Shop Safe Act will destroy online marketplaces with litigation

[Eric, 9-28-21, Technology & Marketing Law Blog, “The SHOP SAFE Act Is a Terrible Bill That Will Eliminate Online Marketplaces”, https://blog.ericgoldman.org/archives/2021/09/the-shop-safe-act-is-a-terrible-bill-that-will-eliminate-online-marketplaces.htm, accessed 7/9/2024, LR]

Overturning Tiffany v. eBay

In 2010, the Second Circuit issued a watershed decision about secondary trademark infringement. Essentially, the court held that eBay wasn’t liable for counterfeit sales of Tiffany items because eBay honored takedown notices and Tiffany’s claims sought to hold eBay accountable for generalized knowledge. That ruling has produced a kind of détente in the online secondary trademark infringement field, where we just don’t see broad counterfeiting lawsuits against online marketplaces any more.

The SHOP SAFE Act ends that détente. First, it creates a new statutory contributory trademark infringement claim for selling the regulated items. Second, the bill says that the new contributory claim doesn’t preempt other plaintiff claims, so trademark owners will still bring the standard statutory direct trademark infringement claim and common law contributory trademark claims (and dilution, false designation of origin, etc.). Third, online marketplaces nominally can try to “earn” a safe harbor from the new statutory contributory liability claim (but not from the other legal claims) by jumping through an onerous gauntlet of responsibilities. Those requirements will impose huge compliance costs, but those investments won’t prevent online marketplaces from being dragged into extraordinarily expensive and high-stakes litigation over eligibility for this defense. Fourth, the law imposes a proactive screening obligation, something that Tiffany v. eBay rejected. Fifth, unlike Tiffany v. eBay, generalized knowledge can create liability; and takedown notices aren’t required as a prerequisite to liability. Sixth, in litigation over direct trademark infringement and common law contributory trademark infringement claims, trademark owners can cite compliance/non-compliance with the defense factors against the online marketplace, putting the online marketplace in a worse legal position than they currently are in.

All told, the SHOP SAFE Act will functionally repeal the Tiffany v. eBay standard that has fostered the growth of online marketplaces for the last decade-plus, and usher in a new era of online shopping that will likely exclude online marketplaces entirely.