India Markets open in 8 hrs 23 mins

Can Victims Of Counterfeiting Look To E-Commerce Giants For Relief?

The Smarter way to get your business news - Subscribe to BloombergQuint on WhatsApp

Last year India’s spent over $33 billion on purchasing goods and services online, according to government data. That number is expected to increase ten-fold by 2025. And with it, the problem of counterfeit goods.

Skechers, Nalli Silk and even Louis Vuitton are among the many brands that have moved court complaining of counterfeit goods sold online and violation of their intellectual property rights. Can online marketplaces such as Amazon, Flipkart and Snapdeal be held legally responsible for this? After all they are just intermediaries – allowing buyers and sellers to connect.

Experts say that counterfeiters are easier to catch in the brick and mortar world than online.

It is exceptionally hard to identify individuals, track them, know their assets, know their source and quantum of earning. Therefore, the problem becomes exacerbated, said Dhruv Anand, partner at law firm Anand and Anand, in an interview with BloombergQuint. And yet online marketplaces are being impleaded as infringers in such law suits and have been accused of contributory liability, he pointed out.

One reason maybe because the sale of counterfeits online can be more damaging to a brands.

From a brand’s perspective, if physical counterfeit goods are sold at physical locations like a remote street corner, the brand isn’t as affected. But online sales of counterfeit worries them significantly more since there are million of users that witness and have access to these, Suneeth Katarki, partner at law firm IndusLaw explained.

Legal Framework

The Information Technology Act, 2000 governs online transactions and lays down specific rules regulating the behaviour and responsibilities of intermediaries.

The three most important ones pertinent to this matter are -

  • An intermediary must warn sellers against violation of others’ IPR or proprietary rights
  • It must not knowingly allow any such violation to take place.
  • And if such a violation comes to light the intermediary is legally obliged to take down the information or product within 36 hours.

Generalised knowledge of the sale of counterfeits may not be enough to impugn liability for the intermediary. Instead, specific knowledge is required, Anand said, so as to make the distinction regarding when the and how the law applies.

"The expectation from law is you have made some efforts to try and figure out the genuine products." - Suneeth Katarki, Partner, IndusLaw

Katarki added that while the intermediary is expected to make efforts to identify counterfeits to absolve it of liability, those efforts are expected to be reasonable.

The Kent RO Case

Knowledge, effort and liability were at the centre of a Delhi High Court ruling in 2016.

In the Kent RO Systems case, Kent sued a competing manufacturer of water purifiers for infringing its proprietary rights under design law since the two purifiers looked alike. It also held eBay responsible for selling these infringing products on its website.

On receiving the first notice eBay removed the specific products that Kent had complained against. But Kent wanted more. It asked eBay to identify and remove all other water purifiers similar to Kent’s. That was unreasonable, eBay said.

The court agreed with eBay and said an intermediary cannot be expected to do such screening. This decision re-enforced and clarified the responsibilities of an intermediary.

"Intermediaries also have to do business. You cannot expect them to have absolute liability." - Suneeth Katarki, Partner, IndusLaw

To the extent that an intermediary can, and technology allows them to, weed out such infringing goods, they should do it. But it is very unreasonable to expect them to be able to figure out every intellectual property violation, Katarki added. Courts have said obligations arising from law have to be reasonable such that they can carry on business, he explained.

Just Marketplaces Or More?

The question of an intermediary’s knowledge becomes more pertinent when these e-commerce companies play a role bigger than just that of a marketplace.

For instance - Amazon often stores goods in its warehouse and distributes them via the “Fulfillment by Amazon” program. Flipkart tags some of its products as “Flipkart Assured” or – quality products, delivered faster.

Lawyers say these additional services may attract greater liability.

"An intermediary may be held guilty of contributory or secondary liability if it makes an assurance vouching for the authenticity of the goods sold on its market place – or it says we guarantee that goods are authentic." - Dhruv Anand, Partner, Anand and Anand

FDI Complications

But there’s a twist. Foreign direct investment policy does not permit foreign owned e-commerce players to offer warranty or guarantee on goods sold on their platforms. Hence any additional promise is illegal to begin with and there may be no recourse against.

It is unfortunate for the consumer because the law was framed around ensuring that an entity which has FDI does not engage in retail sale, Katarki said.

"There is a dichotomy caused by foreign exchange law on one hand and intellectual property laws and contract law on the other hand. When someone assures you about a product, then he should be able to stand by it." - Suneeth Katarki, Partner, IndusLaw

Experts say that while many attempts have been made to attribute more than just intermediary liability to an online marketplace, so far none have succeeded. But the law on intermediaries is still evolving.

Meanwhile consumers may still succeed in a complaint against Flipkart or Amazon for selling a cheap knock off – with the help of other laws such as tort or consumer protection.

The Smarter way to get your business news - Subscribe to BloombergQuint on WhatsApp

. Read more on Law & Policy by BloombergQuint.