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The Delhi High Court has restrained e-commerce platforms Amazon, Flipkart, Healthkart, and Snapdeal from advertising, displaying or offering for sale products belonging to Amway without its consent.
A similar order with respect to the products of Modicare and Oriflame has been issued against Amazon.
The interim orders were passed by a Single Judge Bench of Justice Prathiba M Singh in a batch of suits by Amway, Modicare and Oriflame (plaintiffs) against various entities who were either running e-commerce platforms or were sellers on these platforms.
The plaintiffs, who are ‘Direct Selling Entities’, had moved the Court against the unauthorised sale of their products on e-commerce.
It was Amway’s case that its trademark and tradename, AMWAY, was being used on e-commerce platforms without its consent. It was claimed that several sellers were selling its products on the e-commerce websites in violation of the Direct Selling Guidelines, 2016.
It was further alleged that cosmetics, health products, nutrition products etc. were being sold without their unique code on the upper cap and internal seal of the products. It was also apprehended that the goods, which were being offered at a much lesser rate, might not be genuine. It was further stated that Amway’s 100 percent return policy was not being honoured by these sellers.
Such uncontrolled selling of its products through an unauthorized channel, Amway argued, was causing wrongful loss to the company, as its brand value was being diluted and eclipsed.
The cases of Modicare and Oriflame were similar to that of Amway.
In response to the suit, Amazon argued that it was merely an intermediary under Section 79 of the Information Technology Act, 2000 and could not be held liable in any manner.
It was also submitted that the Direct Selling Guidelines were not binding, but merely an advisory.
It was further urged that the Direct Selling Guidelines could not be sustained in law, as they impinged upon the Fundamental Rights of the platforms and the sellers under Article 19(1)(g) of the Constitution.
Other e-commerce platforms as well as sellers also broadly relied on the contention that the Guidelines were not binding.
Additionally, the Court took into account reports by the Local Commissioners who visited the premises of certain sellers on the e-commerce platforms. On an overall perusal of the Local Commissioner’s reports, the Court said that it was “clear that there is large scale tampering of goods that is taking place.”
“…All the Local Commissioners found a large number of Amway branded products at the premises of the Defendants. These premises included Amazon’s warehouses, as also premises of the sellers themselves. Some of the Defendants were attempting to hide the Amway products, and had hid them in clandestine locations in their premises.
The Local Commissioners also found thinners, and gluesticks at the said premises, and observed that the tampering/removal of the unique codes on the Amway products were taking place at the Defendants’ premises. Upon enquiry from various Defendants, the Local Commissioners’ observed that they accepted to tampering with the codes on the products, to avoid detection.”
It was thus remarked that under the garb of selling genuine products, completely tampered products were being sold on e-commerce platforms which were not even willing to take notice of the same after being notified by the plaintiffs.
After hearing the parties at length and considering the LC’s report, the Court proceeded to adjudicate the legal issues at hand.
Whether the Direct Selling Guidelines are binding in nature
The Court held that the Guidelines were not merely advisory in nature, but have the force of law.
“.. though the initial terminology used to describe these executive instructions was ‘Guidelines‘, with the issuance of the gazette notification and the implementation of the same by various States, they constitute binding executive instructions. The notification issued by the Government in the Official Gazette is a General Statutory Rule (“GSR”).”
Consequently, the sellers, as well as the platforms, would have to take the consent of Direct Selling Entities to offer, display, and sell the products of Direct Selling Entities on their platforms, in compliance with clause 7(6) of the Guidelines.
Further, the Court observed that e-commerce platforms could not claim a Fundamental Right to sell products which are only meant to be sold through direct selling.
“..the entire direct selling business is a regulated trade/business. It is not unusual for businesses to be regulated, owing to their unique character and impact..The Direct Selling Business is one such trade, which has been regulated after enormous deliberation and discussions took place, including consideration by a parliamentary committee.. whenever any trade is regulated, the right to carry on business cannot be invoked.”
Whether e-commerce platforms or sellers could benefit from the principle of ‘exhaustion of trademark rights’
As per the principle, the trademark owner’s rights exhaust upon the first sale of the product being made.
In order to determine the issues, the Court examined the nature of the use of the marks on the platforms, the policies of the platforms, the condition of goods being sold on the platforms, etc.
The Court held that the plaintiffs had control over the misuse of their products, product images, brand names, selling policies, etc in the name of the doctrine of exhaustion.
However, it stated that the doctrine of exhaustion could not condone the unauthorized sale of products which are tampered, whose conditions are changed, are being wrongly priced, and the genuineness of which is in severe doubt.
“The doctrine of exhaustion cannot give legitimacy to such tampering and mutilation of the products themselves. The brand equity is considerably diluted by such unbridled sales from unauthorized sources, especially when platforms are not willing to take responsibility for the sale on the ground that they are intermediaries and when the so-called sellers are unknown, untraceable, unauthorised and dubious.”
The Court also relied upon Section 29 of the Trademarks Act to state that while it is perfectly permissible for a seller of a product to use a trademark to signify the source of the products which are genuine, it cannot indulge in conduct which would result in taking unfair advantage of the distinctive character of the mark.
Reliance was further placed on Section 30(3) to state that a person who wished to sell the goods in the market or otherwise deal in them would be protected if the products are genuine. However, the same would not imply that there could be “unhindered and unbridled” use of the mark when there is a grave apprehension that the products are being impaired and their condition is being changed.
It thus concluded that the use of the plaintiffs’ marks and the sale of the products without the consent of the plaintiffs was violative of the trademark rights, resulting in passing off, misrepresentation, and dilution.
Whether the e-commerce platforms are entitled to intermediary protection
The Court held that for intermediaries to be exempted from liability, they ought to satisfy the conditions contained in Section 79(2) and should not fall foul of Section 79(3) of the IT Act.
“…for a platform to be entitled to the exemption from liability, the said party must merely be hosting/listing third party information/data or providing a communication link only. The said third party has to be clearly identifiable on the platform. The exemption would not apply if the role of the intermediary is not limited for providing access to a communication system…
…the exemption would also apply only if the intermediary is not involved in the initiation of the transmission, selecting the receiver of the transmission, and does not modify the information.”
It stated that as per Section 79(2)(c), due diligence would have to be observed by the intermediaries in terms of setting up proper policies for IPR protection and for taking down of objectionable content in terms of the Intermediary Guidelines, 2011.
Thus, in order for the platforms to continue to enjoy the status of intermediaries, subject to adjudication at trial, the due diligence requirements would have to be met and complied with, as per the platforms’ own policies, and as per the Intermediary Guidelines, 2011.
Non-compliance with the policies would take them out of the ambit of the safe harbour protection.
Can e-commerce platforms be held guilty of tortious interference with the contractual relationship of the plaintiffs with their distributors/direct sellers?
In the context of the present cases, the Court said that the e-commerce platforms ought to be conscious of the sellers and the kind of products that are being sold.
“They are not merely passive non-interfering platforms, but provide a large number of value-added services to the consumers and users. Upon being notified by the Plaintiffs of unauthorised sales on their platforms, they have a duty to ensure that the contractual relationships are not unnecessarily interfered with by their businesses.”
E-commerce platforms have an obligation, upon being notified, to ensure that they do not induce breach of contract in any manner, the Court added.
The Court further remarked,
“In the world of commerce and trade, e-commerce is here to stay. It has changed the dynamics of the conduct of businesses. The companies and entities, which run e-commerce platforms, have a greater obligation to maintain the sanctity of contracts, owing to the sheer magnitude and size of their operations. When an e-commerce platform is notified of existing contracts and violation of the same on its platform, the least that the platform would have to do would be to ensure that it is not a party, which encourages or induces a breach.”
In conclusion, the Court allowed the interim applications seeking a temporary injunction against the e-commerce platforms and several sellers of the platforms.
In the suits against Amazon and Flipkart, Amway was represented by Counsel Priya Kumar, with Shailabh Tiwari and C.D. Mulherkar, advocates from Associated Law Advisers. Rajiv Nayar, Senior Advocate, also appeared for Amway in the suit against Amazon.
In the suits against Snapdeal, 1MG, and Healthkart, Amway was represented by Senior Advocate Sudhir Chandra with advocates Sohan Singh Rana, Bindra Rana, Priya Adlakha, Tulip De, Ashish Sharma and Ruhee Passi.
Modicare was represented by Senior Advocate Amit Sibal with advocates Pooja Dodd, Saksham Dhingra, Vinay Tripathi, Aditi Menon and Aman Singhal.
Oriflame was represented by Senior Advocate Balbir Singh with advocates Mahesh B Chhibber, Karan Chopra, Mehak Khanna and SN Thyagrajan.
Flipkart was represented by Senior Advocate Darpan Wadhwa with advocates Ankur Sangal and Sucheta Roy.
Snapdeal was represented by advocates Sagar Chandra, Ishani Chandra and Shubhie Wahi.
Amazon sellers was represented by advocate Saikrishna Rajagopal, Sidharth Chopra, Sneha Jain, Savni Dutt, Devvrat Joshi, Nilofar Absar and Abhijit Vachher.