E-Commerce Websites & their liability as ‘Intermediaries’: Section 79 of the Information Technology Act, 2000

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…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 reason to know is engaging in trademark infringement, the manufacturer or distributor is contributorily responsible for any harm done as a result of the deceit…

            –The Inwood Test (Inwood Laboratories, Inc. V/s Ives Laboratories, Inc., 456 U.S. 844)

Electronic Commerce:

Electronic commerce is commerce which takes place online, that is, the purchase and sale of goods or services takes place through online platforms and not from physical brick and mortar shops, malls or kirana stores. In electronic commerce the goods are sold through online platforms where the products are displayed and offered for sale, and a customer who wishes to purchase the product, visits the website (online platform) and browses through the choices that are offered to him; the customer identifies the product, books the order, and upon delivery of the product, makes the payment.

Instances of online platforms playing an active role in concluding a transaction effected through an e-commerce website:

1.   Once a customer books an order on an online platform, the same is transmitted to the seller and the seller supplies the product to the customer. The payment is made through the online platform.

2.   The company running the online platform or the e-commerce website maintains godowns and warehouses across the country and the world. The order is booked by the customer on the e-commerce website. The invoice generated is that of the e-commerce website company. The packaging of the product and the delivery of the product is by the e-commerce website company. Here, the e-commerce website company merely sources the products from the sellers, and stores them in its godowns and warehouses and the inventories are maintained by the e-commerce website company.

3.   The online platforms allow customers to maintain running accounts and their credit card or debit card gets automatically charged for the purchases they make online.

Intermediary:

According to Section 2 (w) of the Information Technology Act, 2000 (the IT Act), an intermediary is defined as follows: “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.

There is a difference between an operator of an online market place who stores the offers for sale on its servers, sets terms of service, provides general information and is remunerated for the same and an operator who optimizes presentations of the offers for sale, promotes offers and provides the customers with requisite assistance. The former would come in the category of an intermediary and not the latter.

Section 79 of the IT Act:

Electronic commerce websites are of different kinds. There are several online platforms which have transparent privacy policies, takedown policies and intellectual property rights policies. They also have a dedicated unit dealing with complaints of intellectual property right owners and they also reveal complete details of the sellers who are actually placing their goods/products for sale on the online platform. But, there are certain online platforms which do not have these features, that is, the complete details of the sellers are either missing or the sellers are located in foreign countries, and, the online platform does not give the warranty nor does the seller. There are certain other online platforms which promote their own affiliate sellers on their e-commerce website and these affiliates are shown on the online platforms as the off-shoots of the e-commerce website company. Further, there are certain online platforms which offer enormous logistic support such as: storage facilities, transportation facilities, delivery facilities, guarantee of authenticity and warranties, exchange facilities and after-sales service facilities. There are certain other online platforms which raise invoices in the name of the ‘service provider’ and the payments are collected by the online platforms. There are certain basic/ordinary online platforms which simply provide podia for the user to upload his/her information for further dissemination, for example, auction websites, where one user uploads the images of his products and gives it a price, and another user simply accepts to purchase it on ‘as is where is’ basis from the said seller. Thus, depending upon the overall involvement, active or passive, can it be said that a particular online platform is an intermediary or not.

If a particular online platform is ‘passive’, as in the case of an auction website, it can be said to be an intermediary enjoying the benefit of Section 79 of the IT Act. Online market places are specifically mentioned in the definition of ‘intermediaries’ in Section 2 (w) of the IT Act. The crucial words in the definition of ‘intermediaries’ as per Section 2 (w) of the IT Act are ‘receives, stores, or transmits a particular electronic record or provides service with respect to the record’, thus, a particular online platform which carries either of the below listed functions cannot be said to be an intermediary falling within the ambit of Section 2 (w) of the IT Act:

1.   Online platform providing transport facility to the seller to send his product to the warehouse of the e-commerce website company;

2.   Online platform providing quality assurance after reviewing the product and providing authenticity guarantees;

3.   Online platform enrolling ‘members’ upon payment of membership fees (for e.g. www.darveys.com) and giving specific discounts to members;

4.   Online platform promoting the product amongst its dedicated database of customers;

5.   Online platform advertising certain products on the e-commerce website/portal and further, providing requisite assistance to the customers (including call center assistance) for placing their bookings of the products;

6.   Online platform accepting an order on a particular payment gateway promoted by the e-commerce website company;

7.   Online platform packaging the product with its own packing, instead of the original packing of the trademark owner, or changing the packaging in which the original owner’s product is sold;

8.   Online platform transporting the product to the customer, that is, employing delivery personnel for delivering the product to the customer;

9.   Online platform accepting cash for sale of the product and transmitting payment to the seller after retaining its commission;

10. Online platform promoting its own affiliated companies on the basis of more favorable terms than other sellers;

11. Online platform arranging for exchange of the product if there is a customer complaint and/or providing (arranging) for service if the product requires it;

12. Online platform using trademark through meta-tags or in the source code of the e-commerce website in order to attract traffic; and,

13. Online platform deep-linking trademark owner’s website.  

Section 79 of the IT Act deals with “Exemption from liability of intermediary in certain cases”. An analysis of Section 79 of the IT Act shows that an intermediary is not liable for third party information, data, links hosted on the online platform. Section 79 (2) and Section 79 (3) of the IT Act qualifies the manner in which protection is granted to an intermediary. Protection granted to an intermediary under Section 79 of the IT Act is not absolute. Under Section 79 (2) (b) of the IT Act, an intermediary is not supposed to: initiate the transmission; select the receiver of the transmission; and, select/modify the information contained in the transmission. If any of these are done by an intermediary, it may lose the exemption to which it is entitled. It is important to note that:

(i)        As per Section 79 (2) (a) of the IT Act, an intermediary is not liable if mere access is provided through the communication system to the third party or if there is temporary storage or hosting of the information by an online platform.

(ii)       As per Section 79 (2) (b) of the IT Act, an intermediary is not liable if the online platform does not initiate the transmission, selects the receiver of the transmission and/or modifies the information contained in the transmission.

(iii)      As per Section 79 (2) (c) of the IT Act, an intermediary has the obligation to observe overarching due diligence.

Section 79 (1) of the IT Act is further qualified by Section 79 (3) of the IT Act. As per Section 79 (3) of the IT Act, exemption conferred to an intermediary under Section 79 (1) of the IT Act would not apply if the online platform (e-commerce website) is an active participant or is otherwise contributing to the commission of the unlawful act. Section 79 (3) of the IT Act has two dimensions that is, Section 79 (3) (a) and Section 79 (3) (b) of the IT Act. Section 79 (3) (a) of the IT Act limits the exemption only to those intermediaries (online platforms/ online market places/ e-commerce websites) which do not aid/abet/induce unlawful activities; any active contribution by an online market place or an online platform removes the ring of protection or exemption which exists for intermediaries under Section 79 of the IT Act. Section 79 (3) (b) of the IT Act makes it obligatory for an online platform to take down information/data/link from its portal upon receiving actual knowledge or on being notified by the appropriate Government or its agency about any illegal activity which is suspected to have been committed or else carried on by anyone using the services provided by the intermediary.

In the matter of: Christian Louboutin SAS V/s Nakul Bajaj & Ors, CS (COMM) 344/2018, High Court of Delhi, Date of Decision: 02.11.2018, Coram: Prathiba M. Singh, J., it was held that:

1.   Intermediaries (e-commerce websites) are obliged to have agreements that the sellers shall not host, display or upload products that violate any trademark rights, copyrights or patent rights or any other proprietary rights of the intellectual property rights owners.

2.   Section 79 of the IT Act does not offer protection to any ‘intermediary’ that has conspired, abetted, aided or induced the commission of an unlawful act (that is, infringement of intellectual property rights) and it cannot be argued that any intermediary which complies with the guidelines (the Information Technology (Intermediaries Guidelines) Rules, 2011) is automatically not conspiring, abetting, aiding or inducing commission of an unlawful act.

3.   Any online market place or e-commerce website which allows storing of counterfeit goods abets/conspires/aids/induces the falsifying of the trademark; also, any service provider (e-commerce website) that uses the trademark in an invoice thereby giving the impression that the counterfeit product is a genuine product also falsifies the trademark. Further, displaying advertisements of the trademark on the e-commerce website so as to promote counterfeit products also constitutes falsification of trademarks. Moreover, enclosing a counterfeit product with the packaging of the intermediary and selling the counterfeit product or offering for sale the counterfeit product amounts to falsification of trademark. Thus, an act of falsification of trademark by an intermediary drags the intermediary outside the protective shield of Section 79 of the IT Act.

4.   Sections 101 and 102 of the Trademarks Act, 1999 deals with Meaning of applying trade marks and trade descriptions, and, Falsifying and falsely applying trademarks, respectively.

5.   From a reading of Sections 101 and 102 of the Trademarks Act, 1999, it is clear that ‘applying a trademark’, ‘falsifying a trademark’ and ‘falsely applying a trademark’ could include any of these acts:

(i)        Applying the trademark to the goods, or, use of the trademark in relation to services, or, applying the trademark to any package in which the goods are sold or exposed to sale.

(ii)       Use of a trademark in any advertisement, invoice, catalogue, business letter, business papers, price list or other commercial documents resulting in goods being delivered or services being offered with reference to a trademark.

(iii)      Even if a trademark is annexed/affixed to the goods or to any package or other thing accompanying the goods, or the trademark is either woven/imprinted on the goods, it would constitute applying the trademark.

(iv)      Use of a trademark to lead to a belief that the goods/services with respect to which the trademark is used are genuine/authentic goods of that company or business enterprise which owns that trademark constitutes applying the trademark.

(v)       If any application of a trademark is done without the consent of the proprietor of the trademark, it amounts to falsification of the trademark. Even if a trademark is altered/effaced, it would constitute falsification of trademark.

(vi)      If any person uses any material bearing the trademark for the purpose of packaging/filling/wrapping any good other than the genuine good, he would be falsifying the trademark.

(vii)     Use of any mark which is identical or deceptively similar to a genuine trademark is falsifying the trademark.

6.   When an e-commerce website claims exemption under Section 79 of the IT Act, it ought to ensure that it does not have an active participation in the selling process. The presence of elements which show active participation of an intermediary in the selling process deprives intermediary of the exemption it claims under Section 79 of the IT Act.

7.   If an e-commerce website being an active (and not a passive) online platform indulges in the sale of products which are counterfeit then it is liable for trademark infringement of the original manufacturer/producer (intellectual property rights owner). If www.darveys.com is selling counterfeit products and is using tradename of the concerned intellectual property rights owner as meta-tag so that whenever a prospective customer enters the tradename of the concerned intellectual property rights owner on the search engine (www.google.com), the name of “Darveys” (www.darveys.com) appears in the search result, then, “Darveys” is doubly liable, firstly for selling counterfeit goods and secondly for using tradename of the concerned intellectual property rights owner as meta-tag.

8.   While Section 79 of the IT Act protects genuine intermediaries, it cannot be abused by extending the protection to those persons who are not intermediaries and are active participants in an unlawful act. Moreover, if the sellers themselves are located on foreign shores and the trademark owner cannot exercise any remedy against the said sellers who are selling counterfeits on the e-commerce platform, then the trademark owners cannot be left remediless and liability should necessarily be fastened upon the e-commerce website company by applying the test as regards:

a.   Whether there is initiation of transmission by the online platform?

b.   Whether there is selection of receiver of transmission by the online platform? and,

c.   Whether there is modification of information contained in the transmission by the online platform?

9.   For active (not passive) e-commerce websites such as www.darveys.com, it shall be incumbent to disclose the complete details of all its sellers, their addresses and contact details on its website, and, to obtain a certificate from its sellers that the goods are genuine. Further, if the sellers are not located in India, prior to uploading images of the products bearing the trademarks of the original trademark owners (intellectual property rights owners), e-commerce website company shall be obliged to notify the original trademark owners and obtain concurrence before offering the said products for sale on its online platform. However, if the sellers are located in India, then the e-commerce website company shall be obliged to enter into a proper agreement with the sellers, under which it shall obtain guarantee as to authenticity and genuineness of the products as also provide for consequences of violation of the same. An e-commerce website company upon being notified by the intellectual property rights owner of any counterfeit product being sold on its platform is obliged to notify the seller and if the seller is unable to provide any evidence that the product is genuine, the e-commerce website is supposed to take down the said listing and notify the intellectual property rights owner of the same as per the Information Technology (Intermediaries Guidelines) Rules, 2011. The e-commerce website company is to seek a guarantee from the sellers that the products offered by it for sale on the online platform are not impaired in any manner and that all the warranties and guarantees of the original manufacturer/producer (intellectual property rights owner) are applicable and shall be honored by the sellers, and the products of the sellers who would not be able to provide the requisite guarantee would not be allowed to be listed on the portal of the e-commerce website.

10. Use of meta-tags is illegal as it enables a third-party to ride on the reputation of the trademark owner. Meta-tags are links which are provided using keywords. If a tradename is used as a keyword and a link is provided, the website comes up whenever a customer searches for the said trademark. The trademark used in the code as a keyword is invisible to the end-user/ customer. Such use, though invisible to the customer, has been held to be illegal in the case of Kapil Wadhwa V/s Samsung Electronics Co. Ltd., 194 (2012) DLT 23.       

About Shivam Goel

Shivam GoelShivam Goel; B.Com (H), LL.B. (Delhi University), LL.M. (NUJS, Kolkata); Author of: Corporate Manslaughter and Corporate Homicide: Scope for a New Legislation in India, Partridge India, 2015; Associate, S.G. & Co. (New Delhi); advocate.shivamgoel@gmail.com

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