Shop Safe Act 2020: A New Tool for Brand Owners in the Fight Against Online Counterfeits?
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. E-commerce has been capturing larger percentages of retail sales, particularly in a post-COVID-19 world. Online retail reported double-digit rises in sales between March and April of 2020 after stay-at-home orders were enacted. In particular, home goods and loungewear retailers reported increased online sales. The U.S. Department of Homeland Security has discovered that counterfeiting has likely proliferated because of the perceived legitimacy to counterfeit listings added by e-commerce platforms, and relatively low barriers to entry for selling online.
Online counterfeiting has forced the U.S. government, brand owners and online third-party marketplaces to increase efforts to police these counterfeit sales. However, finding the sellers of counterfeit goods and holding them accountable is often a game of whack-a-mole. Often the supply chains for counterfeit goods are complex — the sellers often are physically located internationally, and accordingly “are largely outside the jurisdiction for criminal prosecution or civil liability ...” Efforts to hold third-party marketplace counterfeiters accountable are often hampered because counterfeiters frequently use multiple merchant accounts, provide no personal identifiable information (like names or addresses) to consumers, or provide false PII. Accordingly, the Shop Safe Act 2020 seeks to provide a possible avenue by which brand owners could successfully take action against third-party e-commerce market platforms.
Currently, brand owners can take civil action against counterfeiters through three theories of trademark infringement: direct, vicarious, 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 infringement — that is, trademark infringement deriving from the defendant actually using the unauthorized counterfeit trademark on or in connection with goods or services. However, actions taken against third-party marketplace platforms typically involve contributory infringement theories, a legal theory that has evolved outside of the Trademark Act’s text.
Currently, to be held liable for contributory trademark infringement, a 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.” This liability standard is hard for brand owners to establish, given it's difficult to prove when and if online marketplaces had knowledge of a particular merchant’s counterfeit sales.
Accordingly, brand owners have been forced to largely self-police online third-party marketplaces for counterfeit goods using means imposed by third-party marketplaces. While these measures can be effective for removing counterfeit listings from online platforms, counterfeits are still prevalent.
Thus, the Shop Safe Act 2020 has been introduced 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 doesn't follow certain best practices;
- [i]ncentivize online platforms to establish best practices 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.”
The bill would amend the Trademark Act of 1946 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,” unless they're subject to service of process in the United States and take certain steps to prevent infringing uses on the platform. To avoid liability, the bill would require marketplaces to demonstrate that they took the following measures (the measures listed are summaries of the general requirements, not an exhaustive list of all steps that must be taken):
- verified the identity, principal place of business, and contact information of the seller;
- required the seller to verify and attest to the authenticity of goods;
- required the seller to agree not to use a counterfeit mark on the platform, and to consent to the jurisdiction of United States courts with respect to claims related to the platform;
- displayed conspicuously on the platform verified contact information about the seller and information about the goods to be shipped;
- required each seller to use images that the seller owns or has permission to use, which accurately depict the goods offered for sale;
- implemented proactive technological measures for screening goods before displaying them to the public to prevent uses of counterfeit marks;
- implemented a program to expeditiously disable or remove from the platform listings that reasonably could be determined to use a counterfeit mark;
- terminated use of the platform by any seller that has engaged in more than three instances of use of a counterfeit mark;
- implemented technological measures for screening sellers to ensure that sellers who have been terminated do not rejoin or remain on the platform; and
- provided the information verified under clause (I) of each seller that used a counterfeit mark on the platform to relevant law enforcement and, upon request, to the registrant.
Some of the proposed requirements above appear aimed at addressing the problem of counterfeiter anonymity that brand owners face, and are designed to reduce the whack-a-mole game of enforcement currently occurring when the same bad actors continuously appear on marketplaces using different accounts and different sales listings.
Brand owners and third-party marketplaces should keep apprised of developments concerning the proposed bill so that they're in the best position to police their trademark rights or implement necessary steps to avoid contributory liability should the bill be enacted.
Related story: Putting Counterfeiters Out of Business, Part 2
Marci Ballard is a seasoned first-chair Lanham Act and copyright litigator who represents clients before the United States Patent and Trademark Office (USPTO) and the Trademark Trial and Appeal Board (TTAB), and in bench and jury trials. Marci also represents clients in arbitration hearings throughout the United States and in the United Kingdom. Several well-known global brands rely on her sophisticated litigation skills and sage counsel in global trademark matters and brand management functions. She also manages global IP portfolios, and counsels clients on brand protection, trademark, copyright, trade secret, privacy rights, licensing, unfair competition, contracts, and business tort claims.
Maria Sinatra focuses her practice on offensive and defensive Lanham Act and Copyright Act litigation in federal courts throughout the country. Maria has experience with disputes involving anti-counterfeiting actions, trademark and trade dress infringement actions, trademark dilution claims, false advertising issues, and copyright infringement litigation. She regularly advises clients on brand management issues, including how to secure trademark rights and how to protect and police them.