Can online marketplaces be liable for counterfeit or fake branded products?

The issue of counterfeit or fake branded products being sold on online marketplaces has become a growing concern, especially in the context of consumer protection, brand rights, and intellectual property. While third-party sellers are typically responsible for the products they list, e-commerce platforms or marketplaces can still be held liable for facilitating the sale of counterfeit goods, depending on the circumstances and their involvement in the sale process. Indian law outlines specific provisions to address the responsibilities of both sellers and platforms in such cases.

Legal Framework Governing Liability for Counterfeit Products

The Consumer Protection (E-Commerce) Rules, 2020

The Consumer Protection (E-Commerce) Rules, 2020, mandate that e-commerce platforms take proactive steps to ensure that the products sold on their marketplace are genuine and not counterfeit.

• Due Diligence: The platform must carry out due diligence before allowing a seller to list their products, ensuring that the seller is authorized to sell branded goods. This includes verifying the authenticity of products and preventing the sale of counterfeit goods.
• Grievance Redressal: If a consumer purchases a counterfeit product, the marketplace must provide an efficient and transparent grievance redressal mechanism to resolve complaints, including refunds or product returns.

The Trademark Act, 1999

Under the Trademark Act, 1999, counterfeit goods are considered an infringement of the trademark holder's rights. If a marketplace facilitates the sale of counterfeit products, the trademark owner may pursue legal action against the platform, in addition to the seller.

• Trademark Infringement: Online marketplaces can be held liable for trademark infringement if they knowingly allow counterfeit products to be sold under a well-known brand.
• Vicarious Liability: If a platform is found to be actively promoting or aiding the sale of counterfeit goods, it could be held vicariously liable for the actions of third-party sellers.

The Information Technology Act, 2000

The IT Act deals with online transactions and platforms. While it primarily governs cybercrimes, it also includes provisions related to intermediary liability, which apply to online marketplaces.

• Intermediary Liability: If an online platform acts merely as a neutral intermediary without actively participating in the sale of counterfeit products, it may not be held liable under the IT Act. However, if the platform has knowledge of the counterfeit products being sold and fails to take action, it could be held liable for abetting the sale of such goods.

The Copyright Act, 1957

The Copyright Act also provides protection against the sale of counterfeit products that infringe upon copyright-protected content, such as software, e-books, and digital media.

• Copyright Infringement: If counterfeit products involve pirated digital goods, such as software, films, or music, the e-commerce platform could face liability for facilitating the sale of copyrighted works without proper authorization.

Foreign Direct Investment (FDI) Policy in E-commerce

The Indian FDI policy in e-commerce limits foreign-owned platforms from engaging in inventory-based e-commerce, meaning they cannot directly control the goods being sold on the marketplace. However, this regulation places an increased responsibility on platforms to ensure that third-party sellers are not selling counterfeit or fake goods on their marketplace.

• Platform Responsibilities: While foreign-owned marketplaces like Amazon or Flipkart are not allowed to hold inventory, they are still responsible for ensuring that the products sold on their platform are genuine and that counterfeit goods are removed swiftly upon identification.

E-commerce Platform Terms and Conditions

Most online platforms have terms and conditions that sellers must agree to before listing their products. These often include clauses prohibiting the sale of counterfeit goods and requiring sellers to warrant the authenticity of their products.

• Seller Compliance: If a seller violates these terms by selling counterfeit products, the platform can terminate the seller's account or take legal action.
• Platform Accountability: If a platform fails to enforce these terms and knowingly allows counterfeit products to be sold, it may be held liable for negligence or failure to act.

Liability of Platforms in Case of Counterfeit Products

Direct Liability

An online marketplace can be directly held liable for selling or facilitating the sale of counterfeit products if:

• The platform knowingly allows counterfeit goods to be sold.
• The platform actively promotes counterfeit goods or sellers.
• The marketplace has failed to take corrective action after being notified of counterfeit products.

Vicarious Liability

A platform can also be vicariously liable for the actions of its third-party sellers under certain circumstances:

• If the platform has knowledge of counterfeit goods being sold and fails to act, it can be held liable for abetting the infringement.
• Platforms must take swift action to remove counterfeit listings once notified by the brand owner or consumer.

Failure to Exercise Due Diligence

If a platform fails to take reasonable steps to ensure that sellers are selling genuine products, it may be considered negligent and liable for any resulting consumer harm.

• This includes not verifying the authenticity of products or not responding to complaints about counterfeit goods.

Grievance Redressal Mechanism

Platforms are obligated to provide a grievance redressal mechanism to resolve complaints about counterfeit products. If a consumer is sold a counterfeit item, the platform must take appropriate steps to:

• Refund or replace the product.
• Remove the seller from the platform if they continue to sell counterfeit goods.
• Report the incident to the authorities if necessary.

Example Scenario:

Suppose a consumer buys a branded watch on an e-commerce platform, but upon receiving the product, they discover it is a counterfeit. The consumer files a complaint with the platform, claiming that the product is fake.

• Platform's Response: The platform should immediately remove the seller's listing and offer the consumer a refund or replacement.
• Brand Owner's Action: The brand owner can file a trademark infringement case against both the seller and the platform if the platform failed to act promptly.
• Legal Consequences: If the platform is found to have ignored the issue, it may face penalties under the Trademark Act for facilitating the sale of counterfeit goods.
• Consumer's Right: The consumer may also seek compensation for the harm caused by purchasing the counterfeit product.

Summary:

Yes, online marketplaces can be held liable for counterfeit or fake branded products, especially if they are negligent in preventing such products from being sold or fail to act swiftly when notified. E-commerce platforms are required to exercise due diligence, ensure product authenticity, and provide a robust grievance redressal mechanism to comply with consumer protection and intellectual property laws. Failure to do so can result in legal consequences, including liability for trademark infringement and consumer harm.