Over enforcing trademark protection destroys small businesses

The doctrine of contributory liability currently applied by U.S. courts is balanced and largely working well. Many small or early-stage e-commerce companies would not be able to afford the cost and risk of a legal framework that mandates proactive policing and/or holds companies liable for user-generated infringing content they have no knowledge of or direct involvement in. And any changes which shift the fundamental balance in the current law could have outsized and negative impacts on startups. Such changes would reduce the viability of existing and prospective startups—potentially forcing them out of the market—but it would also restrict options for the content creators and small businesses who rely on diverse e-commerce offering Doctrine of contributory liability, as applied by courts, and how e-commerce platforms routinely address alleged trademark infringement online Under prevailing case law, e-commerce platforms can be held liable for contributory infringement if they continue to supply services to users when they know or have reason to know that those users are engaging in trademark infringement.3 In practice, there is a “substantial convergence” in how liability is analyzed for trademark and copyright claims in this context. 4 Analogously, e-commerce platforms routinely implement systems for removing alleged trademark infringement they know of—e.g., upon receipt of a notice—just as they do for claims of copyright infringement.5 That said, as e-commerce platforms scale, and depending on several factors (including the type of content hosted and the volume of potential trademark infringement), many will develop and adopt technology or hire teams of content moderators to help flag potential trademark infringement.6 This is similar to the socalled “DMCA-plus” efforts certain platforms use to attempt to detect possible copyright infringement.7 Indeed, “the presence of infringing activity on their sites is contrary to the business interests of” ecommerce platforms. “Instilling consumer confidence in the integrity of their marketplaces is critical. Consumers who cannot trust the authenticity of the merchandise listed on a site will not long remain customers.”8 Developing technology and/or hiring moderators comes at substantial cost. For example, eBay invests as much as $20 million per year in trust and safety efforts—including running searches, deploying filters, and implementing buyer protection programs—with over 200 employees focused on combatting potential infringement.9 Alibaba has likewise developed technology to try and identify potential infringement, after significant investment, and takes further steps to monitor posts, look for anomalous transactions, assist law enforcement, etc.10 While these and numerous other e-commerce platforms do more than notice-andtakedown, the costs of doing so are far more than what a startup could afford.11 Overall, as the case law illustrates, “in most cases the courts are getting it right” and the current doctrine of contributory liability is resulting “in decisions that reward good behavior and punish bad behavior by platforms.”12 Current legal doctrine is working, and changes in this area of the law would put startups and their users at a significant disadvantage The prevailing approach U.S. courts take to contributory trademark infringement makes sense. Trademark owners are best suited to initiate the process of removing infringement from an e-commerce platform, because they know their own marks, and know what is infringing versus authorized, etc.13 Platforms, especially startups, are not able to do that, but they are able to remove allegedly infringing posts they know about and can communicate relevant information to trademark owners, accused infringers, and law enforcement. Shifting the current balance and imposing more liability on e-commerce startups would impose unsustainable costs and put early-stage companies at a distinct disadvantage. It would create an impossible and unaffordable task for all but the largest, established e-commerce platforms. For one, startups would be forced to try and constantly monitor user posts to detect potentially infringing ones. This would include expenses startups, operating on thin margins, could not cover, such as hiring teams of content moderators, developing or purchasing imperfect yet costly filtering technology, and setting aside litigation reserves to cover future legal exposure for user conduct.14 Trademarks are pervasive across the globe. There are over 2.6 million active trademarks in the U.S. alone.15 It would be impossible for a new e-commerce platform to learn, monitor, and identify alleged infringement of that many marks in the millions of products that are (or could be) posted on these sites. Volume is not the only problem—it is complex to identify specific instances of trademark infringement. Trademark owners are much better suited to know what might confuse their consumers and know what products they have authorized.16 Without trademark owners identifying infringement in the first instance, platforms will both over- and under-police, unintentionally blocking legitimate content and letting some infringement slip through the cracks.17 Likewise, technology and filters are not a solution, as these are both very expensive and inherently limited.18 As we have previously explained in the copyright context: Technology and filters have many inherent limitations which make them incapable of fully addressing online infringement. Filtering technology is imperfect, with often high false positive rates. It is categorically incapable of answering fact-specific questions of infringement, like fair use, licensing, and the exclusion of unprotectable ideas. But these filters are also out of reach for most startups. The most sophisticated tools are so expensive that the development costs are orders of magnitude above what a startup could afford. Offthe-shelf tools, which cannot screen much content on a multimedia platform, are also too expensive for early-stage companies to license and maintain. All filters are limited in the type of content they screen. And for many types of content, there are no filters. Finally, technology is easily circumvented. Users intent on uploading infringing content can easily modify files to avoid the filters.19 Indeed, the measures certain platforms deploy to try and prevent trademark infringement are not perfect, and counterfeiters already find ways around these measures. Even for platforms spending the most, and deploying the most sophisticated technology, it is impossible to keep trademark infringers off ecommerce platforms. For example, counterfeiters can just change their name or repost infringing items under a new name or different account.20 The limits of filters—which will fail sometimes (likely often)—and the fact that startups would be incapable of identifying and removing all infringement on their own also brings substantial litigation cost and risk. Expanding platform liability over users’ alleged IP infringement would put early-stage companies at risk of being sued out of existence. It would also discourage entrepreneurs and investors from developing new technology or pursuing new e-commerce business models.