Reactive enforcement by trademark owners is whack-a-mole – it’s impossible for trademark owners to effectively police counterfeiting

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

Nike has tried to address the counterfeit problem by educating its consumers with a webpage similar to Tiffany’s, which identifies the authorized Nike sellers and warns against counterfeits.98 Prior to 2017, the only Nike products sold on Amazon were grey-market goods: products sold through unauthorized channels, often involving imports from another economic region such as Asia.99 In order to control their brand on Amazon, Nike began a pilot partnership with the online marketplace in 2017.100 Nike became a member of Amazon’s Brand Registry, where it directly sold its products to Amazon users and tried to police third party sellers.101

Despite actively participating in retail on Amazon, Nike “struggled to control the Amazon marketplace.”102 When an unauthorized Nike seller’s listing is removed, and their account is suspended, the same listing would reappear under a newly made seller account.103 In addition, official Nike products received fewer reviews than unauthorized listings, meaning authentic Nike products had lower positioning on the site, which further perpetuated the problem.104 Amazon consistently failed to actively monitor Nike counterfeits, leading to Nike’s decision to end their partnership on November 12, 2019, and instead focusing its efforts on sales through Nike.com.105 Nike’s departure may pave the way for other brands to leave the platform, as many “have expressed frustration that Amazon doesn’t do enough to fight counterfeits.”106

Amazon’s constant reluctance to intervene in the counterfeit goods problem directly flows from the Tiffany decision, because there is no incentive or responsibility to proactively police their website for infringements under the rule.107 The result is a precarious circumstance for brand owners and a need for a heightened level of caution for how a brand distributes its products.108

B. Brand Death by a Thousand Counterfeits

One of the most important aspects of trademark ownership is policing the mark.109 Under the Lanham Act, registration can be cancelled if the mark is ineffectively policed.110 From a business standpoint, it is also vital to maintain control over a trademark and brand messaging.111 When products are listed on third party platforms, particularly from unauthorized sellers, brands do not just lose profits, they may lose control over the mark.112 Lack of brand control is one reason Nike pulled out from Amazon.113 Matt Powell, Senior Industry Advisor at Sports NPD Group, explained the issue with third party sellers and counterfeits, stating: “[Amazon] is literally adding hundreds of sellers every hour and to some extent it’s a whack-a-mole problem; they shut down one [counterfeiter] and ten more pop back up. It’s a real issue and it’s very hard to control.”114 Nike is not the only brand to end its relationship with Amazon due to its reluctance to effectively police its marketplace.115 Birkenstock and Ikea, both famous and influential brands, refuse to sell on Amazon, and instead focus on their own platforms to control their brands.116 Although larger brands can cultivate a following without third party sellers, smaller brands may have difficulty establishing an online presence without the help of a third party platform.117 Smaller brands are effectively trapped in marketplaces that pose constant risks of dilution and infringements, which inevitably harms their brand strength.