LIABILITY OF INTERMEDIARIES IN TRADEMARK INFRINGEMENT

On 2nd November 2018, the Delhi High Court in the Christian Louboutin SAS v Nakul Bajaj and ors.1 laid down guidelines with regards to the liability of intermediaries (here, an e-commerce platform) in trademark infringement. The principal issue in this case was whether e-commerce platforms are entitled to safe harbour under Section 79 of Information Technology (IT) Act, 2000 (as amended in 2008).

Recent years have witnessed a humongous leap in the development and utilisation of e-commerce platforms for sale of various products worldwide. These portals, devoid of any territorial restrictions, have been successfully adopted by innumerable companies for expanding their businesses globally. Such portals have managed to attract hordes of consumers by empowering them to browse through a wider selection of products, at competitive prices.

However, this development of technology can also prove to be disadvantageous, when exploited maliciously.One of the major downsides of the rise of e-commerce platforms is the ease they provide for the sale of counterfeit products online.Counterfeiters exploit this technology for the sale of non-genuine products under big Brand names, attracting customers by using such brand names as meta tags to facilitate searches and providing counterfeits of such branded goods at cheap prices. They explore and exploit intellectually smart strategies to evade detection and ensnarement by legal authorities. Due to the increased sophistication in the techniques of counterfeiting, it has become highly impossible to eradicate this industry.

Fake FMCG or fashion products may not have serious implications on the health & welfare of a consumer, but, can the same be said for sale of non-genuine pharmaceutical medicines- which may be unknowingly consumed by the ill to counter a life-threatening disease? Along with sale of counterfeit pharmaceuticals, sale of counterfeit spare parts, cosmetics, electronics, and alcohol, among others, also poses significant risk to the consumers thereof.

A survey conducted in 2018 indicates that one out of three online shoppers received fake products2. The amount of total counterfeiting globally has reached to 1.2 Trillion USD in 2017 and is bound to reach 1.82 Trillion USD by the year 20203 and it is capable of not only affecting businesses and consumers but denting domestic & international economies as well, since the entire industry operates on the basis tax-evasion.

Under Section 79 of IT Act, 2000, e-commerce platforms fall within the purview of the term intermediaries, which liberates them of any legal obligation. The pitfall of this persistent sheltering offered by the abovementioned provision was eventually felt when considerable number of cases were registered in Courts all around India by international multimillion-dollar companies and brands against these forums for selling counterfeits of their products, like the Christian Louboutin case in consideration in the present article.

In 2017, US lifestyle and footwear brand, Sketchers had filed a case against Flipkart4, a renowned e-commerce platform, and four sellers for selling counterfeits of their products online. During the proceedings, Flipkart defended itself by claiming to be a mere intermediary in the transaction. Furthermore, it stated that the platform keeps check on the genuineness of the products through its “Assured” Model. However, in spite of having taken precautionary steps to assure that the consumers do not receive fake products, counterfeiting has still managed to persist. The sheer volume of sellers in addition to the provision of anonymity has played a pivotal role in curtailing the efforts of the e-commerce platforms to combat counterfeiting. Indeed, it shall require Herculean efforts to tame this Hydra!

Subsequently, In Christian Louboutin SAS v Nakul Bajaj<5, the plaintiff- a manufacturer of luxury shoes, filed a suit against the defendant- an e-commerce platform, for undertaking sale of Louboutin counterfeits, displaying their trademark unauthorizedly & using Louboutin meta-tags to attract business. The primary issue in contention was whether the defendant (an ecommerce platform) could shield itself under the safe harbour provisions of Section 79 of IT Act, 2000. The Court granted an ex-parte ad interim injunction against the defendant, reasoning that the defendant is not completely detached from the selling process and hence cannot claim safe harbour as an intermediary under Section 79 of IT Act, 2000. The Court further set out certain guidelines to enable interpretation of Section 79 under IT Act, 2000 based on the level and nature of involvement of the defendant. This lawsuit has paved way to ensure Brand protection and prevention of Brand exploitation by online forums, thus establishing itself as a precedent.

The latest update on this subject matter was the judgement delivered during the case, Amway India Enterprise Pvt. Ltd. & ors. V. IMG Technologies Pvt. Ltd. & ors.6 in the year 2019. In this lawsuit, the plaintiff contended that the ecommerce websites were undertaking unauthorised sale & advertising of their products. The plaintiff also contested the genuineness of the products sold on such platforms. The case witnessed an intervention when two other Brands (Oriflame & Modicare) joined Amway as co-plaintiffs to the suit, further fortifying their argument against the unnecessary Brand exploitation by famed ecommerce portals like Amazon & Flipkart.

 

  1. Following were the questions of Law before the Hon’ble Delhi High Court:
  2. Whether ecommerce platforms are intermediaries in the transaction and are entitled protection under Section 79 of IT Act, 2000?
  3. If yes, to what extent?
  4. If found guilty, what relief to be granted?

 

 

  1. In July 2019 the Hon’ble Delhi High Court delivered a landmark judgement in this case and pronounced the following:
  2. Unauthorised use of plaintiff’s trademark by the defendants violates their trademark rights and results in passing off, Brand dilution and misrepresentation.
  3. The Court further went on to state that if the online portals were to continue enjoying immunity under the term “intermediaries” enlisted in Section 79 of IT Act, 2000, they must follow due diligence and ensure bona fide sale from their end. This case hammered the final nail into the coffin for ecommerce platforms. However, it remains to be seen how effective these guidelines are to tackle counterfeiting in their practical application.

 

Further recognising the urgency to ensure Brand protection and regulate ecommerce business in India, the Consumer Affairs Minister has released a set of guidelines under the Consumer Protection (E-commerce) Rules, 2019 draft. The Rules specifically focus on the need to establish contracts between the Brands & ecommerce platforms, on incorporating due diligence practices by online portals and on the requirement to equip portals with technological arsenals to effectively identify & prevent counterfeiting.

Counterfeiting is a menace that has been proliferating the Indian & global markets alike, and spans over a diverse range of industries including accessories, automotive parts, electronics and communication, music, fashion, food & beverages, pharmaceuticals, etc since times immemorial. The constant thirst to enhance globalization, more open borders and an advancement in technology has been exploited effectively by the counterfeiters to further propagate this activity and convert it into an enormous profit generating business.

With these illegal activities infesting the Indian markets, the situation of Brand owners has been bleak. However, on a positive note, the introduction of several cases against the online forums & the pronouncement of pro-Brand judgements has encouraged brand protection and strengthened protection of existing IP rights. Hopefully, in years to come, with the increased focus of MNCs & Government regulators on anti-counterfeiting practices and judicial pronouncements in favour of the Brands, we will witness a better control over counterfeiting. Although, in order to efficiently terminate this tumour, there is a need to look at the larger picture and devise better strategies, including implementation of novel technological anti-counterfeiting measures.

Authors:

BRAND DEFENCE CONSULTING

Sanika Gupte (IP & Brand Protection Associate)

Ojaswini Doshi (IP & Brand Protection Associate)

Niyati Eleswarpu (Intern, Brand Defence Consulting)


 

  1. CS(COMM) 344/2018.
  2. THE ECONOMIC TIMES, A Third of Ecommerce Buyers Get Counterfeit Products, Apr. 24, 2018, https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/a-third-of-ecommerce-buyers-get-counterfeit-products/articleshow/63889378.cms?from=mdr.
  3. BUSINESS WIRE, Global Brand Counterfeiting Report 2018-2020, May 15, 2018, https://www.businesswire.com/news/home/20180515005775/en/.
  4. ECONOMIC TIMES, Skechers Takes Flipkart, Sellers to High Court Over Fakes, Dec. 25, 2017, https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/skechers-takes-flipkart-sellers-to-high-court-over-fakes/articleshow/62235842.cms?from=mdr.
  5. Supra 1.
  6. CS (OS) 410/2018.