Applying the DMCA framework to trademark law with a deposit requirement reduces counterfeiting but prevents abusive trademark suits

III. REDUCING ONLINE COUNTERFEITING WITH A DEPOSIT-BASED SOLUTION

A. How a Deposit System Would Operate

Some prior proposals took the DMCA as a starting point for good reason.155 One reason for beginning with the DMCA storage safe harbor and its notice and takedown procedure is that it has been around since 1998.156 This well-established regulatory environment allows for a baseline understanding of what can be expected from the DMCA in the copyright context. Also, that knowledge allows for a better understanding of what can be improved.157

However, the inefficiencies of the DMCA scheme in practice and the differences between copyright and trademark demand modifications to the DMCA regime. First, the knowledge requirement creates little incentive for online platforms to do more than the bare minimum to qualify for the safe harbor.158 This incentive structure reduces some copyright infringement but does not go far enough. Second, the ease with which parties can file copyright notices creates an incentive for copyright holders, especially larger ones, to file many notices of dubious quality to hinder competition.159 Such anticompetitive behavior hurts the vibrancy of expression on such platforms, contradicting the purpose of copyright protection.160

The different goals of trademark law are further proof that simply overlaying the DMCA framework to govern trademark infringement is inefficient and may cause additional harm. Copyrighted works online are often infinitely consumable; for example, viewers can watch an online video repeatedly without diminishing its availability.161 If taken down, the rights holder loses any revenue they would have earned in the meantime; however, that loss only lasts for the length of time the work was not viewable. The inherent value of the copyright is not drastically affected once put back up. This is not true in the trademark context. If a valid good is taken down erroneously, a harm of lost sales while offline exists. However, that harm is not as easily remedied once a platform restores the valid listing because the time away from the market imposes costs on the good’s seller, such as lost sales.162 Bad press or consumer association with trademark infringement (even if a seller is ultimately cleared of all wrongdoing) can also diminish the value of a brand, creating harm of a higher magnitude and longer duration.163 These additional harmful effects, resulting from incorrect or abusive takedown notices, are reasons to add extra safeguards to protect trademark holders.

Accordingly, mere adoption of the DMCA would be ineffective; additional modifications are necessary. In this proposed legislative framework, trademark owners can flag potentially infringing goods and have them taken down by the Online Marketplace like under the DMCA.164 However, when a trademark holder makes such a claim, they must pay a deposit to the Online Marketplace while the Online Marketplace adjudicates the dispute.165 The Online Marketplace is the best party to adjudicate the initial claim because it is able to leverage its internal data to help calculate the deposit.166 Trademark holders unsatisfied with the Online Marketplace’s decision would have the opportunity to file a formal complaint against the potential infringer and the Online Marketplace’s determination could provide a factual baseline to help expedite that suit.167 However, in the case of a formal complaint, the litigation duration will not be included in the size of the deposit and will be outside the scope of takedown procedures.168 The deposit system allows for a formal complaint to go along normally. Once the dispute resolves, the online marketplace will deal with the deposit in one of two ways depending on whether the accused good infringed the mark. If the accused good infringed the mark, the online marketplace will refund the deposit to the asserting trademark owner. If the accused good does not infringe the mark, the online marketplace will reinstate the accused good and the asserting trademark owner forfeits the entire deposit. The Online Marketplace would then give the entire deposit to the owner of the good accused of infringing.