CONGRESS IS TRYING TO KEEP CONSUMERS SAFE FROM COUNTERFEIT GOODS ONLINE THROUGH LEGISLATION: WILL IT WORK?

John Zacharia
Founder, Zacharia Law PLLC
Professorial Lecturer in Law, George Washington University School of Law

Every year, consumers buy more and more items online, especially through e-commerce platforms.  This trend accelerated during the pandemic.  At the same time, third-party sellers have acquired a larger share of the e-commerce retail pie, and with it, an increase in the number of counterfeits sold through e-commerce platforms. 

In response to these trends, Congress proposed the Stopping Harmful Offers on Platforms by Screening Against Fakes in Ecommerce Act (“SHOP SAFE Act”) of 2023 on September 26, 2023 to combat counterfeits that posed a risk to consumer health and safety.  This bill, if passed, would build upon the first federal law ever passed to regulate e-commerce platforms: the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (“INFORM Consumers Act”), which became effective on June 27, 2023. 

One of the principal goals of these legislative efforts is to protect consumers shopping online.  Although such legislation is a good first step, more work must be done for such legislation to achieve the ultimate goal of protecting consumers from counterfeit goods.

SHOP SAFE Act of 2023

As the New York Times noted in 2020, “the Government Accountability Office recently found that 20 of 47 items purchased from third-party sellers on popular consumer websites were counterfeit.  Many of those products, which include car seats, airbags and baby formula, pose life-threatening risks.”  Allan Rappeport, Lawmakers Propose Making E-Commerce Companies Liable for Counterfeits, N.Y. Times (Mar. 2, 2020).  For this reason, in every year from 2020 to 2023, Congress has proposed a version of the SHOP SAFE Act, whose stated purpose is “to provide for contributory liability for certain electronic commerce platforms for use of a counterfeit mark by a third party on such platforms.” S. 2934, 118^th Cong. (2023-2024) at Preamble.  The scope of the bill, however, is limited to situations where third-party sellers “have used in commerce a counterfeit mark in connection with the sale, offering for sale, distribution, or advertising of a good that implicates health and safety.”  Id. at § 2(a)(4)(A). 

The idea behind the first version of this bill in 2020 was that Congress would create a private cause of action for contributory trademark counterfeiting against those e-commerce platforms that failed to follow the best practices Congress set forth to protect consumers from harmful counterfeit goods.  Although this quid pro quo – a safe harbor from contributory liability in exchange for adopting best practices protecting consumers – sounds straight-forward, Congress has proposed language that would make this simple formula harder than necessary for consumers and e-commerce platforms alike.   

For example, the bill sets forth a series of best practices e-commerce platforms must take “reasonable measures” to follow.  Id. at § 2(a)(4)(B).  The bill further states that whether a platform’s measures are “reasonable” depends on (1) the platform’s size and resources; (2) the nature of the goods and services offered on the platform; (3) what solutions are available; (4) how much information trademark owners have provided; and (5) “any other factor considered relevant by a court.”  Id. at § 2(a)(4)(C).  In other words, Congress has created a multi-factor test that expressly anticipates litigation about what which platform measures are “reasonable” – an approach that would take years for courts to sort out.  Most significant, this approach makes it difficult, if not impossible, for e-commerce platforms (much less consumers) to anticipate which measures courts will find “reasonable” without costly litigation.

Rather than frame the bill’s best practices in terms of “reasonable measures,” Congress should follow the simpler approach the U.S. Department of Homeland Security (DHS) took in 2020 when it set forth its own set of clear best practices.  Dept. of Homeland Security, Combating Trafficking in Counterfeit and Pirated Goods: Report to the President of the United States (Jan. 24, 2020).  Although DHS’s list of best practices is not perfect, they are set forth clearly without as much ambiguity, making them easier for e-commerce platforms and consumers to follow and to understand.  Not only would such an approach make the SHOP SAFE Act more effective, it would minimize the litigation costs that platforms, trademark owners, and consumers would have to endure. 

Congress could protect consumers even more by applying the proposed provisions of the SHOP SAFE Act to all e-commerce platforms equally. Currently, the bill would not impose contributory trademark counterfeiting liability on platforms with less than $500,000 in annual sales unless these smaller platforms received 10 notices that a third party seller had sold counterfeit goods implicating health and safety. SHOP SAFE Act of 2023, § 2(a)(4)(D).  Imposing different standards on different e-commerce platforms creates at least two unnecessary problems. 

First, there is no principled reason why large e-commerce platforms should bear a heavier burden to protect consumers from counterfeit goods implicating health and safety than smaller ones.  When it comes to consumer safety, Congress should not consider the size, sales or resources of a platform.  All e-commerce platforms should protect consumers from harmful counterfeit goods, and Congress should impose such a requirement equally.

Second, by not compelling small e-commerce platforms to protect consumers from harmful counterfeit goods sold on these platforms sooner (as it does for large platforms), Congress would effectively authorize smaller platforms to expose consumers to counterfeit goods implicating health and safety at least 10 times without contributory liability under the bill.  It is hard to imagine any other scenario where exposing consumers to harm 10 times would be acceptable.  Would it be acceptable to allow a small flea market to wait until it received 10 notices that its tenants sold counterfeit toys before the market would have to take action?  Would it be acceptable to allow a website’s users to peddle defective batteries (that could catch fire or even explode) 10 times before requiring the platform to act against such users?  Of course not.

The simple solution: Congress should not discriminate between large and small e-commerce platforms when it comes to counterfeit goods affecting consumer health and safety.

INFORM Consumers Act

The INFORM Consumers Act requires online marketplaces to collect and to verify certain identification information from high-volume third-party sellers and to disclose certain information about such sellers to consumers.  The details of the Act are addressed more fully in the BPP article How Congress Proposes to Protect Consumers from Online Counterfeits: the Good, the Bad, and the Ugly, BPP, September 2020. However, it is worth noting a couple of ways in which the Act’s limitations affect consumers. 

First, the INFORM Consumers Act does not create a private right of action.  Only the U.S. Federal Trade Commission (FTC) or a State Attorney General may enforce it.  Thus, the best recourse for consumers who believe an e-commerce platform has violated the Act would likely be to refer the matter to the FTC.

Second, the INFORM Consumers Act does not, in fact, “inform” consumers.  One of the principal goals of the Act was to inform consumers who a third-party seller is, including whether the seller’s physical address was in the United States.  That way, consumers could use that information to help decide whether the seller was sufficiently reliable before committing to a purchase.  Instead, the Act states that online marketplaces must require certain high-volume third-party sellers to make certain disclosures to consumers on the product listing page or in a communication after the purchase is finalized. 

In short, the Act does not compel platforms of third-party sellers to disclose anything to consumers until after the sale is made – undermining one of the statute’s principal goals.  The easy fix: amend the statute to require disclosure on the product listing page prior to when a purchase is made. 

Consumers deserve no less.