The E-commerce Retail Supply Chain

Peter Friedmann
Of Counsel

Abigail Struxness
Manager, Regulatory and Legislative Affairs, FBB Federal Relations/Lindsay Hart LLP

Innovations in direct-to-consumer retail and the explosion of e-commerce have dramatically altered the retail landscape in recent years. However, in many cases, laws and regulations have not adapted fast enough, leaving vulnerabilities in the supply chain for fraud and counterfeits.

This column highlights the e-commerce retail supply chain from beginning (online shopping) to middle (trade facilitation, moving goods across borders) to end (verifying product authenticity), detailing changes or proposed changes to laws impacting brand protection.

Consumer Online Shopping Habits

On a party line vote Congress passed a resolution repealing Obama-era internet service provider (ISP) consumer privacy protections, which President Trump in April signed into law (Public Law 115-22). The repealed Federal Communications Commission (FCC) rules, which hadn’t been implemented, would have required consent of consumers before their sensitive browsing history and financial information could be sold or shared by ISPs. Without these FCC regulations, privacy protection will be overseen by the Federal Trade Commission, which acts less stringently than the FCC and conducts investigations and enforcement on a case-by-case basis rather than by issuing industry-wide regulations. While the FCC repeal may help businesses gain data on consumers and effectively target ads, it may damage consumer trust in e-commerce. Counterfeiters may also determine this to be an expanded opportunity to reach victims through fraudulent advertising.

Trust in ISPs is a global issue. According to a global study commissioned by the UN Trade and Development Conference, only about two-thirds of respondents said they “somewhat” or “strongly” trust their ISPs. Those who never shop online cited “trust” as the biggest reason for not doing so. Online consumer protection, privacy, and prevention of fraud are critical safeguards necessary for a brand to establish a credible online presence.

Trade Facilitation and Movement of Goods

As discussed in this edition’s Global Intellectual Property Enforcement Landscape and Good Things Come in Small Packages, but Protecting Them is a Big Challenge, direct-to-consumer commerce originating from another country and traveling into the United States via a global courier such as FedEx, UPS, or Amazon challenges traditional Customs and Border Protection enforcement methods to prevent counterfeits. This may become an issue in any renegotiation of the North American Free Trade Agreement (NAFTA) that the Trump administration pursues following the early May confirmation of the U.S. Trade Representative. The original 1994 agreement does little to address e-commerce issues. The Trans-Pacific Partnership (TPP) negotiations, in which the United States, Mexico, and Canada, all took part, did address such issues. While the United States is no longer a part of the TPP, it is likely that the three countries will use some of the consensus they reached on intellectual property rights and cross border e-commerce in the TPP when renegotiating the NAFTA.

Verify Product Authenticity

A new secure technology, blockchain, is rapidly deploying across financial and retail industries. Blockchain, originally created for the BitCoin currency, provides an electronic record of all transactions that is transparent, unalterable, and independently verified. While used most commonly for financial information, luxury brands have begun applying the technology too. For example, with blockchain technology, if a product is embedded with a sensor or tag and scanned at each step of the supply chain, a “digital authenticity certificate” is established which the customer could view online. It does not prevent counterfeits entirely, but may provide trusted verification to the consumer of their product’s authenticity when it arrives at their door.

Earlier this year, Rep. Jared Polis (D-Colo.) and Rep. David Schweikert (R-Ariz.) launched the Congressional Blockchain Caucus. There is no national legislation pertaining to blockchain currently, but eight state legislatures have pending legislation relating to the technology and its accepted uses. The Vermont legislature has passed a bill to acknowledge information and data verified through blockchain procedures as “authentic.” Once the bill is signed into law by the Governor, blockchain notarized documents will hold up in Vermont courts of law. A national recognition of blockchain’s benefits for product verification and authenticity could boost both the technology’s deployment and consumer confidence in it.

Next Steps

From ensuring consumer privacy protections, to strengthening e-commerce protections in trade agreements, to fostering new technologies, Congress can play an important role in maintaining a system for e-commerce sales. Such a system should both assist brands in defending their property from theft and assure consumers that the online system is safe and effective.