Can online marketplaces be held liable for unauthorized reselling of copyrighted products?

With the exponential growth of online marketplaces, like Amazon, Flipkart, and eBay, a significant challenge has emerged - the unauthorized reselling of copyrighted products or counterfeit goods. Many third-party sellers use these platforms to list and sell products that may infringe on intellectual property (IP) rights, such as copyrights, trademarks, or patents.

While these marketplaces offer a space for vendors to sell products, it raises the legal question: Can online marketplaces be held liable for the unauthorized reselling of copyrighted or counterfeit products by third-party sellers on their platform?

Legal Framework in India Regarding E-Commerce and Intellectual Property (IP) Infringement

• The Copyright Act, 1957: The Copyright Act, 1957 in India provides protection for original works of authorship, including literary, artistic, and musical works, among others. If an e-commerce platform allows third-party sellers to sell unauthorized copies of copyrighted products, it could be deemed as copyright infringement.
• Section 51 of the Copyright Act states that infringement occurs when copyrighted work is reproduced or distributed without the consent of the copyright holder.
• This means that the reselling of copyrighted goods without authorization can lead to legal action against both the seller and, in certain cases, the platform facilitating the sale.

The Information Technology Act, 2000 (IT Act)

• The IT Act, which governs electronic transactions in India, provides some safe harbor provisions for intermediaries, such as online platforms. This means that platforms like Amazon or Flipkart are not automatically liable for third-party content (like a seller’s listing) unless they are actively involved in the infringement or do not act upon being notified of the illegal content.
• Section 79 of the IT Act gives safe harbor to platforms, provided they comply with the due diligence requirements, which include:
• Not initiating or endorsing the infringing content.
• Taking down the infringing content once they receive notice from the IP owner.

The Consumer Protection (E-Commerce) Rules, 2020

• The E-Commerce Rules, 2020, which came into effect as part of the Consumer Protection Act, 2019, impose stricter obligations on online platforms to ensure transparency and accountability, especially when dealing with third-party sellers.
• Rule 3 of the E-Commerce Rules mandates that e-commerce platforms must ensure that the products sold by third-party sellers do not violate intellectual property laws. This means that platforms must have systems in place to prevent the sale of counterfeit or infringing products.
• If a platform facilitates the sale of counterfeit or pirated goods, it can face penalties under the Consumer Protection Act, and the consumer may be entitled to a refund or replacement of the product.

Liability of E-Commerce Platforms Under Intellectual Property (IP) Laws

• Intellectual Property infringement can result in legal action against both the seller and the platform. If the platform is aware of the infringement or fails to act after being notified, it could be held liable under IP laws.
• Platforms have a responsibility to remove infringing content or take action against infringing sellers once a notice of infringement is filed. Failure to act could result in liability for the platform.

The Digital Millennium Copyright Act (DMCA) - Global Precedent

• Although the DMCA is an American law, it provides a global precedent for dealing with online infringement. The safe harbor provisions of the DMCA allow platforms to avoid liability for user-uploaded content if they act to remove infringing content once they are notified by the copyright holder.
• Many Indian e-commerce platforms adopt similar takedown procedures as outlined in the DMCA to avoid liability and ensure they comply with IP laws.

Can Online Marketplaces Be Held Liable?

• Liability for Third-Party Sellers: Direct liability for infringement typically lies with the third-party seller who is reselling unauthorized copyrighted goods. However, platforms can be held accountable if they are found to be actively involved in the infringement or fail to adhere to the required due diligence.
• Safe Harbor Protection: E-commerce platforms benefit from safe harbor protection under Indian law, but this protection only applies if the platform has adhered to the due diligence requirements. This means that platforms must have a process to:
• Verify the authenticity of the products sold by third-party vendors.
• Respond promptly to takedown notices from IP owners.
• If a marketplace fails to act upon receiving a notice of infringement, it may lose its safe harbor protection and could be held liable for the infringement.
• Vicarious Liability: Vicarious liability refers to a situation where the platform could be held responsible for the actions of its sellers if it is found that the platform had knowledge of the infringement and enabled it to continue. For example, if a platform knowingly allows the sale of counterfeit or pirated products, it could be held vicariously liable under IP law.

Practical Enforcement

• Platforms may not always be directly liable for every infringement committed by sellers, but they can still face legal consequences if they fail to implement preventive measures like:
• Monitoring products listed on their platform for potential infringements.
• Implementing active reporting mechanisms for IP holders to easily flag infringing content.
• IP owners can also sue the platform for indirect infringement if the platform does not take necessary action to remove infringing products.

Example Case

• Imagine an online marketplace, X-Store, which allows third-party vendors to sell their goods. One of the vendors sells counterfeit branded headphones that are copyrighted by a well-known company, Brand Y. Brand Y files a notice of infringement with X-Store, but the platform does not take down the listing immediately.
• Outcome:
• Brand Y sues X-Store for allowing the sale of counterfeit goods.
• X-Store argues that it was not aware of the infringement initially and claims it is protected under safe harbor provisions.
• However, since X-Store did not act promptly after receiving the takedown notice, the court rules that the platform is vicariously liable for intellectual property infringement and orders the platform to remove the infringing products, pay damages, and implement better verification practices for third-party sellers.

Conclusion

• Yes, online marketplaces can be held liable for the unauthorized reselling of copyrighted products by third-party sellers, especially if they fail to follow due diligence procedures, take action after receiving infringement notices, or are found to be actively involved in the sale of counterfeit goods. Safe harbor provisions offer protection, but platforms must take responsibility for ensuring that sellers comply with IP laws. If marketplaces fail to act, they may face legal penalties and vicarious liability under Indian law.