India: Amway India Enterprises Pvt. Ltd. v. 1Mg Technologies Pvt. Ltd. & Anr.

Last Updated: 13 August 2019
Article by Madhur Tulsiani

The Plaintiff has filed the present case in front of the Delhi High court with an allegation that the defendant is selling their product ultra vires the direct selling guidelines and that too illegally. The plaintiff seeks perpetual and mandatory injunction restraining the Defendants from committing tortious and illegal acts and indulging in unfair competition as also damages.

Amway India Enterprises Ltd. – the Plaintiff, is the wholly owned subsidiary of Amway Corporation (now known as Alticor, Inc.), headquartered in Ada, Michigan, USA, founded in 1959 and is one of the world's largest direct selling companies in the world.

On November 08, 2017 the plaintiff was given the news that his products are being sold without authority. Therefore, on 9th November the Plaintiff gave out a statutory warning in the newspaper regarding the same. Later in May, 2018 the plaintiff got to know that their products are being sold by medical shops without the written permission of the plaintiff. As a result of which an investigation started in which it was found out that these medical shops are selling the products illegally and without authorization after removing the unique codes placed on the lid of the products, also without issuing invoice and not providing benefit of Plaintiffs Return/Refund Policy.

Counsel for the plaintiff also alleged that such a sale by these medical shops was a direct infringement of the Direct Selling Guidelines, 20161 by the government of India. The plaintiff's prayed that the defendants were making profits out of the product of plaintiff illegally and hence the defendants should be restrained from carrying out such illegal activities. Amway also gathered information about various products of theirs being advertised and sold on various e-commerce platforms without their consent which was in violation of the guidelines. The plaintiff contended that the way their products were being sold could also mean that the products are not genuine and may in fact be tampered. Plaintiff even addressed these e-commerce entities with cease and desist letters. Thus, the plaintiff called upon all the e-commerce websites to remove any reference to Amway on their websites including advertising Amway products and cease and desist from displaying any of Amway's products on the said portals.

Apart from Amway, Oriflame and Modicare were the two other direct selling entities i.e plaintiff's claiming interim injunction restraining the e-commerce platforms and the sellers on these platforms from selling their product without the plaintiff's consent.

Modicare had a similar case to that of Amway. Modicare is a FMCG company which sells its product through a direct selling entity. They have been registered as per the direct sale guidelines. The only separate thing with Modicare is that they do not happen to have unique number on their products. Sometime in June, 2016 Modicare found their product being sold on Amazon without the permission of the Plaintiff. Modicare then filed the present suit against Amazon, contending that the unauthorised sale of the plaintiff's products on Amazon is impermissible, illegal, and unauthorised. The grounds taken by Modicare are similar to the grounds raised by Amway2.

Oriflame, the third plaintiff of the case filed the present case against Amazon contending that they seek permanent and mandatory injunction restraining the Defendants from illegally selling Oriflame's products and for damages.The case of Oriflame is that it is engaged in the business of manufacturing and selling of cosmetics and wellness products through a network of its direct sellers called Consultants, who sell the products direct to consumer3.

Following were the questions of law in front of the Hon'ble court:

i) Whether the Direct Selling Guidelines, 20164 are valid and binding on the Defendants and if so, to what extent?

ii) Whether the sale of the Plaintiffs' products on e-commerce platforms violates the Plaintiffs' trademark rights or constitutes misrepresentation, passing off and results in dilution and tarnishes the goodwill and reputation of the Plaintiffs' brands?

iii) Whether e-commerce platforms are ―intermediaries‖ and are entitled to protection under the safe harbour provided in Section 79 of the Information Technology Act5 and the Information Technology (Intermediary Guidelines) Rules of 20116?

iv) Whether e-commerce platforms such as Amazon, Snapdeal, Flipkart, 1MG, and Healthkart are guilty of tortious interference with the contractual relationship of the Plaintiffs with their distributors/direct sellers?

v) What is the relief to be granted?

The court in its judgement had to say the following to the parties. This Court has held above that the use of the Plaintiffs' marks and the sale of the products without the consent of the Plaintiffs is in violation of the Plaintiffs' trademark rights and results in passing off, misrepresentation and dilution. The sale of the Plaintiffs' products also violates the Direct Selling Guidelines, which are valid and binding.

The Direct Selling Guidelines are law. While the Defendants' platforms and sellers insist on their Article 19(1)(g) rights being jeopardised, what is lost sight of is the fact that the Plaintiffs‟ right to carry on business is being affected. It is being jeopardized in view of the large-scale violations on the e-commerce platforms. There is a reasonable apprehension that the direct distribution network of the Plaintiffs may be affected. As per their own policies, sale on e-commerce platforms of unauthorised, tampered products is impermissible. The same could also completely destroy the goodwill of the Plaintiffs.

The defendants are willing to assure that if and when the plaintiffs inform them about any unauthorised sale of Amway products being sold on its platform, they would take immediate steps to take down all such Amway products7.

Footnotes

[1] Clause 3, 4and 5 of the Direct Selling Guidelines, 2016 : https://consumeraffairs.nic.in/sites/default/files/file-uploads/direct-selling/Direct%20Selling%20Guidelines%20Final%20_0.pdf

[2] https://www.spglobal.com/marketintelligence/en/news-insights/trending/wFvz5ofYx5aLPZC2Fey4CA2

[3] https://timesofindia.indiatimes.com/business/india-business/hc-restrains-e-commerce-firms-from-selling-direct-sellers-products-without-consent/articleshow/70145080.cms

[4] https://consumeraffairs.nic.in/sites/default/files/file-uploads/direct-selling/Direct%20Selling%20Guidelines%20Final%20_0.pdf

[5] https://indiacode.nic.in/bitstream/123456789/1999/3/A2000-21.pdf

[6] https://www.wipo.int/edocs/lexdocs/laws/en/in/in099en.pdf

[7] https://economictimes.indiatimes.com/industry/services/retail/amway-takes-flipkart-to-court-for-illegally-selling-its-goods/articleshow/66279701.cms

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