On 31st January 2020, a Division Bench of the High Court of Delhi set aside an order passed by the Hon’ble Single Judge restraining the e-commerce platforms such as Amazon, Snapdeal etc. from listing products of Direct Selling Entities (“DSE”) like Amway, Oriflame and Modicare. In the judgment of Amazon Seller Services Pvt. Ltd. Vs. Amway India Enterprises Pvt. Ltd., the Division Bench allowed the e-commerce platforms to engage in transactions of listing products of DSE without their consent.
RELEVANT FACTS THAT LED TO THE APPEAL
In late 2018, Amway came across its products being sold on e-commerce platforms. It was Amway’s contention that such online availability of its products, the manner in which they were appearing as if they were directly being sold by the DSE. It contended that any transactions taking place through such e-commerce platforms, interfered with its ordinary course of business, by hurting its goodwill, reputation and hampering its further sales. It further contended that Amway’s policies, its agreements with its sellers, did not allow any third party to engage in selling its products through online platforms and any such transactions which were taking place were not authorised by the DSE, as was required by Clause 7(6) of the Direct Selling Guidelines, 2016 (“DSG”).
The e-commerce platform alleged that (i) the DSGs were not binding in law; (ii) that they were further exempted from any liability by virtue of Section 79 of the Information Technology Act, 2000 (“IT Act”) as they were merely intermediaries; (iii) that they were only required to take down content on receiving actual knowledge that the content was infringing or in violation of law by a court order or a competent authority and; (iv) the intermediaries were not required to actively monitor any content to ensure compliance of Trade Marks law or guidelines.
The present appeal was filed by various e-commerce platforms, as a result of the judgment delivered by the Hon’ble Single Judge, which injuncted them from selling products of Amway and other DSEs on their website and mobile application. They were obligated to obtain Amway’s prior written consent before selling their products.
ISSUES DEALT WITH BY THE DIVISION BENCH
- Whether the DSGs are law? If yes, then to what extent.
It was held by the Division Bench, the Direct Selling Guidelines, 2016 (“DSG”) were only advisory in nature and are yet to be enacted as law, pending adoption of a new Consumer Protection Act, 2019 (CPA) and the draft Rules thereunder. It was held that DSGs do not attain the status of “law” under Article 13 because they have been notified in a gazette. Several case laws were cited and as held by the Hon’ble Supreme Court in Poonam Verma v. Delhi Development Authority [(2007) 13 SCC 154], ”guidelines per se do not partake the character of a statute” and that “such guidelines in the absence of statutory backdrop are advisory in nature”. Hence, the Division Bench set aside the findings of the Hon’ble Single Judge and opined that DSG are not law and as such are not enforceable.
- Trademark considerations and product tampering by the e-commerce platforms
It was held by the Division Bench that the suits filed by the DSE were not framed as traditional trademark infringement and passing-off actions. The Plaintiffs neither asserted nor mentioned anything about trademark registrations. The trademarks “AMWAY” or “ORIFLAME” were owned by entities, which were not even parties to the suits. Besides being violative of the exhaustion principles (in aid of traders’ freedom to trade lawfully and acquire goods), Clause 7(6) of the DSGs (which prohibits a buyer from reselling the product online) cannot be enforceable vis-à-vis third party as there is no privity of contract between the DSE and the appellants/defendants. Once the title to a product passes through sale, no further condition can be imposed on the buyer and as there is no privity of contract between the DSE and the online platforms, such post-sale restriction cannot be enforced against the online platforms. The division bench held that the DSE can only seek to proceed against the seller and not the e-commerce platforms as the same was “outside the purview and scope of the pleadings in the suits.”
Further, Hon’ble Single Judge had based the conclusions about the tampering of goods by the e-commerce platforms based on Local Commissioner’s Reports (“LC Reports”). The Hon’ble Single Judge had appointed 4 Local Commissioners to visit the premises of the defendants/appellants, make an inventory of and to seize all tampered products belonging to the DSE. The Division Bench did not find the various LC Reports sufficient to conclude that products available at the premises of the e-commerce platform were being tampered and/or impaired before being listed for sale on online platforms. It was held by the Division Bench that the conclusion arrived at by the Hon’ble Single Judge, at an interim stage and without examination of evidence or conclusion of trial were too sweeping and definitive set of findings and were thereby set aside.
- E-commerce platforms as intermediaries under Section 79 of the IT Act, 2000
Section 79 of the IT Act is a safe-harbour for online marketplaces, limiting their liability for third party information posted on their platforms. It was held by the Division Bench that the learned single judge erred in restricting the application of section 79 of the IT Act to only “passive” intermediaries, whereas, Section 79 of the IT Act includes both active and passive intermediaries and safe harbour does not make any distinction between them. Where an intermediary provides services in addition to mere access, it has to comply with Section 79(2)(b) and (c) [as opposed to Section 79(2)(a) and (c)]. The value added services provided by the appellants/defendants (such as warehousing, packaging, delivery, etc.) does not dilute the safe-harbour granted to them under Sec. 79 of the IT Act coupled with the definition of “intermediary” that does envisage that intermediaries could provide value added services to third party sellers under section 2(1)(w) of the said Act and the clarification provided by the FDI Press Note No. 2 of 2018 issued by the Government of India in respect of FDI in e-commerce.
The Division bench affirmed that the Hon’ble Supreme Court in Shreya Singhal v. Union of India [(2015) 5 SCC 1] states that an obligation of an intermediary to remove content under Section 79 (3)(b) IT Act, 2000 arises only if there is a court order to remove content or a notification from a government agency on the grounds mentioned in Article 19(2). The mere allegation from DSE without the support of a court order will not trigger the takedown obligation, as it does not conform to grounds enumerated in Article 19(2) of the Constitution.
It was also held that the single judge erred in distinguishing the decision in Myspace Inc. v. Super Cassettes Industries Ltd. [(2017) 236 DLT 478], where the DB had held that Sec.79 is not an ‘enforceable provision’ but merely an ‘affirmative defence’. A party has to first establish a violation of right before an online platform has to prove the affirmative defence of section 79 which the plaintiffs had failed to do in the present case.
- Tortious interference by the intermediaries
It is a well-settled principle of law that the tort of inducement of breach of contract necessitates the presence of a contract between the parties to the contract. It was held by the Division Bench that the mere fact that the online platforms may have knowledge of the Code of Ethics of the DSE, and the contractual stipulation imposed by such DSE on their distributors, is insufficient to lay a claim of tortious interference. In any event, on the facts of the present case, whether in fact any of the online platforms induced a breach of contract between the DSE and its sellers is at best a matter of evidence, and not of inference. The Single Judge could not have given such a finding at the interlocutory stage.
- Test of interim injunction not made out
It was held by the Division Bench that the three elements to grant interim injunction were not made out by the established as (i) Prima facie case could not be made out as DSG could not be considered a binding law; (ii) the test of balance of convenience, the learned Single Judge has only returned such a conclusion, without actually examining whether the grant of injunction would have an adverse impact on online marketing; and (iii) irreparable loss and injury, there was no empirical data placed before the learned Single Judge by the Plaintiffs in support of their contention that they had suffered huge losses. Given the ramifications of the Division Bench judgment for DSE, this is likely to not be the last word on the issue and the matter is likely to be taken to the Supreme Court.