It is beyond question that the COVID-19 pandemic has paved the
way for rapid digital adoption across the globe. The closure of
physical retail stores and a growing inclination of consumers to
avoid brick-and-mortar stores fuelled an exponential growth in
e-commerce business – consumers are now more open to the idea
of making purchases from the comfort of their home. In Malaysia,
Shopee and Lazada are among the e-commerce platforms often used by
consumers.
An upward trend in the sale of counterfeit products is, however,
concomitant with the escalating growth of e-commerce. As original
products listed on an online marketplace are accessible by
virtually anyone, these products are more susceptible to being
replicated without authorisation at a significantly lower price
point.
The sale of counterfeit products on online marketplaces undeniably
infringe intellectual property rights. Although the main role of
e-commerce platforms, such as Shopee and Lazada, is to act as an
intermediary between online retailers and consumers, one of the
questions that arises is whether the operators of these platforms
can be held accountable for counterfeit products sold by
third-party sellers on their platforms?
The High Court's decision on 23 January 2021
in A & M Beauty Wellness Sdn Bhd v Shopee
Mobile Malaysia Sdn Bhd (KLHC Suit No.
WA-22IP-67-10/2019) ("A & M v
Shopee") considers the extent of liability
potentially faced by online marketplaces. In this case, the Court
refused to grant an interim injunction against Shopee to, amongst
others, stop and/or prevent its third-party sellers from selling
products bearing the Plaintiff's purported trademark.
Brief Facts
In A & M v Shopee, the
Plaintiff, a beauty and cosmetics company incorporated in Malaysia,
claimed to be the proprietor of a trademark registered as "AM
PROFESSIONAL SKIN CARE" ("the AM
trademark"). The Plaintiff had developed an
exclusive business plan that requires members of the public to pay
a subscription and/or membership fee in order to share in the
profit and benefits from the sale of the Plaintiff's products.
Exclusivity of the Plaintiff's business plan means that the
Plaintiff's products are not intended to be sold on an open
market platform, but are instead sold together with the
Plaintiff's membership plan.
Shopee Mobile Malaysia Sdn Bhd
("Shopee"), on the other hand,
is widely known for its e-commerce platform on which third-party
sellers post their product listings for sale online. The dispute
arose when the Plaintiff became aware that there were products
being sold on Shopee's website which were similar to the
Plaintiff's "AM PROFESSIONAL SKIN CARE" products and
bearing the AM trademark. The Plaintiff contended that these
products on Shopee's website were listed for sale without
authorisation from the Plaintiff which ultimately owns the
exclusive marketing rights.
The Plaintiff sought an interim injunction from the Court against
Shopee to, amongst others, prevent the sale of products similar to
the Plaintiff's products bearing the AM trademark on
Shopee's online website. The Plaintiff also sought injunctive
relief for Shopee to remove all sale listings of those products
from its website.
Findings of the High Court
In considering the Plaintiff's application, the High Court
applied well-settled legal principles in respect of interim
injunction applications, which are as follows: (i) whether there
are bona fide serious issues to be tried; (ii)
whether the balance of justice and convenience lies in favour of
granting an injunction; (iii) whether damages are an adequate final
remedy for the Plaintiff; (iv) whether the Plaintiff has given a
meaningful undertaking as to damages; and (v) whether the status
quo should be maintained.
Whether there are bona
fide serious issues to be tried
It was alleged by the Plaintiff that the sale of counterfeit
products on Shopee's website is illegal and not in compliance
with Regulation 18A of the Control of Drugs and Cosmetics
Regulations 1994, on the basis that there was a purported
scratching off of barcodes and an absence of original packaging on
those products. However, the High Court dismissed the
Plaintiff's allegations on grounds that they were
unsubstantiated by evidence and fact.
The High Court also considered the Plaintiff's actions in
attempting to remove the purportedly offending listings from
Shopee's website. It was found that the Plaintiff did not
sufficiently comply with the complaints procedure detailed in
Shopee's terms and conditions. Taking into account the overall
circumstances, the High Court opined that the Plaintiff can only
seek injunctive relief for the removal of such listings if Shopee
refuses to comply after the Plaintiff has availed itself of the
remedy in the complaints procedure.
Pertinently, the High Court was of the view that the
Plaintiff's application for an injunction to restrain
third-party sellers from selling products bearing the AM trademark
"undermines the operation of e-commerce
platforms". The Court went on to consider the
nature of business carried out by Shopee, that it is the operator
of an online marketplace which facilitates the process of buying
and selling between two parties (namely, the buyer and the seller).
As such, it may well be the case that a particular third-party
seller could be injuncted from listing a certain product for sale
online. The High Court however took the position that
Shopee—the operator of an e-commerce platform—should
not be held liable if counterfeit products are sold by a
third-party seller on its website.
From a practical perspective, the High Court took cognisance of
the fact that Shopee does not have the technical capability or
resources to pre-screen every listing before it is published by
online users, or perform an "autoblock" function in
respect of the Plaintiff's products on Shopee's website. In
other words, it is "impossible for [Shopee]
to comply with an order which requires it to prevent
a listing from being published before it is
uploaded".
Crucially, the High Court held that the Plaintiff did not have
the locus standi to initiate and maintain an
action for trademark infringement. The Plaintiff was not the
registered proprietor of the AM trademark – a letter of
assignment purportedly assigning all intellectual property rights,
title and interest to the Plaintiff does not entitle the Plaintiff
to sue for infringement.
It was also argued by the Plaintiff that Shopee is prevented from
allowing its users to sell the Plaintiff's products at a lower
price. However, the High Court rejected this argument as being
misconceived in that such a restriction may contravene Section 4 of
the Competition Act 2010. The Court was of the view that even if an
action is brought, the correct party to be sued would be the
third-party seller and not Shopee, as the latter has no knowledge
of the arrangement between the Plaintiff and third-party sellers,
and is not privy to any contract between them.
In light of the above, the High Court decided that there are no
serious questions to be tried in respect of the Plaintiff's
claim.
Whether the balance of convenience lies in favour of granting
an injunction
The High Court held that the balance of convenience lies in favour
of Shopee.
The Court was of the opinion that the reliefs sought by the
Plaintiff are not capable of being carried out. For instance, it
was "impossible" for Shopee to stop and/or
prevent and/or disallow users on Shopee's online platform from
continuing to sell the Plaintiff's products or publishing a
post in relation to the Plaintiff's products. Shopee also
satisfied the Court that it is "extremely difficult and
not practical" to manually remove all of the
Plaintiff's products from its platform.
Another important consideration against allowing the reliefs
sought by the Plaintiff is that the interim order sought requires a
complete wipe out of listings similar to the Plaintiff's
products. This would greatly affect the rights of other third-party
sellers who had no connection whatsoever with the Plaintiff's
products.
Whether damages are an adequate final remedy for the
Plaintiff
As the Plaintiff's claim is monetary in nature and
predominantly based on a purported loss of profits, it was held
that damages would be an adequate remedy for the Plaintiff if it is
successful in asserting its claims.
Whether the Plaintiff has given an adequate undertaking as to
damages
The High Court was of the view that the Plaintiff had not produced
any reliable evidence to show that it is of a solid financial
standing to make good its undertaking as to damages.
Whether the status quo should be maintained
Based on the considerations discussed above, the High Court held
that the status quo should be maintained as there is no loss caused
to the Plaintiff that cannot be compensated by damages.
Commentary
The decision in A & M v
Shopee will be welcomed by operators of
e-commerce platforms as it absolves them from liability for the
sale of counterfeit products by third-party sellers on their
platforms. Conversely, the decision will be viewed as a setback by
retailers of authentic products as well as the owners of
intellectual property rights in that it encourages the
proliferation of counterfeit products.
In any event, the decision does not negate the right of
intellectual property owners to assert their legal rights directly
against the sellers of counterfeit products. It is debatable that
holding an operator of an e-commerce platform liable would,
arguably, be akin to holding a landlord responsible for a tenant
who sells counterfeit products in the rented premises.
Lastly, it must be noted that the High Court's decision
relates to an interlocutory application and is not a final
resolution of the dispute between the parties. Hence, the jury is
still out on the issue of liability until the matter proceeds to
trial and the merits of the case are adjudicated upon.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
