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The INFORM Consumers Act is similar to the SANTA Act, but it broadens the scope of protection from toy sellers to all high-volume sellers.150 One issue with this law is that online counterfeiters can evade its reach by creating multiple low-volume accounts, therefore never triggering the enhanced scrutiny reserved for high-volume retailers. The INFORM Consumers Act requires some verification documents and use of such documents may reduce this problem.151 However, the reliance on verification documents is troubling because the INFORM Consumers Act does not provide much detail on whether Online Marketplaces have an obligation to ensure the documents are authentic.152 A further weakness of the INFORM Consumers Act is that it suspends sellers who do not comply with the Act until they comply; this allows noncompliant sellers to simply create new accounts and continue their activities.153

Many platforms have created extensive tools for brands to register their marks (a type of recordation), work to identify counterfeit listings for take down efforts, and collaborate with law enforcement agencies and intellectual property rights owners.38 While I referred to these activities in 2020 and 2021, we have not seen a decrease in counterfeit sales online, but the opposite with intellectual property rights owners’ frustrations growing and more consumers in the U.S. being exposed to the purchase and sale of counterfeit goods.

While Amazon has implemented some robust anticounterfeiting measures— and is spending over 700 million dollars per year to protect its platform from fraud and abuse—many sellers are still marketing counterfeit goods on Amazon.114 In fact, Amazon admits that the actions it has taken are insufficient to end online counterfeiting without extensive outside help.115 While Amazon’s programs seem quite powerful, they are often optional and not every brand chooses to opt in.116 Having participation rely on affirmatively opting in reduces the number of participating brands.117 Therefore, counterfeiting can still proliferate in the face of robust and effective programs because nonparticipating brands still sell large volumes of goods.118 Further complicating Online Marketplaces’ steps to stop counterfeiting on their platforms is the positive incentive they get from having some counterfeiting present. This manifests because Online Marketplaces get a similar profit from a genuine and counterfeit article.119 Having only genuine articles (which often cost more) could reduce Online Marketplaces’ profits, which cuts against their business model. However, too much counterfeiting can lead to consumer dissatisfaction, distrust, and lower sales.120 This incentive structure leads Online Marketplaces to take public steps to combat counterfeiting to assure consumers they can be trusted, but not going as far as possible to reap some of the residual profits from counterfeiting.

To combat the counterfeit problem, Amazon launched programs, such as Project Zero and its brand registry. Project Zero is an anti-counterfeiting system providing three tools: automated protections, self-service counterfeit removal, and product serialization.17 6 Its brand registry is an enrollment program used to help rightsholders protect their brand.177 The downfall of these programs is that none of their efforts seem to be stopping the sale of counterfeits, leaving the burden to find the dupes on the rightsholder. 178 Amazon even engaged in joint lawsuits with brands against its users who are selling fake items. 179 As a response to increasing pressure to resolve its counterfeit problem, the platform established a Counterfeit Crimes Unit to pursue civil litigation and criminal prosecution against counterfeiters, collaborate with brands in investigations, and help law enforcement. 180 Although Amazon's anti-counterfeiting effort is a significant improvement, the effort does not completely solve the problem; it fails to require sellers to use accurate and authorized images, transparent processes to prevent repeat offenders, and comprehensive takedown policies. 181

In addition to Amazon's efforts, anti-counterfeiting programs on online marketplaces have been inadequate for small businesses. Most marketplaces have not taken the same measures as Amazon, as the majority only provide policies against counterfeits on their websites.182 Although eBay has its VeRO program, which allows rightsholders to report eBay listings for infringement,183 the platform nevertheless maintains a self-policing model.184 On other marketplaces such as Walmart, brand owners must separately request information from the seller after submitting their infringement report. 185 Further, small businesses do not have access to some of the anti-counterfeiting measures offered by online marketplaces. For instance, eBay launched its Authenticity Guarantee program in 2020, which only provided post-sale authentication for watches valued over $2,000 and sneakers valued over $100.186 Small businesses, such as MinMac, Brush Hero, and Fuse Chicken, 187 would be unable to apply not only because they do not sell sneakers or watches, but also because their products do not meet the price threshold.188 Therefore, although these programs provide some aid, many businesses remain out of luck.

Interestingly, some of the same platforms that end up hosting counterfeiters are themselves pioneering amazing technological advancements that can put up more effective roadblocks against illicit actors. Many of them talk about their zero tolerance for counterfeits – a value that is commendable. But we’ve been hearing that for years while this counterfeit epidemic has been allowed to flourish. We are past the time to talk, and it is now time to update and create stronger federal incentives appropriate for the ecommerce eco systems – and consistent with what we have in the physical world. We must now convert those words into actions.

Counterfeit goods impose several harmful costs to manufacturers.92 First, they devalue manufacturers’ investments in innovation and infringe their intellectual property rights.93 Sellers providing counterfeit products charge lower prices, resulting in the “perceived devaluation of the real products.”94 In addition, counterfeits damage brand names and business reputations by infringing trademarks and confusing consumers with respect to the quality and source of products and services.95 The presence of counterfeit goods forces businesses to expend valuable resources on “policing platforms” and brand protection, which diverts funds from product improvement, technological development, wage growth, and job creation.96 Consequently, several luxury brands have stopped selling their products directly to online marketplaces like Amazon. As a result, Amazon now relies on thirdparty vendors to stock these products on its platform instead.97 Most importantly, counterfeiters become competitors of legitimate businesses, slicing up their sales and market shares by freeriding on investments in research and brand development.98 For example, the presence of counterfeit Nike goods on Amazon was financially damaging because counterfeiters profited from undercutting the company through the extensive sale of popular shoes such as Air Jordans, which cost $200 a pair.99 As such, counterfeit goods threaten to diminish U.S. economic growth.100

The Growing E-Commerce Marketplace Has Increased Incidents of Trademark Infringement, Including the Sale of Counterfeit Goods, and Additional Protections for American Consumers and Businesses Are Needed.

The Section agrees with the Department of Homeland Security that e-commerce platforms and online marketplaces have “revolutionized the way products are bought and sold,” but at the same time have increased the opportunities for trademark infringers and counterfeiters. See January 24, 2020 DHS Report to the President of the United States, “Combating Trafficking in Counterfeit and Pirated Goods” (“DHS Report”) at 7. In particular, these bad actors compete with legitimate businesses by offering attractive, far-reaching “store-fronts” that often provide the seller with relative anonymity and low accountability. See id.at 11. As a result, consumers are often left with either (1) little recourse to hold the sellers who use e-commerce platforms accountable for the sale of infringing or counterfeit goods or (2) the burden of extensively researching goods to determine the legitimacy of their quality and safety prior to purchase, because they cannot rely on the trademark or listed brand to confirm those features. Brand owners are also left with harm to their reputations, little recourse to enforce and protect their trademark rights against these anonymized sellers and the huge burden to have to find all of these counterfeit and infringing listings themselves to provide notice to the third-party platforms, many of which have various hurdles that must be jumped through before such a listing is taken down.

II. Combatting Counterfeiting On Online Marketplaces - A Game of Whack-a-Mole

Some online marketplaces do not require storefront owners to display their business names, personal names, or physical addresses publicly, making it often difficult for brand owners to investigate or contact these sellers through demand letters. Because of this, many brand owners are usually left with two options: (1) file infringement notices with the online marketplaces, or (2) commence litigation in court. Given the expense of litigation, many brand owners will often utilize the reporting mechanisms offered by e-commerce marketplaces as an initial course of action, by filing takedown complaints after confirming the counterfeit nature of the products offered by the marketplace’s third-party sellers. However, it is not uncommon for the sellers to be taken down by the e-commerce marketplaces, only to pop up again later under a different storefront name on the same marketplace, or to resurface on a different marketplace. These bad actors will also often operate multiple storefront accounts at one time on the same marketplace, using a different alias, mailing address, and different financial accounts, so that if one of its storefronts is taken down for counterfeiting, it will already have another backup storefront ready to continue its counterfeit sales. This leads to a never ending game of whack-a-mole for brand owners, who are forced to file take down requests day-after-day, often against some of the same sellers.

The holding in Tiffany continues to protect online marketplaces from contributory trademark infringement.85 Under the current framework, brand owners are responsible for actively policing instances of trademark infringements in e-commerce, which means reviewing thousands of third party listings on Amazon, Etsy, Alibaba, and eBay for a single product—or millions of third party listings in cases of larger brands.86 As a result, some brands refuse to sell their products on certain platforms.87 In addition, some brands such as Tiffany have counterfeit warnings on their websites to educate buyers on where to buy authentic jewelry.88 Although brands do what they can to protect against online infringements, the rise of e-commerce has exponentially exacerbated the problem.89 With an onslaught of infringements and near immunity for online marketplaces, a brand’s reputation is constantly at risk.90

Nike, a globally recognized brand, is also one of the most counterfeited in the online marketplace.91 In October 2019, US Customs and Border Patrol (“CBP”) in Los Angeles confiscated a shipment of counterfeit Nike shoes, which if authentic, would have been worth $2 million.92 CNN reported, “Customs and Border Patrol said consumers are likely to see fake Nikes online.”93 Last year, the U.S. Immigration and Customs Enforcement confiscated $70 million worth of counterfeit Nike shoes in New York.94 Nike is particularly threatened by counterfeit products and at risk of a loss of sales, as the price difference between a counterfeit and authentic product is lower than high-end luxury brands, such as Rolex or Louis Vuitton.95 Additionally, when consumers observe the wear and tear on low-quality counterfeit Nikes, it may harm Nike’s reputation as a quality performance shoe manufacturer.96 The more consumers buy counterfeit Nike products, the more the company’s revenue and brand reputation suffers.97

Like many, we celebrate the growth of the ecommerce environment, and cherish the opportunities the internet has created to enable consumers to interact with our industry and to enable our industry to thrive, especially during the pandemic. But with great opportunity comes great responsibility. That is why the accountability and proactive measures required by SHOP SAFE are vital.

U.S. law currently contains many guardrails to make sure brick and mortar retailers of all sizes do not sell counterfeit items. Authentic brands don’t have to visit every store across the country to make sure these brick-and-mortar locations are only selling legitimate goods. They don’t have to go through lengthy takedown fights with these physical stores, only to find fake goods pop up again shielded by a new name.

There Is No Clear Standard Governing Requisite Knowledge for Application of Contributory Liability for Trademark Infringement in the E-Commerce Setting

Under the current law, no clear standard exists to hold third parties liable for contributory liability. Contributory trademark infringement is a judicially created doctrine that arises from common law tort principles; there are no Lanham Act provisions governing its applicability. See J. Thomas McCarthy, 4 MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 25:17 (5th ed. 2018). The case law addressing contributory trademark infringement liability in the e-commerce context is very limited. While there are certain guiding principles regarding application of contributory liability in the e-commerce context, important elements regarding its application remain unclear.

Tiffany v. eBay: The Standard That May Hinder the Ability to Adequately Address Trademark Infringement and Prevent Online Sale of Counterfeit Goods

One of the most discussed cases to address the knowledge requirement under the second prong of the Inwood framework is Tiffany (NJ) Inc. v. eBay Inc, 600 F.3d 93 (2d Cir. 2010). Tiffany arguably had more impact on the issue than any decision since Inwood and is one of only a relatively few decisions analyzing the issue specific to the e-commerce context.

Despite the Second Circuit’s laborious efforts in Tiffany, the problem of applying contributory trademark liability to e-commerce platforms persists. Recent growth amongst internet and e-commerce platforms has exacerbated the issue and garnered increased attention from Congress and federal agencies.106 In light of this rapid growth, the current contributory trademark liability standard established by Tiffany more than a decade ago is insufficient to protect trademark owners. As it stands, Tiffany’s contributory trademark liability standard is inefficient for all parties involved in the trademark field.107 Trademark owners suffer numerous online infringements and struggle to enforce their rights, while e-commerce platforms are left to guess the scope of their rights and liabilities.108 For instance, due to the growth of online trademark infringements, 74% of respondents in a survey experienced trademark infringement in 2017, with 22% of them experiencing up to thirty infringements in a year.109 Without new judicial decisions to provide clear legal guidance or new legislation to outline clear legal duties, trademark owners and e-commerce platforms do not have sufficient information regarding the scope of their rights and obligations.110

Without clear Supreme Court or Congressional guidance, many cases have zeroed in on which party should bear the burden of monitoring online infringements and at what point the e-commerce platforms’ mediating nature is no longer neutral but instead conducive to—or constitutes knowledge of—such infringements. 111 Legal scholars have responded to this problem by advocating that “[contributory] liability rules must defend rights holders’ interests in better protecting their brands from online trademark infringements.”112 However, these same scholars also contend that the rules must not deter legitimate and productive activities in the internet marketplace.113 This “equilibrium conundrum” has engendered various judicial decisions and academic views,114 all of which are necessary to achieve a balanced approach to contributory trademark liability that would effectively limit trademark infringement on the internet without hurting innocent websites or impeding the free market.115

In 2010, the Second Circuit decided Tiffany v. eBay—the first case to test contributory trademark infringement for online shopping platforms.48 eBay hosts third-party listings and auctions, and Tiffany is an iconic, high-end jewelry company that noticed numerous counterfeit Tiffany products listed on eBay’s website.49 Between 2000 and 2004, eBay earned approximately $4.1 million dollars in revenue from Tiffany jewelry listings on its website, some of which were counterfeits.50 Tiffany reported the general problem to eBay and asked eBay to take down the listings.51 Although eBay took down the listings that Tiffany specifically complained about, it did not review all Tiffany product listings to find counterfeits.52 As a result, Tiffany sued eBay for contributory infringement.53 After a bench trial, the district court found in favor of eBay.54

On appeal, Tiffany claimed eBay was “willfully blind” to counterfeits sold on their website and argued that if eBay was not held liable for contributory trademark infringement, eBay and similar websites would have no incentive to police its service.55 Tiffany and similar retailers feared that not holding eBay liable would create an unreasonable burden on brand owners to police these service providers all day, every day.56 While the court recognized that a service provider “may not shield itself from learning of the particular infringing transactions by looking the other way,” the Second Circuit found the district court was not clearly erroneous in determining eBay was not willfully blind to countless counterfeit Tiffany products sold on its website.57

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59. A further challenge all the marketplaces face is discriminating between genuine and counterfeit listings. The naïve merchants are easier to spot because they do not attempt to disguise the illicit nature of their offerings. Sophisticated traders have developed techniques to avoid detection (Participant C). These techniques include copying brands’ original advertising images, blurring brands’ images, corrupting brand names and trademarks, and using hidden links within apparently benign content to direct knowing buyers to counterfeits.

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57. Surprisingly few platforms claim to monitor their platforms (34 per cent), which triangulates with the views of brand participants that the controls of most platforms are reactive in responding to reports of counterfeits rather than proactive in their surveillance. The absence of proactive monitoring on some platforms may be due to naivety. Participant K had observed an acute lack of awareness in one classified ads business which emerged as a genuine shock when it was confronted with the scale of counterfeits on its platform. Most of those who do monitor their platforms also publish transparency reports (22 per cent). These provide statistics about the number of reports by rights holders, requests for information and interventions in the reporting period.

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The study finds that just eight of the 50 sampled marketplaces have coherent anti-counterfeiting strategies in place and all eight passed the compliance test. Four of these marketplaces are generalists, which sell a wide range of products, and their anti-counterfeiting strategies are based on a wide range of administrative controls. The other four are specialists and their control strategies are based on inspecting and verifying the authenticity of products.

Trademark owners are in a constant battle with knockoffs and counterfeits that try to deceive consumers by imitating trademark owners’ authentic services or goods. During the internet age, “the greatest risk of importation of counterfeit and pirated goods, harming both United States content creators and United States consumers, is posed . . . by inadequate policies and inadequate action by e-commerce companies that market and sell foreign products to American consumers.”1 The rapid growth in online retail sales further exacerbate this risk.2 In the United States (“U.S.”), online retail sales grew by 13.3% for the second quarter of 2019, while total retail sales only increased by 3.2%.3 Consider some of the largest online retailer’s volume to further illustrate this growth: Amazon reported sales by third-party sellers grew from $0.1 billion in 1999 to $160 billion by 2018.4 Similarly, eBay reported that $95 billion worth of goods were sold in 2018, an increase of 7% on an as-reported basis,5 And Walmart had a 40% increase of online sales in 2018.6 Unfortunately, the prevalence of counterfeit and pirated goods has grown alongside e-commerce.7 The Organization for Economic Co-operation and Development reported that sales of counterfeit and pirated goods totaled $509 billion in 2016— a 32% increase from 2013.8 Because counterfeits cause significant financial losses for trademark owners and pose serious risks to consumer health and safety,9 the Office of the United States Trade Representative has warned “[t]he significant and continued growth in the importation of counterfeit and pirated goods into the United States shows that e-commerce platforms, other intermediaries, right holders, and governments must significantly increase their efforts and collaboration to protect consumers, businesses, governments, and economies from the dangers of counterfeit and pirated goods.”10

Given the emergence of e-commerce platforms, trademark owners now face an unprecedented number of counterfeit products sold online, which makes it exceedingly difficult for owners to monitor and take down the counterfeit postings by sending cease and desist letters or reporting the counterfeit goods to the e-commerce platforms.11 These counterfeiting activities also displace legitimate economic activities by contributing to a “net job loss[] of 4.2 to 5.4 million by 2022.”12 Furthermore, it is nearly impossible to hold anonymous online counterfeit sellers directly liable for trademark infringement. 13 Therefore, instead of pursuing mysterious direct infringers on the Internet, trademark owners have increasingly tried to go after secondary infringers—i.e, the e-commerce platforms themselves. 14 However, under the current secondary trademark liability theory in the U.S., ecommerce platforms are rarely held liable under federal trademark law because they are not required to actively monitor the authenticity of the goods sold on their websites. 15 Thus, two key questions facing Congress and the courts are (1) how to protect trademark owners’ rights and (2) when to hold e-commerce platforms secondarily liable. This Comment will analyze these questions in greater detail including their history and the current standard and propose workable solutions to these two questions.

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Counterfeiting on the rise

In the decades since Ives, counterfeiting has ballooned into a social and economic menace, creating severe public health and safety hazards, as well as substantial economic harm to legitimate business, on a national and global scale. According to FBI estimates, counterfeiting costs the U.S. economy more than $200 billion in lost sales annually8 ; worldwide, counterfeiting accounts for an estimated $750 billion dollars in global trade each year.9 The FBI, Interpol, World Customs Organization and International Chamber of Commerce estimate that an astonishing 7-8 percent of world trade every year is in counterfeit goods. 10 Sales of counterfeit goods reportedly support terrorist groups throughout the world.11 As a result, counterfeit goods not only tarnish the carefully-built reputations of legitimate businesses and undermine the credibility both of brand owners and the online markets where such goods are sold, they cause enormous harm to consumers and threaten national and global security.

Even before the era of online commerce, it had long been recognized that counterfeiting had reached "epidemic" proportions. S. Rep. No. 98-526, at 5 (2d Sess. 1984), reprinted in 1984 U.S.C.C.A.N. 3627, 3630. The rise of the Internet as a commercial forum has only exacerbated this problem. The Organization for Economic Co-operation & Development ("OECD") notes that the Internet has provided counterfeiters with a new and powerful means to sell their products and that a significant share of counterfeit trade is attributable to the Internet. 12 Indeed, one survey estimated that, during 2006, up to 3 million consumers may have bought a counterfeit item that carried one of the "top ten" luxury brand names, with almost a third (29 percent) of such purchases from online marketplaces such as eBay.13 In 2007 alone, eBay reportedly contained more than 2 million potentially counterfeit listings, and hosted 50,000 sellers attempting to sell fake goods.14 Consumers thus suffer the greatest harm of all from the sale of counterfeit goods. Especially when transactions are completed online, without an opportunity to inspect the goods, consumers are particularly susceptible to unscrupulous counterfeiters who tout their knock-offs as legitimate goods. This risk is heightened in light of the growing sophistication of counterfeiters and their ability to produce knock-offs that, on their surface (and in online listings), appear to be genuine articles. 5