Thursday, 15 January 2015

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


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 available.

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]

I.       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 to 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 website. These safe harbours apply to certain types of activities of online service providers—namely, mere conduit, caching, hosting and linking.[3]
Conversely, trademark law has no equivalent statutory scheme specifically dealing with the liability of online service providers. The 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:

1.     It intentionally induces another to infringe a trademark; or
2.     Continues to deal with the products which it believes or has reason to believe is engaging in trademark infringement.[6]

Contributory 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. Tiffany 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], in 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.

European Union

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 matter.

United Kingdom

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.

II.       India: The debate of who should – and to what extent they should - bear the burden!

Online 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 ‘intermediary’.

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.

Immunity 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 concerned.
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, 2012 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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