AMWAY INDIA PVT. LTD V. 1MG TECHNOLOGIES PVT. LTD. & ORS.

INTRODUCTION

The present cases highlight the conflict that can arise between an existing form of
business/trade viz., Direct Selling Businesses and e-commerce platforms. A total of
seven suits, involving Direct Selling Entities has been filed before the court. In all the
seven suits, the Plaintiffs prayed for an interim injunction restraining the e-commerce
platforms and the sellers on their platforms from selling their products, without their
consent. Overlapping issues have arisen and hence all the suits were heard together on
the question of interim relief to be granted. The same have been filed by three Plaintiffs
viz., M/s Amway India Enterprises Pvt. Ltd., M/s Modicare Ltd. and M/s Oriflame
India Pvt. Ltd. (“Plaintiff”)against various entities who are either running e-commerce
platforms or are sellers on the said platforms- 1MG Technologies Pvt. Ltd., Ghantakarn
International, Adinath Enterprises, Beant Healthcare, Beant Buildwell (P.) Ltd., Vivid
Solutions, Ravinder & Co., Raman Enterprises, Xecute India, Aarjav International ,
Jasper Infotech Pvt. Ltd., Pioneering Products , Black Olive Enterprises, Cloudtail
India Pvt. Ltd., Amazon Seller Services Pvt. Ltd., Flipkart Internet Pvt. Ltd., Sehgal
International, Apex Beauty Store, Bright Lifecare Pvt. Ltd., Kashvi Enterprises, Laxmi
Enterprises, Modicare DP Store, Dinender Jain, Cloudtail India Pvt. Ltd., Vardhman
Training Company, Kusum Enterprises, Wholesale Hub (“E-Commerce Platforms”).

The concept of ‘direct selling’ is used by the plaintiff in order to sell their products.
Under the concept of direct selling, plaintiff’s products are sold through direct sellers
under a Direct Sellers Contract. The said direct sellers undertake to market, distribute
and sell plaintiff’s products and provide services appurtenant thereto, directly to
consumers. Plaintiff relies on the Direct Selling Guidelines issued by the Government
of India titled dated 26th October, 2016. Thus, according to plaintiff, any sale of its
products except in compliance with the Guidelines would be contrary to law. So, the
issue at hand is that various e-commerce platforms, who have been arrayed as parties
in the present suit, are enabling sale of Amway branded products through their
platforms, without their consent. So, the sale of the plaintiff’s products without its
consent is in violation of the direct selling guidelines. Since there was no effective
redressal of its dispute’s plaintiff has filed the present suits.

FACTS

The Plaintiffs are a form of business/trade viz., Direct Selling Businesses who sell their
product through a concept of ‘direct selling’ in which its products are sold through
direct sellers who sell, provide services directly to the consumers. These direct sellers
are bound by a ‘code of ethics’ which governs their conduct. They bear a unique code
on the upper cap of the products, as also on the internal seals and some of the products
are sold without these codes. Various e-commerce platforms, who have been arrayed
as parties in the present suit, are enabling sale of plaintiff’s branded products through
their platforms, without their consent. The trademark & tradename ‘AMWAY’ was
being used on e-commerce websites without plaintiff’s consent. Similar is the case with
other two plaintiff’s as well. That sale of plaintiff’s branded products on e-commerce
websites are in violation of the direct selling guidelines, 2016. The sale of the plaintiff’s
products in such a manner causes confusion in the mind of its consumers. The Plaintiff
called upon all the e-commerce websites to remove any reference to their name on their
websites including advertising their products and cease and desist from displaying any
of their products on the said portals.

In response to the cease and desist notices, the e-commerce entities refused to comply
with the requisitions of plaintiff. FSSAI, on 9th April, 2018, issued a letter to all major
e-commerce entities operating in India asking them to stop sale of direct selling
products, without consent of the Direct Selling Entities and in contravention of the
Guidelines. The said letter was neither challenged nor complied with. Since there was
no effective redressal of its dispute’s plaintiffs have filed the present suits. Thus, and
injunction is sought restraining the defendants from offering for sale or selling,
advertising or displaying any of the plaintiff’s products or the products bearing the
mark/name.

CONTENTIONS OF THE PARTIES

On behalf of the Plaintiffs, it has been argued that the main plank of the Plaintiffs
business is the Direct Selling Guidelines issued by ministry of consumer affairs which
regulates the direct selling entities. The Direct Selling Guidelines have the force of law,
as they have been introduced in exercise of executive powers under Articles 73 and 77
of the Constitution of India. The Guidelines having been in operation since 2016 and
having not been challenged, at the prima facie stage, the same ought to be treated as
being valid and legal.

On behalf of the defendants, it is argued that the Direct Selling Guidelines are not law
and hence they are not binding on Amazon. These are mere administrative instructions
issued by the Government and do not create any rights beyond what is provided in the
statute. The Plaintiffs cannot trace their right to sue under the Direct Selling Guidelines.
Such administrative instructions cannot confer substantive rights on any party. It would
require amendment in the laws. Since there is no contractual relationship between the
Defendants and the Plaintiffs and they being third parties, it cannot be argued that the
Defendants are bound by the Guidelines. The defendants relied on the following
judgements: -

1. G.J. Fernandez v. Stare of Mysore, AIR 1967 SC 1753,

2. Syndicate Bank v. Ramachandran Pillai & Ors. (2011) 15 SCC 398
On behalf of the plaintiffs, it is argued that full control of the website is with the
defendants. FSSAI regulates sale of food and food supplements and is the governmental
authority relevant to the products in issue. Site fulfilment centres are being run by
defendants. The so-called third parties are affiliates and are defined as Service Provider
Network on defendant’s website. The platforms are not intermediaries and hence not
entitled to the safe harbour under Section 79 of Information Technology Act.

On behalf of the defendants, it is argued that the defendants are merely an intermediary
under sec 79 of the IT acts and the intermediary guidelines. Thus, entitled to protection
of ‘safe harbour’ under the IT act. The Defendants, further, do not alter or modify the
information provided by sellers. So, the Direct selling guidelines do not apply to them.

On behalf of plaintiffs, it is argued that the e-commerce platforms provided for a

complete change in the refund, return, guarantee and warranty policy of the Plaintiffs
products, clearly results in impairment of the products themselves, as the customers
trust in the product is completely eroded. The sales of these products on e-commerce
platforms thus results in tortious inducement of breach of contract, which the Plaintiffs
have with their distributors. the sales on e-commerce portals are concluded with little
information on the real sellers, which make it difficult for consumers to identify them
in case of grievances, leaving the reputational damage of plaintiffs brand.

On behalf of the defendants, it is argued that the condition in the Direct Selling
Guidelines which prohibits sale on e-commerce platforms is violative of Section 30 of
the Trademark Act. Plaintiffs products are available on e-commerce platforms
internationally. The Direct Selling Guidelines are meant to regulate the Plaintiff and its
business model cannot be used to prohibit legitimate businesses being conducted by the
Defendants.

On behalf of the plaintiffs, it is argued that the e-commerce platforms, in several entries
of the Plaintiffs‟ products, the MRP of the product is incorrectly shown as being higher
than what is mentioned on the product, and discounts are being claimed to be given in
a completely misleading and unlawful manner.

On behalf of the defendants, it is argued that the plaintiff’s products are sold on B2B &
B2C basis. the plaintiffs cannot have a grievance as to the MRP of the product as the
as the agreement with the ABO itself permits the ABO to sell at a price lower than the
MRP. Plaintiff’s agreement also provides that the title in the goods passes to the direct
seller and thus, the Plaintiffs cannot exercise control on the same.

OBSERVATIONS OF THE COURT

The Court studied the policies and the functioning of the Plaintiffs’ and Defendants’
in-depth before analysing the Local Commissioner’s report. Based on its analysis, the
Court concluded that there existed large scale tampering of goods, and held the
Defendant e-commerce platforms to be involved in the same.

With respect to the policies of the e-commerce platforms, the Court observed that such
platforms could not sell a product for which the seller was not authorized. Moreover,
the Court observed that the Plaintiffs’ products had a different return policy from the
actual one and the customer reviews for the same were very poor, indicating a loss to
the reputation and goodwill of the various Plaintiffs.

The Court also noted that the Plaintiffs’ marks were completely diluted as there was no
way to confirm the genuineness of any goods, as the seller details were absent. In view
of all these points, the Court concluded that the Plaintiffs had a legitimate grievance
against the Defendants.

With regard to infringement, the Court mentioned that the e-commerce platforms could
not use the Plaintiffs’ marks for advertising, promotion or sale offers wherein the
products were not genuine and such use would result in taking unfair advantage of the
Plaintiffs’ marks.

Accordingly, the Court stated that the Defendants were liable for infringement of the
Plaintiff’s marks. The Court noted in respect of intermediary liability, that the e-
commerce platforms to be considered intermediaries would have to fulfil due diligence
requirements and comply with their own policies. However, the Court observed that the
Defendants had turned a blind eye to the Plaintiff’s intimation of its own policies and
continued displaying the Plaintiffs’ marks and allowing the sale of goods under such
marks.

The Court additionally held the Defendant e-commerce platforms liable for inducing
breach of contract and further interfering with contractual relationships of the Plaintiffs
and their distributors. Therefore, the Court passed an interim injunction in favour of the
Plaintiffs restraining the Defendants from advertising, displaying, offering for sale the
Plaintiffs’ products.