By: Jacob Plovanic
Counterfeits, knockoffs, and plagiarism have long plagued Amazon’s Marketplace, the e-commerce giant’s online storefront. In the 20 years that the company has allowed third-party sellers to retail to Amazon customers alongside its own products, third-party sales have ballooned to $160 billion, accounting for 58% of all Marketplace sales in 2018, making the site a focal point for intellectual property piracy of all stripes – copyright, trademark, and patent.
Thus far, Amazon has avoided legal liability for the illicit conduct of some of its merchants, by relying on safe harbors in the copyright statute and jurisprudence that requires a party like Amazon to know about infringement before being obligated to take action to stop it. Early this year, however, Amazon admitted to its shareholders that the unsettled legal landscape regarding unlawful third-party sales activity online could make Amazon liable in the future as a contributor to IP theft and infringement. In an attempt to combat counterfeiting, Amazon unveiled Project Zero, an initiative to give trademark owners more power and more tools to remove counterfeit products from the Marketplace. At the same time, and much more quietly, Amazon has started piloting a new program designed to rein in patent infringers.
Out of the Courtroom, Into the Market
The program, called the Utility Patent Neutral Evaluation Process (UPNEP), has not yet been widely released. As a non-judicial procedure, the UPNEP has no discovery and is limited in what arguments can be presented. Because of this, it allows patent owners to enforce their rights more quickly and much more cheaply than with a lawsuit in federal court. UPNEP allows a patent owner to challenge potentially infringing sales on the Marketplace with a relatively small $4,000 deposit. The selling party must then either contest the challenge with an equivalent $4,000 deposit or let Amazon remove the challenged items from the Marketplace. If the seller opts to fight, Amazon pairs the parties with a patent attorney acting as a quasi-arbitrator, who also holds the deposited money in escrow. The parties then brief their positions for the attorney, who then determines which side prevails based on whether the patent claim is likely infringed by the seller’s product. The winner receives their $4,000 deposit back; the loser’s money is kept by the evaluating attorney, with any infringing products removed from the Marketplace.
A Tool for Trolls
The low cost of the UPNEP may make it an inviting tool for patent trolls and other non-practicing entities. Small-time sellers with products on the Marketplace may not be able to afford the matching deposit to fight a spurious claim of infringement, but risk being delisted if they do nothing. Moreover, the evaluation does not address the validity of the asserted patent, so a challenged party cannot defend against a bad patent by demonstrating its invalidity. They are thus burdened with the cost of taking the matter to court or the USPTO for adjudication, which will certainly exceed the time limits imposed by the UPNEP and likely result in a delisting and loss of sales.
Because the abuse of a system like UPNEP turns on the legal question of patent validity, Amazon can only hope to police abuse of that system by making, at some level, legal evaluations of the claims at issue, a role that ought to be in the hands of the USPTO or the courts. And if Amazon cannot police abuse of UPNEP, then it may become a troll bonanza, with weak, low-quality, and likely invalid patent claims being used to extract licensing fees in return for not sweeping the Marketplace clean.
A Wider Rollout?
It is unclear whether UPNEP will pass muster in Amazon’s pilot review and be rolled out to a wider user base. However, this year’s admission of legal risk to the company and the Project Zero push for tougher controls against trademark infringement seems to make the deployment of UPNEP more likely. The rampant counterfeiting, and the consumer backlash against it, in the Amazon Marketplace makes a broad suite of IP protection tools a solid investment from Amazon’s perspective.