Making Online Marketplaces Liable for Contributory Trademark Infringement Will Harm Consumers

By Alyssa Aguilar

In an attempt to protect consumers from defective and unsafe counterfeit products online, Senator Coons (D-DE) introduced SHOP SAFE (Stopping Harmful Offers on Platforms by Screening Against Fakes in E-commerce Act of 2021) in May 2021. Representative Nadler (D-NY) proposed an amendment on September 26, 2021 that has since been adopted. On January 25, 2022, the House of Representatives inserted this proposed legislation into the America Creating Opportunities for Manufacturing, Pre-Eminence in Technology, and Economic Strength Act (COMPETES) Act of 2022, previously referred to as USICA (United States Innovation and Competition Act). Although many legislators were concerned about SHOP SAFE, no changes were made when it was inserted into COMPETES.

COMPETES is a nearly 3,000 page trade bill that authorizes billions of dollars to boost domestic research and development to enhance the country’s global competitiveness, as well as for critical supply chains and science, technology, engineering, and mathematics (STEM) education and training. It also seeks to provide support to early-career researchers, to diversify the research workforce, and increase reporting requirements for foreign gifts and contracts to institutions of higher education. This bill is being presented as a way to remain competitive with China in the semiconductor and other technology focused industries. COMPETES was passed by the House 222-210 on February 4, 2022 and will now need the House and Senate to compromise as it reaches the Senate. President Biden has spoken out in favor of COMPETES and if it makes it to his desk, he is expected to sign the entire bill into law. 

Now to SHOP SAFE. How does this fit into COMPETES? It doesn’t. What SHOP SAFE sets out to do is amend the Trademark Act of 1946 by creating a cause of action for trademark registrants that would hold e-commerce sites contributorily liable when third-party sellers use counterfeit marks on their products that “implicate health and safety”. SHOP SAFE does not provide any clarity or boundaries to what products “implicate health and safety”, other than saying it applies to “goods the use of which can lead to illness, disease, injury, serious adverse event, allergic reaction, or death if produced without compliance with all applicable Federal, State, and local health and safety regulations and industry-designated testing, safety, quality, certification, manufacturing, packaging, and labeling standards.” So the goods in question could be almost anything, because what doesn’t lead to potential illness or injury with certain kinds of use?

Back in 2010, Tiffany v. eBay held that online marketplaces were not liable for trademark infringement, false advertising, or trademark dilution when a third-party seller sold counterfeit goods. SHOP SAFE would essentially overturn the Tiffany decision and open up third-party sellers to liability. Trademark owners would now be able to pursue both the infringing party, the third-party seller, and the online marketplace. The bill does not require that trademark holders send takedown notices for these situations.

Well if third-party sellers aren’t selling counterfeit goods then they should be fine, right? Not necessarily. SHOP SAFE would require online marketplaces to implement systems or “reasonable proactive technical measures” that pre-screen for trademark infringement. These technological measures would likely involve a type of automated screening or filtering, which is susceptible to error and overcorrection and products that are in compliance could unintentionally be flagged. These pre-screen measures have already not been very effective in the copyright space in distinguishing between infringing and non-infringing uses, and we don’t see why that would improve with trademark. 

One of the biggest issues with SHOP SAFE is it’s circular definition for what is considered “counterfeit” or a “counterfeit mark”. The bill defines it as “a mark that is counterfeit”. If we look to the Lanham Act, there is no definition. We can find a definition in the United States Criminal Code 18 U.S.C. 2320(f)(1), but SHOP SAFE does not amend or even point to the criminal code. We are likely left to look at common law and counterfeit can be interpreted broadly enough to include “knock-offs”, items that have a variation of the mark, or whatever other definition the courts seek to apply. 

Additionally, there are a lot of words that sellers use to describe goods that are actually trademarked. For example, Sealed Air Corporation owns the trademark for bubble wrap, Gerber for onesie, Wham-O for frisbee, Mathomos for lava lamp, and the list goes on and on. If a seller uses any of these words in the product name, description, a tag, etc. the automated filters would likely catch it and that may be enough to remove the entire listing. If a seller is selling bubble wrap they would have to use a different, non-trademarked name. But now, how would buyers find what they want? If you search “bubble wrap” on an online marketplace, listings for bubble wrap used in packaging come up. If you search for “bubble pack”, a synonym, you will probably find packs of liquid bubbles, miscellaneous bubble toys, and maybe some bubble wrap. Perhaps a more frustrating issue is if a seller is attempting to list something like “apple mug” , a coffee mug shaped like an apple. The filters then catch Apple, like Apple Inc., and take down the listing. Whether sellers are creating their own products or reselling used products, they would be affected. Buyers would suffer from a normal search becoming immensely complicated and confusing.

Another technical measure SHOP SAFE implements is a three-strikes rule that states if the e-commerce site has “reasonable awareness” of infringement the website must take down the listing. If the seller’s account has three separate violations within one year, you’re out, the account will be terminated. Reasonable awareness of infringement does not mean infringement was found. Is reasonable awareness found when the automated filters catch infringement or does there need to be further investigation? The bill does not state. Therefore, if an online marketplace catches a seller using the term “frisbee” three times in one year, whether only through the automated screening filters or whatever other means, the seller’s account is terminated and they are shut out of the market. 

SHOP SAFE would also create significant privacy risks for sellers. E-commerce sites would now have to require that sellers provide information to verify their identity, address, and contact information through government issued ID’s or other forms of identification. There is additional information on government issued ID’s that these sites would have no need for, but would still be stored in their systems and susceptible to security threats, breaches, or an overreach by law enforcement. Further, if a seller wants to sell controversial items, their information will be available for people or companies who want to target them, whether online or in person, since their address and other contact information had to be provided. 

What is worse, is the cost for e-Commerce sites to implement these new identification and “technological measures” would likely fall on the sellers. SHOP SAFE states that the cost will not fall on trademark owners, so that only leaves the sellers and the online marketplaces. These costs may be manageable for some sellers, but not for all, essentially shutting some out of the market. In a 2021 Report from JungleScout that surveyed Amazon sellers, over 20% of sellers derive their income solely from selling on Amazon. New sellers, within their first year or two of business, are making an average of about $42,000.00 a year in profits. SHOP SAFE compliance and/or takedowns would render some of those 20% without an income at a time where Americans are struggling financially. 

Fewer sellers in the marketplace hurts competition and we will likely see less diversity in product offerings and potentially, lower quality. No one wins, except the trademark owners. Sellers are overburdened with compliance costs, fears of being shut down by automated filters, and privacy concerns. Buyers are left with fewer choices, worse options, and higher costs, again at a time where so many Americans are already struggling. Small businesses have been especially impacted during the pandemic and SHOP SAFE exacerbates this problem in favor of large corporations. Additionally, this bill would position companies with an abundance of money and resources to become even more dominant. Congress has previously brought up their concerns about online marketplace dominance and how to combat it, but SHOP SAFE would make those concerns reality.

What can you do? Call your Senators and let them know that SHOP SAFE is not the answer to their concerns and has no place in COMPETES. While some of these concerns that SHOP SAFE attempts to address are valid, there has to be a balance between protecting consumers, encouraging competition and the entry of new participants, and ensuring privacy. IP Justice believes in a robust and diverse online marketplace and SHOP SAFE puts that in jeopardy.