In the world of E-Commerce, Intellectual Property (IP) owners face challenging times owing to counterfeit products being sold by unauthorized sellers on E-commerce platforms and it is not merely the unauthorized sellers but the unbridled and elusive E-commerce entities to be considered as well.  Recently, a batch of seven suits for injunction were filed in the Delhi High Court by Amway, Modicare, Oriflame against 1MG, Amazon, Flipkart and few other E-commerce entities for injunction to restrain  direct sellers from selling  the Plaintiffs’ products on the E-commerce platforms without the former’s consent. .

Issues:

Four questions came up before the Court;

  1. The first being on the validity and binding effect of the Direct Selling Guidelines, 2016. (The Direct Selling Guidelines provide the framework for the conduct of direct selling business in India).
  2. Whether sale of Plaintiffs’ products on E-commerce platforms amounted to violation of Plaintiffs’ trademark rights, resulting in misrepresentation, passing off and dilution of the Plaintiffs brands’ goodwill and reputation.
  3. Third, regarding the claim by the E-commerce platforms that they were entitled to protection as intermediaries under the safe harbor provision under Section 79 of the Information Technology Act (IT Act) and the Intermediary Guidelines, 2011 in India.
  4. Lastly, the question of torturous liability of E-commerce platforms for interfering with the contractual relationship between the Plaintiffs and their direct sellers.

The Court had answered all the four questions affirmatively and ruled that the Direct Selling Guidelines are law and are binding. The Court highlighted that in the absence of consent from the Plaintiffs, usage of the latter’s marks/brands by the Defendants amounted to a violation of the Plaintiffs’ trademark rights and dilution of their brands’ goodwill and reputation. How the Plaintiffs’ products are portrayed on the websites also constituted misrepresentation.

On the third issue, the Court observed that as per Section 79 of the IT Act and Guidelines, the intermediaries are obliged to follow due diligence by setting up proper policies for IPR protection which the Defendants had failed to observe and thus the Defendants do not fall under the safe harbor provision.

Lastly, the Defendants argued that they were not directly involved in the sale of Plaintiffs products and they are mere facilitators. However, the Court rejected this argument and held that the interference need not be direct, and it opined that E-commerce platforms owe a duty to ensure that the contractual relationships are not unnecessarily interfered with, by their businesses.

Checks and Balances

The Court ruled against the E-commerce platforms by granting an injunction in favor of the Plaintiffs. Though the E-commerce platforms have opened various opportunities for business, this case is an example of how modern business platforms should conduct their business according to the law by following certain safeguards and ensuring that existing businesses are not adversely affected by their interference.

Summary