India: E-Commerce Websites: The Haven For Online Counterfeiting

Last Updated: 21 August 2017
Article by Lalit Vohra

A brand infringement is selling counterfeited goods with brand designs without brand authorization letter or obtaining distribution rights. It becomes a Trademark infringement where a seller uses an identical or similar trademark. Mostly all the e-commerce sites have a strict "no brand infringement" policy in place.

Yet there have been cases such as Nalli silks accused Snapdeal of trademark infringement, furniture brand houseful took etailer Mebelkart to court, Flipkart against a discount listing site for copyright and trademark infringement, owner of Lacmioant sarees filed a case against Flipkart & Amazon and much more. Even, on social media sites like Facebook and Instagram, a lot of pages sell and promote counterfeited products. Few merchants are misusing the online retail platform and marketplaces are enabling them

The intellectual property rights ("IPR") violations are taking place due to the content hosted by e-commerce sites. Content is created by third-party users, and in the absence of a specific agreement between them and copyright-owners regarding trademark, copyright and patent rights, there is an ever-present threat of infringement.1 The issue is further exacerbated by the fact that there are numerous business models in the e-commerce space. The multiplicity of business models makes it difficult for regulators and government to regulate these companies and ascribe liability particularly in cases where e-commerce companies claim immunity on the basis of the intermediary liability regime in India. A large percentage of the disputes that concern e-commerce companies in the recent past have involved them as intermediaries in some respect on another. They are able to escape liability due to the generic nature of the intermediary liability regime in India which fails to account for the plurality of the business models of e-commerce companies. Consequently, then, this paper will propose an alternative intermediary liability regime to achieve a greater balance between the interest of e-commerce companies on one hand and the aggrieved parties particularly the consumers on the another. The first part of the paper will describe the various business models and try to understand their working. The author in the second part will analyse the problems with the current regime in the third section. The third part will elucidate the current intermediary liability regime in India Lastly, the fourth part will be devoted to solutions where the authors will propose solutions to the problems with the current system.

The liability of marketplace and e-commerce companies arises from the concept of secondary or contributory infringement which is contained in all IP laws 2. This concept basically provides that in case a person is facilitating infringement of third party IP rights or is providing a space for sale of infringing products or printing advertising material etc. and such person has actual or constructive knowledge of such infringement or has reasons to believe that an infringement has occurred, such person shall also be liable for infringement.3

The main weapon that brand owners can use to combat online counterfeiting is "report and delist", notifying the platforms of infringing offers on their sites and requesting the platforms' voluntary delisting of the products. Brand owners face a growing number of counterfeiters who rapidly regroup and come back online after a delisting. The current practices place the burden of policing the platforms' sales almost entirely upon brand owners. A question garnering serious consideration is whether the platforms themselves should share the burden by proactively monitoring their sites.4 Courts in Europe are developing their own divergent approaches to online counterfeit sales. In parallel with the Tiffany case in the United States, eBay has been locked in litigation with brand companies in Europe with varying results. The French courts have expanded liability, ruling that eBay violated French trademark laws for passively permitting counterfeit sales5In contrast, Belgian courts have declined to hold eBay liable for sales of counterfeit cosmetics.6 More recently, the European Court of Justice clarified the so-called safe harbour provision of the EU's E-Commerce Directive, favouring brand owners. In a ruling dated July 12, 2011, in a case originating in the UK between L'Oreal and eBay, the court explained that the hosting provider's safe harbour extends only to neutral or passive, automated third-party data processing. The court ruled that an online market such as eBay is not neutral or passive but instead optimizes and promotes offers for sale. The ruling stopped short of an outright liability determination, which must be made by the referring UK court 7. Nevertheless, the narrowing of the safe harbour provision is an apparent victory for brand companies and promises to extend the power of European courts to intervene in online markets and require e-commerce platforms to adopt stricter control over their online listings.

The liability of e-commerce platforms for trademark infringement in the United States was most recently and comprehensively addressed in the leading case of Tiffany Inc. v. eBay Inc8. In that case, the court stopped well short of imposing strict liability on e-commerce platforms for the sale of counterfeit goods on their websites. The court declined to hold eBay liable for trademark infringement even though a "significant portion" of the "Tiffany" jewellery offered for sale on eBay was counterfeit and eBay knew generally that "some portion" of the offered goods was counterfeit. Due to the global boundary of e-commerce and its fast growth, the regulation of e- commerce is a complex issue. In e-commerce transactions due to the inseparable supports from third party service providers, the joint infringement has become another hot topic in e- commerce infringement.

However, in India, where trademark infringement is alleged, it is arguable that the exclusion of the Trademarks Act from the overriding proviso in Section 81 of the Information Technology Act means that intermediaries can seek shelter under Section 79 of the Information Technology Act9 and its due diligence threshold. The intent of the Supreme Court has been noble in this aspect10, it did not perhaps fully consider the ramifications of its decision specifically in the context of Section 79 of the IT Act and, as a result, on online counterfeiting till date. It is up to the website to carry out due diligence while allowing third-party sellers to sell their items on their platform, however, they may be contributors to the crime of counterfeiting.

The commercial reality is that it is impossible to verify every product and service to ensure that it does not infringe IP rights. This also dilutes the elaborate takedown policies and procedures implemented by ISPs to remove infringing goods and content. The Delhi High Court recently restrained online retailer Brandworld from using the brand name L'Oreal to sell or supply any goods, on any website or in any other manner, after the cosmetics company alleged that counterfeit products bearing its trademark were being sold by the merchant on its shopping website www.ShopClues.com.

To curb down online counterfeiting, The website should strengthen their IP portfolio, obtain statutory protection for your brands and regularly audit your portfolios11, establish a monitoring programme to keep tabs on online misuse of your IP rights, establish a cease and desist notice programme, supported by rigorous follow-up to safeguard brands and intellectual property, conduct market and online investigations following leads presented by your monitoring programme to take appropriate action against habitual or key infringers from time to time. India is experiencing a digital revolution, fuelled by a growing young and urban population. In this scenario, a combination of technological solutions, consumer awareness/education and legal action can help to control, if not eliminate, the problem.

Footnotes

1> Neeraj Dubey, ??India: Legal Issues in E-Commerce-Think Before You Click!??, Mondaq, 14 March 2014, available at http://www.mondaq.com:80/india/x/299686/ IT%20internet/Legal%20Issues%20In%20ECommerce%20Think%20Before%20You%20Click

2 Measuring Electronic Commerce, Committee For Information, Computer And Communications Policy, OCDE/GD(97)185, 1997, available at http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=OCDE/GD(97)185&docLanguage= En

3 Lancome v. eBay

4 Alok Deshpande, ??Snapdeal faces heat over sale of prescription drugs??, The Hindu, 18 April 2015), available at http://www.thehindu.com/news/national/snapdeal-faces-heat-over-sale-of-prescription-drugs/article7114960.ece

5 S.A. Louis Vuitton Malletier v. eBay, Inc., Tribunal de Commerce de Paris, Premiere Chambre B. (Paris Commercial Court), Case No. 200677799 (June 30, 2008).

6 Brussels Commercial Court (Aug. 12, 2008), Docket No. A/07/06032.

7 Gucci Am., Inc. v. Duty Free Apparel, Ltd., 286 F. Supp. 2d 284 (S.D.N.Y. 2003)

8 .600 F.3d 93 (2nd Cir. 2010)

9 Section 79 of the IT Act which grants an exemption to intermediaries from being held liable for third party information which is hosted through their platforms on the internet

10 Shreya Singhal v Union of India WP (Cr) NO.167 OF 2012

11 World Trademark Review http://www.worldtrademarkreview.com/Intelligence/IP-Lifecycle-India/2015/Articles/Protecting-brands-in-the-digital-space 7/8

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