INTRODUCTION
Resale means legitimate selling of goods which have already been sold to another. Resale websites are the platform that buys a product marks the price and sells it for profit. Resale business involves the selling and purchasing of goods between the merchant and buyer. There has been a growth in Resale business because of the increasing demand for products. In a resale business there is no barrier, as the person reselling the product doesn’t have to necessarily manufacture or create his/her own products. Some of the resale websites are StockX, Bob’s watches, the Luxury closet, the Outnet, Quickr, OLX, Cashify, and many more.
ADVANTAGES OF RESALE BUSINESS
It increases brand awareness with the help of a large network of resellers. It is the popularity of the brand that makes the sale.
It efficiently increases customer base and expands potential growth.
It expands business to new territories, nationally, internationally without expense.
DISADVANTAGES OF RESALE BUSINESS
There is no control on the quality and availability of products. Sometimes the same kind of products is found at different stores.
There is also no control on the brand and price of the product. Same products are found at different prices at different stores.
IS RESALE WEBSITES LEGAL?
It is not illegal to resell a product. It is allowed to resell products purchased from store. There is a totally different community managing these organizations. There is a market for everything but we do have strict policies on reselling products. We can’t resell some specific merchandise like Nike, Disney, etc. Generally, Restrictions come from the platform themselves and not from the manufacturer of the company.
LEGALITIES AROUND RESALE WEBSITES
Every platform has its own criteria and legal requirements to meet. Some brands have certain restrictions and strict resell policy which in some cases requires authorized reseller. As e-commerce grows, more and more rules and regulations are being brought in for resale websites so it is important not to get caught out over something simple. Every platform has Terms and Conditions agreement which is a legally binding agreement that allows protecting business and limits the liability. A Terms and Conditions agreement is basically organized to cover several important sections or clauses, depending on the nature of the business. In general, a good Terms and Conditions for a resale website should contain the following clauses:
1. Limitations of Liability: This provision lets the customers know that the business will not be held responsible in case of any liability issues. These may be related to personal injury, death, fraudulent misrepresentation, defective items or other product, service or delivery problems, etc. It also set out the entire financial liability of the each party including any liability for the acts or omissions of its employees, agents and subcontractors to the other party in respect of –
- any breach of the Conditions
- Any representation, statement or tortuous act or omission including negligence arising under or in connection with the appointment.
2. Intellectual Property and Trademark Protection: To protect unique items, products, designs or any other proprietary rights, there is a written clause which is to establish Intellectual Property Rights. It declares what falls under intellectual property, rules for using those items or information, and what happens in violation of intellectual property rights. In this clause, the reseller agrees that it will not sell, license, lease, rent, loan, lend, transmit, network, or otherwise distribute or transfer the Products in any manner to third parties except as is expressly permitted otherwise in the Conditions. This clause is created to protect proprietary products and information, website content, product descriptions, sales emails, coupon codes, and other things unique to business.
3. Pricing and Payment terms including shipping, delivery, returns, exchanges and cancellations: This clause explains the price of the products listed on the site and related details. Product prices are almost always subject to change, and all the rights to make these changes are mentioned in this clause. There is also a requirement of other details such as customer transactions, shipping, returns, refunds and discounts, etc which are also addressed in this clause to give the legal rights to manage these matters.
4. Warranty: This clause is concerned with the kind and quality of the products that are tendered by the reseller. Some important points like the right to sell the product, description and quality of products, defect in product within certain days after the delivery of the product, etc. are mentioned in this clause. The warranties of Merchantability and Non–Infringement of Proprietary rights are also expressly mentioned in this clause.
5. Dispute Resolution: This clause is very important for resale websites because it defines the procedures that will be followed in the event of a dispute. The Dispute Resolution clause offers a good guide for establishing a Governing Law clause. This clause typically establishes the jurisdiction where any disputes will be arbitrated if it comes to that, and the governing law that will apply. Different countries have different laws which could impact the outcome of any dispute. If a dispute arises Reseller undertakes that, before taking any other steps whatsoever, it shall, at its own cost and expense, identify and notify any applicable mandatory rules or matters reserved to courts. In addition to this, it also mentions that you must make your claims within a timeframe of one year. Finally, it gives some information on how the dispute will be handled if it’s not resolved within a reasonable time.
6. Sales Tax: Every state and country has different expectations and standards when it comes to taxes. This clause deals with tax issues. which helps in understanding specific circumstances that may affect the products or business and gives insights on how to charge tax for a business’s location. It also helps in getting necessities like a tax ID number, and helps in knowing the qualification for sales tax exemption and resale certificates. But messing up on sales tax can involve penalties and interest can be inflicted.
7. License and Permit: It is very important to have the license to sell the product. This clause grants a non-transferable, non-exclusive right to use, sub-license, market and support the Products including the Intellectual Property Rights therein to the extent necessary for the reseller to perform its obligations under the Conditions.
While determining the concept of Doctrine of first sale, the Delhi High Court in the case of Patanjali Ayurved Ltd. vs. Masala King Exports Trading Pvt. Ltd. & Others held that the doctrine of first sale which cuts off trade mark owner’s rights after its products are first sold would be limited to selling the branded item in the same condition when it was first sold.
The plaintiff, Patanjali Ayurved Limited, a leading manufacturer and marketer of herbal, nature-based products and medicines under the trademark “PATANJALI” submitted that its products were available globally through its authorized distribution channels. It was also brought to notice of the Court that, since 2006 it had set up an extensive warehouse and distribution network comprising of over 47,000 retail counters, 3500 distributors in 18 states. It came to Plaintiff’s knowledge that the Defendants Masala King Exports Trading Pvt. Ltd, had been procuring its goods which were meant exclusively for sale in the domestic market and were illegally exporting them without any authority, which was resultantly also infringing the exclusive right to use the registered trade mark of the Plaintiff. It had also filed complaints to Commissioner of customs about the illegal export but the Customs authorities stated that the Intellectual Property Rules did not apply to exports and thus no action was taken on the complaint.
Therefore on the question of first sale doctrine, the Delhi High Court in Patanjali Ayurved Limited vs. Masala King Exports Trading Pvt. Ltd. & Others, held that in case the Defendants were permitted to alter the product in question, in the manner which was alleged to have been done, it would attract the provisions of Section 30(4) of the Trade Mark Act 1999. The doctrine of first sale which cuts off trade mark owner’s rights after its products were first sold would be limited to selling the branded item in the same condition when it was first sold. The acts complained of, like affixing stickers and altering the entire list of ingredients/nutritional facts amounts to “materially” changing the product made by the trademark owner. This would certainly put the image of the Plaintiff in peril and thus would contravene Section 30 (4) of the Trade Mark Act, 1999.
Thus the Court recorded that the Plaintiff made a strong prima facie case for grant of ex-parte ad-interim injunction against the Defendants. Balance of convenience was in favour of the Plaintiff and irreparable harm would be caused if the Defendants were not restrained from continuing the illegal export of the Plaintiff’s product in the international market. It was also made clear that the Defendants may continue to sell Plaintiff’s product in the domestic market.
Thereafter another issue was raised with regards to selling products of Direct Selling Entities. Direct Selling is a distribution method that relies on independent salespeople who sell products and services directly to consumers outside of a traditional retail setting. In traditional retail setting, a manufacturer or wholesaler sells products to a physical store or e-commerce company who then resell the product to the final customer whereas in direct sales, representatives do not sell from a physical store, although many may have websites from which they sell their products and provide services directly to consumers. The Direct Selling Guidelines, 2016 issued by the Government of India safeguards the interest of Direct Sellers.
The Delhi High Court on 8th July, 2019 in Amazon Seller Services Pvt. Ltd. vs. Amway India Enterprises Pvt. Ltd issued an interim injunction in favor of the direct selling companies Amway, Modicare and Oriflame. It restrained multiple e-commerce platforms including Amazon, Flipkart and Healthkart from selling, offering to sell, advertising or displaying products of the Direct Selling companies on their respective platforms. In this case, the Plaintiff, Amway India Enterprises, one of the world’s largest direct selling companies had filed the suit seeking perpetual and mandatory injunction restraining the Defendants, Amazon Seller Services Pvt. Ltd. and others from committing tortuous and illegal acts and indulging in unfair competition as also damages. Amway Enterprises Ltd. was engaged in the business of manufacturing, marketing and selling skin care, health care, nutrition and supplements and other related products. It sells all its products through a system of Direct Selling. It relies on the Direct Selling Guidelines issued by the Government of India titled – Direct Selling Guidelines, 2016, Clause 7(6) of which states that “the e-commerce platforms should obtain prior consent from these direct selling entities before making their products available for purchase on their websites”.
It came to the notice of Plaintiff that various e-commerce platforms have been selling Amway branded products on their platforms without Amway’s consent and thus according to Amway, it was in violation of the Guidelines. It also claimed that the sale of Amway branded products on the e-commerce websites without its consent is also violating Amway’s Intellectual Property rights and is interfering with Amway’s Direct Selling Agreement with its distributor. The
Defendant in response refused to comply with the requisitions of Amway. However the Delhi High Court ruled in favor of the Direct Selling Companies and allowed the temporary injunction against the e-commerce websites and ordered the e-commerce platforms to withdraw such products except those whose seller or merchants has received consent letters from their manufacturers authorizing online sales.
However, The Delhi High Court judgment clarifies that neither ecommerce platforms nor sellers can sell the products without the consent. Also the court’s interim ruling should warn all marketplace providers to sit up and take notice. These businesses would be best advised to re-evaluate the extent of ancillary support services that they provide to merchants. Any illicit activities may weaken the overarching intermediary status sought to be enjoyed by e-commerce platforms.
CONCLUSION
To wrap up, it is concluded that, however, there are certain safeguards that need to be followed so as to ensure that existing businesses and trades are not adversely impacted by the growth of e-commerce and resale websites without requisite checks in place. The above mentioned cases highlight the conflict that can arise between one such existing forms of business/trade i.e. Direct Selling Businesses and resell business or e-commerce platforms. The legal complexities in this conflict involve Constitutional issues, intellectual property rights, information technology laws, consumer protection laws, contractual laws, law of torts, and other applicable guidelines. It should also be noted that the Direct Selling and Reselling business can take multiple forms and it can be conducted in the most efficient manner. It is suggested that greater awareness should be created and certain legal principles should be followed.