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As a result, the problem isn't that the Lanham Act does not provide a cause of action for trademark infringement and counterfeiting that would apply where a broker sells parts bearing the trademark of the actual manufacturer but where the model numbers, date codes, serial numbers, or other markings have been changed. Instead, it seems more likely that trademark owners are either unwilling or unable to bring civil actions against counterfeiters. There are a number of reasons why they might be reluctant to do so.

B. Parts Manufacturers May Be Concerned that Filing Trademark Infringement Suits Will Damage Their Brands

The study, which was conducted by the USPTO, analyzed current trademark enforcement as well as the impact of such enforcement on the marketplace. It evaluated the scope of trademark rights and litigation. As for trademark bullying at the pre-litigation stage, it found that empirical evidence was lacking and solicited public comment to determine its impact. It sought feedback from trademark owners and practitioners “regarding their experience with litigation tactics, especially those involving an attempt to enforce trademark rights beyond a reasonable interpretation of the scope of the owner’s rights.”18 One prompt used by the USPTO in soliciting comment included the following:

Please describe situations where you have been involved in receiving a cease-and-desist letter. Anecdotal information might include, but is not limited to, a description of whether the letter resulted in the small business ceasing its use of one or more marks, or whether the sender of the cease-and-desist letter withdrew or abandoned its demands against the small business owner.19

Perhaps the strongest iteration of post-sale confusion without counterfeiting is the Ninth Circuit’s decision in Au-Tomotive Gold, Inc. v. Volkswagen of America, Inc.[213] That case concerned Au-Tomotive Gold, a maker of custom, “marquee” license plates for cars that sold products alleged to have infringed Volkswagen’s logo.[214] Strikingly, the logos in question were physical Volkswagen badges sold by authentic Volkswagen dealers to be used as replacements for damaged car parts.[215] Au-Tomotive Gold purchased the legitimate badges, gold plated them, and affixed them to blank decorative license plates.[216] Despite the fact that Au-Tomotive Gold disclosed the fact that its license plates were not produced by Volkswagen and initial purchasers were not confused, the German auto giant accused the small company of trademark infringement on the basis that potential consumers seeing the plates could believe Volkswagen was a sponsor.[217] The court found for Volkswagen, determining that Au-Tomotive Gold’s first-sale rights did not extend to “observers.”[218] In fact, the court did not even ground its ruling in the likelihood that future consumer purchases could be impacted, calling post-sale confusion “a free rider problem.”[219] According to the court, purchasers never gain any rights to trademarks of the goods they purchase, and “[i]f a producer profits from a trademark because of post-purchase confusion about the product’s origin, the producer is, to that degree, a free rider.”[220]

Although the Au-Tomotive Gold decision received its share of criticism,[221] the underlying theory of liability for the facts of the case—that is, the creation of a modified, genuine good as opposed to a counterfeit producing post-sale confusion—remains viable, and subsequent courts have applied it.[222] A recent example is an upcycling case that, in part, included allegations of post-sale confusion: Hamilton International Ltd. v. Vortic LLC.[223] This case involved an entrepreneurial firm that created a business model of acquiring movements from old pocket watches (i.e., pocket watches with the cases removed), repairing the movements, 3D printing a new case, and selling the modified timepiece as an upcycled wristwatch.[224] Far from a cheap repair for budget-minded consumers, the modified Vortic watches are sold for thousands of dollars to watch aficionados.[225] Each watch retains the face from the original pocket, which in the litigated case was one crafted by the Hamilton Watch Company when it was an American firm in the early part of the last century.[226] The current owner of the Hamilton brand, Swiss conglomerate Swatch Group, Ltd., sued Vortic for trademark infringement.[227]

IV. Repair or Remanufacture Creates Conflicts That Are Not Necessarily Constrained by Trademark Limitations

Given the fact that keeping a used and unwanted product out of a landfill generally requires some product modification, the doctrines of first-sale and fair use are occasionally in tension with the activities necessary for sustainability. It is true that the limitations work well in the context of an individual who wishes to privately resell a privately owned good or repair an item for continued personal use. However, when the goal is to create a robust secondary market in materials that would otherwise be discarded, trademark law creates some problematic and uncertain hurdles. Those hurdles are more likely to be erected by the owners of high-profile marks, and they will tend to impact those smaller entrepreneurs who have the greatest interest in engaging in repair or upcycling.

Current linear market patterns, characterized by rampant overconsumption, cast a looming shadow over the environment, contributing significantly to its degradation.1 In response, the urgent need for environmental consciousness is increasingly recognized, with various practices, such as repair, refurbishment, and fashion upcycling, having emerged as beacons of hope in mitigating the adverse effects of overconsumption.2 These practices represent tangible efforts to reduce the environmental footprint, especially in the context of unfolding climate change.3

However, an unexpected barrier obstructs these sustainable practices– intellectual property (IP) protection. Despite the pressing call for a shift in linear modes of consumption, IP laws fail to align with sustainability goals. Across jurisdictions, IP holders, wielding near-absolute control over their productions,4 are well-equipped to allege trademark or copyright infringement in relation to goods incorporating their intellectual creations. In certain cases, they have even already initiated legal actions against repair, refurbishment, and upcycling businesses in this regard.5 The internal mechanisms within IP laws, theoretically capable of safeguarding sustainable practices through concepts like IP exhaustion and exceptions, are often interpreted by the courts to favour stringent protection of IP holders, creating, at most, conflicting outcomes.6 This, in turn, generates legal uncertainty that further chills environmentally friendly practices and sustainable business models.7

Overall, the understood barriers to upcycling and repair are strong, but there can be ways to circumvent them if the goal is simply producing a repaired or improved product. However, another legal threat to upcycling and repair exists, and it is much more likely to occur. That threat is trademark infringement or branding confusion. Firms may be able to assert consumer confusion as to a product’s source as a tool to stop third parties from offering a modified version of the original good. In addition to free riding off an established brand name, a producer may justify such action on the grounds of safety or quality as well.

There are signs that the trademark threat is growing even as consumers increasingly embrace sustainability and repair technologies become more dispersed and accessible. On the other hand, it is certainly possible for an upscaler or repairer to accomplish the beneficial activity without any confusion if consumers are aware of the parties’ respective roles. Unfortunately, the activities that create liability versus those that are fair uses are less than clear, and current jurisprudence contains many conflicting or contrary rules. Without a more established path, it is possible that a desirable path to sustainability will be reduced due to the fear of litigation.

The global economy remains wasteful, linear, and excessively dependent on fossil fuels. Despite the rise of the circular economy concept, over 90% of resources end up as waste, accelerating both pollution and climate change.

Challenges of Shifting to a Circular Economy: Transitioning from a linear to a circular system is complex. Replacing the “take, make, dispose” model requires a collective effort, rethinking consumerism, and reshaping supply chains to design out waste and enhance product longevity.

Despite the circular economy entering the mainstream, global circularity is still in decline.

Over the past five years, the volume of discussions, debates, and articles addressing this topic has almost tripled, reflecting a heightened awareness and interest in circularity.1 However, the vast majority of extracted materials entering the economy are virgin, with the share of secondary materials declining steadily since the Circularity Gap Report began measuring it: from 9.1% in 2018 to 7.2% just five years later in 2023. Meanwhile, the total amount of materials consumed by the global economy continues to rise: in just the past six years alone we have consumed over half a trillion tonnes of materials—nearly as much as the entirety of the 20th century. These statistics display the cold, hard truth: despite the circular economy reaching ‘megatrend’ status, lofty speeches and targets are not yet translating into on-the-ground actions and measurable impacts. Without bold, urgent action to shift to a circular economy, we'll miss out on achieving broader social and environmental goals—ranging from emissions reductions to boosting the use of secondary materials—putting industries and governments at risk of sleepwalking into circular washing and missing out on much-needed impact.

//DH

A circular economy is most effective when working symbiotically across supply chains to create value. However, a strong waste-centric and “end-of-pipe” narrative limits the vast social, economic, and environmental opportunities that newer circular models can offer, such as dematerialization and greater resource optimization. These economic opportunities are far broader and more diverse than those focusing solely on end-of-life activities, especially in an ideal circular economy where products and processes are designed to avoid the creation of waste in the first place. But the current global economy is only 8.6% circular and trending down from previous years.[29] Absent a shift in policies, business and consumer behaviors, and innovation, the amount of e-waste alone could more than double by 2050,[30] driving society further away from realizing a circular economy.

//DH

Carrie Goldberg has been waiting a while for this moment. A New York-based victim’s rights attorney, Goldberg has spent years taking tech firms to court over a range of alleged abuses of their platforms—from stalking and harassment to revenge porn and other online privacy violations. It’s been a tough gig: For nearly three decades, the law known as Section 230 has shielded online platforms from lawsuits that try to hold them liable for the content that their users post. That’s made it relatively simple—too simple, Goldberg would argue—for the companies she takes on to get their cases dismissed quickly, no matter how horrifying the underlying accusations may be.

Given the debatable success of these cases in curbing counterfeiting, courts and Congress could view Schedule A suits as a drain on judicial resources. Prior to 2012, the Northern District of Illinois saw an average of 150 trademark cases a year. Now the average is well over 700, with almost 90% being Schedule A cases.

As this phenomenon spreads to other jurisdictions, the current pace and volume could become unsustainable. As such, Congress may need to consider a legislative solution that has the dual effect of combating counterfeits and preserving judicial resources. It could look to patent law for guidance.

Famous brands and performers are filling the trademark docket of certain district courts hoping to stop counterfeiters from infringing their marks. The defendants are foreign entities selling allegedly counterfeit products via online platforms, under aliases.

The plaintiff brands sue hundreds of counterfeiters as undisclosed defendants listed in a "Schedule A" exhibit, joined in a single lawsuit, seeking to take down listings, remove websites and freeze assets in e-commerce accounts.

But lawsuits are very different from marketplace takedowns through programs such as VeRO – and SAD Scheme lawsuits are in a league of their own.

Professor Goldman called them in his draft paper, “an underreported system of abusive intellectual property (“IP”) litigation” and outlined an eight-step protocol plaintiffs use in the schemes. “The complaint will contain sparse factual assertions, none particularized to any defendant,” he wrote, and, “The complaint’s generic prose makes it easy to clone-and-revise for subsequent cases.”

2. Have you pursued or defended secondary trademark infringement claims against an e-commerce platform, online third-party marketplace, or other online third-party intermediary where the claim was that the intermediary facilitated the sale of counterfeit goods, including counterfeit goods offered by a third-party seller? If so, what challenges did you face in pursuing or defending these claims under a secondary infringement theory, and what was the result?

We have not directly pursued such claims against e-commerce platforms, in light of the high bar for prevailing under the Tiffany standard. Because of this, we generally advise members and clients to consider pursuing no-fault injunctive relief through which the platform or other third parties (such as payment processors) will shut down seller accounts and any assets they control in relation to counterfeit or other infringing goods.

Law firms are increasingly using a tactic called “Schedule A Defendant” lawsuits to target online merchants on behalf of their clients in the name of trademark enforcement, and it’s having a devastating effect. A single lawsuit targeting hundreds of sellers at a time for selling a branded product can leave each seller owing many tens of thousands of dollars through default judgments that obliterate their businesses.

Law professor Eric Goldman wrote about what he dubbed SAD Schemes (“Schedule A Defendants” schemes) after being retained to opine in one such case in 2021. It led him to look at such cases holistically, and he told us he was shocked by what he saw.

The secondary liability standard is one of the leading causes for platform uncertainty in dealing with claims of trademark infringement, as we outlined above. Exacerbating this uncertainty is a lack of a second type of safe harbor (as opposed to the first type that we just discussed, categorical exemptions), one that would immunize platforms and other online entities from any trademark infringing behavior by their users. As Part III mentions, "notice and takedown" has become the unintentional default regime for trademark claims (even though the DMCA only applies to claims of copyright infringement) because copyright owners are including claims of trademark infringement within the same notice to the ISPs. 202 Particularly after the Second Circuit decision in eBay, platforms are extremely reluctant to ignore the trademark claims, even where the platform may believe the user had a good argument for noninfringement.203

Although some of the platforms themselves advocate for a DMCA-like safe harbor and process, they caution that it is not as simple as replacing the term "copyright" with "trademark." 204 Due to the differences between the rights underlying copyright and trademark, we believe that a "notice and takedown" system is too blunt of an instrument, as it lacks the ability to take into account the nuanced analysis that is required of claims of trademark infringement.205 For example, while copyright law provides for a relatively discrete examination of "substantial similarity," trademark law requires consideration of many more factors beyond similarity, including the marketing channels used, likelihood of "bridging the gap" between the goods of the defendant and the plaintiff, the defendant's intent, and evidence of actual confusion.206 In the case of counterfeit merchandise, it becomes extremely difficult to tell whether the merchandise is actually fake or not.207 And deferring to the plaintiffs determination opens up a host of potential problems that may facilitate abusive takedown requests, without independent examination.208 Therefore, we suggest that the United States needs to adopt a "notice and notice" framework, borrowing from Canada's recent adoption of such system in the copyright context.209

The legislation places prescriptive and inflexible requirements on sellers and lacks a true safe harbor, instead requiring sellers to meet specified conditions or they are held liable. These conditions are not based on an investigation or understanding of current anticounterfeiting industry practices by sellers.

The lack of a true safe harbor will incentivize endless litigation and would lead large brands to sue both online services and sellers of all sizes including small businesses with only a few employees. The Digital Millennium Copyright Act (DMCA) provides clear steps in the event of a copyright takedown notice and if the online service provider complies, there is little threat of litigation. Conversely, under SHOP SAFE sites would have to affirmatively prove they reasonably implemented the requirements. While SHOP SAFE allows a reasonableness defense, such an expensive defense would require in each case full discovery and fact finding by a jury.

The advent of the internet and proliferation of e-commerce platforms transformed how goods and services are exchanged. Unfortunately, this revolution allowed for counterfeits to “flood our borders and penetrate our communities.”184 Counterfeits, in addition to threatening public health and national security,185 also illegally infringe the rights of trademark owners. However, the internet made online counterfeiters who directly infringe trademark owners’ rights nearly impossible to identify. Consequently, trademark owners have been unsuccessful in trying to hold e-commerce platforms liable under the common law doctrine of secondary liability. Although courts have extended secondary liability—specifically, contributory trademark liability—to online service providers and marketing platforms, the current legal standard serves neither party optimally. A fundamental barrier in enacting any change to this standard lies in the balancing conundrum that contributory trademark liability rules must defend trademark owners’ interests in better protecting their brands from online trademark infringements while refraining from implementing restrict rules that deter legitimate and productive activities in the Internet marketplace.

While both legislative and judicial actions could remedy this problem, an especially effective solution would be for Congress to amend the Lanham Act to emulate the DMCA and create a similar safe harbor provision that clearly delineates the duties of e-commerce platforms and trademark owners. To better serve the purposes of trademark law, however, any amendment should also include a limited duty to police—something that is absent from the DMCA provisions for e-commerce platforms. In the absence of Congressional action, the Supreme Court could also solve the problem by clarifying the Inwood test’s knowledge standard. Although this Comment proposes two separate solutions that the Supreme Court could adopt, the Luxottica approach would likely be most effective. Under that approach, the Court would clarify that actual or constructive knowledge of direct infringements could arise from various sources. Additionally, the Court could impose a reasonable duty to perform at least a cursory investigation of their platforms after receiving valid allegations of direct infringements from trademark owners. Despite having both legislative and judicial options for solving the contributory trademark infringement problem as it relates to e-commerce, Congress is best equipped to formalize a uniform standard efficiently and expeditiously by amending the Lanham Act. The sooner Congress acts, the sooner that tens of millions of brand owners and e-commerce platforms could cooperate more effectively to curb online trademark infringements and stimulate healthy economic growth during the internet age.

To better protect trademark owners’ rights from online infringements and to avoid placing undue duties or liabilities on ecommerce platforms, this Comment offers both a legislative and a judicial solution. Specifically, Congress could achieve the balance between trademark owner’s rights and e-commerce platforms’ liabilities by amending the Lanham Act to mirror the Digital Millennium Copyright Act. Alternatively, the Supreme Court could achieve the balance by adopting a relaxed approach to the Inwood test that deviates from Tiffany’s approach.

A. Congressional Action: Creating a DMCA-type Amendment to the Lanham Act

157 There are concerns with the DMCA around floods of takedown requests being filed. That flooding in the copyright context is one reason that adding a deposit requirement to the trademark context will be beneficial. See BRUCE BOYDEN, THE FAILURE OF THE DMCA NOTICE AND TAKEDOWN SYSTEM: A TWENTIETH CENTURY SOLUTION TO A TWENTY-FIRST CENTURY PROBLEM 1 (2013), https://sls.gmu.edu/cpip/wp-content/uploads/sites/31/2013/08 /Bruce-Boyden-The-Failure-of-the-DMCA-Notice-and-Takedown-System1.pdf [https://perma.cc/JA9T-PU2W] (noting there were 6.5 million takedown notices sent each month in 2013).