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Amazon Seller Services Pvt. Ltd. v/s Modicare Ltd. & Ors.

In the landmark judgment of Amazon Seller Services Pvt. Ltd. vs. Modicare Ltd. & Ors., the division bench of the Delhi High Court comprising of Justice S. Muralidhar and Justice Taswant Singh delivered the judgment that e-commerce platforms are permitted to sell and advertise the goods of Direct selling Entities (DSE's) without their consent. They set aside the order of the Single Judge of the same court who prohibited different e-commerce platforms including Amazon, 1MG, Flipkart, Healthkart, Snapdeal and independent business dealers from selling, offering to sell, promoting, or advertising products in breach of third-party agreements.


BACKGROUND

Under the concept of direct selling, the company sells products and serves directly to the customers, the goods without any fixed retail location. The regulation of such sale is done by prior agreements between the manufacturers and sellers also with a code of ethics which is regulated by the manufacturers. Under 7(6) of The Direct Selling Guidelines, 2016 suggests that any e-commerce platform or commercial centre ought to acquire written consent before selling goods of direct sellers. Amway, Oriflame and Modicare were the direct selling entities i.e. plaintiffs who were claiming interim injunction to restrain the e-commerce platforms and the sellers associated with these platforms from selling their goods without their consent.


To determine the issue at hand, four limbs were formulated which was to be then decided by the Division bench:

1. If the DSG, 2016 are valid and had a binding effect on the respondents and if so, to what extent?

2. If via the sale of Plaintiff's product on the internet domain infringes the trademark rights of the plaintiff or constitutes misrepresentation, passing off resulting in the damage of the goodwill and reputation of the plaintiff's brand?

3. Whether e-commerce platforms could be called as intermediaries and if they could get the protection of Safe Harbour under the Information Technology Act and its guideline,2011?

4. Whether there exists a Contractual relationship between DSEs and e-commerce platforms?


ANALYSIS OF ISSUES BY THE DIVISION BENCH AND JUDGMENT

The Division Bench explained to the first issue at hand that there cannot be conferment of the status of 'law' on the guidelines merely because there was a notification in the Official Gazette and that they are just an advisory. For the second issue, the Division Bench at the beginning called attention to point out that a major mistake has been done by the Single Judge in noting in the impugned order that the DSEs are the proprietors of their trademarks respectively as none of the DSEs had declared or indeed, even mentioned about trademark registrations in their pleadings. The Bench noted that in any case, the parties to the suits did not own their trademarks, which was held by the parent companies incorporated abroad.


The Principle of Exhaustion of Trademarks was examined and discussed in detail in this judgment, in pertinence to infringement of trademarks. The concept of exhaustion of rights can be explained as that after a good is sold or transferred by the trademark proprietor or by others with the assent of the proprietor, the trademark rights stands exhausted. It's owner or others with the assent of the owner reserve no right to prohibit others from reselling or utilizing the item. The principle aims to bring a balance between the interests of the trademark owners and the product owner. the Division Bench, by emphasizing the judgment in Kapil Wadhwa v. Samsung Industries[1], stated that in India the principle of International Exhaustion is followed. It implies that once a product is legally procured, the rights over the said product vests in the buyer. It will not amount to infringement if it is sold in the market, be it domestically or internationally. Section 30(3) of the Trade Marks Act, 1999 doesn't prohibit the lawful acquisition and further sale to a global market. The Division Bench likewise pointed out that Amway had a "Code of Ethics" which stated that no further condition can be enforced once the good has been sold to the direct seller.


The Division Bench, therefore, rejected the views expressed by the Single Judge that E-commerce platforms in the case could not take the defense based on the principle of exhaustion in terms of Section 30 (3) of the TM Act, or that the sale of the DSEs‟ branded products on E-commerce platforms violates their trademark rights, constitutes misrepresentation or passing off, and results in the dilution and tarnishing of the goodwill and reputation of the DSEs‟ brands. Not much reliance can be placed upon Section 30(4) of the Act to further negate the fact that dealing of goods was taking place online as there was no solid proof that tampering of goods had occurred at the direction of or under the control of Amazon and others. No evidence was there to support of such dealings. The Bench additionally found no proof of deception or passing off of the trademark as due data of the sellers were given on these sites.


For the third issue, the Division Bench explained that the IT Act doesn't differentiate between active and passive intermediaries as observed by the Single Judge. It allows safe harbour to all the intermediaries as long as they are within the umbrella of Section 79 of the Information Technology Act. The Bench further noted that even though the E-commerce platforms offer some incentive included services, this doesn't weaken the safe harbour allowed to them under Section 79 of the IT Act as the provisions of the IT Act also envisage that such intermediaries could provide value-added services to third-party sellers. the court iterated the case of Shreya Singhal v. Association of India[2], where it was held that the obligation of web-based platforms to eliminate content emerges just if there is a court order or a notification from a government agency on the grounds mentioned in Article 19(2) of the Constitution.


For the fourth issue, The Division Bench held that the tort of inducement to breach of contract requires that there be an agreement in any case between the online platforms and the DSEs. The fact that online platforms may know about the Code of Ethics of the DSEs, and the legally binding specification forced by such DSEs on their distributors, is insufficient to lay a claim of tortious interference.


CONCLUSION

The dispute at hand between the two parties is perplexing in nature as it includes an interplay between the IT Act, TM Act and the law of tort. While endeavouring to find some kind of balance between innovation and law, the current choice dives profound to consider the decision delves deep to consider the applicability of the exhaustion principle under the TM Act and safe harbour immunities for intermediaries under the IT Act. The decision is a positive take on the present issue, it sets out that the simple actuality of E-business stages giving extra services like warehousing, bundling and delivering, or even value-added services, does not disentitle them from taking the benefit of the exemption from liability under the IT Act


ENDNOTES

[1] MIPR 2012 (3) 0191 [2] (2015) 5 SCC 1


ABOUT THE AUTHOR

This blog has been authored by Alivya Sahay, who is a 4th Year B.A., LL.B. (Hons.) student at Chanakya National Law University, Patna.


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