By: Kelsey Cloud
Comprising 21.3 percent of total retail sales in the United States, e-commerce, or the buying and selling of products and services over the Internet, signifies a paradigm shift away from traditional brick and mortar stores and toward stores in the digital landscape. By eliminating travel time, reducing cost, and allowing buyers to make purchases at any time of the day, e-commerce enables consumers to make cheap and efficient purchases. However, e-commerce also provides dishonest sellers with a lucrative playing field to sell their counterfeit goods. Every day, approximately $1 billion in counterfeit goods are sold online, and online counterfeit goods make up more than 3 percent of all global trade. By escaping strict authentication regulations, illicit goods such as medications with lethal ingredients threaten public health and safety, as well as infringe the intellectual property rights of legitimate American businesses. To combat counterfeiting, the Shop Safe Act strives to impose necessary incentives to protect consumers from counterfeit products by imposing contributory trademark liability on e-commerce platforms for their third-party sellers’ counterfeit goods. If enacted, the Shop Safe Act would amend the Trademark Act of 1946 to hold these marketplaces liable unless they take certain measures to tackle the gaps in their systems and stop counterfeit sales.
How Counterfeiters Exploit Online Consumers
Historically, many counterfeit products were distributed at flea markets or from trunks of cars, where counterfeiters enticed naive consumers with stands filled with fake Gucci purses and Rolex watches. Now, counterfeit goods can be sold across the globe on websites visited by hundreds of millions of consumers. For counterfeiters, e-commerce has driven down barriers to entry in the retail market, reduced production costs, and provided an air of legitimacy by listing goods on well-known platforms.
Through selling their products on legitimate e-commerce sites, such as Amazon or eBay, counterfeiters move out of underground markets and eradicate consumer red flags such as low quality packaging or suspicious seller locations. Online counterfeiters can easily misrepresent products by uploading photographs of authentic goods while selling counterfeit versions. Reputable platforms such as Amazon are flooded with fake reviews that mislead consumers into thinking the product is trustworthy.
Harm to Consumers, Businesses, and Intellectual Property
The industry sectors most commonly affected by intellectual property theft are manufacturing, software, consumer goods, and biotechnology, including pharmaceuticals. For example, illicit prescription opioid medications, such as Oxycontin, are commonly produced by counterfeiters by diluting an authentic pill with deadly narcotics, such as fentanyl. Counterfeit medications commonly contain carcinogenic and allergenic ingredients, counterfeit lithium-ion batteries pose significant risk of exploding, and counterfeit airbags can cause severe malfunctions such as non-deployment.
Aside from the substantial risks to the health and safety of consumers, counterfeit goods threaten the profits, reputation, and intellectual property rights of legitimate businesses. The sale of counterfeit goods leads to billions per year in lost revenue for U.S. businesses and dislocates hundreds of thousands of legitimate jobs. Not only do trademark owners invest critical resources into maintaining their brands, but their success often hinges on consumers associating their brands with high quality products. Counterfeit products often damage the goodwill associated with the brand and disincentivize business owners from investing resources into developing their brands. By stealing trademarks, trade secrets, and other forms of intellectual property, counterfeiters minimize the need for research and development expenditures and gain an unfair advantage over legitimate businesses.
Policing Counterfeiters: A Game of Whack-a-Mole
Current anti-counterfeiting laws in the United States attach civil and criminal liability to manufacturers and distributors of counterfeit trademarks who use the mark in connection with the sale or distribution of goods or services. However, policing intellectual property theft by counterfeiters has proven to be costly, resource-intensive, and overall ineffective. Billions of mail shipments sent annually make detection and enforcement incredibly difficult, and only a small fraction are actually inspected. Platforms such as Facebook have inbuilt e-commerce functionality that allows sellers to conspicuously message buyers directly and reduce the risk of getting caught. Additionally, foreign sellers of illicit goods are often exposed to relatively low risks of criminal prosecution or civil liability under current law enforcement.
Currently, in order for e-commerce platforms to be held contributorily liable for trademark infringement claims against third-party sellers, the platforms must know or have reason to know of specific instances of infringement and fail to act. For example, in Tiffany v eBay, Tiffany & Co. sued eBay after filing thousands of take-down notices with eBay for counterfeit jewelry products, claiming that eBay had knowledge of sellers infringing Tiffany’s mark yet continued allowing infringing sellers on their website. However, eBay was not liable for contributory infringement because they had only general knowledge of widespread infringement and took immediate action to prevent sales of the infringing products whenever they had specific knowledge of infringement. Since it is difficult to prove specific knowledge of counterfeit sales, brand owners like Tiffany & Co. bear most of the burden of policing the platforms.
The Shop Safe Act Gives E-Commerce Sites an Ultimatum
The Shop Safe Act, introduced in Congress in March 2020, seeks to shift the burden to e-commerce platforms and proposes to establish contributory trademark liability for platforms like eBay unless they demonstrate that they took certain reasonable measures to prevent infringement. The Act outlines a list of 10 requirements that e-commerce platforms must comply with in order to absolve themselves from liability, including vetting sellers to ensure their legitimacy, removing counterfeit listings, and ensuring the platform took reasonable steps to prevent any alleged infringement. The Act creates a safe harbor for platforms that take the 10 reasonable measures and incentivizes the platforms to strengthen their security and enforcement measures against counterfeiters.
For major online retailers such as Amazon, vetting everything posted by third-parties would be extremely time consuming, meticulous, and burdensome. With thousands of new listings added every day, major platforms like eBay argue that it is nearly impossible to catch every counterfeit product, no matter how hard they play whack-a-mole. However, these multi-billion dollar corporations have a responsibility to ensure the safety and reliability of products sold on their platforms to millions of consumers every day. There must be accountability for harmful counterfeit goods that put consumers’ health and safety at risk, and that accountability should not exclusively fall onto the third-parties selling counterfeit goods. Moreover, the Act only requires e-commerce platforms to take certain reasonable measures, understanding that the game of whack-a-mole is nearly impossible to win.
The Shop Safe Act would not only provide protection for consumers against harm to their health and safety, but would protect the profits and intellectual property rights of legitimate American businesses who have devoted countless hours and money into developing their products. Counterfeiting erodes the competitiveness of U.S. businesses, impacts innovation, and disincentivizes businesses from developing intellectual property fundamental to the success of our marketplace. In order to better protect the health of consumers and intellectual property of businesses in the global online marketplace, e-commerce platforms must bear more responsibility for policing counterfeit goods on their websites.