As regulation races to keep up with the digital evolution, the rapid pace of change can create its own weaknesses in the chain of protection and enforcement. Gautam Kagalwala reports on how India’s draft e-commerce policy adds anti-counterfeiting protection for companies, but at the cost of slowing online trade

The draft National E-Commerce Policy released by the Department for Promotion of Industry and Internal Trade (DPIIT) in February envisages bringing in measures to give companies more power to tackle counterfeit products sold on e-commerce sites. Tracking down counterfeiters in cyberspace is far more challenging for companies than in the physical world.

Neighbourhoods associated with the sale of counterfeit products, such as Lamington Road in Mumbai, Karol Bagh in Delhi and Chandni Chowk in Kolkata, are on the map for brand owners. But the internet offers anonymity, allowing counterfeiters to spring back into action immediately, even if their websites are taken down.

The Global Brand Counterfeiting Report, 2018, estimated that losses suffered due to online counterfeiting globally amounted to US$323 billion in 2017, while the Organization for Economic Co-operation and Development (OECD) identified India as a major point of origin for counterfeit products worldwide.

“Instances of availability of counterfeits on e-commerce websites tend to be more complicated to tackle, compared to bricks-and-mortar stores,” says Gaurav Mukerjee, a partner in the commercial litigation practice at Remfry & Sagar. “The latter are easier in terms of undertaking investigations, conducting surveillance, and search and seizure operations.”

The draft policy requires registered trademark owners to receive notifications when their goods are put up for sale. E-commerce websites are required to list the name, legal entity name and contact details of sellers, increasing transparency and allowing companies to track down infringers quicker. Sellers will have to provide an undertaking of the genuineness of their products and face penalties from e-commerce sites for counterfeit goods sold.

Mukerjee has developed and implemented anti-counterfeiting strategies with his team for clients in diverse sectors such as FMCG (fast moving consumer goods), software, apparel and automobiles. He says counterfeiters use images of original products for fake product listings and create seller profiles to give the impression that products emanate from genuine sources.

Companies look for sharp variations in prices to detect counterfeits. However, if the price difference is not significant then the product has to be purchased to verify its authenticity, making it a cumbersome process.

The draft policy states that products where counterfeiting is more common, such as luxury goods and cosmetics (clause 3.13), cannot be listed without the trademark owner’s consent. Further, trademark owners can decide that any of their goods not be sold on e-commerce sites by sellers without their prior consent (clause 3.12), but here the mark owner must respond to requests within a certain time period. Lawyers say these measures increase protection for brand owners at the cost of slowing down business for e-commerce websites.

MUCH DISCUSSION

Manisha Singh, the managing partner at LexOrbis, says that the draft policy has resulted in much discussion with her clients. While the policy seeks to strengthen enforcement mechanisms for IP owners, firms and clients alike are probing for any weaknesses in the links of this new chain.

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“What has been found important during our discussions is a need to maintain a balance between free movement of goods and protection of intellectual property rights at online market places,” says Singh. She adds that clause 3.12 might conflict with the principle of exhaustion of rights, which allows traders to sell goods freely, while clause 3.13 might also restrict the freedoms of e-commerce businesses.

Singh has found counterfeiters to be more active on lesser known sites, in comparison to established big names like Amazon or Flipkart. “Some of these popular platforms sell the genuineness of the products sold from their platform as their USP [unique selling point],” she says. “Having said that, these are not [completely] free from IP violations. While organizing several raid actions with enforcement agencies on warehouses of counterfeiters, we saw counterfeiters were using both online and offline marketplaces to move goods. Many such sellers were found using seller IDs of these popular platforms.”

Mukerjee agrees that the draft policy as it stands does have some potential for misuse. “While notification of product listings to owners is definitely a step in the right direction, allowing the option for an owner to consent to all listings including genuine products being sold through third parties may be regressive and not in tandem with the legal position.”

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Shwetasree Majumder, the principal at Fidus Law Chambers, also feels that the rules hinder e-commerce companies, but are a step in the right direction. “These measures will help in curbing the sale of counterfeit products online,” she says. “However, the policy is quite vague and undefined, and puts the entire onus of detecting and removing counterfeits on the marketplace instead of the brand owner.”

The draft rules require e-commerce websites to inform companies within 12 hours if a complaint has been received about a counterfeit version of their product. The e-commerce site has to seek an explanation from the seller and take down the listing in the absence of a satisfactory answer. Similarly, if a customer returns a counterfeited product, the platform must remove the product and take down all related information.

MIXED SIGNALS

Majumder says the courts have previously given e-commerce websites mixed signals on the matter of taking down the items of sellers. “While the Supreme Court says they [intermediaries] are not competent to make a decision as to what merits a take-down in the absence of a court order, several orders thereafter have held them liable for infringement on the basis that they are not prompt with their take-downs.”

Majumder has advised e-commerce sites on intermediary liability and developing strong IP and take-down policies. She has also sat down with brand owners and intermediaries to establish a meaningful conversation. “Most mature intermediaries and brand owners see each other as allies rather than adversaries in the battle against counterfeits,” she says.

Delhi High Court in November 2018 considered the role of an intermediary in a trademark dispute in Christian Louboutin SAS v Nakul Bajaj & Ors. Indian luxury e-commerce site Darveys.com said it was an intermediary, and claimed safe harbour protection under section 79 of the Information Technology Act, 2000 (IT Act). However, the court observed that Darveys.com was more than a conduit between sellers and customers as it received payments, transported products and guaranteed their authenticity.

The draft rules dealing with anti-counterfeiting measures bear similarities to Delhi High Court’s directions in the Louboutin dispute. The court directed the defendant and Darveys CEO Nakul Bajaj to obtain a certificate of genuineness from sellers, make a disclosure of their complete details, take down listings of counterfeit Christian Louboutin products upon receiving a complaint, and notify the company.

Dhruv Anand, a partner at Anand and Anand, represented Christian Louboutin in the matter. He commends the draft policy for its “salutary vision” and for being “forward looking”. However, he adds that requiring an e-commerce platform to get prior consent from trademark owners “would prove to be unduly burdensome”.

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Prior consent was also a requirement in the Louboutin judgment. Anand says adding the requirement was necessary in that case as the seller was situated abroad and the court was concerned that counterfeiters might go scot-free and the trademark owner would be left without remedy. “After the Louboutin judgment, a platform needs to be very cautious in ensuring that it can rely upon the safe harbour defence, as provided under the IT Act,” says Anand. “If many of the factors as spelled out by the court are present, this can show that the e-commerce marketplace plays an active role, as opposed to a mere passive role, excluding it from taking recourse under the safe harbour defence.”

Anand says genuine e-commerce websites can remain compliant with the conditions of section 79 of the IT Act by “limiting [their] role to providing only access, observing due diligence, and expeditiously removing infringing listings upon receiving actual knowledge [about them].”

He notes that Delhi High Court, in particular, has been active in passing orders against online counterfeiters. The court in 2016 passed an award of ₹10 million (US$143,000) against digaaz.com, and directed the website be shut down in a case brought by luxury brands Cartier, Panerai and Jaeger-LeCoultre.

“This was the first time in decades that a sum of this figure was granted by a court in India as damages in an anti-counterfeiting lawsuit,” he says. “With the advent of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, which contemplates reimbursement of actual and realistic costs to the successful party, the right holder is often granted at least a substantial portion of the costs incurred in litigation, which makes it viable for brand owners to continue taking action against counterfeiters.”

FUTURE CHALLENGES

The DPIIT is currently studying feedback and comments received regarding the draft policy. One of the country’s largest trade bodies, The Associated Chambers of Commerce of India, was opposed to making online marketplaces take down seller’s listings, or making them liable for informing trademark owners. It said that proactive take-downs and registration with copyright owners were “impractical” and “onerous”, given the presence of hundreds of thousands of sellers on the platforms.

Similarly, the Internet and Mobile Association of India said e-commerce platforms were already strengthening their mechanisms to onboard sellers in the interest of their reputation, and did not need further regulation under the e-commerce policy, while the All India Online Vendors Association said that marketplaces should not be allowed to penalize sellers. “Given the unprecedented nature of the changes proposed, it is quite likely that the policy [in its current form] may face legal challenges in the future,” says Mamta Jha, a partner at Intll Advocare who focuses on IP litigation.

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“There can be challenges raised with respect to privacy concerns, obligations that may expose the intermediary to loss of statutory immunity conferred by the IT Act.”

Jha says stringent measures such as asset freezes should be reserved for platforms and sellers that frequently engage in counterfeiting. “Obligations imposed on platforms to notify trademark holders in case of each upload of their trademarked products, as well as obtaining their prior concurrence, may lead to monopolization of the marketplace. It may also lead to declining growth of India’s digital presence.”