Trademark reform would increase “trademark bullying” which reduces market competition

[Jonathan, 05/27/2021, Internet Association, “The SHOP SAFE Act: Stemming the Rising Tide of Unsafe Counterfeit Products Online,” https://docs.house.gov/meetings/JU/JU03/20210527/112713/HHRG-117-JU03-Wstate-BerroyaJ-20210527.pdf, accessed: 07/10/2024, shl]

IV. REMOVING PROTECTIONS FOR ONLINE SERVICE PROVIDERS IS NOT THE SOLUTION TO THE COUNTERFEITING PROBLEM.

Changing the secondary liability standards, as SHOP Safe does, will not address the true cause of counterfeiting—the actual infringer. A company that delivers the products consumers order from third parties may have no way to know whether the third-party seller of those products, in turn, bought them from a legitimate supplier. Cloud storage companies have no way to tell whether documents stored on their sites violate a third party’s trademark rights. But all could be subject to incredibly onerous obligations if this overbroad legislation becomes law.

Instituting a strict legislative regime could backfire. Currently, online services are working cooperatively with rights holders and the government to stop counterfeiting; but in the face of a legislative mandate, companies may hesitate to do anything other than what the law requires to avoid the risk of future liability. For example, companies may not explore alternative counterfeiting solutions, even if those solutions would ultimately be more effective at getting counterfeits off of the internet than the legislative framework. That would help nobody—not the brand owner, not the online service, and not the consumer. People who commit intellectual property crimes are adept at adjusting their sales and distribution methods to evade detection as intellectual property enforcement techniques improve. Because enforcement can be such a cat-and-mouse endeavor, flexibility and good faith collaboration, not legislative mandates, are most likely paths to effective solutions.

There is no one-size-fits-all solution for all of these companies. Trying to create one would effectively penalize companies for counterfeiting activity that they cannot reasonably detect or control. For example, a search engine merely indexes web pages a webmaster has designated as searchable in the search index. It indexes trillions of web pages and has no direct contact with the seller of the counterfeit item. It would make no sense to hold the search engine liable if, after running a search, a user purchases a counterfeit item from the site of an unrelated third party.

Payment processors are another example. Payment processors offer services that individuals may use to facilitate the purchase of counterfeit goods, but they are neither the seller nor the buyer of the goods at issue, and they generally have no visibility into whether the underlying payment is for a product or a service, much less whether a product is genuine or counterfeit. Yet payment processors who have done nothing more than unknowingly process payments to infringers have already faced lawsuits —and at least one judge would have allowed a case to go forward merely 22 because he concluded that the allegedly infringing website could not “operate without the use of credit cards.” 23

Changing the secondary liability standards also does not address the true cause of counterfeiting—the actual infringer. Although several U.S. agencies have the authority to investigate criminal counterfeiting (as noted above), only 229 counterfeiters were referred to the U.S. Sentencing Commission in the 2019 fiscal year. Indeed, the U.S. Sentencing 24 Commission reported that counterfeit offenses decreased by 37.4 percent between the Fiscal Year 2015 and Fiscal Year 2019. But law enforcement agencies—not online services—have the expertise and mandate to investigate 25 criminal counterfeiting. Accordingly, IA respectfully suggests that it might be more impactful to focus legislative efforts on increasing resources allocated to agencies that are charged with investigating and enforcing existing laws against the counterfeiters themselves (an effort that IA’s members are already helping with) than to change the standards for secondary liability.

Another key issue not addressed is that while most brand owners act in good faith, some abuse the system. For example, brand owners have brought trademark infringement lawsuits to stop the sale of parody products, or labeled 26 as counterfeiting the resale of their genuine branded products to control distribution channels in contravention of perfectly legal and valid commercial activity as to authentic goods. 27

In addition, so-called “trademark bullying” is a well-recognized problem. Trademark bullies are brand owners (often large companies) who use the threat of trademark infringement lawsuits to pressure smaller companies or individuals to stop engaging in lawful activity that the brand owner does not like. Trademark bullying reduces competition and 28 harms free speech, imposing real costs on both companies and consumers. Because smaller companies and 29 individuals lack the resources to fight a large brand owner, they are often forced to comply with the brand owner’s demands, no matter how frivolous. Changing the secondary trademark liability standards could make bullying behaviors worse.