May 08, 2020

Congress Acknowledges Dramatic Shift Toward E-commerce with Bipartisan Bills Aimed at Reducing Counterfeits

8 min

Recognizing the growing problem of counterfeit and unregulated products being sold through online marketplaces and the associated safety concerns, Congress is taking action. Currently, there are three pending bills with the stated goals of protecting consumers and improving transparency: the SHOP SAFE Act of 2020, the SANTA Act, and the INFORM Consumers Act. In this article, we provide a high-level overview of the proliferation of counterfeits on online marketplaces and a summary of the pending bipartisan bills and their stated goals.

In 2019, annual e-commerce sales accounted for more than 10% of total sales in the United States, with U.S. consumers collectively spending more than $600 billion on e-commerce platforms. With the current pandemic and widely publicized decrease in brick-and-mortar retail sales and consumers' concurrent reliance on online purchases, this number will surely increase in 2020.

In combination with the growth of e-commerce over the last several years, there has been an explosion of counterfeit products offered through e-commerce marketplaces. Indeed, third-party sellers have flooded online marketplaces with counterfeit and unregulated products. While rights holders scour online marketplaces and investigate and report counterfeits to the marketplaces, and some marketplaces have stepped up proactive enforcement, the sheer volume of listings and ease with which sellers can enter the e-commerce market mean that counterfeiters have the advantage.

Increasingly, consumers unwittingly purchase these counterfeit and unregulated products, unknowingly subjecting themselves and their loved ones to risk. Counterfeiters are adept at hiding in plain sight, making it very difficult for consumers to distinguish between genuine and fake products. For example, counterfeit sellers use the rights holders' branding and imagery, piggyback on or link to legitimate product listings, use multiple accounts, and set prices the same as or even higher than those of legitimate products. Even when a consumer is cautious and conscientious about the particular third-party seller from which they purchase, they may receive a product from a different seller, because online marketplaces that assist with fulfillment frequently have policies in place that allow for more efficient shipping from the warehouse closest to the consumer. In other words, goods may ship from a seller that is not the one from which a consumer has purchased.

The government has recognized these problems and is working to address them. A little over a year ago, on April 3, 2019, the president issued a memorandum that instructed the Department of Homeland Security (DHS) to work with several other federal agencies to prepare a report on the state of counterfeit and pirated goods trafficking. On January 24, 2020, DHS published the requested report. The report discusses many of the same issues addressed by the three bills presented in this article and cites competition, national security, and public safety as driving forces for a multifaceted approach that involves both the federal government and the private sector. Among its calls to action in the report, DHS lists several best practices that e-commerce platforms and third-party marketplaces should immediately adopt.

Congress has also swung into action, holding several hearings on the topic throughout 2019 and recently introducing three new bills to protect consumers and improve transparency: the SHOP SAFE Act of 2020, the SANTA Act, and the INFORM Consumers Act.

H.R. 6058—SHOP SAFE Act of 2020

On March 3, 2020, Rep. Jerry Nadler (D-NY) introduced the Stopping Harmful Offers on Platforms by Screening Against Fakes in E-Commerce (SHOP SAFE) Act of 2020 . The bill has five cosponsors: Rep. Doug Collins (R-GA), Rep. Henry "Hank" Johnson (D-GA), Rep. Martha Roby (R-AL), Rep. Theodore Deutch (D-FL), and Rep. Ben Cline (R-VA). Section 2 of the SHOP SAFE Act would amend section 32 of the Trademark Act of 1946 to provide for contributory liability for e-commerce platforms for use of a counterfeit mark by a third-party seller unless the platforms satisfy certain statutory requirements ("best practices").

The stated purpose of the bill is to combat the proliferation of unsafe counterfeit goods by incentivizing e-commerce platforms to engage in 10 best practices for vetting sellers and goods, punishing repeat offenders, and ensuring that consumers have the best, most accurate information available to them when making purchases online. But it applies only to "goods that implicate health and safety," as defined in the bill. According to the House's one-pager for the SHOP SAFE Act, counterfeit goods of that kind have the most serious safety consequences for consumers.

The Act would require an e-commerce platform to demonstrate that it was following these 10 best practices "[b]efore any alleged infringing act by the third-party seller":

  1. Verifying the seller's identity, location, and contact information.
  2. Requiring the seller to verify and attest that its goods are not counterfeit.
  3. Conditioning the seller's use of the platform on agreeing not to sell counterfeits and consenting to being sued in U.S. court.
  4. Displaying the seller's identity, location, and contact information; where the goods are made; and from where the goods will be shipped.
  5. Requiring sellers to use images that accurately depict the actual goods offered for sale and that the seller owns or has permission to use.
  6. Using technology to screen for counterfeits before a seller's goods appear on the platform.
  7. Implementing a timely takedown process for removing listings for counterfeit goods.
  8. Terminating sellers that have listed or sold counterfeit goods three times.
  9. Screening sellers to prevent terminated sellers from rejoining or remaining on the platform under a different alias or storefront.
  10. Sharing an infringing seller's information with law enforcement and, upon request, the owner of the registered trademark.

The SHOP SAFE Act would require e-commerce platforms to adopt new practices or bolster existing ones, but by following the 10 best practices laid out in the bill, online retailers would avoid the new statutory contributory liability that the Act would establish. This bill has been referred to the House Committee on the Judiciary for debate before moving on to the House floor.

For a more in-depth look at the SHOP SAFE Act, please read Shop Safe Act 2020: A New Tool for Brand Owners in the Fight Against Online Counterfeits?

S. 3073—SANTA Act

On December 17, 2019, Senator Bill Cassidy (R-LA), together with cosponsors Senator Thom Tillis (R-NC), Senator Robert Menendez (D-NJ), and Senator Dick Durbin (D-IL), introduced the Stopping All Nefarious Toys in America (SANTA) Act. The SANTA Act would require online marketplaces to verify and disclose to consumers the identities of those who sell children's products. An online marketplace would need to obtain a third-party seller's bank account information, government-issued photo identification, and business contact information. It then requires that the online marketplace disclose each seller's name, business address, phone number, and email address on the face of the product listing. That contact information must be verified on an ongoing basis "to ensure [the] seller is available for consumer outreach." Disclosing this verified information about online sellers of children's goods would help purchasers safely avoid counterfeit toys and other fake children's products.

In addition, to address the efficient shipping policies where a product ships from different sellers, the current text of the bill requires marketplaces to notify consumers before purchase about the seller of shipped children's products if it differs from the seller on the product listing.

This bill has been referred to the Senate Committee on Commerce, Science, and Transportation for debate before it is sent to the Senate floor.

S. 3431—INFORM Consumers Act

Broadening the SANTA Act more generally to high-volume third-party sellers, as opposed to only sellers of children's products, the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers (INFORM Consumers) Act would require online marketplaces to verify and disclose certain seller information. Senator Cassidy, along with Senator Durbin and Senator David Perdue (R-GA), introduced the bill on March 10, 2020. Senator Mazie Hirono (D-HI) has also joined the bill.

The INFORM Consumers Act would require an online marketplace to verify "on at least an annual basis" the identity of all high-volume third-party sellers that list products on the marketplace. The Act defines a "high-volume third party seller" as one that has made at least 200 discrete sales in any 12-month period over the past 2 years with gross revenue of at least $5,000.

The marketplaces must then conspicuously display that verified information, with exceptions for sellers who have only personal contact information. Furthermore, the marketplace would be required to identify in the product listing whether a given seller is a manufacturer, retailer, importer, or reseller. This Act, like SHOP SAFE, would also require online marketplaces to tell consumers whether the seller of the shipped product differs from the seller named on the listing. The stated goal is that armed with this verified information about third-party sellers, informed consumers could better avoid purchasing goods from unscrupulous and criminal actors and thereby help to fight fakes and thwart organized retail crime.

Like the SANTA Act, this bill has also been referred to the Senate Committee on Commerce, Science, and Transportation for debate before going to the full chamber.

These three bills and the DHS report on counterfeit and pirated goods seek to raise the monitoring, enforcement, and consumer protection regimes of the e-commerce world to a level that comports with brick-and-mortar retail. We will continue to monitor the SHOP SAFE Act, the SANTA Act, and the INFORM Consumers Act as they move through the legislative process and provide regular updates. Please contact the authors or others in Venable's Intellectual Property Group or Legislative Group with any questions.