Online marketplaces and intermediary liability: New rules of the game

The business of online marketplaces is set to change. Certain kinds of online marketplaces need to now start disclosing details of the sellers that offer products on their websites, obtain authenticity certificates for the products that are being sold; and enter into agreements with sellers to prevent counterfeits from being offered for sale online. These are some implications of a recent decision of the Delhi High Court, which clarifies certain issues around internet intermediaries that are online marketplaces.

This is not the first decision on intermediary liability in India, but is the first to go into the nuances of such liability for online marketplaces. It will certainly go down as a landmark decision in the country, and will have considerable business implications for a space that is increasingly online. Smaller players, especially, will have to be doubly careful about advertisements, offers for sale, meta tags, and agreements with sellers.

Older decisions have spoken of intermediary liability in the context of social media and the right to freedom of speech (Shreya Singhal v. Union of India AIR 2015 SC 1523); uploading content and copyright infringement (MySpace Inc. v. Super Cassettes Industries Ltd. 236 (2017) DLT 478); streaming content (Department of Electronics and Information Technology v. Star India Pvt. Ltd. [R.P. 131/2016 in FAO(OS) 57/2015 decision dated 29th July, 2016]); design infringement (In Kent Systems Ltd. and Ors. v. Amit Kotak and Ors. 2017 (69) PTC 551 (Del)); and so on.

Justice Prathibha M Singh, in the present decision in  Christian Louboutin SAS v. Nakul Bajaj & Ors. [CS(COMM) 344/2018 decision dated 2nd November, 2018], offered a detailed explanation of the law so far laid down on intermediary liability in India, but found that no precedent dealt with the question of such liability in the case of online marketplaces and trademark infringement.

Brief facts

The present case dealt with a website – Darveys.com – which deals in the promotion and sale of luxury products. The sellers are usually located outside India, and there appears to be no way to verify if the seller is in fact selling a genuine product. The website promotes products to its members who sign up on the website: therefore, without becoming a member, one cannot make a purchase. The case came about when the legendary shoemaker, Christian Louboutin (famed for its coveted “red soles”) found that the website was offering for sale shoes that appeared to be either impaired or counterfeit.

When is an intermediary exempt from liability?

Ordinarily, the default position in Indian law under Section 79 of the Information Technology Act, 2000 (“IT Act”) is that an intermediary is not liable for third party information, data, links hosted on its platforms. But Section 79(1), which grants the general exemption from liability, is qualified by Section 79(2) and 79(3), which lay down certain conditions under which protection is granted to intermediaries.

Under Section 79(2)(b), for example, an intermediary may be liable if it initiates the transmission (or places the listing on its website), selects the receiver of the information, and selects or modifies the information. Section 79(2)(a) exempts the intermediary if mere access is provided through the communication system to the third party or if there is temporary storage or hosting of the information. And Section 79(2)(c) requires the platform to observe over-arching due diligence, failing which it may be held to be liable.

Section 79(3) states that the exemption under Section 79(1) would not apply if a platform is an active participant or contributes in the commission of the unlawful act. Section 79(3)(a) limits the exemption only to those intermediaries i.e. platforms and online market places who do not aid or abet or induce the unlawful act. The Delhi High Court notes that the terms “conspired”, “abetted”, “aided” or “induced”, as used in Section 79(3) have to be tested on the basis of the manner in which the business of the platform is conducted and not on a mere claim by the platform. Section 79(3)(b) relates to having a policy to take down information or data or link upon receiving information. The Delhi High Court has interpreted this provision to mean, effectively, that any active contribution by the platform or online marketplace completely removes the ring of protection or exemption which exists for intermediaries under Section 79.

Observing due diligence may not be enough all the time

The court also made reference to the Rule 3 of the Information Technology (Intermediaries Guidelines) Rule, 2011 which provides a list of guidelines for intermediaries to follow while observing due diligence. Among other things, intermediaries are obliged to have agreements that the sellers shall not host, display or upload products that violate any trade mark rights, copyrights or patent rights or any other proprietary rights. While these guidelines are framed under Section 79(2), merely complying with the guidelines does not, by default, mean that an intermediary is not “conspiring, abetting, aiding or inducing commission of an unlawful act”. The court specifically held that “Following the guidelines may in certain cases satisfy that the online market place is behaving as an intermediary but the same is not conclusive. What is lawful or unlawful depends on the specific statute being invoked and the Guidelines cannot be considered as being exhaustive in their manner of application to all statutes.”

Liability and counterfeit goods

The question of intermediary liability in the case of trademark infringement and the offer for sale of counterfeit goods requires determining whether there is “use” of a mark under Section 2(2)(c) of the Trademarks Act, 1999, or whether there has been “falsification of a mark” or “false application of a mark” under Sections 101 and 102 of the Trademarks Act, 1999 (“the TM Act”). The law around use for goods is broad, and could be construed to include use by online marketplaces.

The next question is whether there was falsification or false application of the trademark. The court listed a host of acts which would confirm such falsification or false application, including the use of a mark, to lead to a belief that the goods on which the marks are used actually are genuine.

Since this case pertained to the alleged offer of sale of counterfeit goods, the court detailed the various circumstances under which an online market place or e-commerce website would be falsifying the mark under the TM Act, and thus take the website outside the exemption provided under Section 79 of the IT Act. These circumstances include the following:

  • If the website allows storing of counterfeit goods, it is falsifying the mark;
  • Any service provider, who uses the mark in an invoice (thus giving the impression that the counterfeit product is a genuine product), is also falsifying the mark.
  • Displaying advertisements of the mark on the website so as to promote counterfeit products would amount to falsification.
  • Enclosing a counterfeit product with its own packaging and selling the same or offering for sale would also amount to falsification.

In this case, the seller was not known, the person from whom the seller purchases the goods was not known; it was also not known if the product was genuine, though the website represented it as genuine. The unauthorised use of the “Christian Louboutin” mark, without ensuring that the products which are sold are in fact genuine, would constitute violation of mark holder’s rights.  All these factors led the court to conclude that Darveys.com was not entitled to protection under Section 79 of the IT Act.

Meta-tags remain illegal

On the case of meta-tags, which was also raised as an issue, the court had little to add beyond what has already been held in Kapil Wadhwa Vs. Samsung Electronics Co. Ltd. 194 (2012) DLT 23. Meta tags are links which are provided using keywords. If a trade name is used as a keyword and a link is provided, the website comes up whenever a customer searches for that trade mark. The trade mark used in the code as a keyword is invisible to the end-user or customer. But what happens in practice is that when someone browsing the internet enters a trademark (in this case, “Christian Louboutin”) in a search engine, Darveys.com website shows up in the search results because the trademark was used as meta-keyword-tags. This use of the trademark as a meta-tag was deliberate, so as to increase the user-hits which the website would receive. Even though meta-tags are invisible to customers, they have been held to be illegal in the Kapil Wadhwa case (see above).

Necessary disclosures and agreements for intermediaries to follow

The specific directions made by the Court to the website in question were as follows:

  1. To disclose, with immediate effect, the complete details of all its sellers, their addresses and contact details on its website;
  2. obtain a certificate from its sellers that the goods are genuine;
  3. If the sellers are not located in India, prior to uploading a product bearing “Christian Louboutin’s marks, notify the plaintiff and obtain concurrence before offering its products for sale on its platform;
  4. If the sellers are located in India, enter into a proper agreement, including obtaining guarantee as to authenticity and genuinity of the products as also provide for consequences of violation of the same;
  5. follow a notice and takedown policy if counterfeit products are being sold, on information from the mark holder.
  6. seek guarantees from the sellers that the products have not be impaired, and that all the warranties and guarantees of mark holder are applicable and shall be honoured.
  7. remove all meta-tags containing the trademarks;

Since no products bearing the marks in question were in fact sold on its platform, even though the website did advertise and promote the products using the trademarks, no order for damages/rendition of accounts or costs was passed.

Following this judgement, the court used the same principles to issue similar directions to a handful of other online marketplaces, in Skullcandy Inc. vs Shri Shyam Telecom (CS(COMM) 979/2016 & I.A. 24578/2014); M/S Luxottica Group SA vs M/s Mify Solutions Pvt Ltd (CS(COMM) 453/2016 & I.As. 15914/2014, 5100/2018, 5101/2018  & O.A. 41/2018) and L’Oreal vs. Brandworld (CS(COMM) 980/2016 & I.A. 24186/2014), all decided on 12 November 2018.