Delhi High Court interprets notion of 'carrying on business' in context of online sales

In World Wrestling Entertainment Inc v M/s Reshma Collection (FAO(OS) 506/2013 and CM Nos 17627/2013, 18606/2013), the Division Bench of the Delhi High Court has examined the scope of the expression “carries on business” under Section 134(2) of the Trademarks Act 1999 and Section 62(2) of the Copyright Act 1957 in the context of e-commerce activities.

The Code of Civil Procedure provides that a plaintiff may initiate an action either at the place where the defendant resides or carries on business, or where the cause of action or a part thereof arises (eg, the place where the infringing goods are sold). Section 134 of the Trademarks Act and Section 62 of the Copyrights Act offer an additional option to registered trademark proprietors and copyright owners, respectively, who can initiate an action at the place where the rights owner “actually or voluntarily resides”, “personally works for gain” or “carries on business”, even if the defendant does not reside at that place and the infringing goods are not sold there.

The above decision examines the scope of the expression “carries on business” in the context of business conducted over the Internet through a website, and where the plaintiff (ie, the owner of the rights) may be construed to be carrying on business for the purposes of jurisdiction.

The original plaintiff and appellant in this decision, World Wrestling Entertainment Inc (WWE), filed a suit for trademark and copyright infringement before the Delhi High Court. The defendant, located in Mumbai, was engaged in the sale of apparel bearing the marks, logos and characters of WWE. Jurisdiction was claimed on the basis that WWE’s goods are sold to consumers in Delhi through its website, which can be accessed and operated from all over the country, including from Delhi.

The single judge of the Delhi High Court returned the plaint on the ground that the court did not have jurisdiction under Section 134(2) of the Trademarks Act and Section 62(2) of the Copyright Act, since WWE did not reside, or personally work for gain, in Delhi; nor did WWE “carry on business” in Delhi. The decision of the single judge was based on the interpretation of the expression “carrying on business” in the decision of the Supreme Court in Dhodha House (2006(9) SCC 41) and on the application of the principles laid down in Bhagwan Goverdhandas Kedhia (AIR 1966 SC 543), which considered the issue of jurisdiction in the context of contracts concluded over telegraph and telephone.

The Division Bench of the Delhi High Court, setting aside the decision of the single judge, held that WWE “carries on business” in Delhi because contracts between WWE and its customers in Delhi are concluded in Delhi, as the “essential part” of WWE’s business with respect to its customers in Delhi is performed in Delhi.

This conclusion is based on the following reasoning:

• The decision in Dodha House states that, for an activity to constitute “carrying on business” (for the purposes of Section 134(2) of the Trademarks Act and Section 62(2) of the Copyright Act) at a particular place, the essential part of that activity must take place there. The question, therefore, was whether a transaction by WWE with its customers in Delhi over the Internet could be construed as “carrying on the essential part of the business” in Delhi.
• Under Bhagwan Goverdhandas Kedhia, the general rule is that a contract is complete when the offeror receives intimation that the offeree has accepted the offer. The court at the place where acceptance is received thus has jurisdiction. This rule is applicable where the communication of the acceptance is instantaneous (where the parties are in the presence of each other or where they are communicating over the phone) and not through the means of an external agency. However, in cases involving contracts negotiated by postal communications or telegrams (ie, involving communication of acceptance through an external agency), the contract is concluded once the acceptance has been put into action by the offeree. In such cases, the court at the place where the acceptance has been put into action has jurisdiction.
• Applying these rules to the context of online transactions, the court held that an advertisement on WWE’s website (which is accessible in Delhi) is an invitation to offer; if accepted by a consumer in Delhi, the invitation becomes an offer made by that customer to purchase the goods; and when payment is transmitted from Delhi, the acceptance of the offer is instantaneous. Therefore, the contract is concluded in Delhi. This is coupled with the fact that the products are then delivered to the customer in Delhi. Consequently, the essential part of WWE’s business with regard to Delhi customers is carried on in Delhi and WWE could be said to “carry on business” in Delhi.

The Delhi High Court then recognised that, due to advancements in technology and the rapid growth of new models of conducting business over the Internet, entities may have a virtual presence in places that are distinct from the place where they are physically located. According to the court, “the availability of transactions through a website at a particular place is virtually the same thing as a seller having shops in that place in the physical world”. Therefore, the court held that the plaint could not be returned on the ground of inherent lack of jurisdiction under the provisions of the Code of Civil Procedure.

This is a significant development for India, where, more often than not, the choice of forum/court in an action for trademark and copyright infringement is of crucial importance for strategic reasons.

Mustafa Safiyuddin and Nishad Nadkarni, Legasis Partners, Mumbai