Author: Shubham Sil, Bharati Vidyapeeth New Law College, Pune

On November 2, 2018, Justice Prathiba M Singh of the Delhi High Court issued a landmark judgement redefining the definition of "intermediary liability" in the Indian e-commerce environment. It sets out the specific conditions under which an online marketplace becomes an active participant that is liable for infringement of trade marks by no longer being classified as a "passive" intermediary entitled to safe harbour protection within Section 79 of the Information Technology (IT) Act of 2000.

Christian Louboutin, SAS is an established worldwide maker of upscale shoes who is well-known for the red sole trademark often found on the bottom of their shoes, and who sells only through authorized distributors. Nakul Bajaj is the owner/operator of Darveys.com, an e-commerce site that functions as an exclusive, members-only buying club where one must pay ₹ 2,000 to join and shop for high-end merchandise.

Christian Louboutin became aware that Darveys.com was selling counterfeit or unauthorized products bearing the name "Christian Louboutin." Furthermore, Nakul Bajaj's website utilizes various search engine optimization techniques, including the use of Christian Louboutin's trademarks and logos in the meta-tags of his web pages, as well as the display of images of Christian Louboutin's products on those same web pages and articles promoting Christian Louboutin's products.

Was Darveys.com defined under the definition of an "intermediary" that can qualify because it has safe harbor protection according to Section 79 of the IT Act, 2000.

Did the usage of the plaintiff's registered trademarks by the defendant on his website's meta-tags cause an infringement of intellectual property rights?

Does the IT Act override the Trademarks Act 1999 for the purposes of establishing intermediary liability for counterfeit sales?

The Plaintiff (Christian Louboutin SAS): The plaintiff contended that Darveys.com was more than just a passive intermediary between buyers and sellers. Through the use of a meta-tag, which contains the plaintiff's trademark to manipulate search engine results, publishing photos of the counterfeit goods, and actively curating their sale, the defendant was infringing the plaintiff's trademark rights, and also engaged in passing off. The plaintiff asserted that by having a membership model and being an active promoter of the goods, Darveys.com had complete knowledge of the goods it was selling.

The Defendant (Nakul Bajaj): The defendant relied upon the immunity provisions set forth in section 79 of the Information Technology Act, 2000, which provide safe harbor for intermediaries against liability for infringing content published by third parties. Darveys.com asserted that it merely provided an electronic marketplace for third-party sellers to contact buyers, and did not manufacture or distribute counterfeit goods themselves, and therefore, did not have the requisite knowledge to be liable for the infringing activity of others.

The Delhi High Court upheld the position taken by Christian Louboutin. The High Court denied a claim for a safe harbor under Section 79 of the IT Act to Darveys.com, finding that they were "active participants" and not just passive intermediaries.The Court directed Darveys.com to remove all meta-tags of Christian Louboutin, provide the name and address of the sellers providing the infringing goods, and to obtain a certificate of authenticity before posting any sale. The 26 factors formulated by the court evaluate whether an e-commerce platform engages in the following 5 sections of activities:

1. Control Over Product Enlistment & Selection:

Choosing the seller by selecting or inviting specific sellers to the platform.

Selecting the products by dictating or curating the inventory list.

Reviewing product quality to assess or verify the authenticity of items.

Creating product descriptions through writing or modifying the technical details.

Altering product images through editing, watermarking, or uploading specific product photos.

Categorizing products for deciding where and how items are placed across segments.

2. Branding, Advertising & Promotion:

Using luxury brand names or displaying trademarked brand names in metadata or site categories.

Meta-tagging by embedding brand keywords in HTML code to drive web traffic.

Arranging sponsored ads using brand identity for Google AdWords or paid campaigns.

Joint promotion is done through packaging products with the platform’s own distinct branding.

Guaranteeing authenticity by advertising and assuring consumers that items are genuine.

Promoting specific sellers by highlighting or preferencing preferred merchants.

3. Supply Chain, Warehouse & Delivery Logistics:

Procuring the products by directly sourcing inventory from local or international markets.

Providing storage and warehousing by holding the inventory in a platform-owned facility.

Enclosing packaging items and products in boxes wrapped with the platform’s logo.

Managing transportation through directing the shipping channels and courier operations.

Executing the delivery ensures controlling the physical drop-off to the end customer.

4. Financial Transaction & Pricing Control:

Setting the consumer price which determines or alters the final retail price.

Offering discounts by initiating platform-wide price cuts on trademarked goods.

Collecting the payment and funneling financial transactions directly into platform accounts.

Managing refunds and exchanges by operating the financial mechanisms for order returns.

5. Post-Sale Services & Membership Programs:

Offering warranties and providing platform-backed guarantees for post-purchase.

Managing customer care by running dedicated helpdesks for product queries.

Operating membership schemes by offering loyalty points or subscription clubs tied to purchases.

Assisting in repairs and providing maintenance support or spare parts for the products.

Offering exchange policies in facilitating immediate trade-ins or customer replacements.

With the recent ruling on this matter, e-commerce sites are not completely exempt from being held liable for their actions any longer, because before, most sites had followed the “notice and takedown” process once an act of infringement occurred without providing any additional level assistance. The court stated that modern e-commerce sites today are quite “curated” through its application of the 26-factor test to determine whether an e-commerce platform has caused or contributed to infringement. For example, when an e-commerce platform is able to handle all of the logistics associated with an order and verify that the item was ordered legitimately from the supplier, then the manner in which a consumer is presented with the product, the manner in which a consumer searches for products and how a consumer purchases products and services from an e-commerce platform utilizing an e-commerce platform have been affected by that platform. This ruling creates a bridge between traditional trademark law and the manner in which trademark law currently operates in many of the internet-based marketplaces.

The verdict on Indian E-commerce Platform Dynamics has been widely seen, and we'll describe some of the emerging characteristics below:

Due Diligence: Many major E-commerce Platforms, like Amazon and Flipkart, will need to reconsider how they approach vendors and what types of value-adding services they provide.

Later DC & Jurisprudence: The Amazon v. Amway decision in the later appellate case modified part of the initial ruling. In this ruling, the Court evaluated to determine that the delivery of value-added services does not automatically remove the liability of a platform acting as an intermediary under Section 2(1)(w). In addition, this decision still supports the Louboutin principle since if an intermediary delivers a value-added service for the purpose of supporting the sale of infringing goods, then the intermediary has failed to meet its due diligence obligation (negating the immunity afforded by Safe Harbor).

The 26-factor test for assessing reasonable reliance-based liability under CDA § 230 can be a useful method of judicial guidance, but it does not define how many of these factors must be satisfied to determine liability as a matter of Law. The addition of definitions for both ‘Active Marketplace’ and ‘Passive Conduit’ within the Information Technology (Intermediate Guidelines) Rules, as an enhancement/addition to the 26 Factor Test would assist in creating a more transparent liability standard/licensing address Brand Owners and Platforms’ will establish multiple safe harbours, setting a higher liability level for monitoring of IP by logistics and authentication assured by the Platform.

It’s worth noting that the Delhi High Court found that an Intermediary cannot derive profits from the unlawful acts of others, thus affirming that intermediaries must contribute to the enforcement and commercialisation of Trademarks. Further, the Court has held that e-commerce companies ‘have a quasi-fiduciary duty to take reasonable measures to protect the Trademark Rights of Others.’

• Christian Louboutin SAS v. Nakul Bajaj, (2018) 253 D.L.T. 728 (India).

• Information Technology Act, No. 21 of 2000, India Code (2000), §§ 2(1)(w), 79.

• Trade Marks Act, No. 47 of 1999, India Code (1999).