How are counterfeit or fake products addressed legally on online marketplaces?

The sale of counterfeit or fake products on online marketplaces is a significant concern for both consumers and businesses. E-commerce platforms provide a convenient way for counterfeit goods to reach large audiences, sometimes without consumers realizing they’re purchasing substandard or fraudulent items. In India, there are several legal frameworks and regulations aimed at addressing counterfeit products in the online marketplace. These laws mandate platform responsibility, seller accountability, and consumer protection to ensure that counterfeit goods do not undermine the trust and safety of e-commerce transactions.

Legal Framework for Addressing Counterfeit or Fake Products

Consumer Protection (E-Commerce) Rules, 2020

The Consumer Protection (E-Commerce) Rules, 2020 were introduced to regulate the operations of e-commerce platforms and protect consumers from unfair trade practices, including the sale of counterfeit products.

• Platform Responsibility: Under these rules, e-commerce platforms have an obligation to ensure that products listed by sellers do not violate consumer protection laws. This includes verifying that products are not counterfeit or fake.
• Grievance Redressal: The platform must establish a grievance redressal mechanism to address consumer complaints about counterfeit goods. Platforms are also required to ensure that they act promptly upon receiving complaints, which may include removing counterfeit products from listings.
• Seller Due Diligence: E-commerce platforms must take steps to verify the legitimacy of sellers and the authenticity of the products they offer.

Intellectual Property (IP) Law: Trademark and Copyright Protection

Under Indian IP laws, counterfeit products often violate trademarks or copyrights. The Trade Marks Act, 1999, and Copyright Act, 1957 provide protection to the intellectual property of brands and creators, giving them legal avenues to fight counterfeit goods.

• Trademark Infringement: Counterfeit products typically involve the unauthorized use of registered trademarks. The owner of a trademark can take legal action against counterfeit sellers, demanding seizure of goods and damages.
• Legal Actions: The trademark holder can approach the Intellectual Property Appellate Board (IPAB) or file a court case against the counterfeit seller and platform. In cases of online infringement, intermediary liability provisions under Section 79 of the IT Act come into play.

The Information Technology (Intermediary Guidelines) Rules, 2021

The Intermediary Guidelines provide a legal framework for online platforms (as intermediaries) to address the spread of illegal content, including counterfeit products.

• Platform Liability: E-commerce platforms are considered intermediaries, and according to Section 79 of the IT Act, they have a safe harbor as long as they act as passive intermediaries. However, if they do not act upon receiving a notice of infringement, they can be held liable for the sale of counterfeit products.
• Due Diligence: Platforms must perform due diligence in verifying the authenticity of products listed and must have a process to respond to takedown requests from intellectual property owners who report counterfeit goods.

Customs and Importation Laws

Counterfeit products often enter India through illegal imports. The Customs Act, 1962, and Trade Marks Act, 1999 provide mechanisms to intercept counterfeit goods at ports and customs checkpoints.

• Seizure of Goods: The Customs Department has the authority to seize counterfeit goods and take legal action against importers of fake products. This action is often coordinated with trademark owners to protect their IP rights.
• FDI and Online Retail: Foreign direct investment (FDI) policies in India require online platforms to follow strict regulations when selling imported goods, ensuring they are genuine and meet Indian regulatory standards.

Platform Responsibilities in Dealing with Counterfeit Products

Preventive Measures

• Seller Verification: E-commerce platforms must implement robust verification mechanisms for sellers, such as checking the seller’s background, business credentials, and proof of product authenticity before listing them.
• Product Vetting: Platforms should perform due diligence to ensure that sellers are not listing counterfeit or fake goods. This includes conducting random checks or working with IP owners for product audits.
• Digital Tools for Detection: Many platforms employ AI-driven tools or image recognition software to detect suspicious listings that may involve counterfeit goods. These tools scan for products that may violate trademarks or are otherwise substandard.

Enforcement Mechanisms

• Takedown Procedures: When a complaint about a counterfeit product is received, platforms must act swiftly to remove the listing and block the seller if necessary. This helps to prevent further harm to consumers.
• Collaboration with IP Owners: Online platforms often work with brand owners, law enforcement, and IP enforcement agencies to detect and remove counterfeit goods from their marketplaces.
• Reporting Mechanism: Platforms should provide consumers with an easy way to report counterfeit goods or suspicious sellers, ensuring fast action is taken.

Consumer Protection

• Refunds and Returns: If a consumer purchases a counterfeit product, platforms must offer a clear refund or return policy to protect consumers from financial loss.
• Transparency: Platforms should ensure that consumers are aware of the risk of counterfeit products, especially when purchasing from unknown or third-party sellers.

Legal Consequences for Counterfeit Products

Penalties under IP Laws

• Monetary Fines: Sellers of counterfeit products can face significant penalties under Indian IP laws, including monetary fines and imprisonment. For instance, trademark infringement could lead to penalties of up to ₹2,00,000 and imprisonment of up to 3 years.
• Reputation Damages: If counterfeit products cause damage to the brand's reputation, they may be liable for damages to the intellectual property holder, which can be substantial.

Platform Liability

• Failure to Act: Platforms that fail to act on counterfeit listings after being notified can be held liable for damages. If platforms continue to host counterfeit products or are involved in the sale of counterfeit goods, they may face legal action under the Consumer Protection Act, 2019.
• Monetary Fines: E-commerce platforms may be fined by the Consumer Protection Authority for failing to remove counterfeit products promptly, or for neglecting to ensure that sellers comply with legal standards.

Example of Counterfeit Product Action

A popular online marketplace receives multiple complaints about fake branded watches being sold by a third-party seller. Upon investigation, it is found that these watches violate the trademark of a luxury watch brand.

• Step 1: The brand owner submits a takedown notice to the platform, requesting removal of the counterfeit listings.
• Step 2: The platform investigates the complaint, finds that the seller is indeed offering counterfeit goods, and removes the listings.
• Step 3: The platform suspends the seller's account and issues a refund to affected consumers.
• Step 4: The luxury brand pursues legal action against the seller for trademark infringement and seeks damages for the harm caused to its brand.

Conclusion

Addressing counterfeit products on online marketplaces requires a comprehensive legal approach involving consumer protection laws, intellectual property regulations, and platform responsibility. Indian law mandates that e-commerce platforms take active steps to prevent the sale of counterfeit goods, including verifying sellers, implementing grievance redressal systems, and collaborating with brand owners and authorities to remove fake products from listings.

Failure to comply with these regulations can lead to serious legal penalties for both the platform and the seller. E-commerce platforms must ensure that they maintain high standards of due diligence, provide a safe shopping environment for consumers, and contribute to the enforcement of intellectual property rights to protect both businesses and consumers from the harm caused by counterfeit goods.