News & Updates

July 14, 2020

‘Can e-commerce intermediaries be held liable for sale of counterfeit goods on their platforms?’ (Author: Siddharth Varshney)

Introduction

The rapid technological advancement in the recent past has made a global impact on the functioning of the society, the most prominent of which can be seen in the e-commerce arena. While there has been exponential growth of the e-commerce marketplace, we have also witnessed a rampant rise in sale of counterfeits and pirated goods over such platforms. This issue of counterfeiting and pirated goods has been exacerbated by the COVID-19 pandemic, witnessing an upsurge in the instances exploiting the upsurge in demand on e-commerce platforms. This article explores the extent to which such e-commerce platforms can be made liable and whether they can claim exemption under the safe harbour provision in the Information Technology Act, 2000 (“IT Act”).

Who is an intermediary?

An ‘intermediary’ is defined under Section 2(w) of the IT Act as …any person who on behalf of another person receives, stores or transmits that record or provides any service with respect to that record and includes telecom service providers, network service providers, internet service providers, web-hosting service providers, search engines, online payment sites, online-auction sites, online-market places and cyber cafes”.

Intermediary Liability and the Information Technology Act, 2000

The significant growth of e-commerce in India has brought the issue of intermediary liability to the forefront in India. This issue first came up in Avnish Bajaj v. State of NCT [2005 (79) DRJ 576], where the Delhi High Court quashed the criminal proceedings initiated against the CEO of Bazee.com (now eBay.in). While the proceedings were quashed on procedural grounds, the Court ruled that the website hosting the impugned video can be held liable under the Indian Penal Code and section 67 read with section 85 of the IT Act (which prescribes deemed criminal liability of director(s)/manager(s) of an intermediary entity responsible for publishing or transmitting content containing sexually explicit act).

Following this judgment, the IT Act was amended to introduce the safe harbour provision, i.e., Section 79, Following this judgment, the IT Act was amended to introduce the safe harbour provision, i.e., Section 79, which exempts intermediaries from liability for third-party content made available on its platform.  The intermediary liability for third-party content in India is primarily governed by section 79 of the IT Act read with the Information Technology (Intermediaries Guidelines) Rules, 2011 (“IT Rules”).

Section 79(1) of the IT Act provides intermediaries immunity with respect to any third-party content, data or information hosted by them. However, such immunity is not absolute and is limited by section 79(2) and (3) of the IT Act. Section 79(2) prescribes that such immunity is applicable only when an intermediary’s role is passive and technical in nature. Further, section 79(3)(a) provides that an intermediary cannot claim immunity if it has “…conspired or abetted or aided or induced…in the commission of the unlawful act” and section 79(3)(b) provides for a ‘notice and take down’ regime, wherein an intermediary is required to take down infringing content upon receiving actual knowledge of its existence.

Further, Rule 3 of the IT Rules provides that an intermediary shall observe due diligence, which will absolve them of liability for third-party content. Such due diligence will include publishing its rules and regulations (including user agreement and privacy policy), which shall inform users to not upload any information which is misleading/fake and infringes trademark, patent copyright or any other proprietary rights.

Judicial Developments

In Shreya Singhal v. Union of India [2015 (5) SCC 1], the Supreme Court ruled that when an intermediary receives ‘actual knowledge’ (viz. pursuant to an order of a Court of law) to remove infringing material, it should act on such knowledge and remove the impugned content. The Supreme Court also noted that if intermediaries are required to act on complaints by common public, there will be millions of complaints and it would be difficult for an intermediary to assess them in a limited period of time.

Further, in Myspace Inc v. Super Cassettes Limited [2017 (69) PTC 1 (Del)], the Delhi High Court followed the Supreme Court’s decision in the Shreya Singhal case and ruled that it is necessary to establish the ‘actual knowledge’ on part of the intermediary to establish the liability for unlawful/infringing contents on its website.

In 2018, the Delhi High Court in the matter of Christian Louboutin v. Nakul Bajaj [CS (COMM) 344/2018], differentiated between e-commerce platforms which act just as an intermediary and those which act as an active agent in selling goods. To that extent, the court noted certain criterion to identify the role of e-commerce platform viz. transportation, quality assurance, collection of payment, reviews, authenticity guarantee, advertisement/promotion of the product, membership, providing specific discounts to members, uploading the entry of product, booking ad-space, deep-linking to the trademark’s owner website, etc.

The Delhi High Court observed that “…the so-called safe harbour provisions for intermediaries are meant for promoting genuine businesses which are inactive intermediaries, and not to harass intermediaries in any way, the obligation to observe due diligence, coupled with the intermediary guidelines which provides specifically that such due diligence also requires that the information which is hosted does not violate IP rights, shows that e-commerce platforms which actively conspire, abet or aide, or induce commission of unlawful acts on their website cannot go scot free”.

Similarly, the Delhi High Court later on in the cases of L’Oreal v Brandworld [CS (COMM) 908/2016], Skullcandy Inc v Shri Shyam Telecom & Ors. [CS (COMM) 979/2016], M/s Luxottica Group S. P. A. & Anr. v M/s Mify Solutions Private Limited & Ors. [CS (COMM) 453/2016] applied the criterion laid down in the Christian Louboutin case to determine the liability of e-commerce websites in respective cases.  

Recently, a Division Bench of the Delhi High Court in the case of Amazon Seller Services Pvt. Ltd. vs Modicare Ltd. & Ors. [FAO(OS) 540/2011] further strengthened the safe harbour provided to e-commerce intermediaries by ruling that “…the value-added services provided by them as online market places…do not dilute the safe harbour granted to them under Section 79 of the IT Act. Section 2 (1) (w) of the IT Act does envisage that such intermediaries could provide value-added services to third party sellers.”

To summarize, an e-commerce platform’s role in providing value added services such as packaging of goods, door-to-door delivery, etc. would not disentitle it from seeking the exemption under the safe harbour provision of the IT Act. However, an e-commerce platform’s active involvement in sales such as deep linking to the trademark’s owner website, authenticity guarantee, etc. could lead to revocation of such exemption under the safe harbour provision of the IT Act.

Conclusion

The jurisprudence on intermediary liability of e-commerce platforms continues to evolve and develop, as the courts have focused on striking a balance in granting exemptions and imposing liability on e-commerce platforms. As per the judicial precedents, it is evident that liability of an intermediary depends on its extent of involvement in sale of infringing/counterfeit goods, which needs to be determined on a case to case basis.

The series of judgments by the Delhi High Court ensures that e-commerce platforms cannot hide anymore behind the exemption of section 79 of the IT Act and get away scot free from their liability as infringers or enablers by acting in conduit with the manufacturer(s) of counterfeit products. Hence, if an e-commerce platform has an instrumental role in sale of goods (viz. deep linking trademark owner’s website, authenticity guarantee, etc.) and is just not limited to that of an intermediary and its value added services (viz. packaging, door-to-door delivery, etc.), it will lose its protection as an intermediary under section 79 of the Act.

Copyright: ALG India Law Offices LLP

  • Non Solicitation
  • Data Privacy & Protection
  • Conflict of Interest Policy
  • Data & Document Retention Practice
  • Firm Management Policy
  • Liability
  • Disclaimer
  • Privilege
  • Copyright
  • Billing Policy