HC: E-commerce platform cannot be haven for infringers, liable for selling fake products

E-commerce platforms cannot become a haven for infringers of intellectual property and allow people to sell counterfeits, the Delhi high court has said, in an order laying down that “safe harbour” protections will not apply in such cases as it pulled up a shopping website.

This is among the first legal cases that interpret the applicability of safe harbour protections on digital websites and services, which has been key to allowing internet commerce and social media by according companies that play the role of an “intermediary” to be immune from the liability of what a third party does.

The January 3 order of the Delhi HC, made available only on Saturday, now holds an e-commerce company --- in this case IndiaMart Intermesh Limited (IIL) --- liable for counterfeit products sold on it.

“IIL’s function is not limited to providing access to the communication system over which the information made available by the consumers who use the Indiamart platform is transmitted, stored or hosted. The sellers actually effect sale of their products across the Indiamart platform of IIL, and IIL pockets a part of the proceeds of such sales. The function of IIL, therefore, much transcends mere “providing” of “access”. Clause (a) of Section 79(2) is, therefore, not applicable,” the court said, referring to the section of the Information Technology Act that pertains to safe harbour.

The court was hearing a petition by sportswear brand Puma, which filed a lawsuit against e-commerce platform IndiaMart, saying it allowed counterfeiters to sell products under its brand name.

“An e-commerce platform cannot become a haven for infringers. Men are not angels. Where easy money is visible, the conscience at times takes a nap,” a bench of justice C Harishankar said in the order restraining IndiaMart from selling Puma’s products.

In the 85-page verdict, the judge held that e-commerce websites “are commercial ventures, and are inherently profit oriented. There is, of course, nothing objectionable in this; but, while ensuring their highest returns, such websites have also to sedulously protect intellectual property rights of others”.

Normally, safe harbour protections would have meant the liability would have only been of the third party, in this case, the counterfeiters who sold fake Puma-branded products.

But a core element of the issue was IndiaMart providing a drop-down option for sellers to select a particular brand of whose products sellers wanted to be listed under. The court held that e-commerce companies cannot, “with a view to further their financial gains, put in place [such] a protocol by which infringers and counterfeiters are provided an avenue to infringe and counterfeit.”

“Here, by making available Puma as a drop-down option to the prospective seller seeking to register himself on the IndiaMart platform, IIL facilitates not only genuine sellers of Puma merchandise, but also counterfeiters in selling their products by masquerading as genuine Puma dealers. Thus, this is not a case in which two genuine competitors are being placed side by side. This is a case in which a counterfeiter is managing, on account of the availability of Puma as a drop-down option, to peddle counterfeits as genuine Puma products. This is, therefore, a case of defrauding consumers,” the court said.

The sportswear brand appearing through advocate Ranjan Narula submitted that the platform was aiding, abetting and facilitating infringement by enabling various dealers to sell goods bearing Puma’s fake mark. The counsel further submitted that the platform was not conducting any prior verification before accepting registration of a person as a seller of goods of reputed brands.

The e-commerce platform, appearing through senior advocate Rajshekhar Rao, submitted that since it was only providing a space for the goods put up for sale by the sellers, it was not responsible for the counterfeit goods. He added that it was physically and practically impossible for the platform to monitor or control counterfeiting but was willing to take down any listing put up by counterfeiter when brought to its notice.