An Attempt to Strike Balance in Between E-commerce Business and Direct Selling Entities’ IP Rights

Recently in Amazon Seller Services Pvt. Ltd. v. Amway India Enterprises Pvt. Ltd. &Ors. FAO(OS) 133/2019 and CM APPL. 32954/2019, while setting aside a Single Judge decision, a two-judge bench addressed key issues concerning e-commerce portals and Direct Selling Entities (“DSE”) such as Amway.

Amway India Enterprises Private Limited and other DSEs (“Plaintiffs/Respondents”) had filed a suit against the Amazon Seller Services Pvt. Ltd. and others (“Defendants/Appellants”) for selling the Plaintiff’s goods in violation of Direct Selling Guidelines (“DSG”). As explained in our blog post at https://sc-ip.in/2019/08/14/major-indian-e-commerce-platforms-prohibited-from-selling-amway-modicare-and-oriflame-products/, a Single Judge of the Delhi High Court held that the Defendants were prohibited from selling goods of DSEs.  An appeal followed.  

The two-judge bench was of the view that intermediaries/ e-commerce websites are not under any obligation to ensure that the products of DSEs are sold only after their authorization. This is so because the DSG are merely model guidelines of ‘advisory’ nature issued by the Government of India. The court observed that Single Judge bench had committed a fundamental error in framing the first issue as “whether the DSG are valid and binding on the Defendants”. According to the learned judges, the Single Judge ought to have first considered whether the DSG were indeed ‘law’ and whether suits seeking enforcement of such guidelines are maintainable?’ As per the court, the DSG were not an ‘executive instructions’ which could have been made enforceable under Articles 73 and 77 of the Constitution. Rather the notification issued by the Government of India states that they are merely guidelines of advisory nature that could not be traced to any statutes or rules, in particular, the Consumer Protection Act, 1956, (“CPA”).          

The court then examined whether the Appellants qualify as an ‘intermediaries’, and are entitled to protection under the safe harbour provision within meaning of Section 79 (read with Section 2 (1) (w)) of the Information Technology Act, 2000 (“IT Act”). The court noted that this was a disputed question of fact as the Respondents were themselves not sure about their stand in their pleadings.  Therefore, this issue is a matter of trial.  Further, the court noted that the burden of proof shifts to the Respondents to prove that the Appellants are intermediaries. While making this observation regarding burden of proof, the court relied on Myspace Inc. v. Super Cassettes Industries Ltd. (2017) 236 DLT 478 (DB), in which it was held that Section 79 of the IT Act is not an “enforceable provision”, but merely provides an “affirmative defence” to entities which fulfil the criteria set forth under Section 79 of the IT Act.

The court further held that, assuming the Appellants were intermediaries under the IT Act, the distinction drawn by the Single Judge between active and passive intermediaries so far as the availability of the safe harbour provisions are concerned was erroneous and illogical. The court held that Appellants are entitled to the benefits of safe harbour as they fulfil the criteria listed under Section 79 (2) (b) of the IT Act. Meaning thereby, the Appellants have clearly established that they (i) do not initiate the transmission (ii) do not select the receiver of the transmission and (iii) do not select or modify the information contained in the transmission. Further, Section 2 (1) (w) of the IT Act does envisage that such intermediaries could provide value-added services to third party sellers and same is also buttressed by Press Note No. 2 issued by the Ministry of Commerce and Industry. In particular, reference is made to para 5.2.15.2.4 (vi), which reads as under:

―”In marketplace model goods/services made available for sale electronically on website should clearly provide name, address and other contact details of the seller, post sales, delivery of goods to the customers and customer satisfaction will be responsibility of the seller.”

As regards the Intermediaries Guidelines, the court reiterated the law laid down by the top court in Shreya Singhal v. Union of India, (2015) 5 SCC 1, that an online platform’s obligation to remove content arises only if there is a court order or a notification from a government agency on the grounds mentioned in Article 19(2). An allegation from the DSE without the support of court order will not trigger the takedown obligation.

The Single-Judge bench had found the Appellants to be guilty of infringement, dilution and passing-off, etc. The two-judge bench, on the other hand, found that the Respondents had not asserted or even mentioned anything about trademark registration in the plaint. It said, “there was no occasion for the Plaintiffs to assert ownership of such trademarks. In fact, there is no such pleading to that effect at all. How the Single Judge could have come to such a conclusion and, that too, in a categorical manner, in the absence of any pleading, is a mystery.” Further the court relied on the decision of Kapil Wadhwa v. Samsung Electronics Company Limited, in which it was held that once the goods have been lawfully acquired, if they are put into market and further sold, there would be no infringement of the trademark irrespective of the fact that whether such a market is an international market or a domestic market.

Lastly, the court declined the Respondent’s argument that the Appellant had indulged in sale of tampered, damaged and in-genuine sale of the Respondent’s goods and held that that there was no material at the prima facie stage to conclude as such. These findings must await a trial.