Tag Archives: ecommerce

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

Advertisements

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

Continue reading

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.