Amazon v. Amway: A Growing Appellate Scrutiny Problem

We’re pleased to bring to you a guest post by Eashan Ghosh on the recent Delhi High Court Division Bench’s decision that set aside the Single Judge’s order restraining various e-commerce platforms (including Amazon, Flipkart and Snapdeal) from enabling sale of products of ‘direct selling’ companies without their consent.

Eashan has practicing as an intellectual property advocate and consultant in New Delhi since 2011, and teaches a seminar on intellectual property law at National Law University, Delhi. Eashan writes about Indian intellectual property law, including a monthly review of Delhi High Court judgments, on his Medium page. He has written several guest posts for us in the past as well (see here, herehereherehereherehere and here).

Amazon v. Amway: A Growing Appellate Scrutiny Problem

Eashan Ghosh

In this post, I discuss some trade mark issues arising from Delhi High Court’s recent appeals judgment in Amazon Seller Services v. Amway India Enterprises. The case more centrally concerns the applicability of the 2016 Direct Selling Guidelines, Section 79 of the Information Technology Act, and contentions regarding inducement of breach of contract and tortious interference. Latha’s post on the judgment offers an excellent summary of these issues.

Negative Actions

Reversing the first court’s positive finding of trade mark infringement, the appeals court finds in favour of the Defendant-Appellants. It does so by attacking the negative actions of the Defendants (in their capacity as e-commerce platforms) which the first court found to be consistent with trade mark infringement viz., product tampering and failing to furnish full details of the sellers. These activities had supplied the first set of reasons for the first court to rule in favour of the Claimant-Respondents (in their capacity as direct sellers) against the Defendants.

The approach adopted by the appeals court here is critical. It is restricted to rebutting the first court’s conclusions by diverting the discussion either to facts not considered or adjudicated differently by the first court. At least five categories of materials answer to this description. These are:

  • Insufficiency of material in Local Commissioner reports to sustain a finding of product tampering by the Defendants;
  • Accuracy of MRP listings on products sold by the Defendants;
  • Accessibility of seller information by consumers on products sold by the Defendants;
  • Instances of the Claimants’ own discounts being passed onto consumers; and
  • Withholding of buyer information from sellers until the conclusion of the sale.

The appeals court does not, therefore, ask whether, on the material before it, the first court could reasonably have come to its conclusion. It asks, instead, whether, in view of existing material either not considered by the first court or capable of different interpretation, the first court’s opinion ought to be revised.

This is supported by the appeals court’s view that the first court was in error in its reading of precedent to find that the Defendants’ actions would not be saved under the second sale exception to trade mark infringement under sub-sections (3) and (4) to Sections 30 of the Trade Marks Act.

Performative Actions

The first court’s trade mark infringement case against the Defendants, however, ran deeper. The first court had found that the platforms of the Defendants offer several routes of facilitating second sales: by running advertisements, offering their own guarantees, endorsing and name associating themselves with the Claimants, and instituting their own refund and return policies. These are what I referred to last July as the performative actions of the Defendants that are consistent with trade mark infringement. Had the intention of the appeals court been to nullify the ruling of the first court, these points surely ought to have been answered.

They are not. Instead, based on its own review of the materials available to the first court, the appeals court overrules the first court’s factual finding that the Defendants were tampering with the Claimants’ products. On the material before it, concludes the appeals court, a positive finding of product tampering against the Defendants “was too sweeping a conclusion to arrive at.”

Even so, the appeals court is forced to admit that this is, almost to a fault, a factual question. It can, therefore, only be settled through evidence. To be clear, its conclusion that it was premature for the first court to rule that there was positive evidence of product tampering is not without merit. However, once again, this turns on what the appropriate standard for appellate scrutiny of factual findings should be. Was there a good faith basis for the first court to believe that there had been product tampering? Was there enough material on record to suggest that a de novo consideration would point away from a conclusion of product tampering? The answer to both questions could well be in the affirmative, and the absence of a disciplined and repeatable basis for its appellate scrutiny certainly damages the appeals court’s ruling.

“Outside the Purview”

The trade mark discussion is also book-ended by the appeals court’s conclusion that there is no case to answer on trade mark infringement or passing off at all. This is because, in their view, there has been no assertion of trade mark claims by the Claimants and that any case for relief on this basis is “outside the purview and scope of the pleadings in the suits.”

If this is to be taken at face value, all other discussion on the trade mark issue is moot. However, applying the same standard to the appeals court, upwards of 4,000 words of its own judgment has no significance, by its own admission. To set it out “in any event”, as the appeals court does here, is unsatisfactory.

The first court’s ruling in July 2019 had been a mixed one: it had set out a factual yardstick for assessing trade mark dilution claims in online sales cases but had obscured the foundation of those very claims. Now, the appeals court in January 2020 presents another a mixed ruling for reasons that are neatly aligned: it overwrites the factual yardsticks for the assessment of trade mark dilution claims in such cases but denies that the foundation of those claims exist at all.

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4 thoughts on “Amazon v. Amway: A Growing Appellate Scrutiny Problem”

  1. I have to disagree with the author here that the “discussion on the trademark issue is moot” in the appellate court’s order. The Single Judge’s order contains pages of findings interpreting other case law and findings on the facts. Some of these findings by the Single Judge were absolutely wrong and contrary to existing law and fact. So, regardless of whether or not they would be considered obiter in light of the fact that this issue is “moot”, it was necessary to also clarify what the law is since the order of the Single Judge has been cited ad nauseam by brand owners to strong arm and wrongly prevent sale of genuine products on e-commerce platforms under trademark law.

    1. Thanks for the comment.

      You seem to be raising two separate concerns together: one, that the trade mark discussion may have had some non-zero value in determining the outcome of the appeal, and two, that the trade mark discussion by the appeals court was necessary because of the market effects of the first court’s ruling.

      I’m not sold on the first. The test for it is best framed in the converse: could the appeals court have decided the appeal without reference to the trade mark issue? Since the Claimants neither set up the trade mark issue in the pleadings nor invited judgment on it, it’s evident that the appeals court itself believes that the answer is yes. All I’ve done is taken their word on it. (I’m going by the appeals court’s statements in paragraphs 96 and 116, in case you want to match notes.)

      I reckon that’s a fair reading of the appeals court ruling, though you’re obviously free to sustain your disagreement.

      I understand your second concern better. There’s no doubt that the market effects of super contentious litigation are difficult to deal with. However, here again, the inquiry is actually a really simple one: would setting aside the first court’s injunction order on non-trade mark grounds (more directly at issue in these claims) neutralize these market effects?

      I’m inclined to believe that the answer in this case is also yes. Whether justified on the basis that the first court’s application of the 2016 DSG was incorrect or for Section 79 reasons or on any other non-trade mark basis, the effect of the appeals court ruling would have been to kill the injunction. Whatever route it adopted to do so, it would instantly make the first court’s observations on the trade mark issue unviable. As such, I’m afraid there’s little to infer from the appeals court’s position on the trade mark issue. The appeals court’s statement that the Claimants had no occasion to assert their trade marks in this case (see paragraph 95-96) only confirms this.

      Even on the substance of the trade mark issue itself, I don’t view the appeals court as having travelled very far at all. They’ve endorsed Wadhwa v Samsung, said that second sellers retain statutory options under Sections 30(3) and (4), and kicked the can of the (f)actual dispute further down the road to trial. I struggle to see what this adds to the existing law. Is it possible to view that as a course of action that was necessary under the circumstances? Sure. But does it really move the needle in terms of the legal options accessible to second seller Defendants? I don’t think so.

  2. One : I understand your point although I do not necessarily agree with it.

    Two : “Does it really move the needle in terms of the legal options accessible to second seller Defendants?” Let’s just say you’d be surprised 😀

    1. Haha, I’m always up for a good surprise!

      On a serious, though, my point was a little more basic than that. The reason I don’t think it moves the needle on second seller options is because even the substantive trade mark issue has effectively been decided under Wadhwa v Samsung. (I’m not being facetious here – if there’s been a meaningful advancement of the legal position beyond Wadhwa v Samsung in this case, I’d very much like to learn about it.)

      As I see it, this appeals court only ‘restores’ the Wadhwa v Samsung position in its true sense. (You’ll appreciate that the word ‘restores’ here is tricky because even the first court claims to follow Wadhwa v Samsung.) The appeals court does so by taking the easiest option available, which is striking out the first court’s findings on the trade mark issue as invalid for exceeding the scope of the claims. It then separately says that this exercise by the first court (of deciding a trade mark issue it was unnecessary to decide) should never have been conducted in the first place because the claims didn’t require it. That’s all there is to it, really. It’s hard to take seriously any substantive finding offered with this heavy a caveat, and even if we were to, it travels no further than a legal position that’s been followed (largely) without complaint for 7+ years.

      I’ll frame it in the way I understand the ‘moving the needle’ concept to work: if a similar case were to be presented to the Delhi High Court today, I imagine they’d sooner reach for Wadhwa v Samsung than they’d reach for Amazon v Amway to help decide it.

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