The Delhi High Court has delivered a remarkable judgement in Amazon vs Amway &Ors.
The Court has set aside an order that restrained several e-commerce platforms from selling Amway, Oriflame and Modicare products without the consent and held that Direct Selling Guidelines, 2016 are purely advisory in nature and don't qualify as law.
The appeal in the present case has been filed by e-commerce platforms such as Amazon, Flipkart, and others.
What was the order?
In July 2019, a Single Judge Bench of the High Court had granted an interim injunction in favor of Amway and other entities like Modicare and Oriflame in view of the unauthorized sale of their products on e-commerce platforms.
The Court in its order had held that the Direct Selling Guidelines (DSGs) were binding in nature as they amounted to “law”. It was further held that the sellers, as well as the platforms, were bound to take consent of Direct Selling Entities to offer, display, and sell their products.
It was also observed in the order that e-commerce platforms or sellers were not entitled to the benefit of the principle of ‘exhaustion of trademark rights’ and that in order for the platforms to continue to enjoy the status of intermediaries, due diligence was required to be undertaken.
COURT ANALYSIS
In the present case, the Court at the outset noted that it was “highly unlikely” that the issues framed and adjudicated upon by the Single Judge at the stage of grant of interim reliefs would be the issues in the suits themselves.
The fact that the Single Judge even considered the submissions of the Union of India while deciding the interim relief, when it was not even a party to any of the suits was also taken into consideration.
It thus opined that in a Civil Suit, the Court requiring the Union of India to address it on an aspect was a deviation from the Civil Procedure Code.
It stated,
"...this Court has original jurisdiction does not mean under that jurisdiction the Court will assume to itself the powers of a Writ Court. The flexibility of procedure that may be available to the Court while dealing with a writ petition under Article 226 of the Constitution, is not, and ought to not be adopted while dealing with civil suits filed on the original side, which would be strictly governed by the provisions of the CPC read with the corresponding provisions of the Delhi High Court Act and the Original Side Rules of the Delhi High Court."
The Court, at the outset, observed that the issue formulated by the Single Judge as to whether the Direct Selling Guidelines (DSGs) were valid and binding was “erroneously framed”.
The Court stated that a perusal of the DSGs clearly revealed that they weren't meant to be treated as law themselves, much less binding law.
"It was only to be a model framework and ―advisory in nature. It was for the State Governments to adopt it into law. Therefore, Clause 7 (6) of these 'model guidelines' is also purely advisory."
The Court stated that merely because the DSGs were notified in the Official Gazette, they didn't attain the status of ‘law’ within the meaning of Article 13 of the Constitution.
It added that the source of the power to frame such guidelines was traceable only to the Consumer Protection Act.
“The distinction between rules, which are made under a statute, regulations, which also ought to be traced to a statute, and mere 'guidelines‘, was lost sight of by the learned Single Judge...The Plaintiffs appear to have jumped the gun in not waiting for the law to be formally made and enforced.”
The Court, nonetheless, clarified that the e-commerce platforms may challenge the Direct Selling Rules under the CPA, once they are notified.
Selling of Amway products on e-commerce platforms amount to infringement of trademark?
The Court stated that the Single Judge had committed a "fundamental error" by holding that Amway and other plaintiffs in the suit were the owners of their respective trademarks.
It noted that the Amway, Oriflame, etc- were not the proprietors of the trademarks being used by them, as the same were registered in the name of their overseas parent entities.
The Court further observed that this cannot be considered under infringement of trademarks or passing off, and therefore, to examine the same was “entirely outside the purview of the pleadings”.
It, nonetheless, considered the contentions put forth by the parties in their submission and held that the Single Judge had erred in holding that the 'principle of exhaustion' in terms of Section 30 of the Trade Marks Act, 1999 couldn't be invoked by the e-commerce platforms.
The Court also considered the report of the Local Commissioner and remarked that it was difficult to conclude that Amazon had been tampering with the products of Amway and that it was anyway a matter to be determined by trial.
Are e-commerce platforms 'intermediaries' under the IT Act?
The Court opined that the Single Judge had misinterpreted Section 79 of the IT Act to conclude that it was restricted to ‘passive’ intermediaries.
It noted that in terms of Section 79, any intermediary which complies with Sections 79 (2) or (3) of the IT Act was not liable for any third-party information, data or communication link made available or posted by it.
The Court though remarked that whether an entity was an intermediary or not, could only be decided only after a trial.
"There was no occasion for the learned Single Judge to have, at the stage of considering applications for an interim injunction, returned a conclusive finding that Amazon is ―a massive facilitator and plays an ―active role in the sales process. These are too sweeping and definitive a set of findings which have to be properly rendered at the conclusion of the trial."
The Court observed that in the first place, the tort of inducement to breach of contract necessitated the existence of a contract between the online platforms and the DSEs like Amway.
It added that the mere facts that the online platforms might have knowledge of the Code of Ethics of the DSEs, and the contractual stipulation imposed by such DSEs on their distributors, was insufficient to lay a claim of tortious interference.
The Court stated that it was incumbent on Amway and others to prove that there were contracts entered into by e-commerce platforms to make a viable case for the tort of inducement to breach of contract. However, it was a matter of trial.
The Court, therefore, holding above opined that Amway and others had failed to establish a prima facie case for grant of interim relief and the order of the Single Judge was set aside.
An award of ₹50,000 in each of the appeals has been awarded by the Court to be paid by the plaintiffs in the suits to the e-commerce platforms.
The judgement has been delivered by Justice Dr S Muralidhar and Justice Talwant Singh on 31-01-2020:
Read Judgement Here:
