Shopping In Times Of E-Commerce Portals – Implications Of IP Exhaustion

In today’s world, internet is not only an instrument for exchange of information, but has change the way businesses operate. Consumers turn to the internet for product information, comparing prices, finding special deals and discounts and even return policies. India’s e commerce market is going to be worth $ 119 Billion by 2020.[1] The success of the online retail start-ups achieved annual revenue of $ 7 Billion in 2016 with a compound annual growth rate of over 60%. [2] E-retail is slowly and gradually disrupting traditional brick and mortar retail model.

The digital era has ushered in more choice at the fingertips for the consumers, resulting in complex Intellectual Property (IP) issues. In July 2015, Westland Books dragged Flipkart to Delhi High Court alleging that Flipkart violated Copyright Act and Information Technology Act (IT Act) by selling Amish Tripathi’s novel ‘Scion of Ikshvaku’ on its platform. Westland claimed that it had signed an exclusive deal with Amazon to sell the book via Amazon. Flipkart still lists Westland Books on its platform and appears to be selling books by Amish Tripathi.[3].

Evidently, E-commerce portals have faced the heat for sale of goods in such fashion where one party had signed an exclusive right to sell. Plenitude of E-commerce websites has given retailers opportunity for distribution and resale through various portals, sometimes even against the wishes of the brand owner/manufacturer. This is a tricky situation, as under Indian IP Laws once the manufacturer/brand owner sells his goods, the sole distributor/retailer loses his title over the goods and cannot have any claim over the retailer’s sale of goods to any third party.

As per, section 30(3)(b) of the Trade Marks Act, 1999, when goods bearing a registered trade mark are lawfully acquired, further sale by a purchaser is not considered an infringement, unless such goods are altered or impaired in any respect. Also, section 107A (b) of the Patents Act, 1970 permits importation of patented products by any person from a person who is duly authorised under the law to produce and sell or distribute the product, which shall be not considered as an infringement of patent rights enabling parallel import of goods. Moreover, all rights to the goods are exhausted after the first sale and subsequent sale cannot be controlled (as per section 2(m) read with explanation of Section 14(a)(ii) read with Section 51 of the Copyright Act, 1957). In other words, once the owner of the copyright has exercised his right to issue the copies, then the owner loses all future rights to control the subsequent sale of the same work.

The law relating to exhaustion of IP rights is ambiguous in India. Brand owners argue in favour of national exhaustion of IP rights putting parallel imports and counterfeits in the same light; while importers of goods would like principle of international exhaustion to be followed so that once goods are sold, the seller has no control over genuine goods in the market. In a lot of matters, therefore the point of contention are not goods but distribution channels.

In the matter of Mr. Ashish Ahuja and Snapdeal.com SanDisk Corporation, Gurgaon[4] it was held that to protect the sanctity of the distribution channel, manufacturer of the product can restrict the sale of its products only through the authorised distributors. In a dispute between Flipkart and Amazon in 2014 where an exclusive sale agreement was signed between Flipkart and Rupa Publications to sell Chetan Bhagat’s Half Girlfriend, Amazon also started selling the books. The Competition Commission of India[5] ruled that exclusive marketing arrangements between e-portals and manufacturers/suppliers do not create any entry barriers in the market, as the manufacturers/suppliers are free to sell their products on their own websites as well as the physical market. In Kapil Wadhwa v. Samsung Electronics[6], the division bench of the Delhi High Court recognised the principle of international exhaustion after interpreting Section 29 and Section 30(3) and Section 30(4) of the Trademark Act. In Xerox Corporation v. Puneet Suri [7], plaintiff owned the trademark ‘Xerox’ and claimed that defendant’s act of importing and selling second hand Xerox machines constituted trademark infringement. Import of second hand machines that have proper documentation is permissible provided that there is no change or impairment in the machines.

Currently, consumer protection garners relevance in the war between the manufacturer, the retailers and the E-commerce portals. In 2014, manufacturers of many electronic products like Dell, Nikon, LG, Asus, Gionee, Canon and Toshiba issued statements deterring buyers from purchasing their goods from unauthorised sellers.[8] Lenovo, Dell, Nikon issued customer advisories[9] which warned that the specific online stores are not authorised sellers and genuineness of the product is not guaranteed if purchased from such e-retailers. Essentially, this means that online stores are not authorized by the manufacturers to furnish any representations and the manufacturers shall not be bound to honour the representations, benefits or entitlements offered by these online stores. Whether such original products with an official invoice with all taxes paid can be denied warranties is a topic of debate and we will have to wait and watch until there is any judicial precedence on such issues. Meanwhile, consumers must take the enticing deals offered by E-commerce websites with a pinch of salt as malfunctioning goods bought cheap online may lead to long drawn legal battles.

Authors: Apurba Kundu and Kanika Satyan

[1] Morgan Stanley research, quoted at http://economictimes.indiatimes.com/industry/services/retail/indian-ecommerce-market-to-grow-fastest-globally-over-3-years-morgan-stanley/articleshow/51031652.cms. Last visited March 1, 2017.

[2] See http://www.motilaloswal.com/site/rreports/HTML/635513814725455509/index.htm. Last visited March 1, 2016.

[3] See http://tech.economictimes.indiatimes.com/news/internet/flipkart-dragged-to-court-by-scion-of-ikshvaku-publisher-westland-over-copyright-violation/47919910. Last visited March 1,2017.

[4] Competition Commission of India (Case No. 17 of 2014) available at http://www.cci.gov.in/sites/default/files/172014.pdf

[5] Mohit Manglani v. Flipkart (Case No. 80 of 2014) available at http://www.cci.gov.in/sites/default/files/802014.pdf.

[6] 2013 (53) PTC 112 (Del) (DB)

[7] CS(OS) No. 2285/2006; Unreported Order

[8] See http://www.medianama.com/2014/10/223-india-ecommerce-warrany-dell-hp-toshiba-asus-nikon/. Last visited on March 1, 2017.

[9] Ibid.

Advertisements