On July 8, 2019, the Hon’ble Delhi High Court issued an interim injunction restraining major e-commerce platforms, including Amazon, Flipkart, HealthKart and Snapdeal, from selling products manufactured by Amway, Modicare and Oriflame that are direct sellers as defined in the Direct Selling Guidelines of 2016. These guidelines define direct selling as marketing, distribution and sale of goods or providing of services as a part of network of direct selling other than under a pyramid scheme. Under the concept of direct selling, Amway’s products, for example, are sold through direct sellers under a Direct Sellers Contract. The said direct sellers undertake to market, distribute and sell Amway products and provide services appurtenant thereto, directly to consumers. These direct sellers are provided training periodically. The Court held that the Direct Selling Guidelines had the force of law. The Court also held that web sites such as Amazon, Flipkart and Snapdeal were not mere intermediaries.
The court held that sale of such products on the above e-commerce sites was in violation of Indian trademark law.
Indian trademark law, while incorporating the “doctrine of first sale”, states that resale of goods in the market is not infringement if these goods have been previously put on the market under the registered trademark by the proprietor. However, Indian trademark law also stipulates that the above doctrine is inapplicable where the condition of goods has been changed or impaired after they have been put on the market.
Interpreting the concept of “being put on the market” in the doctrine of first sale, and laying due emphasis on its “subtleties”, the Delhi High Court observed that the phrase does not refer to mere sale, but to “realization of economic value”. As per the Court, from this notion flows the need to acknowledge the added economic value that products from a direct selling entity have, by virtue of the additional warranties/guarantees, refund schemes, conditions and the reputation built based on these elements in the conduct of business of such direct selling entities.
The Court held that “the economic value would only be realised if the products are sold in the manner they are meant to be sold”. In simpler terms, from a consumer’s perspective, the reputation associated with a trademark under which a product is sold is not only built upon the product per se but is also based on the added benefits or guarantees that come with those products. Hence, if those products are sold without these added benefits or with modified conditions, such reputation would be adversely affected, leading to erosion of the economic value of the product as well as dilution of the trademark under which it is sold. The Court held that the manner of sale on e-commerce platforms, constituted, inter alia, dilution/tarnishment of the Plaintiffs’ marks, products and businesses because selling those goods without the added benefits amounted to erosion of the economic value of those products which led to adverse effect on reputation, and hence, the value of the trademarks under which those goods were being sold.
Since the sale of products of the direct selling entities by the e-commerce platforms without the above mentioned added benefits was held to be detrimental to the distinctive character of the trademarks under which these products are sold, the e-commerce platforms were disentitled from availing the defence of the doctrine of first sale.
All in all, this judgment was based on the parameter of consumers’ perception, as it attributed due consideration to the effect of selling the same goods with different conditions on consumers’ experience and the perception they would be likely to form about the trademarks under which those goods are sold. This marks a major development in trademark dilution jurisprudence in the field of direct selling and modification of conditions under which goods are supposed to be sold.