New Delhi: The Delhi High Court has restrained e-commerce platforms Amazon, Flipkart, Healthkart and Snapdeal from featuring and selling products belonging to Amway without its consent.
A similar order has been issued against Amazon with respect to the products of Modicare and Oriflame.
Authoring the judgment, Justice Pratibha M. Singh quoted the popular adage from American comic book Spider-Man — “with great power comes great responsibility” — to highlight the burden on e-commerce platforms, which it said have “penetrated all forms of trade, commerce and businesses”.
The court issued an interim injunction against the websites Monday, observing that “at the prima facie stage, the apprehension of the Plaintiffs that the products are being sourced through unauthorised channels and that the products are tampered, conditions changed and impaired, is completely valid”.
Singh asserted that if the injunction was not issued, the websites would “completely erode” the business of the companies through their practices.
The observation came after the court was informed, with photographs and other evidence, that there was “large scale tampering of goods” taking place at the platforms’ warehouses. This, the court said, also raises apprehensions over the manufacturing and expiry dates on these products.
The court was hearing a batch of seven suits filed by Amway, Modicare and Oriflame, raising overlapping issues.
The legal complexities in the case involved Constitutional issues, intellectual property rights, information technology, consumer protection and contractual laws as well as other guidelines applicable to the business model of the petitioners.
Violation of policy, counterfeit products
Amway, Modicare and Oriflame, the three companies, sell their products through a system of ‘direct selling’, allowing sellers to sell their products under a direct seller’s contract. These sellers agree to market, distribute and sell their products directly to the consumers.
Last year, the companies challenged the sale of their products on the e-commerce websites without their consent. This, they said, was violative of the Direct Selling Guidelines, 2016, which prohibit the sale of products in such arrangements — direct selling of these products — without the consent of the company.
Additionally, the companies apprehended that counterfeit products were being sold on these websites, in view of the drastic reduction in price being offered and consumer dissatisfaction with these products.
They also took objection to the change in the refund, return, guarantee and warranty policy for their products, asserting that this results in the erosion of the customer’s trust in their products.
In April 2018, the Food Safety and Standards Authority of India had also sent a letter to all major e-commerce websites, asking them to stop the sale of direct selling products, without the consent of those companies.
According to the HC judgment, this letter was neither challenged, nor complied with.
Large scale tampering of goods at warehouses
In its interim order, the Delhi High Court observed that the manner in which the products of the three companies find their way to these websites would be finally adjudicated at the time of trial. It, however, noted that none of the websites was able to “unimpeachably vouch” for the originality of the products sold on their platforms.
During the proceedings, the court conducted an enquiry into the products available on these websites and examined the reports filed by the local commissioner who was directed to visit the warehouses of these platforms.
Among other things, the court noted that the name of the seller was either not mentioned on the website at all or was mentioned without any details. As for warehouses, it noted that as alleged by the companies, some of the products found there were tampered with and did not contain the barcode affixed by the companies.
The local commissioner submitted that some products found in the warehouses could not be traced back to the three companies, leading to a question on their quality and genuineness. Besides, their seals were broken and QR codes removed, posing concerns on the hygiene standards at these facilities.
Notably, the court made reference to the policies and contracts adopted by these websites themselves, which prohibited the sale of products for which the seller is not authorised. These policies also banned products by sellers who do not have consent of the relevant brand or trademark owner.
The court fastened liability on the websites for the products being sold through their platform, saying the company’s grievances were “not completely unfounded”.
It observed, “The Plaintiffs cannot turn a blind eye to the sale of their products on the platforms when there is a serious threat not only to their business but also to their products and the equity enjoyed in them. There is a serious threat to the reputation of the products and if the same are permitted to be sold unchecked, there may be enormous dilution and tarnishment of the Plaintiffs’ products and brand equity.”
At the prima facie stage, it ruled that the evidence “clearly reveals that the Plaintiffs’ rights are under severe threat”.
‘No violation of fundamental right’
The e-commerce websites essentially took the stand that they were intermediaries and hence, were entitled to protection under Section 79 of the IT Act, which exempts intermediaries from liability in certain cases. They asserted that all the services provided by them were that of a mere ‘facilitator’ and that they are not active participants in these transactions.
Categorisation of these websites as intermediaries under the IT Act would have given them the protection of Section 79 of the Act.
The concept of an intermediary, as the expression itself denotes, means a person or entity, which is in between two other persons. The e-commerce platforms sought to be intermediaries between the seller and the buyer.
The court, however, ruled that in order to continue enjoying the status of intermediaries, these websites will have to comply with “the due diligence requirements”, according to the platforms’ own policies, and the Intermediary Guidelines, 2011.
This, it said, was not being done in the case at hand, as the policies were just “paper policies”.
The court also ruled that the Direct Selling Guidelines do not violate the e-commerce websites’ fundamental right to carry on their business under Article 19(1)(g) of the Constitution of India.
It asserted that these guidelines are applicable to the e-commerce platforms as well, observing, “Though, the Guidelines are issued to regulate the Direct Selling industry, the wording of Clause 7(6) of the said Guidelines is clear i.e. it applies on “any person who sells or offers for sale”. This would take within its ambit, all sellers of goods on e-commerce platforms.”
Responsibility of the websites
The Delhi High Court considered the international position on the liability of e-commerce platforms in such cases, noting that in the US, Amazon’s role has been considered more than that of an intermediary. The position in Europe is that if the sale of products causes damage to the reputation of the trademark, then the trademark owner could oppose its sale.
The court referred to Section 29 of the Trade Marks Act, 1999 which deals with infringement of trademarks and Section 30 that sets out what is not infringement. Section 30(4) disallows sale of goods by a third party, if the condition of the goods is changed or impaired by such party.
Changes in warranties, refund/return policies etc “causes damage to the reputation of the mark” and would constitute ‘impairment’, said the court.
Ruling in favour of the three companies in the interim on the question of infringement of trademark by the e-commerce websites, the court explained, “The sale on e-commerce platforms of the Plaintiffs’ products would be infringement of the Plaintiffs’ trademark rights as the Defendants are also using the Plaintiffs’ trademarks, their trade names for promotion of the products, sale of products, display of products, and advertising of the products in a manner that is detrimental to the distinctive character and reputation of the Plaintiffs’ marks.”
The use of the trademarks specifically for advertisement and sale on these platforms was also found to be violative of the Act.
“Sale on the e-commerce platforms in the manner sought to be done in the present cases is clearly leading to erosion of the economic value of their trade marks,” it ruled.
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