On March 2, 2020, a bipartisan group of representatives in the U.S. House of Representatives introduced the Stopping Harmful Offers on Platforms by Screening Against Fakes in E-Commerce Act (the Shop Safe Act 2020) to help stem the growing concern over counterfeit products being offered for sale on online third-party marketplace e-commerce platforms. Although e-commerce is a relatively new retail platform, it has been capturing larger percentages of sales in the U.S. retail industry. Unfortunately, as retail transactions have increased online, so have counterfeit sales. The reasons for increased counterfeiting online are multifaceted, but the U.S. Department of Homeland Security has discovered that counterfeiting via third-party marketplace e-commerce platforms has likely proliferated because of the role of the third-party marketplace adding legitimacy to counterfeit listings, the relatively low barriers to entry to selling online (lower startup, production, marketing, and distribution costs), and consumer attitudes and perceptions concerning third-party marketplace platforms.1 The rise in online counterfeiting has forced the government and brand owners, as well as online third-party marketplaces, to increase efforts to police these counterfeit sales. For example, the U.S. Customs and Border Patrol (CBP) initiated Operation Mega Flex "to identify high-risk violators that are shipping and receiving illicit contraband through international mail facilities and express consignment hubs."2 By cataloging a sample of roughly 20,000 inspections of goods, CBP identified over 1,000 instances of counterfeit goods – a roughly 5% counterfeit rate.3
However, finding the sellers of counterfeit goods and holding them accountable is often a game of whack-a-mole, given the reality of counterfeiting on third-party e-commerce marketplace platforms. Often the supply chains for counterfeit goods are complex – the sellers often are physically located internationally, outside the United States, and accordingly "are largely outside the jurisdiction for criminal prosecution or civil liability from U.S. law enforcement and private parties."4 Additionally, criminal efforts or civil efforts by brand owners to hold third-party marketplace counterfeiters accountable are often hampered by strategic actions taken by counterfeiters to shield themselves from liability. For example, counterfeiters often use multiple merchant accounts, provide no personal identifying information (like names or addresses) to consumers, or provide false personal identifying information. Moreover, even if enforcement action is taken against the online seller accounts, and the account is shut down, counterfeiters often just pop right back up – either on the same third-party marketplace platform or on another – through the creation of a new merchant account. Likewise, if enforcement action is taken against the counterfeiters, they often ignore the enforcement action (such as a lawsuit), abandoning that merchant account and leaving brand owners with little recourse against the counterfeiters or the third-party marketplace platform, even if the brand owner obtains a favorable court judgment against the counterfeiter. Accordingly, the Shop Safe Act 2020 seeks to provide a possible avenue by which brand owners could successfully take action against the third-party e-commerce market platforms.
Currently, brand owners can attempt to take civil action against counterfeiters through three theories of trademark infringement: direct infringement, vicarious infringement, and contributory infringement. The statutory framework for federal trademark law is codified in the Trademark Act of 1946. Most actions against counterfeiters themselves involve theories of direct trademark infringement – that is, trademark infringement deriving from the defendant being the one actually using the unauthorized counterfeit trademark on or in connection with goods or services.5 However, actions taken against third-party marketplace platforms typically involve contributory infringement theories – a legal theory that has evolved from the common law of torts.6 Applied to operators of third-party online marketplaces, in order to be held liable for contributory trademark infringement, the third-party online marketplace must have "intentionally induced [a marketplace seller] to infringe a trademark, or . . . continued to [allow a marketplace seller to use its online third-party marketplace services when] it knows or has reason to know [the marketplace seller] is engaging in trademark infringement."7 This liability standard has historically been hard for plaintiff brand owners to establish, given it is difficult to prove when and if third-party online marketplaces had knowledge of a particular merchant's sales of counterfeit items. Accordingly, brand owners have been forced to largely self-police online third-party marketplaces for counterfeit goods – using a patchwork of means imposed by third-party marketplaces. While these measures implemented by online marketplaces can be effective for removing counterfeit listings from the online platforms, counterfeits are still prevalent on the platforms.
Accordingly, the Shop Safe Act 2020 has been introduced to attempt to:
- "[e]stablish trademark liability for online marketplace platforms when a third-party sells a counterfeit product that poses a risk to consumer health or safety and that platform does not follow certain best practices;
- [i]ncentivize online platforms to establish best practice such as vetting sellers to ensure their legitimacy, removing counterfeit listings, and removing sellers who repeatedly sell counterfeits; and
- [c]all for online marketplaces to take steps necessary to prevent the continued sale of counterfeits by the third-party seller or face contributory liability for their actions."8
If enacted, the bill would amend the Trademark Act of 1946, namely, 15 U.S.C. § 1114, to hold online third-party marketplaces liable for contributory infringement of a counterfeit mark in "connection with the sale, offering for sale, distribution, or advertising of goods that implicate health and safety,"9 unless they are subject to service of process in the United States and take certain steps to prevent infringing uses on the platform articulated in the proposed bill. The proposed bill defines "counterfeit mark" to have the same meaning as given to the term in section 34(d)(1)(B) of the Trademark Act.10 To avoid liability, the proposed bill would require marketplaces to demonstrate that they took the following 10 measures:
"(I) Verified through governmental identification and other reliable documentation the identity, principal place of business, and contact information of the third-party seller.
(II) Required the third-party seller to verify and attest to the authenticity of goods on or in connection with which a registered mark is used.
(III) Imposed on the third-party seller as a condition of participating on the platform contractual requirements that – (aa) the third-party seller agrees not to use a counterfeit mark in connection with the sale, offering for sale, distribution, or advertising of goods on the platforms; and (bb) the third-party seller consents to the jurisdiction of United States courts with respect to claims related to the third-party seller's participation on the platform.
(IV) Displayed conspicuously on the platform the verified principal place of business, contact information, and identity of the third-party seller, the country of origin and manufacture of the goods, and the location from which the goods will be shipped.
(V) Required each third-party seller to use images that the seller owns or has permission to use and that accurately depict the actual goods offered for sale on the platform.
(VI) Implemented at no cost to the registrant proactive technological measures for screening goods before displaying the goods to the public to prevent any third-party seller's use of a counterfeit mark in connection with the sale, offering for sale, distribution, or advertising of goods on the platform.
(VII) Implemented at no cost to the registrant a program to expeditiously disable or remove from the platform a listing by any third-party seller that reasonably could be determined to have used a counterfeit mark in connection with the sale, offering for sale, distribution, or advertising of goods.
(VIII) Terminated use of the platform by any third-party seller that has engaged in more than three instances of use of a counterfeit mark in connection with the sale, offering for sale, distribution, or advertising of goods on the platform.
(IX) Implemented at no cost to the registrant technological measures for screening third-party sellers to ensure that sellers who have been terminated do not rejoin or remain on the platform under a different seller identity or alias.
(X) Provided the information verified under clause (I) of each third-party seller that used a counterfeit mark in connection with the sale, offering for sale, distribution, or advertising of goods on the platform to relevant law enforcement and, upon request, the registrant."11
Depending upon the third-party marketplace, some of the above-proposed requirements to avoid contributory liability may have already been implemented – as mentioned above, some marketplace platforms already proactively screen product listings to curb the presence of counterfeit listings on their platforms. Likewise, some of the above-proposed requirements can likely be met by revisions or amendments to the marketplace's terms and conditions.
Some of the proposed requirements above, like numbers I, IV, VIII, IX, and X, appear to attempt to address the problem of merchant counterfeiter anonymity that brand owners face. The proposed requirements seem designed to reduce the whack-a-mole game of enforcement currently occurring when the same bad actors continuously appear on marketplaces using different merchant accounts, and different sales listings.
Other provisions of the proposed bill are likely going to involve trickier determinations, among them exactly which goods constitute "goods that implicate health and safety." The proposed bill defines the term "goods that implicate health and safety" as "goods the use of which can lead to illness, disease, injury, serious adverse event, allergic reaction, or death if produced without compliance with all applicable Federal, State, and local health and safety regulations and industry-designated testing, safety, quality, certification, manufacturing, packaging, and labeling standards."[12] In most cases, brand owners have no idea in which conditions counterfeit versions of their products are manufactured – they just know that they aren't manufactured per the brand owner's manufacturing process. What sort of showing will brand owners have to make, if any, to establish this proposed requirement? Likewise, if a marketplace involves third-party sales of consumer goods like clothing, is the marketplace largely immune to the proposed contributory infringement liability, as the clothing can be deemed outside "goods that implicate health and safety"?
Going forward, both brand owners and e-commerce third-party marketplaces should keep apprised of developments concerning the proposed Shop Safe Act 2020, so that they are in the best position to police their trademark rights or implement necessary steps to avoid contributory liability should the proposed bill be enacted.
Footnote
1 U.S. Dept. of Homeland Security, Combating Trafficking in Counterfeit and Pirated Goods (Jan. 24, 2020), https://www.dhs.gov/sites/default/files/publications/20_0124_plcy_counterfeit-pirated-goods-report_01.pdf.
2 Id.
3 Id.
4 Id.
5 See J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition (5th ed.), § 23:76.
6 See J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition (5th ed.), § 25:17.
7 Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 854 (1982).
8 Press Release, U.S. House Committee on the Judiciary, Nadler, Collins, Johnson & Roby Introduce Bipartisan SHOP SAFE Act to Protect Consumers and Businesses from the Sale of Dangerous Counterfeit Products Online (Mar. 2, 2020), https://judiciary.house.gov/news/documentsingle.aspx?DocumentID=2838.
9 https://judiciary.house.gov/uploadedfiles/shop_safe_-_bill_text.pdf
10 https://judiciary.house.gov/uploadedfiles/shop_safe_-_bill_text.pdf
11 The Shop Safe Act 2020, https://judiciary.house.gov/uploadedfiles/shop_safe_-_bill_text.pdf
12 The Shop Safe Act 2020, https://judiciary.house.gov/uploadedfiles/shop_safe_-_bill_text.pdf