Strengthening trademark protections triggers anticompetitive practices

[Austin, S. Economics, B.A. Philosophy, Syracuse University, 10/23, Boston University Law Review, “INCORPORATING A DEPOSIT MECHANISM INTO THE DIGITAL MILLENNIUM COPYRIGHT ACT TO FIGHT ONLINE COUNTERFEITING IN E-COMMERCE,” https://www.bu.edu/bulawreview/files/2023/10/CHURCH.pdf, accessed: 07/11/2024, shl]

B. Benefits of Implementation

This system will help to reduce counterfeiting on Online Marketplaces and minimize anticompetitive effects that can accompany higher trademark policing. A general concern with trademark protection is anticompetitive effects coming from too strong rights or over policing of trademark rights.174 A large concern with current proposals, particularly other DMCA based proposals, is that it incentivizes bad-faith trademark claims to hurt competitors and competition more broadly.175 By filing many frivolous trademark infringement claims, trademark holders can get their competitors’ goods taken off the platform for a time, hurting their sales while the goods are taken down.176 Even if the goods are eventually put back up, the trademark holder took at least part of their competitors’ sales.177 Additionally, repeat frivolous claims could lead to harassed parties taking their goods off Online Marketplaces entirely to spare themselves the hassle.178 Such concerns are warranted in the trademark space, as unfair and abusive takedown notices exist in the copyright space, and it is likely that similar issues will arise in the trademark space due to the heightened economic incentives to file frivolous claims.179 In the trademark context, the trademark holder’s good and the accused’s good are substitutes for each other.180 In contrast, competing works in the copyright context are not always direct substitutes because a consumer could reasonably consume both and get independent value from each.181 The existence of substitute goods makes frivolous claims more likely in the trademark context. This effect creates the incentive to get competitors’ goods off the platform so all the competitor’s sales will go to the party making the claim.182 Other proposals acknowledge this concern and have posited a bad-faith safeguard to prevent abuses of the system.183 Unfortunately, such a standard is amorphous and lacks the teeth to stop abuses of a takedown system.184 A bad-faith standard would be subjective and proving the required intent is prohibitively difficult. Simply showing that a trademark claim is unsuccessful cannot form the basis of a bad-faith allegation; showing actual malicious intent is required, which is very difficult to show in most cases.185 Actually holding anticompetitive trademark holders liable for abuses under a bad-faith standard would be very difficult and would render the restraint worthless in most instances.186

A deposit requirement would be a more robust check on malicious claims and constitute an effective deterrent against those claims without overly disincentivizing genuine claims. A deposit system is consistent; parties know how the deposit will be calculated and take that deposit cost into account when determining whether to file a claim.187 That consistency will reduce incentives to file frivolous claims with an expectation of evading liability.188 Another benefit of a deposit is that it is easy to apply. The deposit calculation is simple and having that payment be a deposit that is paid upfront will reduce any concerns with unruly trademark owners not paying upon a finding of no infringement

The payment going to the injured party is a further benefit of this deposit system. As discussed above, frivolous claims can have strong adverse economic effects.189 Abusers of a takedown system, especially abusers with large pockets, could choose to cause harm to competitors and swallow any monetary penalties they may face.190 Abusers may do this because the long-term economic benefit from pushing competitors out of the marketplace could outweigh the economic harm of paying any penalties. A deposit system will remedy that issue because any money paid by a false claimant will go directly to the accused party. Making the accused party (close to) whole again will dramatically reduce any incentive to bully competitors. While not a guarantee, the risk of directly paying one of your competitors might also incentivize mark businesses to only file claims when they have a genuine belief that the other party is infringing their mark.

Having a deposit system also encourages Online Marketplaces and mark owners to cooperate more. This system creates a set of affirmative and detailed steps for both Online Marketplaces and trademark holders to follow, leading to more consistent and transparent interactions. Over time, these interactions can build rapport among trademark holders and Online Marketplaces, leading to more familiarity and trust throughout the process and more activity and faith in the process. Once parties build this rapport and familiarity, Online Marketplaces will also have a norms-based means to police fraudulent claims.191 Data will bolster accountability because Online Marketplaces can use their data to easily identify parties who are consistently making unsuccessful claims.192 By keeping the process open and between the parties with economic stakes, the process will become more open and can create a more team-oriented way of fighting counterfeiting.193