India jurisdiction report: Liability of e-commerce service providers

The Indian B2C e-commerce market is growing exponentially and rapid digitisation is fuelling its further growth. Most e-commerce platforms in India are marketplaces and they have to deal with the menace of counterfeit or infringing products. This article examines the scope of liability of e-commerce service providers in case of sale of counterfeit goods through their platforms.

The statutory provision that lays down the framework to decide the liability of e-commerce platforms is contained in section 79 of the Information Technology Act, 2000. Section 79 is a provision that is applicable for “intermediaries” engaged in transactions by means of electronic data interchange and other means of electronic communication and includes by reference “online-marketplaces”. In this article, “intermediary” and “e-commerce platform” are used interchangeably.

Section 79 lays down the safe harbour principles exempting an intermediary in certain cases. The intermediary is not liable in two situations: (a) if its function is limited to providing access to a communication system over which the information made available by a third party is transmitted or hosted; or (b) if it does not initiate or select the receiver of the information, and does not modify the information.

The intermediary is made liable if it is an active participant or is contributing in the commission of the unlawful act, or where the intermediary fails expeditiously to take down information or data or link upon receiving information.

A review of the judgments on section 79 shows that e-commerce platforms have been exempted from copyright infringement and violation of design rights when content has been uploaded by users.

In the context of sale of infringing or counterfeit products through e-commerce platforms, the courts have analysed the factors as to whether sale of counterfeit products amounts to “use” of a mark under section 2(2)(c) of the Trademarks Act, 1999, or “falsification of a mark” or “false application of a mark” under sections 101 and 102 of the Trademarks Act, 1999, and when answered in the affirmative, leads to the e-commerce marketplace not being entitled to the exemptions granted under section 79.

In this regard, the courts have held that the important test for an e-commerce platform to be exempted from liability is to determine that it does not have active participation in the selling process in relation to the sale of counterfeit/infringing goods.

Case studies

In Christian Louboutin SAS v Nakul Bajaj & Ors decided in 2018, the Delhi High Court enumerated about 26 tasks to determine whether there is active participation by the e-commerce site. Some of them are:

• Identification of the seller and providing details of the seller;
• Providing authenticity guarantees;
• Providing quality assurance after reviewing the product;
• Promoting the product among its dedicated database of customers;
• Accepting an order on a particular payment gateway promoted by the platform; and
• 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.

The above principle was also followed by the High Court of Delhi in other recent judgements: L’Oréal v Brandworld & Ors, Skullcandy v Shri Shyam Telecom & Ors, both decided in 2018, and Luxottica Group & Anr v Mify Solutions & Ors, decided in 2019. It held that if the business model of an e-commerce site responds in the affirmative to a large number of elements enumerated above and the 20 others, it crosses the line from being an intermediary to an active participant, and thereby becomes liable for infringement of trademarks in view of its active participation.

Thus, as long as an e-commerce platform is a conduit or passive transmitter of the records or the information, it continues to be an intermediary exempt from liability under the Information Technology Act. The true intent of section 79 is to ensure that the liability of intermediaries is in line with globally accepted standards and to further online trade and the economy in India.

With e-commerce growing, the Ministry of Commerce and Industry has circulated a draft national e-commerce policy prescribing various guidelines and requirements to be adhered to by intermediaries in relation to listing and sale of products through their platforms, and this will also help in reducing counterfeit products on e-commerce marketplaces.