipkart, etc, known as intermediaries.

Unauthorised sale

The primary issue concerning trademarks raised by DSEs in various civil suits filed initially before the single judge of the Delhi High Court was that the sale of DSEs’ products by unauthorised sellers on platforms of the intermediaries was not authorised by DSEs and tantamount to infringement of trademarks under section 29 of the Trade Marks Act, 1999. 

The intermediaries contended that they are not liable for trademark infringement and passing off, for they are “facilitators” vis-à-vis the sale of DSEs’ products on their platforms and that pursuant to section 30(3) of the Act, the sale of DSEs’ products by various sellers on their platform are products that have been legitimately purchased from authorised DSEs. Therefore, the right of the DSEs as trademark owners to prevent further sale of such goods is exhausted after the first sale. The intermediaries sought exemptions under safe harbour principles envisaged under section 79(2) of the Information Technology (IT) Act, 2000 and principles of exhaustion under section 30 of the Trade Marks Act.

The single judge while granting an injunction—an Impugned Order—in favour of DSEs held that:

DSEs in their capacity as owners of their trademarks had right to restrict sale of their products, and sale of DSEs’ products by unauthorised sellers through intermediaries would be tantamount to the intermediaries also infringing and passing off the trademarks of DSEs.

Infringement and passing off liability of intermediaries arises more so owing to the fact that intermediaries were not merely passive players but in fact “massive facilitators” inasmuch as they provide warehousing, logistical support, packaging and delivery services and are hence not entitled to claim exemption from liability under section 79(2)(c) of the IT Act.

The principles of exhaustion under section 30 of the Trade Marks Act did not exempt intermediaries from liability and the sale of DSEs’ products on platforms constituted infringement and passing off.

Appeal

Amazon, Cloudtail and Snapdeal appealed against the Impugned Order before the division bench of the High Court of Delhi. On appeal the Delhi High Court vide its order dated January 31, 2020, set aside the Impugned Order and held that:

Indian trademark law recognises the doctrine of exhaustion and principle of first sale under section 30(3) of the Trade Marks Act, which states that DSEs, as owner of trademarks, cease to have rights over title of products bearing their registered trademark on completion of a transaction of sale, and persons lawfully acquiring the product are entitled to resell the product in the market, which does not amount to infringement of the DSEs’ trademarks.

Provisions of section 30(4), which protects trademark owners from restricting sale of products under section 30(3) of the Trade Marks Act for legitimate reasons such as to prevent a situation where counterfeit and duplicate goods are also put on the market through illegitimate channels, will not be applicable in the present matter as such protection is available only when there is a misuse of the DSEs’ trademarks, which misuse has not occurred in the instant matter. 

Hence, curtailing such sales through platforms of the intermediaries will deny consumers access to original products at competitive prices, and the provisions of trademark laws are to protect the trademark and proprietary rights of trademark owners against misuse of their trademarks.

In arriving at this decision the court relied upon another landmark decision of the High Court of Delhi in Kapil Wadhwa & Ors v Samsung Electronics & Anr (2012).

Summary

The above decision of the High Court of Delhi lays down the correct position of law vis-à-vis the liability of intermediaries regarding the sale of DSEs’ products, which is in line with the position of law across most of the developed economies around the world. 

NV Saisunder leads the technology, media and IP law practice at Eshwars. He can be contacted at: saisunder@eshwars.com

Srividya Sundaresan heads the trademark and copyright practice at Eshwars. She can be contacted at: srividya@eshwars.com