E-commerce Platform Facilitating Counterfeit Sales Via Brand Name Options Denied Safe Harbour Under S.79 IT Act: Delhi High Court - 2024-01-03

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Delhi High Court: E-commerce Platform Cannot Claim Safe Harbour While Facilitating Counterfeit Sales

New Delhi: In a significant ruling for intellectual property rights and e-commerce platforms, the Delhi High Court has held that an online marketplace cannot claim statutory exemption from liability if its platform is used to facilitate the sale of counterfeit goods, particularly when it actively provides infringing brand names as options for sellers during registration without adequate verification.

Justice C. HariShankar , in a judgment pronounced on January 3, 2024 (reserved on March 13, 2023), restrained IndiaMART Intermesh Ltd. (IIL) from offering sportswear giant Puma SE's registered trademarks as search options in drop-down menus for prospective sellers on its platform. The court found that IIL's actions prima facie constituted infringement of Puma 's trademarks and that IIL could not avail the 'safe harbour' protection under Section 79 of the Information Technology Act, 2000 (IT Act).

Background of the Dispute

Puma SE, a globally renowned manufacturer of sportswear and accessories with registered trademarks like "PUMA" and its device marks, filed a suit against IndiaMART, alleging that its platform, www.indiamart.com, was being used by third-party sellers to peddle counterfeit goods bearing Puma 's marks. Puma contended that IndiaMART facilitated this infringement and passing off by offering " Puma " and related terms (like " Puma shoes," " Puma t-shirts") as selectable brand names in a drop-down menu presented to sellers during the registration process.

Mr. Ranjan Narula, counsel for Puma , argued that IndiaMART did not conduct sufficient prior verification of sellers' credentials, allowing counterfeiters to easily list fake products as genuine Puma merchandise. While IndiaMART would take down listings upon notice, new infringing listings would quickly reappear due to the lack of proactive checks. This, Puma argued, amounted to aiding and abetting infringement and a failure to observe due diligence under Rule 3(1)(b)(iv) of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (IT Rules).

IndiaMART's Defence

Mr. Rajshekhar Rao, Senior Advocate for IndiaMART, countered that the platform was merely a venue connecting buyers and sellers and was not responsible for the genuineness of the goods listed. He argued that providing " Puma " as a drop-down option was simply to identify the goods being sold and did not constitute 'use' of the trademark by IndiaMART in an infringing manner under Section 29 of the Trade Marks Act, 1999. Since the drop-down option was a backend feature invisible to consumers, there was no likelihood of confusion, which is essential for infringement under Section 29(2).

IndiaMART claimed it was a passive intermediary entitled to safe harbour protection under Section 79 of the IT Act and promptly acted on takedown notices. It also argued that the doctrine of exhaustion applied, allowing legitimate purchasers to resell branded goods, and questioned why Puma had not impleaded the actual sellers of counterfeit goods.

Court's Analysis and Findings

Justice Shankar 's analysis leaned heavily on the principles laid down by the Delhi High Court Division Bench in Google LLC v. DRS Logistics (P) Ltd. While acknowledging similarities, the court carefully distinguished the present case, which involved the facilitation of counterfeiting, from Google LLC , which primarily dealt with the use of trademarks as keywords for competitive advertising.

On "Use" of the Trademark: The court held that providing " Puma " as a choice in the drop-down menu constituted 'use' of the mark by IndiaMART under the Trade Marks Act. It was a visual representation (Section 2(2)(b)), used in relation to the goods (Section 2(2)(c)(i)), and amounted to 'use in advertising' (Section 29(6)(d)) as it triggers the display of seller's products when a user searches for Puma goods. The court rejected IndiaMART's argument that backend visibility negated 'use'.

On Infringement: Unlike the keyword advertising in Google LLC , where using a competitor's brand name as a keyword might lead to display of alternative products (seen by the Division Bench as potentially permissible competitive advertising), here, using " Puma " in the drop-down facilitated sellers, potentially counterfeiters, to represent their goods as genuine Puma products.

> The court observed: "The situation that obtains in the present case is altogether different. 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... This is, therefore, a case of defrauding of consumers, unlike the situation envisaged in para 138 of Google LLC ."

The court found a clear likelihood of confusion among consumers (Section 29(2)) and that IndiaMART's act created a situation where unfair advantage could be taken of Puma 's mark, detrimental to its character and repute (Section 29(4)). The court noted that evidence of actual counterfeiting on the platform was on record.

On Intermediary Liability and Safe Harbour (Section 79 IT Act): The court found that IndiaMART was not entitled to safe harbour protection. Its function was not limited to merely providing access (Section 79(2)(a)) as it was involved in monetizing sales. By providing specific brand names as options, it initiated and selected the potential receivers of transmission (Section 79(2)(b)). Crucially, IndiaMART failed to observe 'due diligence' (Section 79(2)(c)) as required by the IT Act and Rule 3(1)(b)(iv) of the IT Rules, 2021.

> The court emphasized the statutory requirement under Rule 3(1)(b)(iv): "Rule 3(1)(b)(iv) requires the intermediary to take reasonable steps to ensure that the use of its consumer resource does not post any infringing listing... There is obviously no use in closing the stable doors after the horses have bolted. An e-commerce platform cannot become a haven for infringers... IIL can hardly be allowed to maintain a defence that they have no participatory role to play in the process. Rule 3(1)(b)(iv) of the IT Rules entirely forecloses this defence."

The court also noted that by allowing registration without prior verification, IndiaMART had prima facie 'aided' the commission of the unlawful act of counterfeiting and infringement (Section 79(3)(a)).

The doctrine of exhaustion was dismissed as inapplicable, especially in cases involving counterfeit goods.

Conclusion and Injunction

Finding a strong prima facie case of trademark infringement and passing off, and concluding that IndiaMART was not protected by Section 79 of the IT Act, the court allowed Puma 's application for interim injunction.

The defendant (IndiaMART) was restrained, pending the disposal of the suit, from providing any of Puma 's registered trademarks as search options in the drop-down menu presented to prospective sellers during registration on the Indiamart platform. IndiaMART was also directed to immediately take down all infringing listings containing Puma 's registered trademarks upon being notified by Puma .

The judgment underscores the increasing responsibility of online intermediaries, particularly e-commerce platforms, to implement robust proactive measures to prevent the facilitation of intellectual property infringement and counterfeiting on their sites, beyond mere reactive takedown mechanisms. Failure to do so can result in the loss of vital statutory protections.

The court noted that IndiaMART could seek modification or vacation of the order if it could demonstrate having put in place sufficient regulatory and protective measures against abuse by counterfeiters.