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This article advances the idea that liability can play an instrumental role making platforms safer for users and for society more broadly. An open question is whether civil liability is the best mechanism to accomplish these goals, or whether regulation would prove more effective. Social media and other platforms share similarities to common carriers and public utilities and so, by analogy, one could in principle regulate them in similar ways. Platform liability arguably has substantial advantages over regulation. Specifically, given the complexity and diversity of platforms, it would be difficult (and perhaps inadvisable) for regulators to set uniform safety standards.123 Moreover, given the rapidly changing market conditions, regulators would be chasing a moving target. Platforms, especially big tech platforms, have the relevant information to weigh the social costs and benefits. Liability would give platforms financial incentives to use their discretion for the greater good.

The main statute of modern trademark law, the Lanham Act of 1946, defines infringement as "use of an identical or similar mark that would cause confusion as to the source of goods or services." The symbol ™ signifies an unregistered trademark, which is protected from infringement by state-level common law within the geographic area in which the mark is used. The symbol ® signifies that a trademark is officially registered with the USPTO. Registration extends protection against infringement to the national level, provides prima facie evidence of ownership, the power to file actions in Federal court to obtain injunctions and recover damages, and the mark is listed with the U.S. Customs and Border Protection Service, which interdicts the import of counterfeit goods.

7. Should any revisions be made to the definition of “goods that implicate health and safety?”

The current language in the bill reads:

1. Harmonize Type of Goods- SHOP Safe is limited to goods that implicate health and safety52 and I recommend that the type of goods be harmonized.53 It is not clear from the language as to who will be the determiners of whether a good implicates health and safety. I would advocate that the classification be removed and be applied to the sale of any counterfeit goods for several reasons, and if it cannot be removed that a broad interpretation of ‘goods that implicate health and safety’ is adapted.

a. Determination by Online Marketplaces- First, it appears that this would require marketplaces to determine whether each individual product that is posted for sale implicates ‘health and safety’. This could become incredibly onerous,54 and inconsistent, instead of applying it across the board to any product to which a trademark is affixed.

These social media marketing tactics are helping to grow a "counterfeit culture." 18 This growing "counterfeit culture" increases the demand for counterfeit goods. 119 In some cases, the influencer unintentionally encourages others to purchase counterfeit goods by posting content including the legitimate item. 120 In other instances, influencers purposely encourage and benefit from others purchasing counterfeit goods by directly linking infringing items, oftentimes to online marketplaces like Amazon, and making a commission. 121

C. Policing Counterfeits on Social Media

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First, Congress should harmonize these bills into one bill to make it easier for ecommerce platforms to comply with them. For instance, each of the bills requires e-commerce platforms to distinguish certain types goods or third-party sellers from others – whether its toys vs. non-toys (the SANTA Act), goods the implicate health and safety vs. goods that do not (the SHOP SAFE Act of 2020), or high-volume third-party sellers vs. low-volume third-party sellers (the INFORM Consumers Act). Asking e-commerce platforms to make these distinctions invites litigation over how they make these decisions instead of taking the shortest path to each bill’s goal of keeping counterfeit goods off e-commerce platforms. Sometimes the best solution is the simplest: enact one bill that requires e-commerce platforms to apply the same verification and due diligence requirements for all types of goods sold be all third-party sellers.

1. Harmonize Type of Goods- SHOP Safe is limited to goods that implicate health and safety52 and I recommend that the type of goods be harmonized.53 It is not clear from the language as to who will be the determiners of whether a good implicates health and safety. I would advocate that the classification be removed and be applied to the sale of any counterfeit goods for several reasons, and if it cannot be removed that a broad interpretation of ‘goods that implicate health and safety’ is adapted.

a. Determination by Online Marketplaces- First, it appears that this would require marketplaces to determine whether each individual product that is posted for sale implicates ‘health and safety’. This could become incredibly onerous,54 and inconsistent, instead of applying it across the board to any product to which a trademark is affixed.

Upon the implementation of this new test, it would take at least eighteen months for online marketplaces, third-party vendors, and consumers alike to feel its positive impact.257 In the beginning, online marketplaces will likely expend more costs on personnel and machine-learning technology to comply with robust anti-counterfeiting measures.258 At first blush, it might seem that this proposal only benefits large online marketplaces. However, this is far from the case. E-commerce giants like Amazon and eBay would need to hire more personnel, like private investigators, to screen listings for possible infringement.259 Smaller companies like Etsy, for instance, who make money by empowering sellers, would also benefit.260 For example, better communication and greater collaboration between brand owners and online marketplaces can increase the detection of counterfeit activity.261 Alibaba, for example, provides automatic notice and takedown measures.262 If a seller fails to reply to an original complaint of trademark infringement, Alibaba automatically removes the listings with the products.263 According to Alibaba, it spends more than $16.1 million annually in efforts to combat counterfeiting.264 The marketplace, which aims to support small businesses, delists infringing listings as soon as possible.265 Brand owners would also be more likely to cooperate with online marketplaces’ investigators regarding their recent products and designs by meeting with them occasionally and providing them with informational documents.266 Third-party sellers using the platform could opt to take their business elsewhere in the absence of anticounterfeiting resources.267 Therefore, the long-term effects will likely weigh against any short-term difficulties.

However, making big platforms subject to a more stringent liability regime than smaller ones could have the unintended effect of transferring illegal content and material from big platforms towards smaller ones.45 This could strengthen the competitive advantage of big platforms if users observe or believe that the risk of being harmed (e.g., the risk of buying a counterfeit product) is larger on smaller platforms and, consequently, decide to favor (even more) big players for their online activities.46 Again, one way of addressing this problem would be to encourage the transfer of technology and data from big platforms to smaller ones and, more generally, to support the development of a well-functioning market for monitoring tools. That would allow small platforms to detect and remove illegal content and material more effectively and to ensure users that the likelihood of suffering harm on them is not higher than on big platforms.

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.

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While there are some 25 agencies across the federal government that are engaged to varying extents in efforts to monitor, deter, and prevent the importation and sale of counterfeit goods, CBP is the primary federal agency responsible for preventing goods that infringe U.S. copyrights, registered trademarks, and certain patents from entering the United States.37 This includes the operation of the National Targeting Center, which identifies IP rights violators and refers them for further investigation. CBP also partners with the private sector to conduct risk assessments of shipments, share specific industry standards with CBP field officers, as well as discuss emerging trends, technologies, and ways to cooperate on the enforcement of IP rights.

As e-commerce trends skew heavily to direct-to-consumer sales, counterfeit consumer goods are no longer arriving at ports in shipping containers for customs agents to inspect, as they have done for hundreds of years. Instead, they’re being hand-delivered, one or two items at a time, by local postal services, evading a system that cannot scale up staff numbers to inspect every parcel. And for large-scale shipping of counterfeit items, forgers take advantage of free-trade zones, effectively laundering money through cargo.

The rapid growth of the secondhand market and online peer-to-peer platforms is another significant contributor to the increase in counterfeiting. It can be difficult to detect the authenticity of products from photos or seek refunds on peer-to-peer platforms; and while major resale platforms forbid the selling of counterfeit products, it’s a challenging rule to enforce.

These criminal penalties have been largely ineffective in eliminating the wide-scale infringement of consumer goods because U.S. laws do not impose significant penalties for infringement45 and the producers of infringing goods are generally located outside the United States.46 Where the operation includes a storefront or offers goods in-person, the individual sellers of counterfeit goods are often illegal immigrants working in informal trafficking rings with ties to producers or organized crime outside the United States.47 The arrest of individual sellers has a limited impact on the importation of counterfeit goods because the individual sellers are generally replaceable due to their illegal status.48 In addition, trafficking rings can easily utilize mainstream shipping methods to move large quantities of infringing product into the U.S. or other developed countries‘ markets.49

Furthermore, even when offenders are arrested they are generally not punished to the full extent that the intellectual property laws allow. The Obama Administration‘s White Paper on Intellectual Property Enforcement Legislative Recommendations (“White Paper”)50 recommended an increase in the sentencing range for intellectual property crimes (less than half of those convicted received prison sentences) and for recidivist intellectual property crime offenders.51 The White Paper noted that intellectual property crimes were light on punishment despite the high profit margins associated with trademark infringement, providing the incentive to sell counterfeit goods, and the relationship of counterfeiting activity to organized crime.52 It is not yet clear if the implementation of these recommendations will impact the counterfeit market.

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By the same token, third-party sellers’ use of e-commerce platforms in this way comes with obvious risks to consumers. Unlike when it sells its own branded products, e-commerce platforms cede control to third-party sellers to decide which products to sell, the means of shipping those products, and even pricing. Thus, although e-commerce platforms will typically prohibit third-party sellers from trafficking in illegal products, a counterfeiter can easily circumvent this prohibition by making the counterfeit product appear genuine. Furthermore, e-commerce platforms may not collect sufficient information to identify third-party sellers – making it harder (and in some cases impossible) for customers or brand owners to pursue third-party counterfeiters or those selling counterfeits online. And when ecommerce platforms neither store nor ship the third-party sellers’ products, they are effectively choosing to be blindfolded from seeing whether the products sold by third parties are genuine, or even seeing third-party sellers’ real identities.

The foundation of our trademark system predates global, nearly instantaneous e-commerce and is not equipped to address the online counterfeiting issues experienced today. Under the current legal framework, online intermediaries are generally not liable for the products sold on their platforms by third parties. This often creates a disincentive for those intermediaries to proactively stop the sale of counterfeits and other harmful products. Instead, many online marketplaces have a huge financial incentive to allow these sales, while enjoying extremely low risk of legal liability- they make a profit off each sale and they benefit from the "network effect" of scale that discourages robust seller vetting. It is readily apparent that there is a need for legislation to address the issue of counterfeit goods sold on e-commerce platforms. Online counterfeiting continues to be a growing issue for AAFA members, and the COVID-19 pandemic has only exacerbated this problem. The pandemic has disrupted supply chains worldwide and forced physical stores and markets to close repeatedly or for long periods of time, drastically driving consumer traffic to online channels. While we embrace the growth of e-commerce, unfortunately, counterfeiters have as well, taking advantage of these circumstances globally and flocking to sell their fake goods online.

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For its part, Amazon made a series of new announcements in its efforts to combat counterfeits sold on its platform. For instance, on January 13, 2020, and perhaps in anticipation of the DHS Report’s release less than two weeks later, Amazon announced though an anonymous source that, going forward, it “will report a merchant’s name, company name, product and contact information to authorities, after it confirms a business was selling fakes, closes the seller’s account, and the account holder does not make a successful appeal via Amazon’s typical processes.”78 This effort may produce an impressive number of referrals to law enforcement, but it may not be a good measure of its effectiveness for one simple reason: evidence of counterfeiting alone is not a federal crime. Federal law generally authorizes criminal prosecutions only against those who intentionally traffic in goods and knowingly use a counterfeit mark.79 Recent initiatives with the National Intellectual Property Rights Coordination Center, part of the U.S. Department of Homeland Security, have been coordinated to discuss data sharing with federal law enforcement.80 However, flooding law enforcement with information about thousands of third-party sellers without any evidence that the seller knew the mark was counterfeit will probably be an empty exercise that will lead to few new federal criminal trademark counterfeiting prosecutions.

U.S. footwear companies are involved in various programs and activities internationally to address shortfalls in this area: awareness campaigns; domain name seizures; collaboration on investigations and actions against vendors active on social media, through websites, or selling platforms; and participation in the Memorandum of Understanding lead by the European Commission, which aims to facilitate collaboration between brands and several major selling platforms.

While these actions are important in helping to combat online sales of counterfeits, their impact has been limited for a number of reasons: platforms do not willingly and fully share the information they have regarding counterfeiters, law enforcement agencies have difficulties prioritizing the targets for which their action would have the biggest disruptive impact, brands do not have the capacity to easily identify targets or the most visible and active counterfeiters, and it remains very difficult for brands to identify counterfeits offered online without assistance from the platforms that have background information regarding their vendors (brands do not have access to this information). Some FDRA companies have also been unable to effectively engage with foreign countries, because they have been unable to locate the originating source of the counterfeit product.

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1.The Burden of Enforcement is Disproportionately Reactive and Placed on the Rights Holder

It is beyond dispute that counterfeits cause grave harm to innovation and our economy. The National Association of Manufacturers estimates that counterfeits sucked $131 billion (about $400 per person in the U.S.) from the U.S. economy in 2019, and in the process destroyed more than 300,000 U.S. jobs and wiped away nearly $10 billion in federal, state, and local tax revenues.4 This is an issue for governments and businesses of all sizes. The burden of constantly monitoring websites – while tough for an external observer – is particularly rough for small businesses, especially if they derive their entire livelihood from the internet. While nobody has the resources to be everywhere all at once, this is particularly the case for small businesses that have limited means to stop illicit actors from illegally selling their innovative product.

As e-commerce grows exponentially in the future, the need for better trademark laws vis-à-vis counterfeit goods has never been more important.307 Since Tiffany, small businesses have faced more hurdles in protecting their brands.308 With the burden of policing counterfeits now falling squarely on their shoulders, brand protection is becoming financially difficult for small businesses.309 This reality contrasts sharply with the objective of trademark law, which is to build the reputation of brands and businesses in a market.