In a case that seems to set the benchmark for when an ecommerce website might be considered an intermediary, Darveys.com, a membership based e-commerce site has been ordered by the Delhi High Court to do the following, among other things:

  • Disclosure: Disclose complete details of all its sellers, their addresses and contact details
  • Brand approval for sale of product: If the sellers are not located in India, prior to uploading a product with the trademark of Christian Louboutin, inform them and get their permission before selling these products on its platform.
  • Agreement with sellers in India: If the sellers are in India, get into a proper agreement with them, which guarantees the authenticity and genuineness of the products, and “provide for consequences of violation of the same.”
  • Take-down of listing: Take down the listing upon being notified of a counterfeit Christian Louboutin product, notify the seller and the Christian Louboutin company.
  • Warranty: Get a guarantee from the sellers that warranties are applicable and shall be honored by the seller. A seller who is unable to provide this guarantee will not be allowed to sell on the platform
  • Remove meta tags related to Christian Louboutin

No damages have been ordered to be paid to Christian Louboutin, because Darveys.com said that none of Louboutin products were sold on the platform, even though the website advertised and promoted products using the Christian Louboutin brand.

The Complaint

Darveys.com was taken to court by Christian Louboutin, which alleged that Darveys was selling (allegedly counterfeit and impaired) products bearing the Christian Louboutin brand, saying that the website had their complete product catalogue, and had 100% authentic products.

The names “Christian” and “Louboutin” were being used as meta-tags. Christian Louboutin, in its complaint, alleged “infringement of the trademark rights of the Plaintiff, violation of personality rights of Mr. Christian Louboutin and dissolution of the luxury status enjoyed by their products and brands.”

The Defence

Darvey’s.com took refuge in Section 79 of the IT Act, which offers a safe harbor to intermediaries, saying that their customers are “given a choice of booking products from any of the 287 boutiques/sellers from across the globe.”

It said that the goods are genuine and sold “directly by the sellers”, and Darvey’s is “not selling the goods but they merely enable booking of orders through their online platform. It is further claimed that no after sales warranty or service is given from the manufacturer and the terms and conditions do not involve” Christian Louboutin.

The written statement contains some interesting pleadings from Darveys, among others:
a) Darveys do not purchase any articles for sale, only book the orders on behalf of the sellers whose products they display on their platform. The names of the sellers are correctly displayed on the website.
b) Christian Louboutin products were offered for sale on Darveys.com but the responsibility was taken over by the sellers, on whose behalf the goods were offered for sale.
c) The goods are imported and are based on the understanding that the products are genuine and that the manufacturers are not liable in any manner; the name, address of brand owners are displayed.
d) There is a disclaimer that the manufacturer does not have any responsibility and involvement in the sale process. There is no limitation because actual name itself is used.
e) It is denied that the products are fake or counterfeits. Darveys.com claims that only products of the original manufacturers are being sold.
f) Darveys do not change the physical condition of the product and hence there is no impairment.
g) That the orders are booked and sent to the foreign sellers to supply the goods.
h) That Christian Louboutin should issue a warning that its goods are not for sale and in that case Darveys will state that the Christian Louboutin products will not be offered for sale.
i) The advertisement of the product is at the risk, responsibility and expense of Darveys and that no commercial connection with Christian Louboutin is represented.

The Examination of Safe Harbor / Intermediary Liability protections in the judgment

It’s important to remember that ecommerce was responsible for intermediary liability protections (Section 79) being brought into the IT Act: Avnish Bajaj, who was heading Ebay.in, was arrested when a seller was found selling access to a pornographic clip on the site. The IT Act was amended to offer platforms protection (safe harbor) against any liability arising from the actions of its users. It applies to every platform, including messaging services like WhatsApp, video sharing sites like YouTube, social networks like Facebook, and search engines like Google. The take-down provision of the IT Act was further written down as a part of the Shreya Singhal (66a) judgment, because it was being used to censor content.

What is an intermediary?

As per the Information Technology Act, 2000 an `intermediary’ is defined as: “Section 2(w) “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 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.”

The Delhi High Court examined Section 79 from the perspective of whether trademarks, logos and images are protected or not. Some key observations in the judgment:

1. When is an ecommerce company not an intermediary?

The judgment says that in order to claim exemption under safe harbor, an ecommerce company “ought to ensure that it does not have an active participation in the selling process. The presence of any elements which shows active participation could deprive intermediaries of the exemption.”

Different ecommerce companies have different roles in the selling process: from providing payments, to maintaining inventory, facilitating payments, generating invoices, delivering the product, and at times, even the packaging is theirs.

The court asked whether platforms can be deemed to be inactive, passive, or merely conducting automated processing if they’re seen to be doing any of the following: –
i. Identification of the seller and providing details of the seller;
ii. Providing transport for the seller to send his product to the platform’s warehouse;
iii. Uploading the entry of the said product;
iv. Providing quality assurance after reviewing the product;
v. Providing authenticity guarantees;
vi. Creation of the listing of the said product;
vii. Providing reviews or uploading reviews of the product;
viii. Enrolling members upon payment of membership fees;
ix. Promoting the product amongst its dedicated database of customers;
x. Advertising the products on the platform;
xi. Giving specific discounts to members;
xii. Providing assistance for placing a booking of the product, including call centre assistance;
xiii. Accepting an order on a particular payment gateway promoted by the platform;
xiv. Collecting the payment through users registered for electronic payment modes;
xv. Packaging the product with its own packing, instead of the original packing of the trade mark
owner or changing the packaging in which the original owner’s product is sold;
xvi. Transporting the product to the purchaser;
xvii. Employing delivery personnel for delivering the product;
xviii. Accepting cash for sale of the product;
xix. Transmission of the payment to the seller after retaining commission;
xx. Promoting its own affiliated companies on the basis of more favourable terms than other sellers;
xxi. Entering into favourable arrangements with various sellers;
xxii. Arranging for exchange of the product if there is a customer complaint;
xxiii. Providing/arranging for service if the product requires the same;
xxiv. Booking ad-space or ad-words on search engines;
xxv. Using trade marks through meta-tags or in the source code of the website in order to attract
traffic;
xxvi. Deep-linking to the trade mark owner’s website;

In context of this case, the court noted that Darveys.com does not disclose the details of its sellers, or where they purchase the products from. It said that if the products turn out to be counterfeit, Darveys.com will return twice the money. It thus observed that Darveys exercises complete control over the products: it is “identifying the sellers, enabling the sellers actively, promoting them and selling the products in India. The role of Darveys.com is much more than that of an intermediary.”

62. While the so-called safe harbour provisions for intermediaries are meant for promoting genuine businesses which are inactive intermediaries, and not to harass intermediaries in any way, the obligation to observe due diligence, coupled with the intermediary guidelines which provides specifically that such due diligence also requires that the information which is hosted does not violate IP rights, shows that e-commerce platforms which actively conspire, abet or aide, or induce commission of unlawful acts on their website cannot go scot free.

63. The elements summarised above would be key to determining whether an online marketplace or an e-commerce website is conspiring, abetting, aiding or inducing and is thereby contributing to the sale of counterfeit products on its platform. When an e-commerce website is involved in or conducts its business in such a manner, which would see the presence of a large number of elements enumerated above, it could be said to cross the line from being an intermediary to an active participant. In such a case, the platform or online marketplace could be liable for infringement in view of its active participation.

Needless to add, e-commerce websites and online marketplaces ought to operate with caution if they wish to enjoy the immunity provided to intermediaries. The question, however, would have to
be determined after reviewing the practices of various websites under the facts and circumstances of a particular case.

2. Display of counterfeit products leads to trademark violation

The judgment says, for illustration, that:

– any online market place or e-commerce website, which allows storing of counterfeit goods, would be falsifying the trademark.
– Any service provider, who uses the mark in an invoice thereby 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 constitute falsification.
– Enclosing a counterfeit product with its own packaging and selling the same or offering for sale would also amount to falsification.

“All these acts would aid the infringement or falsification and would therefore bring the e-commerce platform or online market place outside the exemption provided under Section 79 of the IT Act, and thus be grounds for removal of safe harbor.

3. Meta Tags as trademark violation

The court said that if a trade name is used as a keyword and a link is provided, the website comes up whenever a customer searches for the trade mark. Even though the trademark, used as a keyword, is invisible to a customer, such use has been held to be illegal in the case of Kapil Wadhwa Vs. Samsung Electronics Co. Ltd. 194 (2012).

“The trademark owner loses its huge customer base especially in the case of luxury products. If the products turn out to be counterfeit or not up to the mark, then it is the trademark owner’s brand equity which is diluted. The seller himself does not suffer. Such immunity is beyond what is contemplated to intermediaries under Section 79 of the IT Act.”

Read the judgment here.