Imagine purchasing a thoroughly-bidded collector's item on eBay, only to receive a forged replica. Or buying an advertised version of an item by a seller hosted on Shopify, only to discover that it is an infringing counterfeit of an original. As it currently stands, e-commerce companies are not liable for the sale of those counterfeit goods by third-parties on their platforms. However, a new proposal may effectively change the online marketplace landscape.

On March 2nd, a bipartisan House unveiled a proposed bill that would create trademark liability for e-commerce companies for selling counterfeit goods sold on their platforms. The bill, the SHOP SAFE Act of 2020 (which stands for Stopping Harmful Offers on Platforms by Screening Against Fakes in E-Commerce), outlines a series of steps that e-commerce platforms, such as Amazon, eBay, and Shopify, must take to prevent knockoff sales by third-party sellers.

The SHOP SAFE Act has three paramount objectives, to:

Establish trademark liability for online marketplace platforms when a third-party sells counterfeit products that pose a risk to consumer health or safety;
Incentivize online platforms to establish improved standards, such as: vetting sellers to ensure their legitimacy, removing counterfeit listings, and banning demonstrated bad actors; and
Require online marketplaces to take steps necessary to prevent the continued sale of counterfeits by the third-party seller or be subject to contributory liability.

The House issued a press release, in which New York congressman Rep. Jerrold Nadler stated:

American consumers increasingly turn to the internet to shop. Counterfeiters have followed consumers, and it is clear more must be done to combat the rising trend in online sales of counterfeit products. Consumers should be able to trust that what they see and purchase online is what they will get, but counterfeiters continue to join platforms with ease and masquerade as reliable sellers in order to infect American households with dangerous and unsafe products. The SHOP SAFE Act proposes a set of commonsense measures to tackle the gaps in these platforms' systems and stop counterfeit sales.

The second section of the bill would amend §32 of the Trademark Act of 1946 (15 U.S.C. § 1114), which outlines what online retailers and e-commerce platforms need to adopt in order to evade liability.

The 10 "best practices" mandated by the bill are:

Verifying the third-party seller's identity, location, and contact information;
Requiring the third-party seller to verify and attest to the authenticity of its goods;
Requiring that the third-party sellers agree not to sell counterfeit goods on the platform and consent to the jurisdiction of U.S. courts;
Displaying the third-party seller's identity, location, and contact information; location of the origin of the goods and shipment of the goods;
Requiring third-party sellers to use images that accurately depict the actual goods offered for sale, that they own or have permission to use;
Using technology to screen goods for counterfeit ones prior to product placement on platforms;
Implementing a timely takedown process for the removal of counterfeit listings;
Terminating third-party sellers that have engaged in at least three instances of counterfeit sales or advertising;
Screening third-party sellers to prevent terminated third-party sellers from rejoining or remining on the platform under a different identity or alias; and
Sharing an infringing third-party seller's information with law enforcement and, upon request, the owner of the registered trademark.

The American Apparel & Footwear Association and the Toy Association are among quite a few industries that praise the bill.

“SHOP SAFE Act of 2020 (which stands for Stopping Harmful Offers on Platforms by Screening Against Fakes in E-Commerce), outlines a series of steps that e-commerce platforms, such as Amazon, eBay, and Shopify, must take to prevent knockoff sales by third-party sellers”

While the SHOP SAFE Act's proposals provide some solution to the counterfeit combat, it raises a few concerns. One issue is that smaller e-commerce platforms do not have the requisite resources to perform extensive anti-counterfeiting practices. Proactive vetting and monitoring of third-party seller activities can very easily become costly. Another issue is the risk of terminating a credible seller who is wrongly accused of selling counterfeits. Alongside the proposed "best practices" should be proposed penalties for false claims of counterfeits (perhaps similar to the current relative Digital Millennium Copyright Act notice and takedown claim framework). As there are many active suits alleging false counterfeit claims, this new regulation would call for an increase in illegitimate claims. It will be critical who bears the responsibility of policing the platforms for counterfeits.

In a time where online marketplaces are incessantly growing, the need for increased regulation to combat bad actors is imperative. Many can relate to the disappointment and hardships created from purchasing anticipated authentic goods, only to be deceived and instead receive fake ones. This is the type of circumstance from which the SHOP SAFE Act aims to protect consumers, and it appears to be an overall step in the right direction.

(Originally posted by Christine-Marie Lauture, Esq. on the New York State Bar Association - Entertainment, Arts & Sports Law Blog on March 13, 2020)

SHOP SAFE Act of 2020: A Crackdown on Counterfeits and Accountability for e-Commerce Companies

By: Christine-Marie Lauture, Esq.

“SHOP SAFE Act of 2020 (which stands for Stopping Harmful Offers on Platforms by Screening Against Fakes in E-Commerce), outlines a series of steps that e-commerce platforms, such as Amazon, eBay, and Shopify, must take to prevent knockoff sales by third-party sellers”