It is beyond question that the COVID-19 pandemic has paved the way for rapid digital adoption across the globe. The closure of physical retail stores and a growing inclination of consumers to avoid brick-and-mortar stores fuelled an exponential growth in e-commerce business – consumers are now more open to the idea of making purchases from the comfort of their home. In Malaysia, Shopee and Lazada are among the e-commerce platforms often used by consumers.
 
An upward trend in the sale of counterfeit products is, however, concomitant with the escalating growth of e-commerce. As original products listed on an online marketplace are accessible by virtually anyone, these products are more susceptible to being replicated without authorisation at a significantly lower price point.
 
The sale of counterfeit products on online marketplaces undeniably infringe intellectual property rights. Although the main role of e-commerce platforms, such as Shopee and Lazada, is to act as an intermediary between online retailers and consumers, one of the questions that arises is whether the operators of these platforms can be held accountable for counterfeit products sold by third-party sellers on their platforms?
 
The High Court's decision on 23 January 2021 in A & M Beauty Wellness Sdn Bhd v Shopee Mobile Malaysia Sdn Bhd (KLHC Suit No. WA-22IP-67-10/2019) ("A & M v Shopee") considers the extent of liability potentially faced by online marketplaces. In this case, the Court refused to grant an interim injunction against Shopee to, amongst others, stop and/or prevent its third-party sellers from selling products bearing the Plaintiff's purported trademark.
 
Brief Facts
 
In A & M v Shopee, the Plaintiff, a beauty and cosmetics company incorporated in Malaysia, claimed to be the proprietor of a trademark registered as "AM PROFESSIONAL SKIN CARE" ("the AM trademark"). The Plaintiff had developed an exclusive business plan that requires members of the public to pay a subscription and/or membership fee in order to share in the profit and benefits from the sale of the Plaintiff's products. Exclusivity of the Plaintiff's business plan means that the Plaintiff's products are not intended to be sold on an open market platform, but are instead sold together with the Plaintiff's membership plan.
 
Shopee Mobile Malaysia Sdn Bhd ("Shopee"), on the other hand, is widely known for its e-commerce platform on which third-party sellers post their product listings for sale online. The dispute arose when the Plaintiff became aware that there were products being sold on Shopee's website which were similar to the Plaintiff's "AM PROFESSIONAL SKIN CARE" products and bearing the AM trademark. The Plaintiff contended that these products on Shopee's website were listed for sale without authorisation from the Plaintiff which ultimately owns the exclusive marketing rights.
 
The Plaintiff sought an interim injunction from the Court against Shopee to, amongst others, prevent the sale of products similar to the Plaintiff's products bearing the AM trademark on Shopee's online website. The Plaintiff also sought injunctive relief for Shopee to remove all sale listings of those products from its website.
 
Findings of the High Court
 
In considering the Plaintiff's application, the High Court applied well-settled legal principles in respect of interim injunction applications, which are as follows: (i) whether there are bona fide serious issues to be tried; (ii) whether the balance of justice and convenience lies in favour of granting an injunction; (iii) whether damages are an adequate final remedy for the Plaintiff; (iv) whether the Plaintiff has given a meaningful undertaking as to damages; and (v) whether the status quo should be maintained.
 
Whether there are  bona fide serious issues to be tried
  
It was alleged by the Plaintiff that the sale of counterfeit products on Shopee's website is illegal and not in compliance with Regulation 18A of the Control of Drugs and Cosmetics Regulations 1994, on the basis that there was a purported scratching off of barcodes and an absence of original packaging on those products. However, the High Court dismissed the Plaintiff's allegations on grounds that they were unsubstantiated by evidence and fact.
 
The High Court also considered the Plaintiff's actions in attempting to remove the purportedly offending listings from Shopee's website. It was found that the Plaintiff did not sufficiently comply with the complaints procedure detailed in Shopee's terms and conditions. Taking into account the overall circumstances, the High Court opined that the Plaintiff can only seek injunctive relief for the removal of such listings if Shopee refuses to comply after the Plaintiff has availed itself of the remedy in the complaints procedure.
 
Pertinently, the High Court was of the view that the Plaintiff's application for an injunction to restrain third-party sellers from selling products bearing the AM trademark "undermines the operation of e-commerce platforms".  The Court went on to consider the nature of business carried out by Shopee, that it is the operator of an online marketplace which facilitates the process of buying and selling between two parties (namely, the buyer and the seller). As such, it may well be the case that a particular third-party seller could be injuncted from listing a certain product for sale online. The High Court however took the position that Shopee—the operator of an e-commerce platform—should not be held liable if counterfeit products are sold by a third-party seller on its website.
 
From a practical perspective, the High Court took cognisance of the fact that Shopee does not have the technical capability or resources to pre-screen every listing before it is published by online users, or perform an "autoblock" function in respect of the Plaintiff's products on Shopee's website. In other words, it is "impossible for [Shopee] to comply with an order which requires it to prevent a listing from being published before it is uploaded".
 
Crucially, the High Court held that the Plaintiff did not have the locus standi to initiate and maintain an action for trademark infringement. The Plaintiff was not the registered proprietor of the AM trademark – a letter of assignment purportedly assigning all intellectual property rights, title and interest to the Plaintiff does not entitle the Plaintiff to sue for infringement.
 
It was also argued by the Plaintiff that Shopee is prevented from allowing its users to sell the Plaintiff's products at a lower price. However, the High Court rejected this argument as being misconceived in that such a restriction may contravene Section 4 of the Competition Act 2010. The Court was of the view that even if an action is brought, the correct party to be sued would be the third-party seller and not Shopee, as the latter has no knowledge of the arrangement between the Plaintiff and third-party sellers, and is not privy to any contract between them.
 
In light of the above, the High Court decided that there are no serious questions to be tried in respect of the Plaintiff's claim.
 
Whether the balance of convenience lies in favour of granting an injunction
  
The High Court held that the balance of convenience lies in favour of Shopee.
 
The Court was of the opinion that the reliefs sought by the Plaintiff are not capable of being carried out. For instance, it was "impossible" for Shopee to stop and/or prevent and/or disallow users on Shopee's online platform from continuing to sell the Plaintiff's products or publishing a post in relation to the Plaintiff's products. Shopee also satisfied the Court that it is "extremely difficult and not practical" to manually remove all of the Plaintiff's products from its platform.
 
Another important consideration against allowing the reliefs sought by the Plaintiff is that the interim order sought requires a complete wipe out of listings similar to the Plaintiff's products. This would greatly affect the rights of other third-party sellers who had no connection whatsoever with the Plaintiff's products.
 
Whether damages are an adequate final remedy for the Plaintiff
  
As the Plaintiff's claim is monetary in nature and predominantly based on a purported loss of profits, it was held that damages would be an adequate remedy for the Plaintiff if it is successful in asserting its claims.
 
Whether the Plaintiff has given an adequate undertaking as to damages
  
The High Court was of the view that the Plaintiff had not produced any reliable evidence to show that it is of a solid financial standing to make good its undertaking as to damages.
 
Whether the status quo should be maintained
  
Based on the considerations discussed above, the High Court held that the status quo should be maintained as there is no loss caused to the Plaintiff that cannot be compensated by damages.
 
Commentary
 
The decision in A & M v Shopee will be welcomed by operators of e-commerce platforms as it absolves them from liability for the sale of counterfeit products by third-party sellers on their platforms. Conversely, the decision will be viewed as a setback by retailers of authentic products as well as the owners of intellectual property rights in that it encourages the proliferation of counterfeit products.
 
In any event, the decision does not negate the right of intellectual property owners to assert their legal rights directly against the sellers of counterfeit products. It is debatable that holding an operator of an e-commerce platform liable would, arguably, be akin to holding a landlord responsible for a tenant who sells counterfeit products in the rented premises.
 
Lastly, it must be noted that the High Court's decision relates to an interlocutory application and is not a final resolution of the dispute between the parties. Hence, the jury is still out on the issue of liability until the matter proceeds to trial and the merits of the case are adjudicated upon.

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