The Supreme Court, on September 11, directed Amazon seller services and direct selling companies such as Amway and Modicare to approach the Delhi High Court if they wished to challenge the High Court’s July 2019 order, according to the Business Standard. It also asked them to get seek a hearing from the Delhi HC before October.
In July this year, the Delhi High Court had passed an order which restrained e-commerce platforms Amazon, Flipkart, Healthkart and Snapdeal and others from displaying, advertising and selling products of ‘direct selling companies’ such as Amway, Modicare and Oriflame without their consent. Amazon had sought an interim stay on the order, and the high court said the matter would be heard in February 2020.
Following that, Amazon Seller Services moved the Supreme Court against these companies in August this year due to the fear that restraining e-commerce platforms from selling a specific category of products might set a precedent for other product categories as well.
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”. Thus, 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 unauthorised 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”.