This blog is inscribed by Trisha Shreyashi.
A Case Comment
The Delhi High Court ordered an injunction against several eCommerce platforms such as Amazon and Snapdeal from selling the goods of the claimant on their websites.
The case of the claimants (Amway, Modicare, Oriflame) was that being Direct Selling Enterprises (DSEs), selling their goods on retail sales or e-commerce sales was a violation of the Direct Selling Guidelines (DSGs) of 2016. Hon’ble Single Judge was of the opinion that the e-commerce platforms in addition to violating the DSGs, have also infringed the trademark of the claimants by selling their goods. The defendants were also held liable for tortious interference with the contractual relationships that the claimants had with their direct sellers. The appeals were filed by the defendants – Amazon, Cloudtail and Snapdeal against the judgment passed by the Single Judge.
- Whether the DSGs were ‘law’ and whether suits could have been filed by the Plaintiffs for enforcing the DSGs?
- Whether the sale of Amway, Oriflame and Modicare products on e-commerce platforms amounted to infringement, passing off and misrepresentation of trademark?
- Whether Amazon, Cloudtail and Snapdeal were in fact intermediaries within the meaning of S 79 r.w. 2 (1) (w) of the IT Act?
- Whether the platforms are guilty of tortious interference with a contractual relationship?
Observation & Analysis
At the outset, the Court said that the plaints/suits filed by the respondents were not of a commercial nature as these suits were not of infringement or passing off. Also, none of the suits prayed a declaration that the DSGs were a binding law & neither was there any prayer to declare the defendants not to be “intermediaries” and beneficiaries of the “safe harbour provisions” under the IT Act. Thus, the Court observed that the issues framed by the learned Single Judge “traveled far beyond the pleadings in the suits”.
W.r.t. the first issue, the case of the Appellants is that DSGs were mere guidelines which could not be characterized as law. To address this issue, the Court examined the formation and the character of these guidelines and held that these were not meant to be treated as law but were for the State Governments to adopt them into law. In the Court’s opinion, they were only a model framework and were only “advisory” in nature. Hence, Clause 7(6) was held not to be binding on the parties. Since the Court observed that the learned Single Judge erred in ruling the DSGs to be law; it did not find the issue of the DSGs to be violative of the fundamental rights guaranteed u/Art. 19(1) (g) to be pertinent. They failed to challenge the constitutionality of DSGs.
To address the second issue, the Court looked into a lot of factors. The court looked into the interconnection between Amazon and Cloudtail, as the respondents argued that these two were a single business entity under a “corporate veil”. Any possibility of trademark infringement or passing off was ruled out by the Court. It found the findings of the Single Judge with respect to trademark infringement outside the purview and scope of the pleadings and unsustainable in law.
The Court answered the question in the third issue in positive. Contrary to the learned Single Judge’s finding, it held that the appellant/defendants fall under the category of “intermediaries” according to S 79 r.w. S 2(1) (w), IT Act. The Court held that the appellant,
- do not initiate the transmission
- do not select the receiver of the transmission and
- do not select or modify the information contained in the transmission and hence, they meet the requirements of an “intermediary” and can avail the “safe harbour provisions”.
W.r.t. the final issue, the court said that the tort of inducement to breach of contract necessitates a contract between the online platforms and the Direct Selling Entities in the first place. Therefore, the Court did not concur with the finding of the Single Judge with respect to this issue as well.
The Court was of the opinion that the learned Single Judge had unnecessarily gone beyond the pleadings of the suit to form the issues. The Court did not concur with any findings of the Single Judge either.
The judgment of the learned Single Judge was set aside. The application seeking an interim injunction in the suits was dismissed. The appeals were allowed and the applications were disposed of with costs of Rs 50,000 in each of the six appeals to be paid by the respective respondents to the corresponding appellants.
 The 8th July judgment returned an interim injunction ruling in favour of the plaintiffs (Amway, Oriflame, Modicare), injuncting the defendants from selling unauthorised items of the plaintiffs on their e-commerce platforms. The plaintiffs claimed that the selling of their products on the ecommerce platforms was done through a process that violates the DSGs, 2016. They contended that the defendants were directly involved in the illegal selling of their goods through the e-commerce platforms which caused financial losses and reputational damage to them. The learned Single Judge found the defendants to be “massive facilitators” of the illegitimate business carried on in their websites and hence, barred them from availing the safe harbour provisions under S 79(2)(c) of the IT Act. According to the Court, the DSGs were binding in law as it was issued and notified in terms of Article 77 of the Constitution and as it was the only document that regulated Direct Selling businesses. The Court also found the Defendants guilty of trademark dilution, passing off and misrepresentation. The Court also held that the continued sale of the products of the plaintiffs without their consent resulted in the breach of contract and tortious interference with contractual relationships of the Plaintiffs with their distributors.
 “Any person who sells or offers for sale, including on an e-commerce platform/ marketplace, any product or service of a Direct Selling Entity must have prior written consent from the respective Direct Selling Entity in order to undertake or solicit such sale or offer.”
 “79. Exemption from liability of intermediary in certain cases: (2) The provisions of S.s. (1) shall apply if—
(a) the function of the intermediary is limited to providing access to a communication system over which information made available by third parties is transmitted or temporarily stored or hosted; or
(b) the intermediary does not— (i) initiate the transmission, (ii) select the receiver of the transmission, and (iii) select or modify the information contained in the transmission;
(c) the intermediary observes due diligence while discharging his duties under this Act and also observes such other guidelines as the Central Government may prescribe in this behalf.”
 Trademarks Act, 1999. Refer, http://www.ipindia.nic.in/writereaddata/Portal/IPOAct/1_43_1_trade-marks-act.pdf.
 The Court also looked into the applicability of the “Principle of Exhaustion” in this case and the conclusiveness of the LCs reports. The Court was of the opinion that it was wrong to presume that Amazon & Cloudtail were the same entity and that the obligations of the latter would bind the former and vice versa. The Court held that the learned Single Judge erred in distinguishing the decisions in Kapil Wadhwa v Samsung by holding that the Principle of Exhaustion could not be invoked by the appellants. Hence, the Court was not able to concur with the view of the Single Judge that the appellants could not invoke the principle of exhaustion in terms of S.s. (3) and (4) of S 30 of the Trade Mark Act. The Court also looked into the four LC reports that were relied on by the Single Judge. The Court was of the opinion that these reports were unhelpful in determining if any tampering of the products of the respondents was done by the appellants. Therefore, it was held that the reports were insufficient to make specific conclusions regarding the impairment of the products by the appellants.
 According to the Court, “the mere fact that the online platforms may have knowledge of the Code of Ethics of the DSEs, and the contractual stipulation imposed by such DSEs on their distributors is insufficient to lay a claim of tortious interference.”
 The Court also held that the Learned Single Judge failed to establish the three elements to be considered for the grant of interim injunction. Since the DSGs could not be considered to be a binding law, there was no prima facie case against the appellants. Similarly, the Court held that the conclusion on the test of the balance of inconvenience was drawn upon by the Single Judge without proper examination. With respect to the irreparable loss and injury, the Court said that there was no empirical data placed before the Single Judge in support of their contention.