E-commerce is a dynamic and ever-evolving realm of business that has offered numerous revenue opportunities. However, intellectual property (IP) infringement consistently poses a formidable challenge for e-commerce platforms. Businesses and creators alike are seriously threatened by this, which has a considerable negative impact on their rights and revenue.

 

The prevalence of counterfeit goods is the most pervasive type of IP violation in e-commerce. These knockoffs frequently overrun online marketplaces and pass for genuine goods. Such fakes ultimately undermine the reliability of brands and their goods. In addition to damaging consumer confidence, this problem costs legitimate IP owners a lot of money.

 

 

Safe Harbor provision- A safety net for e-commerce platforms and other intermediaries

 

The act of e commerce platforms cannot be brought under the purview of Section 29 of the Trade Marks Act, 1999 as the said section broadly lays down the conditions for infringement of a registered trademark, which, inter alia, requires the use of the mark ‘in the course of trade’. An e commerce platform offering a market place to sellers to sell goods cannot be held liable of ‘using’ a trademark unless they engage in activities, such as  running their own advertisements, offering their own warranties and guarantees, presenting endorsement via name association with the sellers or potential infringers, offering refund and return policies.

The principle of safe harbor under Section 79 of the Information Technology Act, 2000 (IT Act) grants protection from liability or penalty. E-commerce platforms are permitted to use the safe harbor principle to safeguard themselves from being held liable for civil or criminal actions of an external party, such as the sellers on the platform. Such illegal act should be without the knowledge of the e-commerce platforms.

Section 79(2) of the IT Act essentially covers cases where the activity undertaken by the intermediary is of a technical, automatic, and passive nature. For an e-commerce platform to avail the safe harbor its activities should be restricted to providing access to a communication system over which information is made available by third-parties. Intermediaries should not primarily initiate the transmission of information, select the receiver of the transmission and select or modify the information contained in the transmission.

Need for amendment of the IT Act, 2000 and Intermediary Guidelines.

The Information Technology Act, 2000 ( IT Act) was amended in 2008 to provide exemption to intermediaries from liability for any third party information, among others; the definition of the intermediary under the Act and Section 79 of the Act was amended to provide for a wider scope of protection to intermediaries. Following this, the IT (Intermediary Guidelines) Rules, 2011 were framed to specify the due diligence requirements for intermediaries to claim such exemption. In 2018, a discussion was raised in Parliament on incidents of violence due to misuse of social media and e-commerce platforms. The basic theme of the new rules is the imposition of new responsibilities on Internet intermediaries seeking to enjoy the legal immunities. Previously, the law allowed internet intermediaries to enjoy unprecedented and wide-ranging immunity from legal liability at little to no cost. In order to be more specific and bring harmony with respect to due diligence of intermediaries, protection of rights of IP owners and lawful application of the safe harbor provision, the Ministry of Electronics and Information Technology, on 6th June, 2022, issued a press release along with a proposed draft amendment to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“IT Rules, 2021”). The said Rules have been notified by the Government on 28th October, 2022. [1]

The relevant provisions of the Rules lay down the conduct of intermediaries as below.

1. That all intermediaries shall be obligated to ensure compliance by users of their rules, regulations, privacy policy, user agreement, etc. and shall cause the user to not host, display, publish, upload, transmit, store, update or share information specified under Rule 3(1)(b)(i)-(x).

2. That all intermediaries shall ensure accessibility to its services and maintain reasonable expectations of due diligence, privacy and transparency.

3. That all intermediaries shall respect the rights of citizens guaranteed under the Constitution of India.

4. That all intermediaries shall act on complaints for removal of content falling under Rule 3(1)(b)(i)-(x) within 72 hours of receipt of complaint.[2]

5. That a Grievance Appellate Committee shall be set-up to hear appeals against decisions of the Grievance Redressal Officer under Rule 3(2). However, users will always have the right to approach courts for any remedy.

6. The amendment also requires intermediaries to respect the rights guaranteed to users under the Constitution, including a reasonable expectation of due diligence, privacy and transparency.

Liability of E-Commerce Platforms as per Judicial Precedents

In one of the earliest landmark judgements, Samsung v Kapil Wadhwa[3], the Division Bench of Delhi High upheld re-sale of genuine products outside authorized distribution channels. The Division Bench also stated that trademark laws are not intended to regulate the sale and purchase of goods but to protect trademark rights.

In Myspace Inc. vs. Super Cassettes Industries Ltd.[4], the Division Bench of Delhi High Court therein was concerned with the claim of Myspace as an intermediary having refused to take down the infringing contents from its website resulting in continued infringement. It was held that an intermediary, on receiving "actual knowledge" or upon obtaining knowledge from the affected person in writing or through email, should within 36 hours of receiving such information, disable access to the infringing link. If copyright owners inform the intermediary specifically about infringing works and despite such notice the intermediary does not take down the content, the intermediary shall be denied safe harbor.

In Christian Louboutin v. Nakul Bajaj[5], the Court observed that if an e-commerce website is conspiring, abetting, aiding or inducing, or contributing to selling counterfeit products, it crosses the line from being an intermediary to an active participant, making it liable for infringement. Hence, they need to operate cautiously if they wish to enjoy the immunity provided to intermediaries. The Court very rightly clarified that  the IT Act only overrides the Trade Marks Act, 1999 if the provisions of the Trade Mark Act are inconsistent with the IT Act. The Court pointed out that using of  meta-tags will allow the defendant to ride on the reputation of the plaintiff as its website would appear on searching the name of the actual owner. Such a violation of the Trademark Act, 1999 cannot provide immunity under Section 79 of the IT Act.

In Kent RO Systems Ltd. v. Amit Kotak & Ors[6] the Court held that an intermediary is not required to make a self-determination of infringing products sold on its website but is required to take down the same after a complaint is received from the original IP right owner.

The Division Bench of the Delhi High Court set aside a  judgment passed by a Single Judge in Amway India Enterprises Pvt. Ltd. v. 1Mg Technologies Pvt. Ltd. & Anr.[7] It was held that Section 79 of the IT Act is a safe-harbor for online marketplaces, limiting their liability for third party information posted on their platforms. The safe-harbor provisions do not make any distinction between passive and active intermediaries. The value added services provided by the defendants (such as warehousing, packaging, delivery, etc.) do not dilute the safe-harbor granted to them.

The Delhi High Court, in Samridhi Enterprises vs Flipkart Internet Private Limited & Ors[8] affirmed that Rule 3(2) of IT Rules, 2021 specifies the requirement for intermediaries to publish the details of the Grievance Officer and the mechanism by which the users could complain against the violation of the provisions of Rule 3 of the IT Rules. On receipt of a grievance, Rule 3(2)(a) simply requires the grievance officer to acknowledge the complaint and dispose it off. The clause does not go on to say that the intermediary must take any specific action in response to a notice of infringement, much less take any specific action against the intermediary.

 

Conclusion

E-commerce marketplaces in India may claim the benefit of Section 79 of the IT Act, 2000 as a safe harbor against the sale of counterfeit goods on their portals, provided that they do not participate to select or modify the posts of sellers. The platforms should actively remove infringing links within 72 hours of receipt of actual knowledge of the specific infringing actions on the website (as required under the IT Rules). When any issue of infringement in e-commerce platforms come up for consideration before an Indian court, it should bear in mind that any principle of liability on related parties must strike a balance between providing effective relief to trademark holders and non-interference with legitimate commerce conducted in online marketplace.[9]


[1] https://prsindia.org/billtrack/amendments-to-it-rules-2021#:~:text=Under%20the%20IT%20Rules%20users,inform%20users%20about%20these%20restrictions., last accessed on September 21, 2023

[2] https://spicyip.com/2022/06/the-amendment-to-the-it-rules-2021-part-2-locked-loaded-and-aimed-at-the-intermediaries.html

[3] 194 (2012) DLT 23

[4] 2016 SCC OnLine 6382

[5] 2018 (76) PTC 508 (Del

[6] 2017 SCC OnLine Del 7201

[7] FAO(OS) 133/2019

[8]  CS (COMM) 63/2023

[9] https://spicyip.com/2017/04/online-marketplaces-and-trademark-infringement-in-india.html, last accessed on September 21, 2023