Changing Landscape of Intermediary Liability

The High Court of Delhi (‘Court’), in a spate of recent judgments, has critically evaluated the liability of e-commerce platforms in respect of trademark infringement, by carefully examining the business model of the e-commerce platform and the role played by such e-commerce platform in the overall transaction, involving marketing and sale of products to end consumers. The Court has provided substantive guidance on when an e-commerce player operating a marketplace can claim to be an ‘intermediary’, and claim immunity or ‘safe harbour’ under Section 79 of the Information Technology Act, 2000 (‘IT Act’). Section 79 of the IT Act, more popularly known as the ‘safe harbour’ provision, essentially immunizes certain types of intermediaries from liability qua third-party content and material, hosted or made available by them, provided such intermediaries fulfil the prescribed conditions.

The first and foremost of these judgments was rendered in the matter of Christian Louboutin SAS v. Nakul Bajaj & Ors.[1] In this case, Christian Louboutin (‘Plaintiff’), the registered proprietor of the single-colour mark for its distinctive ‘red sole’ filed a suit against www.darveys.com  (‘Defendant’), a website marketing itself as a ‘luxury brands marketplace’ (‘Louboutin Case’), for marketing, offering and selling allegedly counterfeit Louboutin branded products using the name and image of Mr. Christian Louboutin. According to the Plaintiff, the Defendant was also using the Plaintiff’s registered trademarks and the names ‘Christian’ and ‘Louboutin’ as ‘meta-tags’ on its website and in turn, diverting internet traffic. The Defendant, however, argued that the goods sold on the website were genuine. The Defendant further claimed that it was merely booking orders, placed by customers, whose supplies are effected through various sellers and, therefore, it was a mere intermediary, entitled to protection under Section 79 of the IT Act.

At the outset, the Court examined the definition of an ‘intermediary’ under the IT Act and emphasized that its role is limited to ‘receiving, storing, transmitting an electronic record or providing a service with respect to that record’. The Court further observed that in assessing whether an e-commerce platform can be considered as an ‘intermediary’, it is important to assess whether such platform played only an inactive or passive role in the marketing and selling process; in other words, whether such a platform was merely acting as a conduit or passive transmitter of records or of information. Further, the Court also observed that it must be analysed whether such an e-commerce platform is taking adequate measures to ensure that no unlawful acts are committed by the sellers. The Court laid down certain factors to assess this, which include: (i) the terms of agreements entered into between the platform and the sellers; (ii) the manner in which terms were enforced; (iii) whether adequate measures have been put in place to ensure trademark rights are being protected; and (iv) whether the platforms have knowledge of unlawful acts.

The Court found that the Defendant was not an ‘intermediary’ as it was substantively involved in the business operations and had control over the products being sold on the platform. The Court found that the Defendant was actively involved in, inter alia: (a) identifying the sellers; (b) enabling the sellers actively; (c) promoting them; (d) selling the products in India; (e) providing guarantee of authenticity for products on the platform; and (f) claiming that it has relationships with the exclusive distributors of the Plaintiffs’ products etc. The Court further observed that on www.darveys.com, the seller and the person from whom the seller purchases the goods are not known and it is also unclear whether goods are genuine. In view of this, the Court observed that the conduct of the Defendant amounted to ‘conspiring, abetting, aiding or inducing unlawful activity’ as it promoted the infringing products to its members who signed up on the website (by payment of a membership fee). In view of this, the Court came to a finding that the Defendant was not entitled to any protection as an ‘intermediary’ under the IT Act.

The Court, inter alia, directed the Defendant to disclose complete details of all its sellers including their contact information, obtain a certificate of authenticity from its sellers and implement a system whereby upon being notified of any counterfeit product by the Plaintiff, the Defendant must ascertain the authenticity of the product with the seller on its site and thereafter, examine the same with evidence to check if it must be removed. Lastly, the Court further ordered that the Defendant should remove all meta-tags containing the Plaintiff’s mark.

Placing reliance on the Louboutin case, the Court has held two more e-commerce players, being www.kaunsa.com and www.shopclues.com liable for trademark infringement in the cases of Luxottica v. Mify Solutions[2] and L’Oréal v. Brandworld & Anr.[3], respectively.

These decisions are undoubtedly a big step forward in ensuring that brand owners’ rights on e-commerce platforms are protected. The decision in the Louboutin case is especially important as it throws light on specific situations in which an e-commerce marketplace can claim ‘safe harbour’ under the IT Act. Another key practical implication of these cases is that e-commerce marketplaces may now be required to re-evaluate their business models as well as the role they play in the marketing and sale of products on their platforms.

[1] CS(COMM) 344/2018, order passed by Hon’ble Mrs. Justice Pratibha Singh dated November 2, 2018.
[2] CS (COMM) 453/2016, Luxottica Group S.P.A. and Ors. vs. Mify Solutions Pvt. Ltd. and Ors. (12.11.2018 – DELHC)
[3] CS(COMM) 980/2016 – Delhi High Court

Date: January 19, 2019