“The ‘safe harbor’ incentives [of the SHOP SAFE Act] only apply to goods that could implicate the health or safety of the consumer. The bill defines such goods as those whose use could lead to illness, disease, injury, adverse event, allergic reaction, or death. So, the unfortunate purchasers of a perfectly safe, but nevertheless fake, designer handbag or scarf is not protected by this bill.”
Online shopping has become a huge part of our everyday lives. In fact, 15% of all 2020 retail sales are projected to take place online. Unfortunately, despite their convenience, e-commerce retail platforms also provide fertile ground for counterfeiters because shoppers cannot physically examine the products being sold and shoppers often cannot identify the ultimate seller. Worse yet, online counterfeiting is not limited to fake fashion and luxury goods, but more often involves poor quality or tainted products that endanger the health and safety of the purchaser. Reported incidents of dangerous online counterfeit purchases have included children’s car seats that disintegrate in crashes, engine oils that contain dirt and water, cold medications that are simply sugar pills, and cell phone adapters that can shock or electrocute consumers. Counterfeiting is no longer a sort of comic fakery that only dupes designer bargain hunters. Rather, it has become a real problem for everyday consumers.
The Current Framework
Unfortunately, remedies available to consumers and legitimate trademark owners are problematic in the e-commerce setting. Typically, the ultimate source of the counterfeit goods has masked its true identity so well that an injured party cannot successfully sue that person in a U.S. court. While many e-commerce platforms have a process for removing counterfeit goods from their websites upon receipt of a complaint, this is often only a temporary remedy. Typically, the same counterfeiter will simply show up again on the e-commerce platform using a different alias. Legitimate trademark owners are forced into a never ending cycle of take down requests in order to get the counterfeit goods off the market.
Furthermore, e-commerce platforms are not currently liable for counterfeit goods sold through their websites. Legal precedent has typically held that the e-commerce platform is not liable as a “direct infringer” because the platform is merely providing a service to third party sellers and is not itself selling anything to the ultimate consumer. Thus, e-commerce platforms would only be subject to liability if they are “contributory infringers.” As such, aggrieved trademark owners must establish that the platforms either (a) have actively induced the counterfeiting, or (b) have continued to provide services to the counterfeiter with knowledge of the ongoing trademark infringement. As a practical matter, contributory infringement is a high bar for a prospective plaintiff to meet.
To address the problem, a bipartisan group from the U.S. House of Representatives has introduced the Stopping Harmful Offers on Platforms by Screening Against Fakes in E-Commerce (SHOP SAFE) Act of 2020. This Act aims to curb online counterfeiting by replacing “contributory infringement” liability with a statutory “safe harbor” for platforms that institute preventative measures. Specifically, the bill proposes to amend Section 32 of the Lanham Act so that a platform selling unhealthy or unsafe counterfeit goods will be liable for contributory infringement unless it takes the following steps:
- verify the third-party seller’s identity and contact information.
- require the seller to attest that the goods are not counterfeit.
- condition the use of the platform on agreement not to engage in counterfeiting and on consent to being sued in a U.S. court.
- display the seller’s identity, contact information, and geographic origin of the goods.
- require the seller to only use sales images that (a) accurately depict the goods, and (b) the seller owns or has permission to use.
- use technology to screen for counterfeit products prior to offering the seller’s goods for sale.
- implement a timely takedown process for removing listings of counterfeit goods.
- terminate sellers that have sold counterfeit goods on the platform three times.
- screen sellers to prevent terminated sellers from rejoining the platform under a different alias.
- share seller information with law enforcement and the owner of the counterfeited trademark upon request
The Act does not change the current legal requirements for direct liability for trademark infringement.
Room for Improvement
From the perspective of an injured consumer or trademark owner, the proposed legislation is helpful, but has some significant limitations. Specifically, the “safe harbor” incentives only apply to goods that could implicate the health or safety of the consumer. The bill defines such goods as those whose use could lead to illness, disease, injury, adverse event, allergic reaction, or death. So, the unfortunate purchasers of a perfectly safe, but nevertheless fake, designer handbag or scarf is not protected by this bill. Of course, to the extent that an e-commerce platform is a marketplace for both harmless products and potentially dangerous products, the consumer of the fake harmless products may be an unintended beneficiary of the safe harbor practices. It would likely be inefficient for the operator of the platform to institute safe harbor practices only for those goods with the potential for danger to consumers. Rather, it is more likely that the platform would institute the safe harbor practices for all products sold through its website. Still, a platform that specializes in “harmless” designer fashions or jewelry might not be held to account for allowing rampant sales of counterfeit goods, so long as it did not meet the traditional “contributory infringement” test.
From the perspective of e-commerce platforms, the bill is troubling both because of the additional burdens it will impose and the ambiguity in some of its requirements. For example, does verification of the seller’s identity and contact information require the platform to investigate the seller, or is it enough that the seller affirm the accuracy of its representations? And, what sort of “technology” would be required to screen for counterfeit goods? How would that be implemented? Further, how would the platform know that a seller has previously been terminated for counterfeiting if the seller uses an alias? Is the required “screening” for past counterfeiters sufficient if the platform checks whether a “new” seller has the same address and contact information as a past counterfeiter? Moreover, with respect to the images of the goods being sold, does the platform bear the burden of determining whether those images accurately depict the goods? Is the platform required to examine the images for signs of photo manipulation or misleading graphics? Or is it enough that the seller formally represent that the images are accurate? It may be that these questions will ultimately be addressed in the legislative history or discussion that accompanies the bill. However, many of the safe harbor practices could be manageable without much cost, such as displaying the seller’s identity and contact information, implementing a takedown procedure, and sharing information on accused counterfeiters. Indeed, many e-commerce platforms already have these practices in place.
Finding the Balance
Given the way counterfeiters have taken advantage of the anonymity of online sales, it is hardly surprising lawmakers are now asking e-commerce platforms to play a greater role in enforcement. The key to getting the bill passed will be striking the right balance between what the platforms can reasonably do and what is needed to protect consumers and trademark owners from harmful counterfeit goods.