Liability or Immunity ? e-commerce marketplaces and infringement of IP rights

By January 15, 2015 December 20th, 2019 No Comments
E-commerce and marketplace companies are being increasingly
questioned for third party intellectual property infringements. In case the
content, details or products themselves which are put on marketplace and
e-commerce websites are found to be infringing in nature, the marketplace and
e-commerce companies are also included in the array of defendants on the ground
that they have facilitated such infringement. This is despite the fact that
marketplace companies fall within the ambit of ‘intermediaries’ as per the Information
Technology Act, 2000 and, assuming they are in compliance of the requirements
of the Act, are exempted from any breach of law or third party rights by those
who use the website or services of such intermediaries. The so called safe
harbour for intermediaries created by the Information Technology Act, 2000 seems
to be failing in protecting the marketplace and e-commerce companies. This article
analyses the safe harbour, whether and to what extent it exists and whether marketplace
and e-commerce companies are supposed to be protected by it.   
Need for Safe Harbour
The liability of marketplace and e-commerce
companies arises from the concept of secondary or contributory infringement
which is contained in all IP laws. This concept basically provides that in case
a person is facilitating infringement of third party IP rights or is providing
a space for sale of infringing products or printing advertising material etc.
and such person has actual or constructive knowledge of such infringement or
has reasons to believe that an infringement has occurred, such person shall
also be liable for infringement.
With the advent of internet usage and
intermediaries being increasing in number and size, a need was felt to exempt
certain categories of internet intermediaries who, because of the nature of their
business, may be liable for an infringement but because of that very nature of
business, cannot have control or knowledge of such infringement. This included
social networking sites, ISPs and marketplace and e-commerce companies. This however
was not a free cake and such intermediaries were required to undertake certain
compliances and only when such compliances are done, is when such exemption is
Also, while trademark
and copyright doctrines of secondary liability nurtures from the same roots in
common law, they have evolved differently. The courts have applied secondary
liability differently depending on whether the infringement pertains to copyright
or trademark, with secondary liability construed more narrowly in trademark
than in copyright.[1]
Development across Jurisdictions
United States
In US, copyright law
presently have a piece of legislation protecting owners of internet fraud.[2]
The Digital Millennium Copyright Act (DMCA) allows online service providers to
avail exemption from secondary liability for copyright infringement via
notice-and-takedown procedure that allows copyright owners t
o subpoena service providers of
allegedly infringing content on its platform. After receiving such notice, the
online service provider must block or remove such infringing content from its
These safe harbours apply to certain types of
activities of online service providers—namely, mere conduit, caching, hosting
and linking.[3]
trademark law has no equivalent statutory scheme specifically dealing with the
liability of
online service providers.
Lanham Act of United States primarily caters to the legal need of trademark law,
but does not bring within its purview contributory trademark liability. This
has made US courts to depend, for most parts, on common law principles when
faced with the problems of contributory liability for trademark infringement.
In uncomplicated terms,
trademark infringement generally occurs when an
unauthorized use of a trademark is likely to cause confusion, to cause mistake,
or to deceive.[4]
Counterfeiting, being one such kinds of trademark infringement connotes an act
of fraudulent imitation of something valuable with an intention to deceive or
defraud. In such events doctrine of contributory trademark infringement extends
the liability to those who though not being primary infringer, merely
contributes to the counterfeit process.
In order to bring a
claim for contributory liability against online marketplace, it must be proved
that, first, it had actual or constructive knowledge of the infringement and
second, it had means to control infringement.
The Supreme Court
first recognised the doctrine of contributory trademark liability in a
non-internet arena in the matter of Inwood Laboratories, Inc. v. Ives
Laboratories, Inc
[5] in the year 1982. The court said that a
party is contributorily liable if the criterion as laid down are met:

It intentionally induces another to infringe a
trademark; or
Continues to deal with the products which it
believes or has reason to believe is engaging in trademark infringement.[6]
trademark liability in an internet arena was foremost litigated in the well known
matter of
Tiffany (NJ) Inc. v. eBay Inc.[7] Tiffany & co. was a famous jeweller recognised
as a high quality luxury and style brand. 
Tiffany became aware that counterfeit Tiffany items are sold on eBay’s
site for which eventually Tiffany sued eBay.
contended that eBay was liable for contributory trademark infringement since it was assisting in the sale of
counterfeit products by which it derived profits. Conversely, eBay’s argument
was that it did not have the requisite knowledge of the infringement which is a
necessary criterion for contributory trademark liability. EBay contended that
such generalised knowledge was insufficient to meet the requirement of the Inwood test.
The US Court of Appeals for the Second
Circuit held that eBay was not liable for selling counterfeit products since it
had only generalised knowledge regarding the counterfeit products being sold on
its platform.
The Tiffany’s decision made the position unclear as regards the
requirement of knowledge to be shown by online marketplaces. Another case that
settled the ambiguity created by Tiffany’s case was Louis Vuitton Malletier, S.A. v.
Akanoc Solutions, Inc.[8]
which the court stated that in order to prove a claim against online
marketplace, it is imperative to show that alleged contributory infringer has
assisted with actual or constructive knowledge of trademark infringement.
The aforementioned cases highlight the importance of actual or
constructive knowledge on the part of the secondary infringer as being one of
the riders for establishing contributory trademark liability on the part of
online marketplaces.
Apart from the
knowledge qualifier, the doctrine of contributory trademark infringement also
evaluates the ‘control’ element on
the part of the secondary infringer to prevent infringement. In Tiffany[9],
the court analysed that eBay had an established anti-counterfeiting program,
have a formal notice and take down procedure that promptly enables eBay to
remove the infringing products from its website and that eBay had taken
affirmative steps in identifying counterfeit Tiffany products. This implies
that there was no further way that eBay could have adopted to prevent or ‘control’ trademark infringement
particularly without having specific knowledge of the infringing products.
Thus, in a way the
control element also helps in tracing the extent of knowledge that the
infringer possess about the infringing products and the two criterion as laid
down in Inwood test seems to be
interconnected in a way that if one is proved would give impetus to the other.

In EU, the doctrine
of contributory trademark liability is not really addressed as liability per se. Rather
Article 14 of the e-Commerce Directive[10]  puts an obligation over internet service providers of removing any infringing information
forthwith after becoming aware of it. In 2011, ECJ ruled on the liability of
online marketplace vis-a-vis trademark infringement in the landmark case of L’Oréal
SA v. eBay International AG
.[11] L’Oreal
found that eBay was carrying out several offers for sale with regard to L’Oreal
products in its European website which infringed L’Oreal’s trademark. L’Oreal
filed suit before the High Court of Justice of England & Wales, Chancery
Division, together with actions in various other EU member states. The Court of
Justice of the European Union’s (CJEU’s) held that since eBay has taken an
active role in providing assistance, in
particular, optimising the presentation of the offers for sale or promoting the
infringed goods and
did not act to remove or disable the infringing
information after becoming aware of it, the exemption under Article 14(1) of
the Directive is not available with eBay as a defence.
While the judgments by European courts are
only binding on the specific court of a Member state that has raised the query,
they still have a persuasive effect and provides guidance on the subject
When the same matter of L’Oréal SA v. eBay
International AG
was brought before the UK courts, it was held that
eBay was not vicariously liable for the acts of the trademark infringement of
the vendors/dealers using the eBay’s website for display and sale of products.
The court based its judgment on the premises that ‘mere assistance’ is
insufficient to
drag the online marketplaces within the purview of contributory trademark
liability. In order to be termed as secondary infringer, eBay must
have conspired with the primary infringer or
procured or induced his commission of the tort.
India: The debate of
who should – and to what extent they should – bear the burden!
marketplaces as an “intermediary” under § 2(w) of Information Technology Act,
2000 (IT Act)
Originally the term ‘intermediary’
under the IT Act, 2000 had been defined with respect to any particular
electronic records, as any person who on behalf of another person receives
stores or transmits that record or provides any service with respect to that record.
With the advent of the Information Technology (Amendment) Act, 2009 (the “Amendment Act”), the definition of
intermediary has become more comprehensive and expansive also ensuing far
reaching changes in the liability regime of e-commerce marketplaces in India. The
Amendment Act specifically includes within its ambit telecom service providers,
network service providers, internet service providers, web-hosting service
providers, search engines, online payment sites, online auction sites,
online-market places and cyber cafes as an intermediary under the Act. The
definition under the Amendment Act makes it evident that the e-commerce marketplaces
fall within the ambit of the intermediary more so with the words ‘or provides any service with respect to
that record
’ which further enlarges the scope of the word
Standards of Intermediary Liability in India
Once established that
online marketplaces and e commerce websites fall well within the definition of ‘intermediary’
under the IT act, the next question then arises is that what is the extent of
liability of such intermediaries for the infringing acts of vendors?
The IT Act deals
with certain immunities which are available to intermediary under §79 which provides that an intermediary
shall not be liable for any third party information, data, or communication
link made available or hosted by him if certain requirements as stated in the
clause (2) of §79 has been fulfilled except that when the intermediary has
conspired or abetted or aided or induced, in the commission of the unlawful act
or receiving actual knowledge or on being notified by the appropriate government
or its agency that any information, data or communication link residing in or
connected to a computer resource controlled by the intermediary is being used
to commit the unlawful act, the intermediary fails to expeditiously remove or
disable access to that material on that resource without vitiating the evidence
in any manner. Hence, the amended §79[12]
has brought into picture the requirement of actual knowledge in contrast to the
original version which stipulates only the requirement of knowledge.
Furthermore, with an
intent to lay down more elaborative instructions for intermediaries as regards
observing due diligence in discharging their duties, the Central Government
also issued
the Information Technology (Intermediaries Guidelines) Rules, 2011 (the “Guidelines”) that stipulate in detail
the due diligence procedures which need to be observed by an intermediary.
The exemptions as
provided under the IT Act read with Guidelines are therefore intended to craft
safe harbour provisions for the intermediaries modelled on US & EU laws
which essentially provides that online marketplaces providing no more than a
medium shall not be liable for the acts of third parties. The only
qualifications being lack of actual knowledge on the part of intermediary and
observance of due diligence as stipulated in Rule 3 of the Guidelines.

from liability under any law in force vis-a-vis
§ 81 of IT Act
§79 as amended contain
a non-obstante clause to the effect ‘notwithstanding
anything contained in any
law for the
time being in force
’ and therefore, it affords protection to intermediaries
with respect to liability arising under all statutes. However, §
81 of the IT Act provides:
Act to have overriding effect: The provisions of
this Act shall have effect notwithstanding anything inconsistent therewith
contained in any other law for the
time being in force.
Provided that nothing
contained in this Act shall restrict any person from exercising any right
conferred under the Copyright Act, 1957 or the Patents Act, 1970.
In an interesting
turn of events, in the matter of Super
Cassettes Industries Ltd. v. Myspace Inc. and another[13],
the court took a view that the safe harbour provision provided in
§79 would not apply to cases of
copyright infringement. The court stated as follows:
Thus, the combine
effect of reading Section 81 and the proviso is that the provisions of IT act
may override other laws for the time being in force but cannot restrict the
rights of the owner under the Copyright Act and the Patent Act. In other words,
the rights of the owners under the Copyright Act, 1957 and/ or Patent Act, 1970
shall remain unfettered by any of the provisions of IT Act. Accordingly,
Section 79 cannot restrict the rights of the copyright owner by saving the
liability of the Defendants of the infringing acts caused under the provisions of
Section 51(a)(ii) of the Act by operation of proviso to Section 81 of the Act.
§ 79 provides
protection to intermediaries provided they are in compliance of the provisions
of that section and rules made thereunder notwithstanding anything contained in any law. Further, § 81 states that the
provisions of the Act (including §79) shall have overriding effect on anything
inconsistent contained in any other law
for the time being in force
. Therefore, §81 further substantiates the
protection given under §79 by giving it an overriding effect over any other
law. However, the proviso to §81 states that nothing contained in the Act shall
restrict any person exercising any right conferred under Copyright Act, 1957 or
Patents Act, 1970. On a plain reading, it seems that the proviso takes away the
protection given under §79 in case the liability of the intermediary relates to
Copyright Act, 1957 or Patents Act, 1970. However, on a closer look, it becomes
clear that the non obstante clause of §79 even ousts the proviso to §81 also as
the reference is to ‘any law for the time
being in force
‘ and not ‘any other law…’ which means that §79 will even override
§81 and its proviso. Therefore, the conclusion in Myspace decision that §81
overrides §79 in case of Copyright Act, 1957 seems to be challengeable.
It is also
interesting to note that §79 and rules made there under provide for notice and
take down procedure when an infringement is brought to notice of the
intermediary. If a view is taken that §81 overrides provisions of §79 and that
intermediaries will continue to be liable for infringement of copyrights and
patent rights notwithstanding §79, whether such intermediary will be liable for
infringement even if it has complied with the notice and take down procedure is
not clear since §79 does not differentiate between copyright/patent or
non-copyright/non-patent cases as far as notice and take down procedure is
Further, proviso to §81
talks about only Copyright Act, 1957 and Patent Act, 1970. This implies that
proviso to §81 does not apply in case of any other intellectual property rights
such as trademarks, designs, geographical indications etc. It cannot be
intended by the legislature that the intermediaries should be liable for
infringement in case of copyright and patents but not for any other
intellectual property rights. Such a conclusion is not only unconstitutional
but also absurd.
It is also important
to satisfy the knowledge requirement under §79 in order to get the benefits of
that section. It is important that the intermediary had no reasons to believe
that an infringement has occurred and when such infringement is brought to its
knowledge, it immediately takes action to take down such information in
question. In case of intermediaries other than marketplace and e-commerce
companies, it is comparatively simpler to establish lack of knowledge as the
intermediary itself may not be in a position to be aware of such infringement.
However, for marketplace
and e-commerce companies, the risk is quite high, keeping in mind that the marketplace
and e-commerce companies have a greater role to play in terms of display of
products, sale and purchase of products, receiving and making payments, vendor
registration etc. Therefore, the knowledge qualifier may not be available to
such companies as it will be difficult for them to prove lack of it.
Copyright Amendment Act, 2012
The marketplace and
e-commerce companies have not received any sigh of relief even under the new
provisions of the Copyright Act, 1957 introduced by the Copyright (Amendment) Act,
in § 52(1)(b) and 52(1)(c).

§ 52(1)(b) provides that transient or
incidental storage of works
made in the technical process of electronic
transmission or communication to the public shall not constitute an
infringement of copyright. Section 52(1)(c) further provides that the transient
and incidental storage for the purpose of providing electronic links, access or
integration, where such links, access or integration has not been expressly
prohibited by the right holder, unless the person responsible is aware or has
reasonable grounds for believing that such storage is of an infringing copy
also shall not constitute an infringement of copyright.

Broadly, the above mentioned amended provisions have been worded in a way that
would provide protection only to internet intermediaries when they are
providing transient or incidental storage. The scope of the words
‘transient’ or ‘incidental’ in the Amendment Act, 2012 remains to be unexplained.
The safe harbour is further dependent on the intermediaries having reasonable
grounds for believing that such storage is not of an infringing copy. It will
not be out of place to state, that the phrasing of the section is fraught with
ambiguities and needs precision and specificity especially as regards scope of
the intermediaries liability when the content put up for sale in the platform
appears to be normal as opposed to ‘transient’ or ‘incidental’.
The amendment in the
Copyright Act seems to make the safe harbour provisions applicable to limited
internet intermediaries being search engines, ISPs etc., thereby, affording almost
negligible protection to the online market places.
Thus, when compared with their U.S. counterparts,
the safe harbour provisions as intended under the amended
§ 52 (1) (b) and § 52 (1)(c) represents another unsuccessful
opportunity to adequately balance the rights of copyright holders on one hand
and the marketplace and e-commerce companies on the other.

Authored by:
Kajal Tandon
Akshat Pande

[1] Hard Rock Café Licensing
Corp. v. Concession Servs., Inc
., 955 F.2d 1143, 1150
(7th  Cir. 1992) “The Supreme Court has
held that secondary liability for trademark infringement should, in any event,
be more narrowly drawn than secondary liability for copyright infringement.”
(citing Sony Corp. of Am. v. Universal
City Studios, Inc
., 464 U.S. 417, 439 n.19 (1984).
[2] Digital Millennium
Copyright Act of 1998, 17 U.S.C. § 512 (2006)
[3] See17 U.S.C. § 512(a)–(d)
[4] Lanham Act, 15 U.S.C. § 1114 (1946)
[5] 456 U.S. at 853-54
[6] Ibid
[7] 600 F.3d 93 (2d
Cir. 2010)
[8] 658 F.3d 936 (9th Cir. 2011)
[9] 600 F.3d 93 (2nd Cir. 2010)
[10] Directive 2000/31/EC
[11] Case C-324/09,
[2011] ECR I-6011 (CJEU July 12, 2011)
[12] Amendment Act, 2009
[13] 2011(48)PTC49(Del)

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