Tag Archives: ecommerce

Ecommerce in India: The Saga Continues

India, for many centuries, has been known for trading, establishing the Silk-route, Spice-route. With tech advancement, e-commerce (ecom) has created a new world order, “Ecom route”. Ask any FMCG company, behemoth or small, on Amazon’s disruption on their sales. Ecom, in India also finds a prominent positioning in the politician’s election mandate. The rules of the game are changing and how!

It is estimated that India’s ecommerce industry is expected to jump threefold to $84 billion by 2021. Mobile phone adoption, cheaper mobile-data plans, internet penetration are some of the driving factors.

Regulations, specifically Foreign Direct Investment norms, created certain specific ways the business and entities are structured such as ‘market Place model’, ‘inventory based model’, direct online retail.

In this Guidance note for an entrepreneur to start her ecom business, we are discussing FDI barriers, top legislations applicable to ecom, the proposed policy changes. We had earlier written a brief overview about the ecom policy, which was released on 23 Feb 2019. You can read some excerpts here.

FDI barriers and regulations in entering the e-commerce sector

India has multiple restrictions and conditions on foreign investments (under the FDI Policy) into the e-commerce sector placed by the erstwhile Department of Industrial Policy and Promotion (DIPP) and now Department for Promotion of Industry and Internal Trade (DPIIT). These restrictions are applicable to all entities who receive any FDI.

Under the FDI Policy, ‘e-commerce’ encompasses not just products traded on digital and electronic networks but includes digital products and services, as well.

An ‘e-commerce entity’ is treated differently from other kinds of entities such as manufacturers, wholesale traders, single-brand retailers, etc. In a B2C market, an e-commerce entity is only allowed to engage in a marketplace model of e-commerce, where the e-commerce entity will only act as a facilitator between the buyer and seller and will have no control over the inventory of goods and services. If the e-commerce entity starts owning the products that are being sold on the platform, they are deemed to be an ‘Inventory’ based model of e-commerce which has been restricted in India in a B2C market, whereas inventory based model of e-commerce is allowed in a B2B market.

In case an e-commerce entity is operating an ‘online marketplace’ then it is subject to further restrictions under the FDI Policy (the new changes brought in by Press Note 2 of 2018) which are summarized as follows:

  • An entity having equity participation by e-commerce marketplace entity or its group companies, or having control of its inventory by e-commerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity.
  • The inventory of a vendor will be deemed to be controlled by the e-commerce marketplace entity if more than 25% of purchases of such vendor are from the marketplace entity or its group companies, thus rendering the marketplace an inventory-based of e-commerce.
  • Market place entity can provide services such as logistics, warehousing, advertisement/marketing, payments, financing etc. could be provided by e-commerce marketplace entity or other entities in which e-commerce marketplace entity has direct or indirect equity participation or common control, to vendors on the platform at arm’s length and in a fair and non-discriminatory manner. Provision of services to any vendor, on such terms which are not made available to other vendors in similar circumstances, will be deemed unfair and discriminatory.
  • An e-commerce marketplace entity cannot mandate any seller to sell any product exclusively on its platform only.
  • Cash-back provided by group companies of marketplace entity to buyers shall be fair and non-discriminatory.
  • The entity must not directly or indirectly influence the sale prices of the goods and services and shall maintain level playing field.
  • The entity will be required to furnish a certificate along with a report of statutory auditor to the Reserve Bank of India, confirming compliances of the guidelines under Para of the FDI Policy, 2017, by September 30th of every year for the preceding financial year.

Another classification one should take care of is, whether the entity is dealing directly with final consumers (Business-to-Customer, B2C) or is simply dealing only with other business entities (Business-to-Business, B2B). The following table summarizes the different kinds of business entities having FDI that may take their businesses online and the major factors to be taken care of are:

Type of Entity Permitted Activities Can Keep Inventory? Permitted FDI/Route
E-commerce entity Marketplace Model (for goods and services:

B2C e-commerce)

No 100% Automatic
Manufacturer B2B and B2C e-commerce

(Selling its products manufactured in India, through wholesale and/or retail through e-commerce)

Yes 100% Automatic
Cash & Carry Wholesale Trader B2B e-commerce

(sells goods to retailers, industrial, commercial, institutional or other professional business users or to other wholesalers and related subordinated service providers)

Yes 100% Automatic
Single Brand Retail Trader B2C e-commerce (at least 30% Indian sourcing of products, and must be operating through at least one brick and mortar store) Yes 100% Automatic
Food Product Retail Trader B2C e-commerce (retail trading of food products manufactured and/or produced in India) Yes 100% Government Approval
Services (Subject to respective conditions and applicable laws) sale of services through e-commerce (Relevant Sectoral Cap) Automatic

Other laws and regulations to be considered while operating an e-commerce business

Irrespective of the fact that whether the entity doing the e-commerce business has FDI or not, these are the legal aspects of the business which are needed to be taken care of by any e-commerce business running entity.

Sl. No. Law / Regulation / Legal Aspect Relevance to e-commerce
1. Indian Contracts Act, 1872 read with Information Technology Act, 2000 Validity of contracts formed through electronic means. Rules as to communication and acceptance of proposals, revocation, and contract formation between customers, sellers, and the marketplace provider. Terms of Service, Privacy Policy and return policies of any online platform are to be laid out such that they are legally binding agreements.
2. Information Technology Act, 2000 (IT Act) and General Data Protection Regulations (GDPR).
  • Compliances under Information Technology (Reasonable security practices  and procedures and sensitive personal data or information) Rules, 2011
  • Intermediary Rules 2011 under the IT Act stipulates the regulations relating to the content displayed on the intermediary website especially pertaining to defamation and obscenity.
  • Under section 79 of the IT Act certain safe-harbours are available to e-commerce entities functioning as ‘Intermediaries’.
  • Regulations applicable to ‘Intermediaries’ relating to the content displayed on the portal, especially pertaining to defamation and obscenity.
  • If the end consumers happen to be an EU resident, GDPR compliance becomes mandatory.
  • Issues related to data protection standards and data security. If the end consumers happen to be EU residents, GDPR compliance may also ensue.
3. Intellectual Property Issues
  • The entity must secure all trademarks and copyrights intended to be used by it, one must also be mindful to not infringe the trademarks and copyrights of other businesses as well.
  • Selling of counterfeit goods and misuse of trademark rights by sellers listed on platform is a significant challenge, and must be dealt with by the platform operator to avoid prosecution.
  • In the age of such wide use of internet e-commerce entities shall be aware of various intellectual property infringements that may happen online such as cybersquatting, identity theft, copyright infringement, caching, derivative works, domain name protection and etc.
  • There are some added steps that the ecom entity has to take, as per the Draft Policy (read below)
4. Payment and Settlements Systems Act, 2007 and other RBI regulations on payment mechanisms Under the law “payment system” means a system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them, but does not include a stock exchange. An e-commerce entity has to make sure if it qualifies as a payment system and shall comply accordingly.

As per the RBI notification DPSS.CO.PD.No.1102 /02.14.08/ 2009-10 dated 24 November 2009, it is mandatory for an intermediary which is receiving payments through electronic modes to have a Nodal Account in operation for settling the payments of the merchants on its online e-commerce platform.

Further depending on the envisaged arrangements for payments for the transactions on the portal, the entity must comply with the relevant rules relating to online payments made by the Reserve Bank of India (RBI).

5. Labelling and Packaging An e-commerce entity as per the products listed on its platform must conform to the labelling and packaging norms set by the regulations made under relevant laws and the rules therein such as:

  1. Legal Metrology Act, 2009;
  2. Food Safety and Standards Act, 2006;
  3. Drugs and Cosmetics Act, 1940, etc.
6. Legal Metrology Act, 2009 read with Legal Metrology (Packaged Commodity) Rules, 2011 The web-platform must display requisite information about the goods displayed on sale, such as, units, dimensions, weight, etc. on product page itself.
7. Sales, Shipping, Refunds and Returns The entity must have in place an adequate policy dealing with sales and shipping of the products, the default provisions relating to the legal incidence of transfer of property in goods, and other aspects of sales such as warranties and conditions, etc. are covered under the Sale of Goods Act, 1930.

The entity must also have in place, in clear words, a returns and refunds policy to be adhered by the sellers and buyers.

8. Consumer Protection/ Dispute Resolution As a provider of goods or services under the Consumer Protection Act, 1986, the entity must have in place adequate policies to address consumer complaints. Moreover, it is advisable for the e-commerce platforms to have mediation and arbitration mechanisms in place as well.
9. Competition Issues Fixation of prices by arrangements between sellers listed on the platform and the entity, exclusive sales agreements, and other practices under the scope of Sections 3 and 4 of the Competition Act, 2002 can be brought under the scrutiny of the Competition Commission of India. The entity must be mindful of these factors while entering into any arrangements which may leverage its existing dominance in the market, or work towards the creation of foreclosure or entry barriers in the relevant market.
10. GST Applicability Irrespective of whether the annual turnover of the entity is lower than the prescribed threshold, e-commerce operators are not eligible for composition levy scheme under the GST laws of India. Moreover, it is mandatory for all e-commerce operators and sellers/distributors/suppliers who sell through e-commerce to get GST registration in all States where they purport to sell their goods/services.
11. Other Local laws and Sector Specific Laws The premises from which the business is run, and the manufacturing, warehousing, and other aspects of the business will be continued to governed by sector specific laws and local laws as applicable. Due adherence to such laws must also be ensured.

Here’s an old post that we had written on licenses and registrations for warehouses.

The future of e-commerce in India

Keeping ‘data’ central to the idea of governing the e-Commerce industry in India the DPIIT on February 23, 2019 published the ‘Draft e-Commerce Policy’ (“Draft Policy”).

The Draft Policy focuses on data protection, the State’s paternalistic attitude towards the use of the citizen’s data and cross border transactions. The Draft Policy intends to regulate some things beyond e-commerce i.e. it proposes to regulate technologies like AI, IoT, Cloud computing and Cloud-as-a-Service etc. On a holistic level it is understood that these technologies empower e-commerce industry currently and are integral to its growth and therefore the Government intends to bring these technologies under the purview of the Draft Policy. The Draft Policy is a mix of visionary thought process, advanced technological solutions, putting in place digital infrastructure to support India’s digital economy.

Following is a summary of some of the significant features of the Draft Policy.

Changes in Customs regulations and export promotion through e-commerce

The Draft Policy proposes a customs electronic data interchange (EDI) platform, aggregating various government department concerned with import and export of goods in India, such as the Indian Post Department, DGFT, RBI, and other departments for facilitation of online customs clearance through the EDI platform. In addition, provision will be made to source Export Data Processing and Monitoring System (EDPMS) data from RBI for confirmation of payments, instead of Bank Realization Certificate.

KYC will be mandatory for all the shipping companies and individual sailors. The KYC will be mandated to identify exporters and importers and track suspicious activities. The Draft Policy also intends to include e-commerce in the National Integrated Logistics Plan with focus on faster delivery with emphasis on lower costs.

To promote exports through e-commerce the Draft Policy has suggested to include e-commerce sector in the proposed National Integrated Logistics Policy, where it will increase the existing regulation exemption of INR 25,000 for consignments through courier mode, it will simplify the requirement of documentation for exports, the EDI will be put in place at the earliest, transaction costs for MSMEs and start-ups shall be reduced who are undertaking any exports, the Government will set up Air Freight Stations (AFS) in all the leading airports across India so as to facilitate cargo processing at the airports and simultaneously the Government will try to negotiate lower costs of exports with international freight carriers through Indian Post department.

The Government intends to continue charging custom tariffs on any digital goods being traded electronically (imposing custom duties on electronic transmissions). Whereas the Government is strict on its stance of not accepting the permanent moratorium on custom tariffs for goods (including digital goods) traded electronically as proposed by the WTO. 

Sale of Counterfeit and prohibited goods

A major emphasis has been given on curbing sales of counterfeit products through e-commerce in India. The Draft Policy emphasises on no trade mark infringement and that customers at large shall not be deceived by using deceptively similar trademarks. In case an e-Commerce entity receives a complaint about a counterfeit/fake product then the entity shall convey such misuse of the trademark within 12 hours from receiving the complaint to the trade mark owner. Whereas in case any prohibited goods/products have been sold on any e-commerce platform the entity operating such e-Commerce platform shall delist such products within 24 hours from receiving such complaint. This is pretty onerous and while the ecom entity is supposedly an intermediary, there are many obligations imposed on it. We had earlier written about intermediary liabilities which you can read here.

Further, all the e-commerce platforms/websites will have to display a list of all the prohibited products in India. In case a prohibited product is found to be sold on the platform or is found to be listed on the e-commerce platform the same has to be removed immediately and the seller listing such prohibited products shall be blacklisted and shall not be allowed to sell other products on the e-commerce platform. In some sense, the ecom entity should do some heavy policing.

Consumer Protection: The Draft Policy suggests a number of measures:

  • All e-Commerce sites/apps available to Indian consumers shall display prices in INR and must have MRPs on all packaged products, physical products and invoices generated.
  • Details of sellers shall be available for all the products sold online. Sellers shall provide undertaking regarding the genuineness of any product sold online.
  • In case of a counterfeit product is sold to a consumer, the primary onus to resolve such an issue will be of the seller, but the intermediaries shall return the money paid to them by the customer and the marketplace shall seize to host such products on their platforms.
  • The intermediaries shall curtail piracy on their platforms.
  • Further to curb piracy a body of industry stakeholders will be created that shall identify ‘rogue websites’. These rogue websites will be added to ‘Infringing Website List’ (IWL). IWL will enable the ISPs to remove or disable these websites. It will also enable payment gateways to curtail the flow of payments to or from such rogue websites. Search engines will be able to efficiently remove such rogue websites identified in the IWL.

Mandatory Registrations in India

As per the Draft Policy, all the e-commerce entities including intermediaries and developers of mobile application which are available for download in India shall mandatorily be registered as importer on record or as a local entity through which the commerce is facilitated in India and also provisions regarding the appointment of a local representative has been introduced.

Provisions regarding the import of gifts

In the view of misuse of ‘gifting’ route, where foreign merchants use to sell cheap products to Indian customers as gifts to circumvent the customs and import duties, as an interim measure, all such parcels shall be banned, with exception of life-saving drugs.

Ease Of Regulation

Given the interdisciplinary nature of e-commerce, it is important for the Government to tackle various regulatory challenges. The Draft Policy suggests formulating a Standing Group of Secretaries on e-Commerce (SGoS), which shall be an important body for tackling various legal issues emerging from various statutes such and Information Technology Act, 2000 and rules thereunder, the Competition Act, 2002 and the Consumer Protection Act, 1986.

Additionally, the Draft Policy states that “All e-Commerce websites and application available for downloading in India must have a registered business entity in India as the importer on record or the entity through which all sales in India are transacted”.

The Government intends to establish technology wings in each Government department.

Data Infrastructure development

The Draft Policy takes forward the digital India initiative and intends put in place secure and digital infrastructure and encourage the development of data –storage facilities/ infrastructure including data centres, server farms, towers, tower stations, equipment, optical wires, signal transceivers, antenna etc.

The Government will add the above mentioned infrastructure facilities in the ‘Harmonized Master List’. This will enable regulation of the listed infrastructure in a more streamlined manner. Whereas the infrastructure will be put in place by various implementing agencies, while financing agencies may identify these as infrastructure that they may intend to support.

This will facilitate achieving last mile connectivity across urban and rural India. The Government by developing such data/digital infrastructure wishes to support India’s fast-growing digital economy and create employment.

Data and cross-border transfer of data

The Draft Policy recognises the rights of an individual over its data by stating that “An Individual owns the right to his data” and therefore the use of an individual’s personal data shall be made only upon seeking his/her express consent. It further states that the data of a group is a collective data and therefore a collective property of that particular group; it extends this rationale to state that “Thus, the data that is generated in India belongs to Indians, as do the derivatives there from”. But the Draft Policy ends up categorising data of Indians as a collective resource and therefore a “national resource”.

The Draft Policy states that “All such data stored abroad shall not be made available to other business entities outside India, for any purpose, even with the customer’s consent”, what follows this point in the Draft Policy, restricts sharing of data with any third party in a foreign country even if the individual has consented to such sharing of the data except where in the following cases:

  • When data which us being shared has not been collected in India.
  • Where sharing of data has happened as per a commercial contract between the business entities.
  • Software and cloud computing services involving technology-related data flows, which have no personal or community implications; and
  • MNCs moving data across borders, which is largely internal to the company and its ecosystem, and does not contain data that has been generated by users in India from various sources, including e-commerce platforms, social media activities, search engines etc.

The intent behind such restriction is that currently India lacks stringent laws regarding cross-border flow of data. If there are no strict restrictions on cross-border flow of data Indian stakeholders will merely be engaged in back end processing of data for the EU / US based ecommerce entities without having the ability to create any high-value digital products.

To leave some thoughts with you

Ecom is an industry and is growing rapidly. The Government is bringing in so many regulatory changes to harness the potential of the e-commerce industry and make India one of the key markets for the e-commerce stakeholders across the world. Government also intends to boost the local and home-grown e-Commerce business entities and wants to provide a level playing field for MSMEs. We are seeing a growing tension between these two ideologies – FDI in ecom and local capital in ecom.

Further the changes that have been brought to the Legal Metrology Act, 2009, Food Safety and Standards Act, 2006, Drugs and Cosmetics Act, 1940 and the regulatory changes proposed in the Draft Policy in regards to consumer protection such curbing sale of counterfeit products, mandatory local registration etc. are clear indication that in the age of e-commerce purchasing goods and services is no more the same and therefore new and modern laws are required to address consumer protection.

It will be interesting to witness the implementation of these proposed regulations and whether at all it will help in accelerating the ecom growth in India.

Ecommerce: Intermediary’s liabilities and duties

The Delhi High Court in the case of Christian Louboutin SAS v. Nakul Bajaj and Ors.[i], (hereinafter Louboutin case) has dealt in detail the circumstances where an E-commerce platform could be considered as an intermediary and when it loses the safe harbour  under the Information Technology Act, 2000 (“Act”).

The facts of the case are as follows. The defendant has been operating a website named www.darveys.com (“Website”) offering for sale, various luxury products including the plaintiff’s brand of luxury shoes under the brand “Christian Louboutin”. The plaintiff (Christian Louboutin SAS), claims that the Website gives an impression that it is in some manner affiliated, sponsored or has been approved by the plaintiff for selling the plaintiff’s luxury products. The plaintiff therefore claimed that the display of plaintiff’s product on the Website results in the infringement of trade mark rights of the plaintiff and dissolution of the luxury status enjoyed by its products and brands.

The defendant’s claimed that the Website is an intermediary, as it not selling the products, but is merely enabling booking of such products through its online platform and that it is only booking orders on behalf of the sellers whose products are being displayed on their platform.

E-commerce platform and their role as intermediaries

In an e-commerce marketplace platform, it usually displays the name of the sellers and assists the customers by providing reviews of the various sellers who are listed on the platform. It also provides for other services such as online payment, maintaining warehouses, delivery and the like. The question that arises is at what point can the platform can say it is only an intermediary.

Section 2(w) of the Information Technology Act defines an intermediary as an “intermediary, with respect to any particular electronic records, means any person who on behalf of another person receives, stores, or transmits that record or provides any service with respect to that record or provides any service with respect to that record and includes telecom service providers, network service providers, internet service providers, web-hosting service providers, search engines, online payment sites online auction sites, online- market places, and cyber cafes.”

In Google France SARL, Google Inc. v. Louis Vuitton Malletier SA & Ors. (hereinafter, ‘Google France’), one of the point noted it that “it is necessary to examine whether the role played by that service provider is neutral, in the sense that its conduct is merely technical, automatic and passive, pointing to a lack of knowledge or control of the data which it stores.”

The Google France case has laid out certain principles on the liability of intermediaries and the Louboutin case makes a reference to it. Below are some useful excerpts from the judgement:

  1. Exemptions from liability of intermediaries are limited to the technical process of operating and giving access to a communication network. Such an exemption is needed for the purposes of making the transmission more efficient.
  2. The activity of the intermediary is merely technical, automatic and passive – meaning thereby that the intermediary does not have any knowledge or control over the information which is transmitted or stored.
  3. The intermediary gets the benefit of the exemption for being a “mere conduit” and for “caching”, when it is not involved in the information which is transmitted/translated.
  4. If any service provider deliberately collaborates with the recipient of a service, the exemption no longer applies.
  5. In order for the service provider to continue to enjoy the exemption, upon obtaining knowledge of any illegal activity, the service provider has to remove or disable access to the information.
  6. In order to constitute a mere conduit, the service provider should not initiate the transmission, select the receiver of the transmission, or select or modify the information contained in the transmission.
  7. The storage of the information has to be automatic, intermediate and transient.
  8. The provider should not obtain any data based on the use of the information.
  9. For claiming exemption from damages, the service provider should not have any knowledge of the illegal activity, and upon acquiring knowledge, should expeditiously remove or disable the information.
  10. Service providers do not have a general obligation to monitor the information which is transmitted or stored.

In the case of  L’Oreal SA & Ors. v. eBay International AG & Ors.[ii], the Court of Justice of European Union held that an operator which provides assistance “which entails, in particular, optimizes the presentation of the offers for sale in question, or promotes them”, even if the operator has not played active role and he provides the above service, the operator can claim protection as an intermediary. However, the said intermediary, if upon becoming aware of the facts which lead to an inference that the offers made on the website were unlawful, failed to act expeditiously, then the exemption ceases.

It is essential to determine whether the service provider played an active role or not, and whether it has the knowledge or control over the data which is stored by it. Further, if the service provider has no knowledge, then upon obtaining knowledge of the unlawful activity, it should expeditiously remove the data or disable access, failing which the service provider may become liable.

In Inwood Laboratories, Inc. v. Ives Laboratories, Inc.[iii], the question of contributory negligence with regard to infringement of trademark by the online service provider and the manufacturer (famously known as ‘Inwood Test’) observed that “if a manufacturer or distributor intentionally induces another to infringe a trademark, or if it continues to supply its product to one, whom it knows or has reasons to know is engaging in trademark infringement, the manufacturer or the distributor is contributorially responsible for any harm done as a result of the deceit”.

In the Louboutin case, the Honourable High Court of Delhi, observed that the defendant had a membership fee to place an order for goods on the Website, guaranteed authenticity that the products procured and sold were from the international boutiques and luxury stores, shipping to customers would be only after quality checking.

The Court opined that the safe harbour provisions for intermediaries under section 79 of the Act is not absolute. An active participation by the intermediaries is to be examined and if there is an active participation then the ring of protection or exemption granted to the intermediaries would not apply.

With regards to trademark infringement, section 101 of the Trade Marks Act states “that a person shall be deemed to apply a trade mark when (a) the mark is placed, enclosed or annexed to any good which are sold or are exposed for sale, (b) when the mark is used in relation to the goods or services in any sign, advertisement, invoice, catalogue, business paper price list”. Further, section 102 states that “a person shall be deemed to falsely apply to goods or services a trade mark, who without the assent of the proprietor of the trade mark (a) applies such mark or a deceptively similar mark to goods or services or any package containing goods; (b) uses any package bearing a mark which is identical with or deceptively similar to the trade mark of such proprietor, for the purpose of packaging filling or wrapping therein any goods other than the genuine goods of the proprietor of the trade mark”. Therefore, when an ecommerce website actively participates and allows storing of counterfeit goods, it would be aiding in the infringement of the trademark.

In the Louboutin case, the Delhi HighCourt held that the defendant had not sold the plantiff’s products on its Website, though the Website did advertise and promote the plaintiff’s brand and products. The Court did not order for damages/ rendition of accounts.

The Court did give the following directions to the defendant on the activities of running the Website as an intermediary so as to (i) disclose the complete details of all its sellers, their addresses and contact details on its website (ii) obtain a certificate from its sellers that the goods are genuine (iii) If the sellers are not located in India, prior to uploading a product bearing the Plaintiff’s marks, it shall notify the plaintiff and obtain concurrence before offering the said products for sale on its platform (iv) If the sellers are located in India, it shall enter into a proper agreement, under which it shall obtain guarantee as to authenticity and genuinity of the products as also provide for consequences of violation of the same (v) Upon being notified by the Plaintiff of any counterfeit product being sold on its platform, it shall notify the seller and if the seller is unable to provide any evidence that the product is genuine, it shall take down the said listing and notify the plaintiff of the same, as per the Intermediary Guidelines 2011 (vi) It shall also seek a guarantee from the sellers that the product has not been impaired in any manner and that all the warranties and guarantees of the Plaintiff are applicable and shall be honoured by the Seller. Products of any sellers who are unable to provide such a guarantee would not be, shall not be offered on the Defendant’s platform (vii) All meta-tags consisting of the Plaintiff’s marks shall be removed with immediate effect.

It is certainly interesting to note the thought process of the Court and the direction that it took, in this judgment.

Author: Mr. Anuj Maharana


[i] Christian Louboutin SAS v. Nakul Bajaj and Ors., CS (COMM) 344/2018

[ii] L’Oreal SA & Ors. v. eBay International AG & Ors., Case C-324/09

[iii] Inwood Laboratories, Inc. v Ives Laboratories, Inc.,456 U.S. 844

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

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Legal Issues in E-Commerce – Part 2 of the series

In the previous post  (http://novojuris.wordpress.com/2012/01/12/legal-issues-in-e-commerce-part-1-of-the-series/) we provided a glimpse, that based on the specific nature of business, there are various legislations that an e-com business has to comply with.

This post examines some of the ‘core’ legal issues relevant to nature of business being conducted electronically, i.e. the “e” part of the business.

Jurisdiction:  A traditional rule of private international law is that, the jurisdiction of a nation extends to individuals who are within the borders of the nation (location or activities of the parties).  But if parties are interacting in an online environment, then identifying physical location (should it be where the employees reside and operate from, or where the company is incorporated, or where the website is hosted or where the customer received the product / service) and the place where the transaction took place is very hard. The complexity is that the ecom company has to comply with legal requirements of all those jurisdictions and there is a fair chance that it can be sued in any of those jurisdictions.

US Courts have used the concept of “minimum contacts” while determining jurisidiction.  This could be physical presence, financial gains, interactivity of the website, stream of commerce, electing an appropriate forum / court and jurisdiction in the contracts.

Indian Courts under the civil court procedures traditionally use the test of  ‘where the subject matter is situated’ or ‘where defendants reside’ or ‘cause of action arose’  (to put in very very simple words. It is a lot more complicated that this)

Without getting into a legal treatise, a simple way is for the contract between the parties to elect the choice of law, court and jurisdiction.  Courts in the US have upheld the validity of contracts where the parties have agreed to the choice of law and choice of courts. (CompuServe, Inc vs. Patterson). While this is one of the ways to mitigate the question on jurisdiction, it is not conclusive.

Determining jurisdiction is the most important aspect, in any internet related business, such as ecommerce, cloud computing.  Arising from this are tax related questions, applicability of various legislations and compliances required under them.

This then takes us to the next most important aspect of contracts.

Contracts: For a contract to be valid there has to be an offer, acceptance and valid consideration.  In an ecom business most of the contracts are online, where the user of the website ‘clicks to accept’ the terms and conditions/ subscription / pricing and the like.

One of the premise of the Information Technology Act (IT Act) was to provide legal recognition to electronic records and digital signatures, which in turn facilitates conclusion of contracts and creation of legal rights and obligations through electronic communication.

An electronic record means not only data but also includes record, image, sound stored, received or sent in an electronic form.

While the ‘offer’ and ‘consideration’ part of the valid contract requirements can be identified, the ‘acceptance’ of the proposal by the customer in an online contract has to be established. The IT Act provisions on legal recognition of electronic records which states (i) any information rendered or made available in an electronic form ‘and’ accessible so as to be usable for a subsequent reference (ii) should the information require signatures for verification, then the digital signatures (detailed in IT Act) has to be affixed.

The electronic record created upon acceptance by customer has to be retained as per various legislations.  For example, Income Tax Act requires about 8 years, Companies Act mandates that some records be kept for life and the like.

This still leaves one verification aspect, i.e. ensuring the other party is above 18 years old (requirement under Indian Contract Act).  Digital signature is one of the ways that offers verification.

Over the next post, we’ll be examining issues around privacy, caching and deep linking.

Disclaimer This is not a legal opinion and should not be construed as one. Please speak with your attorney for any advice.

Legal Issues in E-Commerce – Part 3 of the series

In the earlier posts, Part 1 and 2, we examined a few legal issues related to the business side of e-commerce and conducting business electronically. In this post, we are detailing some of typical questions that e-commerce businesses ask us.

Deep-linking, hyper-linking:  Many a time, the website may provide links to third party websites.  If this link is to the home page (hyper-link), it is not considered as copying the website and therefore is not a copyright infringement.  However, some of the websites expressly prohibit or require permission even for hyper-linking. For example, RBI expressly requires their permission before linking, though it is against the customary practices of internet.

Deep-linking (Courts have in some cases defined it as linking beyond the home-page) is treated differently from hyper-linking.  There are many aspects to this.

Websites which earn revenues through advertisements, object to deep-linking, because the user is directed to an internal page, by-passing the advertisements on the home-page, thereby causing loss of revenue. While this point is a business issue, there are wider legal ramifications as well.

In Bixee versus Naukri.com’s case, since the user was led to the internal pages of Naukri, thereby by-passing the home-page which usually has advertisements, Naukri claimed loss of revenue. There was another aspect to this case as well.  Bixee’s business was enabling users of its website to search for jobs on various other websites.  By deep-linking to Naukri.com’s website, Bixee was using Naukri’s database for its business.  Database is protected through copyright and such deep-linking was considered as copyright infringement.

Incorporating webcontent which is copyright protected by framing, is another point that is usually considered as copyright infringement.   

Related to the above, is where deep-linking is used for comparing prices of different products.  For example: if you want to capture that the price of a mobile phone on your website is cheaper than that offered on, say FlipKart, then in some ways it also gets construed as comparative advertising. While there are no established standards in India, unlike in other geographies, at a minimum it is required to ensure that the information / presentation does not

  • principally capitalize on the reputation of the tradename of the competitor.
  • discredit or denigrate the goods, services, marks or name of the competitor.
  • Mislead the customer or create a risk of confusion.

Courts across various jurisdictions are grappling with issues of infringement of intellectual property rights through deep-linking, meta-tagging.

Another important question that is prominently asked in an e-commerce business is Privacy.

Privacy: In India, though we do not have a separate legislation, Supreme Court has always upheld the Right to Privacy under the Fundamental Rights in the Constitution.  Privacy is very closely linked to Data Protection. Information Technology Act (IT Act) provides for some measures of data protection.

IT Act covers instances such as (i) computer trespass, violation of privacy (ii) unauthorized digital copying, downloading and extraction of data, computer database or information, theft of data held or stored in any media (iii) unauthorized transmission of data or program residing within a computer, computer system or  computer network (cookies, spyware, GUID or digital profiling are not legally permissible) (iv) data loss, data corruption (v) computer data/ database disruption, spamming (vi) denial of service attacks, data theft, fraud, forgery (vii) unauthorized access to computer data / computer databases (viii) instances of data theft (passwords, login IDs) and the like. IT Act also covers instances of cyber offences like hacking, tampering computer source documents. There are both civil and criminal liabilities prescribed in the IT Act.

In an e-com business, quite a few personally identifiable information gets collected, individual’s name, address, telephone numbers, profession, family, educational background, banking details.  Passing on this information to interested parties not only leads to intrusion of privacy but also other legal issues. Many do opine that in the era of social networking, privacy is over-rated.  Try asking them a question if they would like to expose their personal credit card number J

The IT Act does not lay down privacy principle like the Data Protection Act of the EU or the Safe Harbor Principle of the US. But following the highest standards of conducting business, the privacy policy of an e-com businesses need to answer atleast,

  1. What are the ‘personally identifiable information’ that would be collected.
  2. How and when would the information be collected (example, registration process, payment process )
  3. What usage/ analytics / tracking methods would be used (Example cookies, web beacons, IP address, log files)
  4. How and when would the ‘personally identifiable information’ be used. (example, sharing with third parties (banks, courier agents, service providers), to send marketing emails/ newsletters, surveys, contests, polls)
  5. Describe the security measures adopted for protecting the information.

Having a privacy policy is not an end by itself, it has to be honored and adhered to by the companies in spirit.

Trust these posts have been useful. Please do share your comments / questions in the comments section below.

Disclaimer:   This is not a legal opinion and should not be construed as one. Please speak with your attorney for any advice.