In a significant judgement for e-commerce in India, the Delhi High Court in Christian Louboutin SAS v Nakul Bajaj and Ors., (decided on November 2), has recently attempted to clarify the responsibilities and liability of online intermediaries for trademark infringement. The judgement both clarifies and in some part obfuscates India’s intermediary liability regime as it relates to trademark infringement. Ms. Justice Prathiba Singh’s judgement is particularly important considering it is the first time the issue of trademark infringement by online intermediaries has reached final determination. We previously covered the issue of intermediary liability for online marketplaces on the blog here.
Background and Arguments
The plaintiff is Christian Loubatin, owner of registered trademarks, including the notorious single-colour mark for its distinctive “red sole”. According to the plaintiff, its products are only sold in India through authorized dealerships. The defendant is “darveys.com”, a website marketing itself as a ‘luxury brands marketplace.’ The plaintiff alleges trademark infringement against the defendant, by, inter alia, selling counterfeit goods, using the plaintiff’s registered trademarks as ‘meta-tags’ and using the plaintiff’s marks on its website. The defendant argued that the goods sold were genuine, and that there was no infringement on its part because it was a mere intermediary, and entitled to protection under Section 79 of the Information Technology Act, 2000.
Section 79 of the IT Act, known as the ‘safe harbour’ provision, essentially immunizes certain classes of intermediaries from liability for third-party content hosted or made available by them, provided that such intermediaries fulfill certain conditions laid down in that section. Intermediary liability in cases of IPR infringement is a major issue affecting online freedom of expression, protection of copyright and trademark, and, as such, it is incredibly important to have legal clarity on the issues surrounding Section 79. Unfortunately, India’s legal regime has not always provided sound jurisprudence around the issue. (For more coverage of this issue on our blog, see here.)
Although the parties disputed the genuineness of the goods sold on the website, no factual issue arose for determination because no actual goods had been booked as of the date of the judgement. Therefore, the only issue for trial was whether the defendant was liable for safe harbour protection as an intermediary, under Section 79 of the IT Act.
The Court’s Analysis and Decree
The High Court went on to examine in detail what constitutes an ‘intermediary’ under Section 2(w) of the IT Act, and when online marketplaces as intermediaries may qualify for safe harbour protection under Section 79.
Upon an examination of the defendant’s website, the High Court found on several counts that Darvey’s takes responsibility for the authenticity of the products and commissions checks on all its supplies, facilitates the purchases and sourcing of the products from third party sellers and arranges for the transport of the goods. At the same time, the website claims that the invoices are raised directly from the supplier to the consumer, without the intervention of the website, and does not offer any warranties on the product beyond its ‘authenticity guarantee’.
Keeping these factors in mind, the Court goes on to discuss the principles of intermediary liability in three jurisdictions – the EU, the US and in India, and notes that this is the first time the court is extensively discussing the regime applicable to trademark infringement in India. Subsequently, the Court discusses the precise nature of ‘intermediaries’ contemplated under the Act (unfortunately, without reference to its legislative history). The Court notes that the precise role of an online marketplace may be ascertained by looking at two factors:
- The role performed by the marketplace with respect to the goods – In particular, the Court lists 21 ‘tasks’ which an online marketplace may engage in, ranging from ‘identification of the seller’ to ‘packaging the product with its own packaging’, ‘giving discounts’ and ‘providing reviews’, among others.
- The policies of the marketplace with respect to ensuring that the sellers are not engaged in illegal conduct – including the processes in place for enforcing terms of use and consequences for violation of such terms.
Upon a consideration of the above factors, the Court concludes that the defendant is more than an intermediary, given that it identifies, enables and promotes the sellers and thus exercises complete control over the products being sold. The Court also notes that conduct of intermediaries, in failing to observe ‘due diligence’ with respect to IPR, could amount to ‘conspiring, aiding, abetting or inducing’ unlawful conduct would disqualify it from the safe harbour exemption, as per Section 79(3)(a).
The Court notes that the question of whether an online marketplace is an ‘intermediary’ is a factual one, which must take into account the two factors enumerated above and the basis on which the business is conducted. If a large number of the elements are present, then the marketplace would cross the line from an ‘intermediary’ to an ‘active participant’. Further, the Court holds that ‘any active participation’ by the online marketplace would rob it of the exemption from liability provided by Section 79.
The Court also refers to the IT (Intermediaries Guidelines) Rules, 2011, made under Section 79(3)(b), which lay down due diligence guidelines to be observed by the intermediary, including, inter alia, including terms of use that third party content should not violate IPR rights. However, the Court notes that mere observance of the guidelines may be necessary but is not a sufficient condition for safe harbour protection.
Finally, the Court examines whether there has, in fact, been a use of the plaintiff’s trademark in a manner that would constitute infringement. The Court bases its examination upon Sections 2(2)(c), 101 and 102 of the Trademark Act, which relate to the meanings of using, applying and falsifying a mark, respectively. The Court states that, with respect to applying and falsifying a mark, the following may constitute infringement, if applied to a counterfeit product (but not a genuine product). The Court notes that committing any of these activities would amount to ‘conspiring, aiding, abetting or inducing’ the unlawful act, contemplated under Section 79(3)(b), and displace any safe harbour available to a marketplace. Illustratively, and in the context of darveys.com, the Court notes that the use of the mark in an invoice, displaying advertisements containing the mark, enclosing the goods with its own packaging and selling them onwards, would all constitute falsification and infringement under Section 29 of the Trademark Act and thereby constitute aid, abetment or inducement under Section 79 of the IT Act. Further, the Court held that the use of meta-tags by the defendant constituted infringement, as upheld by another bench of the Delhi High Court in Kapil Wadhwa v Samsung Electronics.
Upon a consideration of all of the above factors, the Court held that the defendant was not an intermediary entitled to protection under Section 79, and would be liable for infringement if proven that the goods it was selling are counterfeit. However, in the absence of such proof, the Court decreed instead that the defendant disclose the details of its suppliers, and shall not upload any products bearing the plaintiff’s mark without their concurrence. Moreover, the Court ordered that the defendant must 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, and examine the evidence to see if it must be removed. Finally, the Court ordered that the intermediary must require its sellers to honour the warranties and guarantees provided by the plaintiff, and must also remove all meta-tags containing the plaintiff’s mark.
In the next post, I will examine what the judgement means for e-commerce marketplaces, as well as its merits and demerits.
