201811.12

Louboutin v. Darveys.com: Dehli High Court’s clarifications on the liability of marketplaces

Louboutin sued Darveys.com before the High court of Dehli for infringement of its trademark rights, an opportunity for the high court to clarify the issue on the liability exemption that intermediaries can potentially benefit. In the present case, given Darveys.com’s active and central role in its business model and in the content of its platform, the High Court considered that this marketplace could not be qualified as an intermediary under the India Information Technology Act (High Court of Delhi, Christian Louboutin SAS v. Nakul Bajaj and Ors., CS (COMM) 344/2018).

1. The business model of Darveys.com

2. The 2014 Injunction Order

3. The liability of intermediaries under India law

3.1. What is an intermediary?

3.3. References to foreign case law

3.4. India case law

3.5. The ruling of the court in the case of the marketplace Darveys.com

4. Infringement of the trademark rights

5. The court, a business model advisor

6. No damages


1. The business model of Darveys.com

Darveys.com is an online marketplace specialized in luxury goods. Darveys.com claims that the products are obtained from shops in the USA and Europe at discounts as high as 60%. Its business is based on dozens of partnerships with boutiques all over the world. The platform indicates that it does not sell the goods, but only allows consumers to book them from partner stores. In order to shop on Darveys.com, customers have to pay a certain amount of money and obtain a membership. The marketplace ensures that the goods offered are authentic. The platform prides itself on the authentication procedure it has established: a panel of experts reviews and validates or invalidates products before they are sent to consumers. However, Darveys.com does not go so far as to guarantee the authenticity of the products in its terms and conditions. If the products turn out to be counterfeit, Darveys.com will return twice the money.

2. The 2014 Injunction Order

The French company Louboutin came to know that Darvey.com was offering Louboutin products. The website was also displaying a photograph of the French designer Mr. Christian Louboutin. Louboutin sued Darveys.com before the Indian courts. On September 26, 2014, the High Court of Dehli granted Louboutin an interim injunction ordering Darveys.com to stop promoting Louboutin products.

3. The liability of intermediaries under India law

3.1. What is an intermediary?

Under India law, the liability regime for Internet intermediaries is governed by the Information Technology Act 2000. Article 2(w) provides the following definition:
‘“intermediary”, with respect to any particular electronic records, means any person who on behalf of another person receives, stores or transmits that record or provides any service with respect to that record and includes 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.”
Marketplaces seem to be specifically targeted. The platform Darveys.com could, therefore, prima facie, be considered as an intermediary (para 11).

3.2. Exemption conditions

Darveys.com intended to benefit from the exemption regime provided by Article 79 of the Information Technology Act. This article lays down the conditions and circumstances under which an intermediary may be exempted from liability with regard to third parties content:
“(1) Notwithstanding anything contained in any law for the time being in force but subject to the provisions of sub-sections (2) and (3), an intermediary shall not be liable for any third party information, data, or communication link made available or hosted by him.
(2) The provisions of sub-section (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 of 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.
(3) The provisions of sub-section (1) shall not apply if
(a) the intermediary has conspired or abetted or aided or induced, whether by threats or promise or otherwise, in the commission of the unlawful act;
(b) upon 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.
Explanation – For the purpose of this section, the expression “third party information” means any information dealt with by an intermediary in his capacity as an intermediary.”
The India legal regime is supplemented by the Information Technology (Intermediary Guidelines) Rules, 2011. In particular, these guidelines provide that the intermediary that faces illegal content must act within thirty-six hours (Article 3(4). See also Clarification on The Information Technology (Intermediary Guidelines) Rules, 2011 under section 79 of the Information Technology Act, 2000, 18 March 2013).

3.3. References to foreign case law

In the decision rendered on 2 November 2018, the High Court of Dehli, as usual, refers to the case-law of other legal systems: that of the European Union (CJEU, 23 March 2010, C 236 / 08 to C 238/08, Google France SARL, Google Inc. v. Louis Vuitton Malletier SA & Ors., CJEU, July 12, 2011, C-324/09, L’Oreal SA & Ors v. EBay International AG & Ors.) and subsequently that of the French courts (mentioning the various decisions rendered in the litigation between Louis Vuitton Malletier and eBay), as well as the American case law (Tiffany vs. eBay 600 F.3d 93, Inwood Laboratories, Inc. v. Ives Laboratoes, Inc. 456 US 84, Hard Rock Café v. Harry’s Sweat Shop 955 F.2d, Lockheed Martin Corp. v. Network Solutions, Inc. 194 F.3d 980, Sony Corp. of America v. Universal City Studios, Inc. 464 US 417). These references are more than welcome in a legal world swept along in a movement of, if not harmonization, at least “glocalization“, which helps right holders to have a better understanding of the legitimate expectations they can draw with regard to a given legal system.

3.4. India case law

Of course, the court reviewed India case law relating to the liability of intermediaries, based on section 79 of the Information Technology Act (paras 42-54, citing: Shreya Singhal v. Union of India; MySpace Inc. v. Super Cassettes Industries Ltd.; Department of Electronics and Information Technology v. Star India Pvt Ltd.; Kent RO Systems Pvt Ltd. & Anr v. eBay India Pvt.). And the court reaches the following conclusion:
“A review of the judgements on Section 79 in India shows that intermediaries in general have been given exemption in various fact situations including in the case of uploading of content by users, copyright infringement and violation of design rights. However, the position that is being considered in the present case i.e., violation of trade mark rights by ecommerce platforms and the extent of protection/exemption that is to be awarded to them as also the conditions under which the same are to be awarded, are yet to be gone into in extensor” (para. 54).
In other words, when it comes to marketplaces and e-commerce sites, everything has to be built!

3.5. The ruling of the court in the case of the marketplace Darveys.com

The court starts by questioning the scope of Article 2(w). More specifically, it lists the tasks likely to be performed by the marketplaces:
“i. Identification of the seller and providing details of the seller;
ii. Providing transport for the seller to send his product to the platform’s warehouse;
iii. Uploading the entry of the said product;
iv. Providing quality assurance after reviewing the product;
v. Providing authenticity guarantees;
vi. Creation of the listing of the said product;
vii. Providing reviews or uploading reviews of the product;
viii. Enrolling members upon payment of membership fees;
ix. Promoting the product amongst its dedicated database of customers;
x. Advertising the products on the platform;
xi. Giving specific discounts to members;
xii. Providing assistance for placing a booking of the product, including call centre assistance;
xiii. Accepting an order on a particular payment gateway promoted by the platform;
xiv. Collecting the payment through users registered for electronic payment modes;
xv. Packaging the product with its own packing, instead of the original packing of the trade mark owner or changing the packaging in which the original owner’s product is sold;
xvi. Transporting the product to the purchaser
xvii. Employing delivery personnel for delivering the product;
xviii. Accepting cash for sale of the product;
xix. Transmission of the payment to the seller after retaining commission;
xx. Promoting its own affiliated companies on the basis of more favourable terms than other sellers;
xxi. Entering into favourable arrangements with various sellers;
xxii. Arranging for exchange of the product if there is a customer complaint;
xxiii. Providing/arranging for service if the product requires the same;
xxiv. Booking ad-space or ad-words on search engines;
xxv. Using trade marks through meta-tags or in the source code of the website in order to attract traffic;
xxvi. Deep-linking to the trade mark owner’s website (para. 56).”
This first step leads the court to consider whether a marketplace performing one or more of these tasks may qualify as an intermediary within the meaning of Article 2(w) (para 58). In other words, can such a platform be considered inactive, passive or merely technical? On the other hand, should such a platform be considered as playing an active role in the marketing and the sale of products? (ibid.).
The court rules:
When an e-commerce website is involved in or conducts its business in such a manner, which would see the presence of a large number of elements enumerated above, it could be said to cross the line from being an intermediary to an active participant. In such a case, the platform or online marketplace could be liable for infringement in view of its active participation” (para. 63).
It adds that, in such a case, the platform could be held responsible for the violation of rights third parties rights (ibid.) And the court calls the attention of the Internet operators:
“Needless to add, e-commerce websites and online marketplaces ought to operate with caution if they wish to enjoy the immunity provided to intermediaries.” (ibid.).
The criterion of active or passive role plays a significant role:
So long as they are mere conduits or passive transmitters of the records or of the information, they continue to be intermediaries, but merely calling themselves as intermediaries does not qualify all e-commerce platforms or online market places as one” (para 64).
In this case, the Dehli court considers that Darveys.com exercises full control over the products insofar as the platform is able to identify the sellers, select them, promote and sell the products. For the court, Darveys.com is much more than an intermediary (para 61).
Moreover, and in any event, similarly to the European and American legal systems, the exemption is not absolute. Indeed, the court of Dehli recalls that under Article 79(2)(b), to benefit from the exemption, the intermediary must not initiate the transmission, select the receiver of the transmission and select or modify the information contained in the transmission (para. 66). In these conditions, it is hard to see how Darveys.com could have benefited from the exemption.
The court also reiterated that the exemption from liability does not apply in the two situations set out in Article 79(3). The first (Article 79(3)(a)) excludes the exemption where, actively or by omission, the platform contributes to the performance of the illegal act. The second imposes due diligence on the Internet operator. In this regard, the court makes reference to the need to establish a policy and procedure for the removal of illegal content (para 68). Moreover, Article 3(2)(d) of the Information Technology (Intermediary Guidelines) Rules, 2011 specifically refers to intellectual property rights, including trademarks (para 69). The court states that these guidelines require intermediaries to enter into contractual relationships with their users, which must include clauses whereby users undertake not to infringe the intellectual property rights of third parties.

4. Infringement of the trademark rights

Referring to the verb “use” in section 2(2)(c) of the India Trademark Act, and sections 101 and 102 of that Act, the Dehli Court stated:
any online market place or e-commerce website, which allows storing of counterfeit goods, would be falsifying the mark. Any service provider, who uses the mark in an invoice thereby giving the impression that the counterfeit product is a genuine product, is also falsifying the mark. Displaying advertisements of the mark on the website so as to promote counterfeit products would constitute falsification. Enclosing a counterfeit product with its own packaging and selling the same or offering for sale would also amount to falsification. All these acts would aid the infringement or falsification and would therefore bring the e-commerce platform or online market place outside the exemption provided under Section 79 of the IT Act.” (para. 77).
In this case, the court notes that the seller is located abroad, that the seller is not known, that the person or company from whom the seller buys the goods is not known either. Moreover, it is not even sure whether the products are genuine or counterfeit goods (para 79). This fog prevents the judge from seeing more clearly, and that does not play in favor of Darveys.com. Indeed, the court concludes:
The use of the mark, Christian Louboutin, the name, the photograph of the founder, without the permission of the Plaintiff, and without ensuring that the products which are sold are in fact genuine, would constitute violation of Plaintiff’s rights” (para. 79).
The court concludes that Darveys.com cannot be qualified as an intermediary that would be potentially eligible to the exemption provided by Article 79 of the Information Technology Act.
Finally, concerning the use of the “Louboutin” trademark in the source code, as meta tags, the court recalls that this practice, that of a free rider, dilutes the trademark (paras 80 and 81).

5. The court, a business model advisor

The plaintiff, like any other owner of intellectual property rights facing infringement cases in the India digital environment, may welcome the injunction made to Darveys.com to disclose, with immediate effect, complete contact details of all the sellers. The courts seem determined to engage market platforms towards greater transparency. On this point, Christian Louboutin SAS v. Nakul Bajaj & Ors. echoes Lifestyle Equities C.V. & Ors. v. Amazon Sellers Service Private Ltd. (iptwins.com, August 6, 2018). The court also orders the following series of measures:
“i. Darveys.com is directed with immediate effect, to disclose the complete details of all its sellers, their addresses and contact details on its website;
ii. Darveys.com shall obtain a certificate from its sellers that the goods are genuine;
iii. If the sellers are not located in India, prior to uploading a product bearing the Plaintiff’s marks, it shall notify the plaintiff and obtain concurrence before offering the said products for sale on its platform;
iv. If the sellers are located in India, it shall enter into a proper agreement, under which it shall obtain guarantee as to authenticity and genuinity of the products as also provide for consequences of violation of the same;
v. Upon being notified by the Plaintiff of any counterfeit product being sold on its platform, it shall notify the seller and if the seller is unable to provide any evidence that the product is genuine, it shall take down the said listing and notify the plaintiff of the same, as per the Intermediary Guidelines 2011;
vi. It shall also seek a guarantee from the sellers that the product has not be impaired in any manner and that all the warranties and guarantees of the Plaintiff are applicable and shall be honoured by the Seller. Products of any sellers who are unable to provide such a guarantee would not be, shall not be offered on the Defendant’s platform.
vii. All meta-tags consisting of the Plaintiff’s marks shall be removed with immediate effect.” (para. 82)
These injunctions could replace the risk management consultation Darveys.com did not ask for before starting its business. In the United Stated, SunFrog also benefited from the judge’s advice in the recent Davidson c. SunFrog decision, with the difference that it was much more expensive! (see iptwins.com, June 27, 2018).

6. No damages

With regard to damages, one can regret that the court does not allocate a rupee to Louboutin. It justifies its position as follows:
“It is alleged on behalf of Darveys.com that no plaintiff’s product was actually sold on its platform, although the website advertised and promoted the products under the plaintiff’s trademark. Thus, no order of damage/refunding of accounts or expenses is passed “.
There is food for thought…

About IP Twins
IP Twins is an ICANN-accredited registrar with 15 years of experience in domain name strategy and management. We also offer anti-counterfeiting monitoring services. Our Detective monitoring software identifies counterfeits online. We collect evidence and remove counterfeits from over a hundred marketplaces platforms and social networks. Should you need to complete these investigations, our team based in China can help. Click here to contact us!