[This post is authored by Khushi Jain and Vishno Sudheendra. Khushi is a third-year B.A., LL.B (Hons) student at the National Law University Delhi with a keen interest in the intersection of law and policy. Vishno is a third-year B.A., LL.B (Hons) student at the National Law School of India University, Bangalore with a keen interest in various aspects of IPR and technology law.]
In Part I, we examined the Delhi HC’s method of imposing liability on Amazon Technologies, Inc. (D1) and denial of safe harbor protection in the case of Lifestyle Equities CV & Anr. v. Amazon Technologies, Inc. & Ors. If the denial of safe harbor protection raises concerns, the Court’s approach to corporate veil piercing and damages adds another layer of complexity. Did the Delhi High Court blur the lines between distinct legal entities? Is e-infringement merely an academic distinction? And do the damages awarded truly reflect compensatory principles, or are they more akin to notional damages? Part II unpacks these critical issues.
Corporate Veil Piercing?
The Court appears to have overlooked the distinct legal personalities of D1, Cloudtail India Private Limited (D2), and Amazon Seller Service Private Limited (D3). By merely referencing “control” and “interconnection,” it has effectively engaged in corporate veil piercing without conducting a substantive analysis of control. Our critique is not of the Court’s decision to examine control but rather its lack of case law analysis and reasoning in doing so.
It has been noted that “to justify piercing the corporate veil, there must be both- control of the company by the wrongdoer and an impropriety”, a principle from a UK judgment Ben Hashem v. Ali Shayif (2009) (paywalled) which has been cited numerous times by the Supreme Court and numerous High Courts of India (here and here). Further, mere ownership and control is not a sufficient ground to pierce the corporate veil, it should be shown that control and impropriety by the defendant resulted in deprivation of legal rights, as noted by the Supreme Court in Balwant Rai Saluja v. Air India Ltd (2014).
In the given case, the e-commerce platform, Amazon (D3), as an intermediary cannot automatically be said to have met the standards of impropriety and wrongdoing to pierce its corporate veil and make it liable for the infringing actions of the retailer. The Court’s conclusion that the three operate as a cohesive commercial entity because Amazon Tech. (D1) retains control over them lacks justification as it fails to engage in a substantive analysis of ‘control’ and relevant case laws. Even if one were to assume D2 and D3 as wholly owned subsidiaries of Amazon Tech. (D1), then too do the distinct legal personalities of holding and subsidiary companies subsist as per Vodafone International Holdings BV v. C Union of India (2012). Therefore, the Court’s approach amounts to an unsubstantiated piercing of the corporate veil while not taking into account relevant principles and case laws.
Why Does it Matter?
Intermediary liability protection against actions of third parties is essential to maintain a balance between regulation, freedom of speech and expression and free trade. Social media intermediaries are directly connected to the aspect of freedom of speech and expression, whose over-regulation can stifle the same. Furthermore, intermediaries have little incentive to continue hosting content which would risk their liability (Vasudev Devadasan). Similarly, over-regulation of e-commerce intermediaries and conveniently negating their safe harbor protection leads to the stifling of online trade and commerce in this vastly digital world. While actions against infringement of copyright or trademark are welcome, the same should not be “at the cost of choking a free market or the rights of small businessmen and entrepreneurs to carry on with their business” (Vasundhara Majithia). Therefore, the ramifications of negating safe harbor protection without sufficient analysis and reasoning, apart from having a chilling effect, could also set a precedent for ignoring this important protection which is required to encourage innovation and commerce in addition to upholding principles of free trade.
E-Infringement Merely Academic Distinction?
Existing trademark laws sufficiently address online infringement without needing a new “e-infringement” category. Sections 29 and 30 of the Trademarks Act, 1999 already define infringement and exceptions, covering unauthorized use by any party, which includes online retailers. Liability principles like contributory infringement and secondary liability can be applied to e-commerce platforms without creating a new legal category. Intermediary liability is already addressed under Section 79 of the IT Act, 2000. Traditional trademark enforcement has always dealt with multi-party involvement, and the presence of digital intermediaries does not change fundamental liability principles. Thus, creating a new category of “e-infringement” is merely academic and might lead to legal complexities.
Notional Damages Couched as Compensatory?
The Court has awarded an astounding ₹336 crores as compensatory damages. In its analysis of case law, the Court repeatedly cited Strix (Paras 93, 95, 96). However, as Prahrash points out, Strix primarily dealt with notional damages, as it involved cases where neither party provided concrete evidence of financial loss (Para 74, Strix).
In the present case, while the Court distinguished Strix by citing the availability of ‘financial data’ to assess economic harm (Para 95), it actually did not have direct evidence of actual harm suffered by the Plaintiffs. In fact, the Court appears to contradict itself by acknowledging that the harm suffered by the Plaintiffs is “immeasurable” (Para 110).
Further, the financial data relied upon (from the Plaintiffs’ Trademark Licensing Agreements with other brands) was not directly linked to the Defendant’s infringing activities. Instead, the Court used business plan projections and royalty estimates to calculate lost sales and royalties, rather than relying on actual lost sales which would have been direct evidence but the same was not available.
Thus, the use of business plan projections and royalty estimates, rather than actual proven lost sales, aligns more with the concept of notional damages rather than purely compensatory ones. This approach by the Court runs contrary to its observation on the distinction between compensatory and notional damages –
“Notional damages are awarded where infringement is proven but direct evidence of financial loss is unavailable. Compensatory damages are intended to restore the plaintiff to the position it would have been in but for the infringement” (Para 88)
Conclusion
The DHC’s verdict raises serious concerns regarding the limits of intermediary liability, the scope of safe harbor protection, and corporate veil piercing. While Amazon’s liability as a brand owner (D1) is justified, the Court’s reasoning in attributing liability on D1 by negating safe harbor protection is concerning. It conflates entities without a thorough veil-piercing analysis and potentially sets a dangerous precedent for future cases. Additionally, the concept of ‘e-infringement’ seems an academic distinction, and the damages awarded blur the line between compensatory and notional damages. Thus, this decision, if not critically examined, may have adverse consequences on the functioning of e-commerce intermediaries.
We thank Praharsh Gour and Swaraj Barooah for their valuable input.