Amazon Seller Services has moved the Supreme Court against ‘direct selling companies’ Amway, Modicare and Oriflame, challenging a July 2019 Delhi High Court interim order, which restrained e-commerce platforms from displaying, advertising and offering for sale the products of companies that are ‘direct selling entities’ without their consent, reports the Economic Times. The e-commerce company has moved the top court because it believes that restraining e-commerce platforms from selling a specific category of products might set a precedent for other product categories as well, per the report.

MediaNama has reached out to Amazon for comment, and will update this when they reply.

The Delhi High Court had passed the interim order on July 9 after clubbing of suits filed by direct selling entities like Amway, Modicare and Oriflame. These companies had alleged that the e-commerce platforms like Amazon, Flipkart, Healthkart and Snapdeal were sourcing and selling their products in an unauthorised manner at cheaper rates, resulting in financial losses to companies.

The e-commerce platforms had replied that they are merely intermediaries under Section 79 of the IT Act, 2000 and are not liable for the products that different sellers sell on their marketplaces. They also argued that Direct Selling Guidelines were merely advisory and were not binding as law. Finally, they had contended that such guidelines restrain e-commerce platforms as well as sellers from exercising their fundamental right to freedom under the Constitution to practice any profession.

Delhi HC’s July order in favour of ‘Direct Selling Entities’

The Court had held that the direct selling companies have established their case against e-commerce platforms on the following grounds that:

1. Direct Selling Guidelines have the force of law: The Court held that the Guidelines have been issued by a gazette notification, therefore “they constitute binding executive instructions”. Therefore, both sellers and platforms are required to take the consent of the Direct Selling Entities before selling such products, as required by Clause 7(6) of the Guidelines.

“The notification issued by the Government in the Official Gazette is a General Statutory Rule (“GSR”)”.

Also, the Court opined that the “while the Defendants’ (e-commerce platforms) and sellers insist on their Article 19(1)(g) rights being jeopardised, what is lost sight of is the fact that the Plaintiffs’ (the companies) right to carry on business is being affected. Further, the rights of genuine consumers are being affected, as is evident from the various comments, which consumers have put up on these platforms, after purchasing the Plaintiffs’ products from the said platforms”.

2. The unauthorized sale of products on e-commerce platforms constitutes passing off, misrepresentation and dilution/tarnishment of their mark: The Court observed that in order to use the companies trademark for displaying, advertising and offering for sale the disputed products, the products are required to be genuine. However, the Court relied on the reports of the Local Commissioners who inspected the premises of certain e-commerce platforms and noted that “there is a large scale of tampering of goods that is taking place”.

As the platforms are facilitating the sale of the tampered products while hiding the sellers’ contact details and portraying it as the companies’ genuine product without their consent, such unauthorized sale constitutes passing off, misrepresentation and dilution/tarnishment of the companies’ marks, products and businesses.

3. The e-commerce platforms don’t come within the ambit of the safe harbour protection:For the intermediaries that are seeking exemption from liability, it is the requirement to satisfy conditions contained in Section 79(2) of the Information Technology Act. As per Section 79(2)(c) of the IT Act, due diligence would have to be observed by the intermediaries in terms of setting up proper policies for IPR protection and for taking down of objectionable content. Further, it was held in the case of Shreya Singhal, that in order to be an intermediary, an online platform has to comply with due diligence requirement as per the platforms’ own policies and as per the Intermediary Guidelines, 2011.

The Court held that as the defendants have failed to fulfill the requirement of due diligence as per their platforms’ own policies, they are not entitled to intermediary protection under Section 79.

“The Policies of all the platforms clearly are simply “Paper policies” which are clearly not being adhered to as the facts of these cases go to show. They are a mere lip-service to the Intermediary Guidelines of 2011. None of the platforms is insisting on any of the sellers obtaining the consent of the Plaintiffs (the companies) for sale of their products on the e-commerce platforms, where their own policies require them to do so.”

4. E-commerce platforms guilty of wrongful interference with the contractual relationship of the companies with their distributors/direct sellers: The Court held that the platforms “are not merely passive non-interfering platforms, but provide a large number of value-added services to the consumers and users”. Upon being notified by the companies of unauthorised sales on their platforms, they have a duty to ensure that the contractual relationships between the companies and their distributors/ direct sellers are not unnecessarily interfered with by their businesses.

Conclusively, the Court observed that the balance of convenience is in favour of the companies. The Court said that “irreparable injury would be caused to plaintiffs, their businesses, and all those who depend on plaintiffs’ successful business, such as employees, distributors/direct sellers, agents, and finally the consumers if interim relief is not granted”.

Read More: Delhi HC restrains e-commerce platforms from selling products of ‘Direct Selling Entities’