Angela He, Pauline Tseng and Michael Hewitt write “Amazon’s Anti-Counterfeit Efforts Fall Short” for Law360September 2020
E-commerce platforms are hot spots for the sale of counterfeit goods. As lawmakers propose new legislation to combat counterfeits on such platforms, all eyes are on Amazon.com Inc., the largest e-commerce platform in the U.S.
One of the main reasons for the proliferation of counterfeit goods on Amazon and other similar e-commerce platforms is the lack of transparency and monitoring of third-party sellers. Third-party sellers are responsible for more than half of all goods, genuine or not, sold through Amazon’s marketplace.
Amazon’s previous disclosure requirements allowed unscrupulous sellers to operate counterfeiting schemes anonymously under the guise of legitimate seller profile pages and usernames.
Amazon recently announced a renewed effort to lift this veil of anonymity: Effective Sept. 1, Amazon requires its U.S.-based third-party sellers to display their business names and addresses on their Amazon.com seller profile pages. The purpose of this new policy is to “ensure there is a consistent baseline of seller information to help customers make informed shopping decisions.”
This practice is already in place in Amazon’s marketplaces in Europe, Japan and Mexico, but Amazon is likely rolling out these requirements in its U.S. marketplace in anticipation of proposed legislation that calls for more stringent anti-counterfeit measures for intermediaries like Amazon.
Amazon has previously launched various anti-counterfeit programs, such as project zero, an automated tool that detects and removes suspect product listings; its brand registry, an online reporting forum for brand owners; and a counterfeit crimes unit dedicated to brand protection. Despite these past efforts, Amazon’s marketplace is still rife with counterfeit products that pose health and safety risks to consumers as well as reputational harm to brand owners.
As a result, the government is now attempting to take the counterfeit issue out of Amazon’s hands and pave the way to a solution. In January, the U.S. Department of Homeland Security issued a report to the president recommending various ways to combat trafficking in counterfeit goods.
In March, Democrat and Republican representatives joined forces to introduce two consumer protection bills that push for more accountability from Amazon. In what appears to be an attempt to control the narrative using its political and financial power, Amazon’s new disclosure requirements implement certain measures — but not all — of the requirements set forth in the two consumer protection bills.
Amazon’s new seller identity disclosure requirements track proposed legislation.
Earlier this year, two bipartisan consumer protection bills were introduced in Congress: the Stopping Harmful Offers on Platforms by Screening Against Fakes in E-Commerce, or Shop Safe, Act, and the Integrity, Notification and Fairness in Online Retail Marketplaces for Consumers, or Inform Consumers, Act.
Although the current legislative session is coming to an end, and the bills are unlikely to be enacted in 2020, the bills have the potential to impose extensive requirements on how Amazon and other e-commerce marketplaces address illicit activity on their platforms. The introduction of the two bills highlights the urgency of the counterfeit problem and Congress’ willingness to take action on behalf of consumers.
The Shop Safe Act
The Shop Safe Act aims to replace the standard for holding e-commerce platforms such as Amazon contributorily liable for the activities of a third party. Few platforms have been held liable under the current standard, which imposes liability only when there is proof that an intermediary intentionally induces a third party to infringe or continues to supply its services to a party that it had reason to know was engaging in trademark infringement.
The Shop Safe Act suggests a wholly new approach that requires an e-commerce platform to affirmatively implement a slew of best practices to avoid liability to trademark owners for the sale of counterfeit products that poses a risk to consumer health and safety. These new requirements include the following:
Displaying and verifying the seller’s identity, location, contact information and source of goods;
Conditioning the seller’s use of the platform on its agreement to consent to U.S. jurisdiction in the event of a lawsuit and not to sell counterfeits;
Requiring sellers to use images that accurately depict the actual goods offered for sale and that the seller owns or has permission to use;
Using technology to screen for counterfeits before a seller’s goods appear on the platform;
Implementing a timely takedown process for removing listings for counterfeit goods;
Terminating sellers that have listed or sold counterfeit goods three times;
Screening sellers to prevent terminated sellers from rejoining or remaining on the platform under a different alias or storefront; and
Sharing an infringing seller’s information with law enforcement and, upon request, the owner of the registered trademark.
One co-sponsor of the bill, Rep. Jerrold Nadler, D-N.Y., chairman of the House Judiciary Committee, commented:
Consumers should be able to trust that what they see and purchase online is what they will get, but counterfeiters continue to join platforms with ease and masquerade as reliable sellers in order to infect American households with dangerous and unsafe counterfeit products. The Shop Safe Act proposes a set of commonsense measures to tackle the gaps in these platforms’ systems and stop counterfeit sales.
On March 2, the Shop Safe Act was referred to the House Committee on the Judiciary.
Inform Consumers Act
The Inform Consumers Act would require online marketplaces to collect and disclose certain verified identity and contact information of high-volume third-party sellers. A high-volume third-party seller is one that, in any continuous 12-month period during the previous 24 months, has entered into 200 or more discrete sales or transactions of new or unused consumer products resulting in the accumulation of an aggregate total of $5,000 or more in gross revenues.
The Inform Consumers Act would require any online marketplace to confirm, on an annual basis, the identity of any high-volume third-party seller through the following identifying documents: (1) verified bank account information; (2) a government-issued photo identification for an individual representing the high-volume third-party seller; (3) a government-issued record verifying the individual or business contact information; and (4) a business tax ID number.
Under the act, high-volume third-party sellers would also have to disclose extensive contact information in a conspicuous manner on the product listing that would allow consumers to report suspicious activity to the e-commerce platform.
On March 10, the Inform Consumers Act was referred to the Senate Committee on Commerce, Science and Transportation.
Both the Shop Safe Act and the Inform Consumers Act aim to help consumers know their seller and otherwise increase consumer awareness and knowledge, which is especially important for products that have heightened health and safety implications, such as water filters.
Both bills have the potential to break down walls that are currently protecting third-party sellers. For example, brand owners or their agents often have to jump through bureaucratic hurdles in order to obtain third-party sellers’ names and contact information. On platforms such as Walmart, Bonanza and Groupon, brand owners still have to separately request the personal information of sellers, even after they submit infringement reports.
Even through Amazon’s brand registry and eBay Inc.’s verified rights owner program, brand owners must go through a multistep process to obtain sellers’ personal information, which can slow down a brand protection team’s enforcement efforts against fly-by-night sellers. In some instances on Poshmark, brand owners even need to provide a subpoena in order to obtain sellers’ personal information.
By removing many of these impediments to transparency, both bills have the potential to create a framework for regulating repeat offenders on e-commerce platforms and create higher barriers to entry for suspect third-party sellers.
Amazon’s new seller identity disclosure requirements are a short-term solution to a long-standing counterfeit problem.
Amazon’s recent initiatives appear to track the two bills. For example, Amazon’s new disclosure requirements align with the heightened transparency requirements of the Inform Consumers Act, particularly the upfront identity and contact information disclosures. The main difference is that the Inform Consumers Act only applies to high-volume third-party sellers, whereas Amazon’s new disclosure requirements apply to all U.S.-based third-party sellers, regardless of sales volume.
Amazon’s new disclosure requirements also address several of the measures in the Shop Safe Act, including the call for screening technology, an online reporting tool and greater transparency of seller names and contact information.
Notably, however, Amazon’s recent policy change ignores the more demanding measures of the Shop Safe Act, including the requirement for sellers to use accurate and authorized images, due diligence to prevent repeat offenders, and the three-strike policy.
Without procedures in place to weed out repeat offenders, these problematic sellers will likely only continue to game the system and manifest under different usernames and accounts across the various e-commerce platforms, despite brand owners’ attempts to take down their listings.
At present, when brand owners and their agents request seller information through the brand registry program, they sometimes receive cryptic or clearly fake names and addresses. Disclosing the seller information publicly does not change the fact that many sellers continue to operate under fake identifying information.
Amazon’s rollout of new initiatives is likely a calculated effort to control the narrative ahead of the potential legislative mandates. By doing so, Amazon can cherry-pick the battles it wants to fight. In light of pressure from the government, Amazon has already been on the offensive: In early 2020, Amazon announced it would add safeguards to its seller application process by requiring sellers to verify their identities through supporting documentation and participating in in-person visits or video conferences.
In April, Amazon expanded its program with the international anti-counterfeiting coalition offering counterfeit sales volume data of known infringers to anti-counterfeiting coalition member brands, so that such brands could better focus their enforcement efforts. Amazon could have made a similar offering to all brand owners on its platform. Yet, Amazon continues to be selective about its partnerships and anti-counterfeiting initiatives.
Furthermore, in June and August, Amazon joined Valentino SpA and KF Beauty in separate lawsuits against third-party sellers on its platform, claiming violations to Amazon’s anti-counterfeiting policy, which “explicitly prohibits the sale of counterfeit goods in the Amazon store.”
Both bills have measures that can cut against Amazon and other e-commerce platforms’ business models, which presumably thrive on the proliferation of third-party sellers. Thus, it is no surprise that Amazon is ignoring or otherwise failing to adopt and implement some of the more demanding measures in the two consumer protection bills.
Amazon and its consumers could benefit from adopting the holistic measures proposed in the Shop Safe and Inform Consumers Acts.
It is unclear whether Amazon’s unilateral action will be enough to stave off the stringent requirements of the Shop Safe and Inform Consumers Act. Transparency may only be one part of the problem, and if Amazon does not do more, Congress will likely continue its push to shift liability back to the powerful e-commerce platforms.
The drafters acknowledge the complexity of the issues Amazon faces and the difficulty of implementing some measures that would be unpopular with sellers. For example, requiring third-party sellers to sign a waiver that they are not selling counterfeit products may actually harm small businesses that often do not know, and do not have the means or technological prowess to uncover, the difference between a genuine and counterfeit good.
That complexity does not mean, however, that Amazon, and other e-commerce platforms, should escape liability, especially since it has awareness of the counterfeit problem and continues to take a cut of sales on its platform.
Amazon could actually gain from taking a tougher position toward third-party sellers on its platform. Big name brands such as Nike Inc. have started to build new e-commerce business models to compete with Amazon’s platform, in part because of the difficulty they had in controlling third-party sellers on Amazon’s marketplace. If Amazon took stronger action to protect intellectual property, it could maintain more partnerships with profitable brands.
Neither the Shop Safe Act nor the Inform Consumers Act alone is an antidote. The bills focus on the lack of transparency that currently plagues e-commerce marketplaces and, in particular, Amazon’s marketplace.
It remains to be seen whether Amazon’s investment in anti-counterfeiting measures such as the counterfeit crime unit and new seller disclosure requirements will make an impact. Until comprehensive legislation is proposed and adopted, consumers and brand owners beware: Amazon’s efforts are not the safety net we were hoping for.