New House Bill Introduced to Combat Online Sales of Counterfeit Goods

On March 2, 2020, Representative Nadler, on behalf of himself, Reps. Collins, Roby and Johnson, introduced a new bill directed to holding U.S.-based e-commerce websites (“US Platforms”) accountable for policing the use of their sites for potential misuse by third-party counterfeiters, and ensuring that these counterfeiters have fewer opportunities to distribute their counterfeit products in the U.S. market.

The SHOP SAFE Act of 2020 (H.R. 6058) – which stands for Stopping Harmful Offers on Platforms by Screening Against Fakes in E-Commerce – seeks to create “incentives” for US Platforms to verify the legitimacy of participating third-party sellers and the authenticity of their products before allowing them to use these US Platforms as distribution channels for their goods. See Press Release, “Collins, Nadler, Roby, Johnson Introduce SHOP SAFE Act to Protect Consumers from Dangerous Online Counterfeits,” Mar. 2, 2020 (“The bill incentivizes platforms to engage in a set of best practices to curb the presence of counterfeits on their sites.”) (emphasis added).

The full text of the bill was posted by the House Judiciary Committee, although this copy does not reflect the assigned bill number. See also Section-by-Section Summary (also posted by the House Judiciary Committee); Public Bills and Resolutions, 166 Cong. Rec. 41, H1437-H1438 (daily ed. March 2, 2020) (brief statement of Rep. Nadler introducing the bill).

In particular, the Bill proposes to amend 15 U.S.C. § 1114 by imposing contributory liability for trademark infringement on a US Platform that allows a third-party seller to traffic in counterfeit goods that “implicate health and safety” through the platform, unless the following conditions are met:

  1. The “third-party seller is available for service of process” in the U.S.;
  2. Before any (allegedly) infringing act occurred, the US Platform took the following steps to prevent its site from being used that way:
    1. Verified “through governmental identification and other reliable documentation”, the identity, principal place of business and contact information of the third-party seller;
    2. Required a verification and attestation of the “authenticity of goods on or in connection with which a registered mark is used”;
    3. Required the third-party seller to sign a contract that included the following mandatory terms:
      1. The “third-party seller agrees not to use a counterfeit mark in connection with sale, offering for sale, distribution, or advertising of goods on the platform”; and
      2. The third-party seller consents to jurisdiction of US Courts with respect to claims relating to the third-party seller’s participation on the US Platform;
    4. Displayed “conspicuously on the platform” the verified contact information for the third party seller (i.e., “verified principal place of business, contact information and identity”) as well as the country of origin and manufacture of the goods and the location from which the goods would be shipped;
    5. Required the third-party seller to only use images of the products that the seller “owns or has permission to use” and that “accurately depict the actual goods offered for sale on the platform”;
    6. Implemented proactive technical measures for pre-screening of goods against the marks registered through the USPTO (at no cost to the registrant of the registered trademarks) before the goods are displayed to the public – to ensure that the third-party seller is not using a counterfeit mark;
    7. Implemented a program to expeditiously disable or remove a third-party seller’s product listing that reasonably could be determined to have used a counterfeit mark – again at no cost to the registrant of the registered trademarks;
    8. Terminated use of the platform by any third-party seller that has engaged in more than three instances of using counterfeit marks in connection with goods offered through the US Platform;
    9. Implemented a program to ensure that terminated sellers do not rejoin or remain on the platform under a different seller identity or alias – again, at no cost to the registrant; and
    10. Provided the information verified under Section (a), above, for any third-party seller who used a counterfeit mark on goods offered through the platform, to relevant law enforcement and (upon request) the registrant.

One could read these conditions as requiring a US Platform not only to have effective screening mechanisms in place to prevent counterfeiters from using its site in the first place, but also to have taken the full laundry list of steps to avoid its own liability.  In other words, it appears that the US Platform must also have identified this potential counterfeiter before the alleged counterfeiting activity occurred, kicked it off the US Platform before the accusation was made, turned the contact information of the counterfeiter over to law enforcement, and prevented the counterfeiter from participating in the platform again, even under a different name. It is not unreasonable to believe that at least one of these steps will be missed, or that the programs implemented by the US Platforms will not be sufficiently robust enough to effectively identify and prevent counterfeiters from using their platforms for illegal activities. Unless they simply stop doing business with third-party sellers – which could completely change the business model of sellers like Amazon, eBay or Walmart.

This Bill essentially requires US Platforms to refuse to allow third-party sellers who fail to meet these criteria to sell their products on their platforms – presumably on the theory that if US Platforms refuse to allow these sellers to use their sites to further their counterfeiting schemes, then the potential avenues for distribution of such counterfeit goods would evaporate. At least in theory.

While the Bill does not eliminate the perennial “whack-a-mole problem” by preventing known counterfeiters who are blocked from a site from simply creating a new identity and resuming their counterfeiting activities under a different name – it does shift the burden for combatting this problem onto the US Platform who would be hosting these sellers and (theoretically) receiving a portion of the sales, or at least a listing fee, in exchange. The recordkeeping and pre-screening requirements this might impose on entities like Amazon or eBay could be significant – particularly since a large portion of their current business model incorporates offering products for sale by third-party sellers.

Damages Available under Current Statute for “Counterfeiting”

Recall that courts are required to award “three times the profits or damages, whichever is higher, along with a reasonable attorney’s fee”, upon a finding of counterfeiting, although a plaintiff can elect to recover statutory damages between $1,000 and $200,000 per counterfeit mark, or up to $2 million in the case of willful counterfeiting. 15 U.S.C. § 1117(b), (c). Sharing in the statutory damages as a contributory infringer could be extremely expensive for the ecommerce platforms, and this possibility could certainly “incentivize” them to engage in more robust policing of potential counterfeiting using their services – but it would undoubtedly also dramatically increase the cost of doing business under their current business models.

Potential Commercial Impact of this Bill

The screening program contemplated by the Bill may also cause US Platforms to simply close down the third-party seller aspect of their business – particularly if they determine that implementing an effective program to evaluate their current pool of third-party sellers is simply too expensive to undertake. As a result, perhaps this Bill would effectively put an end to third-party sellers offering their products for sale through large ecommerce sites because of these ramp-up costs alone.

It is also possible that this new construct would negatively impact smaller businesses based in the U.S. who do not engage in “counterfeiting” as we typically think of it – but instead merely adopt a trademark of their own that is confusingly similar to an already registered mark – and thus would cause the small business to be excluded from these US Platforms. Perhaps rather than engaging in the kind of fraud we think of when someone says “counterfeit,” these smaller business simply did not conduct a pre-use trademark clearance search before adopting a mark and using it in connection with manufacturing sufficient quantities of a product to have enough to sell once orders started coming in. Assuming the US Platforms develop a screening model that runs that trademark clearance search against the USPTO’s database before allowing a third-party seller to offer their goods through their platforms, one could foresee that these infringers would be blocked from the platform. Does this now impose an obligation on third-party sellers to conduct trademark clearance searches before launching their products or trying to get on these US Platforms?

Finally, what if the third-party seller has indeed created a low-quality knockoff of a well-known branded product – and uses its own trademark on the product. Arguably, this seller would not be excluded from the US Platform under the program required by the Bill because they are not using a counterfeit mark. If the user of that particular US Platform simply searches for the generic product name (such as “smoke detector” or “cellphone charger cable”) and sees products that are cheaper than the brand-name product – they are not protected against purchasing low quality goods that look the same and appear to offer the same basic functions. As a result, perhaps this Bill would not actually protect consumers from purchasing low-quality knockoffs through these US Platforms.

Department of Homeland Security’s Report

Notably, the Department of Homeland Security recently released a report detailing the breadth and scope of the availability of counterfeits proliferation. DHS Report, “Combating Trafficking in Counterfeit and Pirated Goods: Report to the President of the United States,” Jan. 24, 2020. Two of DHS’s primary recommendations were to “Ensure Entities with Financial Interests in Imports Bear Responsibility” (at 5) and require entities with financial interests to engage in “Significantly Enhanced Vetting of Third-Party Sellers” (at 6). This Bill appears to directly respond to these recommendations.

Bill Status

Immediately upon introduction, the Bill was referred to the House Committee on the Judiciary – but it appears that a related hearing was held before the House Committee on Energy & Commerce – “Buyer Beware: Fake and Unsafe Products on Online Marketplaces,” on Wednesday, March 4, 2020 at 10:00am. While this hearing was not directly tied to the Bill, it covered the same subject. See Pre-hearing memorandum submitted by the Chair of the Subcommittee on Consumer Protection and Commerce, Rep. Pallone, on February 28, 2020. Witnesses who testified at this hearing included representatives from Amazon, eBay, Apple, Consumer Reports and Public Citizen. Id.

2014 ABA IPL Section White Paper Directed to Online Piracy and Counterfeiting

In 2014, the ABA’s Section of IP Law proposed that U.S.-based intermediaries (such as payment processors, advertising networks, ISPs or search engines, among others) be incentivized to help stop the proliferation of counterfeit products directed to U.S. consumers. See A Section White Paper: A Call for Action for Online Piracy and Counterfeiting Legislation, 2014. A principal target of the analysis at the time were “Predatory Foreign Websites” (id. at 8) – on the theory that these sites would be stand-alone online locations for U.S. consumers to purchase counterfeit products. In particular, the Task Force working on this White Paper explained that the term “Predatory Foreign Website” was used to refer to a

limited category of foreign-originated websites engaged in large-scale piracy of U.S. copyrighted content (in this case, any work created in the U.S., covered by the Copyright Act, capable of dissemination through electronic means) or counterfeiting of U.S. trademarks (in this case, intentional use of a spurious trademark that is identical to or substantially indistinguishable from an authentic trademark, in connection with products that are not [offered for sale] by the trademark owner or its agent). In particular, while the conduct itself may be identical to that prohibited under existing law, these specific actions are not readily subject to adjudication in the U.S. because the website is either beyond the jurisdiction of U.S. enforcement authorities entirely or, even if technically subject to such jurisdiction, is beyond the reach of such authorities to enforce a judgment against them. This limited scope of illegal conduct is the focus of this White Paper.

Id. (emphasis added).   For more on this topic, see earlier posts on this blog.

For more information about the New Bill:

ABA IPL Publishes White Paper on Online Piracy and Counterfeiting

On July 7, 2014, the ABA Intellectual Property Law (IPL) Section released its comprehensive white paper, outlining the results of its research and analysis of continuing concerns about online pirates and counterfeiters based overseas.  The white paper coins a term to describe the malfeasors:  Predatory Foreign Websites.

More information about the white paper, including a summary of the conclusions and recommendations it makes, can be found in its Press Release and in the copy of the White Paper available on the ABA IPL Section’s site.

A Study in Counterfeiting: ISP Blocking Orders in the U.K.

This is part two in a series. For other posts in this series, click here
In the past few months, there have been several public debates over whether ISPs could be – or should be – ordered to block access by any user in the United States to a website that is accused of copyright infringement (in this context, it’s generally referred to as “piracy,” although that term is not defined in the Copyright Act) or trademark counterfeiting (as that term is defined by 15 U.S.C. § 1116). This topic was considered by the Senate Judiciary Committee during its February 16, 2011 hearing on “Targeting Websites Dedicated to Stealing American IP,” including in testimony delivered by Thomas M. Dailey of Verizon. Mr. Dailey recommended that the ability to obtain a court order directing ISPs to prevent an IP address from resolving should be limited to actions undertaken by the Attorney General’s office, so that private litigants would not “drain” ISP resources. Testimony at 2.

Recall that the proposed Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act of 2011 (“PROTECT IP Act” or “PIPA”) (S. 968) and Stop Online Piracy Act (“SOPA”) (H.R. 3261) foundered upon a fairly widespread opposition launched in mid-January 2012 to certain terms believed to be in the bills, including provisions for DNS blocking. Interestingly, only the Attorney General had the right – in both of these bills – to seek a court order mandating an ISP to block certain websites (as well as against three other types of intermediaries: financial payment processors, search engines and Internet advertisers). Under both bills, private rights holders were restricted to seeking court orders requiring actions to be undertaken by payment processors and Internet advertisers alone.

As a result of dramatic public pressure, proponents of the bill removed the so-called “DNS blocking provisions” before final markup sessions had occurred. See e.g., Press Release, “Smith to Remove DNS Blocking from SOPA, Retains Strong Provisions to Protect American Technology and Consumers,” Jan. 13, 2012 (“After consultation with industry groups across the country, I feel we should remove Domain Name System blocking from the Stop Online Piracy Act so that the Committee can further examine the issues surrounding this provision. We will continue to look for ways to ensure that foreign websites cannot sell and distribute illegal content to U.S. consumers.”); see also Center for Democracy and Technology (“CDT”), “Copyright Bill Advances, But Draws Plenty of Criticism,” May 26, 2011; CDT, “The Open Internet Fights Back,” Jan. 16, 2012.

As a result, proposals to require ISPs to block content in U.S. civil actions – even with a court order in hand – have essentially become dormant.

Nonetheless, it’s an interesting exercise to explore what other jurisdictions have done in this regard.

Orders Requiring ISPs to Block Access to Sites Providing Infringing Content (UK)

For instance, at least three opinions issued in U.K. cases relatively recently required ISPs to block access to websites that facilitated file sharing or other infringement of copyrighted materials. They are:

* The Studios originally sought an order that said, “The Defendant shall prevent its services being used by users and operators of the website known as NEWZBIN and NEWZBIN2 to infringe copyright.” [¶ 11].
*The day before the hearing, the requested order was amended as follows:
“1. The Respondent shall adopt the following technology directed to the website known as Newzbin or Newzbin2 currently accessible at and its domains and sub domains. The technology to be adopted is:
(i) IP address blocking in respect of each and every IP address from which the said website operates or is available and which is notified in writing to the Respondent by the Applicants or their agents.
(ii) DPI based blocking utilising at least summary analysis in respect of each and every URL available at the said website and its domains and sub domains and which is notified in writing to the Respondent by the Applicants or their agents.
2. For the avoidance of doubt paragraph 1(i) and (ii) is complied with if the Respondent uses the system known as Cleanfeed and does not require the Respondent to adopt DPI based blocking utilising detailed analysis.
3. Liberty to the parties to apply on notice in the event of any material change of circumstances (including, for the avoidance of doubt, in respect of the costs, consequences for the parties, and effectiveness of the implementation of the above measures as time progresses).” [¶ 12]

* Ultimately, the Court agreed that a blocking order was warranted, but found, “As I think counsel for the Studios accepted, the drafting of paragraph 1 still leaves a certain amount to be desired; but, as counsel for BT accepted, it is now reasonably clear what it is that the Studios are asking the court to order BT to do.” [¶ 13]
* In its case before the England and Wales High Court, L’Oreal sought: “a ruling, first, that eBay and the individual defendants are liable for sales of 17 items made by those individuals through the website, L’Oréal claiming that those sales infringed the rights conferred on it by, inter alia, the figurative Community trade mark including the words ‘Amor Amor’ and the national word mark ‘Lancôme’.” [Case No. C-324/09 ¶34.]

* “Second, L’Oréal submits that eBay is liable for the use of L’Oréal trade marks where those marks are displayed on eBay’s website and where sponsored links triggered by the use of keywords corresponding to the trade marks are displayed on the websites of search engine operators, such as Google.” [Id. ¶ 38]

* With respect to ISPs, the Court reached the following conclusions:
139. First, it follows from Article 15(1) of Directive 2000/31, in conjunction with Article 2(3) of Directive 2004/48, that the measures required of the online service provider concerned cannot consist in an active monitoring of all the data of each of its customers in order to prevent any future infringement of intellectual property rights via that provider’s website. Furthermore, a general monitoring obligation would be incompatible with Article 3 of Directive 2004/48, which states that the measures referred to by the directive must be fair and proportionate and must not be excessively costly. 
140. Second, as is also clear from Article 3 of Directive 2004/48, the court issuing the injunction must ensure that the measures laid down do not create barriers to legitimate trade. That implies that, in a case such as that before the referring court, which concerns possible infringements of trade marks in the context of a service provided by the operator of an online marketplace, the injunction obtained against that operator cannot have as its object or effect a general and permanent prohibition on the selling, on that marketplace, of goods bearing those trade marks.

141. Despite the limitations described in the preceding paragraphs, injunctions which are both effective and proportionate may be issued against providers such as operators of online marketplaces. As the Advocate General stated at point 182 of his Opinion, if the operator of the online marketplace does not decide, on its own initiative, to suspend the perpetrator of the infringement of intellectual property rights in order to prevent further infringements of that kind by the same seller in respect of the same trade marks, it may be ordered, by means of an injunction, to do so. 
142. Furthermore, in order to ensure that there is a right to an effective remedy against persons who have used an online service to infringe intellectual property rights, the operator of an online marketplace may be ordered to take measures to make it easier to identify its customer-sellers. In that regard, as L’Oréal has rightly submitted in its written observations and as follows from Article 6 of Directive 2000/31, although it is certainly necessary to respect the protection of personal data, the fact remains that when the infringer is operating in the course of trade and not in a private matter, that person must be clearly identifiable.
* Finally, “The third sentence of Article 11 of Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights must be interpreted as requiring the Member States to ensure that the national courts with jurisdiction in relation to the protection of intellectual property rights are able to order the operator of an online marketplace to take measures which contribute, not only to bringing to an end infringements of those rights by users of that marketplace, but also to preventing further infringements of that kind. Those injunctions must be effective, proportionate, and dissuasive and must not create barriers to legitimate trade.” [¶ 145(7) emphasis added]. 
  • Dramatico Enter. Ltd v. British Sky Broad., [2012] EWHC 268 (Ch) (Eng. & Wales High Court (CH) Feb. 20, 2012) – concluding that both the users and operators of the Pirate Bay infringed the copyright owner’s rights [¶ 84]; also provides a summary of an expert opinion describing how BitTorrent works [¶¶ 19-20]; summarizes several orders requiring the URL blocking or “blackholing” of the infringing site [¶¶ 3-4]. 

Other Resources
U.S. Customs & Border Protection and U.S. Immigrations and Customs Enforcement, Report on 2011 Counterfeit Seizures, Jan. 12, 2012 (Press Release, Jan. 12, 2012):

“The growth of websites selling counterfeit goods directly to consumers is one reason why CBP and ICE have seen a significant increase in the number of seizures at mail and express courier facilities,” said Acting CBP Commissioner David V. Aguilar. “Although these websites may have low prices, what they do not tell consumers is that the true costs to our nation and consumers include lost jobs, stolen business profits, threats to our national security, and a serious risk of injury to consumers.”

European Commission, Report on EU Customs Enforcement of Intellectual Property Rights, Results at the EU Border, 2011 (released July 24, 2012) (press release) (facts and figures): This report provides summaries of relevant data about seizures by EU customs, broken down by member country or by types of goods, but also reaches conclusions about the impact and nature of the infringement. For instance, it explains, “Counterfeiters do not concern themselves with product development costs, garantees [sic] or advertising. Profit is maximised by the theft and copying of an original idea, often with cheaper materials. Nevertheless, IPR infringing goods are increasingly sold at a price similar to that of the original goods and effectively substitute them on the market.” [at pages 13-14.]

* The report also concludes that of the goods seized at the border, 97% of them (by quantity) infringed trademarks and 93.36% of them (by value) infringed trademarks. [at 18]

European Commission, The EU Single Market, Enforcement of Intellectual Property Rights – focusing on online piracy and counterfeiting.

EU Information Society Directive (2001/29/EC)

The European Observatory on Online Piracy and Counterfeiting, established in 2008.

Specific Disclaimer

Note that the author is not licensed to practice in the European Union or its member countries, and therefore does not purport to render a legal opinion about the application of these cases to specific facts. This analysis is provided merely as an example of restrictions on ISPs that courts have ordered with a stated purpose of combating online piracy or counterfeiting based on existing law.

A Study in Counterfeiting Remedies – Denmark’s Approach

This is the first in a series of articles on remedies considered for online counterfeiting and piracy, in light of the dismantling of the proposals set forth in the Protect IP Act (PIPA) and the Stop Online Piracy Act (SOPA) from earlier this year. For more on PIPA and SOPA, please see the prior posts on these topics.

The purpose of these articles is to explore potential ways to combat online counterfeiting and piracy, and in particular the type of counterfeiting and piracy that occurs overseas, but is directed at a U.S.-based audience. The most notable example in recent months is Megaupload, which has been taken down in a cooperative effort of seven countries. (For more on the Megaupload take-down, visit The Guardian (UK)’s Megaupload Page and the US Department of Justice’s news release announcing the indictment. For more about the U.S. Immigrations and Customs enforcement take-downs, see ICE’s news releases about its intellectual property enforcement efforts.)   

However, cooperative effort across borders is only possible with countries that share the U.S.’s protection of intellectual property rights. Not all countries do. So, what are trademark and copyright owners to do to protect their IP rights in the online world, where geographic borders mean very little?

This series will examine enforcement efforts in other countries as an illustration of possible enforcement mechanisms that might be available, depending on how new legislation on this topic might be written.

Danish Maritime & Commercial Court Decision

A few days ago, Norsker & Co. (a Danish law firm) posted an article about a recent case, Hublot SA Geneve v. Bronsztejin in the Maritime and Commercial Court (May 3, 2012). According to the article, Danish purchasers ordered counterfeit Hublot watches from a Chinese online service. They paid Dkr$2,250 (USD $2,664.41) for these five watches. When the watches arrived at Danish customs, they were seized, pending proof that they had been purchased for private use. The purchasers did not provide such proof and the counterfeits were destroyed. 

The court then punished the purchasers of these counterfeit watches, by assessing monetary fines and destroying the counterfeit watches. There does not appear to be any action taken against the sellers or any other entities in the distribution chain. The purchasers were required to pay the Danish Customs Office’s cost to destroy the counterfeit goods (Dkr2,500 = USD $438.34), damages for the trademark violation (presumably paid to the trademark holder) in the amount of Dkr5,000 (USD $ 859.49) and “costs” (presumably the court costs) in the amount of Dkr15,500 (USD $ 2,664.41). (Currency converter used here was accessed on May 22, 2012).

As a result, it appears that in Denmark, the courts have chosen to punish the purchasers of the counterfeit goods, and not the intermediaries in the distribution chain. The summary did not mention any other defendants – such as the payment processor who processed the credit card payment, or the shipping service that carried the goods across borders.

Future Articles

The articles to follow in this series will consider enforcement mechanisms imposed in other countries – and perhaps competing types of enforcement within the same jurisdiction – to see what other enforcement possibilities have been considered. Please note that I take no position on the effectiveness or fairness of any of these measures, but instead am collecting a laundry list of possible sanctions and targets of those sanctions for research purposes.