Amazon Valentino Counterfeit Lawsuit: Liability in the Online Marketplace

With the advancement of technology, e-commerce has expanded exponentially and all we need is just a click away but not all of it is as good as it looks.

In the global and digitized world of today, every resource is available just a click away. From jobs to education, everything is efficiently conducted online. The same is valid for commerce. The online marketplace has grown exponentially over the past few years, with such an impact that items we do not find in our local stores are readily available online. The COVID-19 pandemic brought the whole world to a standstill; however, the business of online marketplace continued to thrive and provide services to people at their doorsteps. While there are numerous benefits of e-commerce, one of the biggest menaces associated with it is the sale of counterfeit goods on online platforms. Consequently, there has been a spate of lawsuits against sellers and online platforms for the sale of counterfeit goods by the companies.

Amazon.com, the biggest e-commerce platforms worldwide, is often involved in such lawsuits concerning the sale of counterfeit goods on its website. Recently, Amazon had collaborated with Valentino S.p.A to file a suit against the sale of counterfeit goods resembling Valentino’s goods on its platform. A complaint running 36 pages long was filed in the U.S. District Court of Seattle. The plaint alleged Kaitlyn Pan Group, LLC and Hao Pan  of offering for sale copies of Valentino’s iconic Garavani Rockstud shoes on Amazon. The plaint claims infringement of trademark, counterfeiting, patent infringement, unfair competition, and breach of contract for the defendants’ failure to abide by third-party seller agreement of Amazon.

The lawsuit filed by Amazon and Valentino is just a tip of the iceberg. There are a number of such ongoing counterfeit lawsuits wherein Amazon is a party. Following the Valentino lawsuit, Amazon filed another trademark suit in partnership with the brand KF Beauty against four companies and sixteen individuals believed to be selling counterfeit versions of KF Beauty’s products. Amidst numerous lawsuits by and against Amazon, it is pertinent to consider the provisions dealing with liability, in the online market-place.

International Judicial Framework

The concept of secondary liability is an important principle which deals with cases where one party significantly contributes, enables, or induces the infringing act being carried out by another party. Contributory liability, a subset of secondary liability occurs when the distributor induces another to infringe trademark or continues the supply of such products even after they have the knowledge or reason to believe that the goods being offered for sale are counterfeit goods. 

In Tiffany Inc. v. eBay Inc.[1], Tiffany’s, the iconic jewellery brand had accused eBay of trademark infringement. They claimed that more than 70 per cent of Tiffany items offered for sale on eBay’s marketplace were counterfeit. Tiffany argued that eBay was duty-bound to scrutinize its website and take down all such counterfeit products. The U.S. Court of Appeals denied the argument and held eBay ‘not liable’ for infringement because eBay had placed a “fraud engine” program to take down goods that were counterfeit on the notice by brand owners. Further, the famous Inwood test laid down in Inwood Laboratories, Inc. v. Ives Laboratories, Inc states that in order to establish contributory liability of a party, two points are to be satisfied,

1. the party intentionally induced the other party in trademark infringement
2. the party continued to deal with the product even after it had knowledge or reason to believe that the product being dealt with infringed the trademark.

In the Tiffany v. eBay case, the court held that eBay possessed only a generalized knowledge of the sale of counterfeit products which was insufficient as per the Inwood test to establish contributory liability. Further, the claim of direct trademark infringement was disproved by the court on account of the fact that as soon as eBay came to know about the sale of counterfeit products, it promptly took steps to remove such content.

The Court of Justice of the European Union’s (CJEU’s) laid down a much stricter test in case of liability of online marketplace when dealing with the case of L’Oréal SA v. eBay International AG[2]. It was held that by not acting to disable the content even after becoming aware of the sale of counterfeit goods on its platform, eBay was liable for contributory liability.

Online Marketplace and Intermediary Liability in India

The Section 2(1)(w) of the Information and Technology Act, 2000 defines intermediary with respect to any particular electronic message as “any person who on behalf of another person receives stores or transmits that message or provides any service with respect to that message”. The Technology (Amendment) Act, 2009 had further widened the scope of the definition by including 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 as intermediaries under the Act.

In the Indian framework, e-commerce platforms in most cases are exempted from liabilities under the garb of safe harbour provision given in Section 79 of the Information Technology Act, 2000. The Section lays down specific due diligence standards to be met by intermediaries to seek protection under the safe harbour. The Section exempts the liability of an intermediary in cases where any third-party information, data, or communication link is made available on their platform on fulfilment of conditions that,

• the intermediary’s functions are limited to providing access to a communication system over which information is transmitted or temporarily stored or hosted
• the intermediary does not initiate transmission or select or modify the information; observes due diligence and complies with the guidelines prescribed by the Central Government

Further, to be eligible for an exemption, it is required by the intermediary to observe due diligence and expeditiously act to remove the content on receipt of any notice that the platform is being used to facilitate illegal acts. The Information Technology (Intermediaries Guidelines) Rules, 2011 further lays down guidelines for due diligence and notification system. The intermediary must compulsorily enter into a user agreement with each of its users under which several forms/classes of content/activities are prohibited. Further, the intermediary is bound to act within 36 hours of receipt of a complaint. While the meaning of “act” is not defined, it understood as removing the content or disabling the complained activity.

[1] 600 F.3d 93 (2d Cir. 2010)

[2] C-324/09