Why the Shop Safe Act is a mistake, and how to fix it
The headlines seem great. Who doesn’t want to shop safe, or prevent counterfeits from popping up on online marketplaces? Certainly the goal of “stop[ping] the online sale of dangerous counterfeits” is a good one. But the devil’s in the details, and this bill’s details are poorly thought out. In brief, this would severely harm marketplaces by making it trivial for bad actors to block legitimate sellers and applies double standards to online sellers that do not apply to any other business.
https://judiciary.house.gov/uploadedfiles/shop_safe_-_section-by-section.pdf has a brief summary of the bill. It would effectively require online marketplaces like Amazon, eBay, and Walmart to institute a list of 10 best practices to help keep out counterfeiters. To be sure, there are several good ideas here. Out of the 10 “best practices”, I really only have a problem with 5, 7, and 8. The others mainly require sellers to be accountable, have publicly available contact information, and so on — I would actually go further than they do². But the issues are so severe that it outweighs any good in the provisions I agree with.
5 states “Requiring sellers to use images that accurately depict the actual goods offered for sale and that the seller owns or has permission to use”. While this may seem fine, it ignores the reality of Amazon in which the same images are used for all sellers of a product. If a brand uploads a picture to sell their product, and a seller has goods that match that picture exactly, they should be, and under current law are, permitted to sell using that same image. This should be tweaked to clarify that a marketplace can allow all sellers of an item to share a listing from the catalog without each having to take their own pictures.
7 provides for a free way for anyone to block any seller they want, simply by asserting that the goods are counterfeit. This is incredibly dangerous and an open invitation to abuse. Any time that such a program has been implemented without strong safeguards in place, it has been massively abused. Just look at YouTube Content ID claims. At a bare minimum, any law that expands the ability of brands to take down sellers based on allegations of counterfeiting must include a legal penalty for brands making those claims falsely. It can be modeled after USC 512(f) — if you submit a false DMCA copyright claim, you’re not only committing perjury but you can be held civilly liable for any damages. The same should be true for false claims of counterfeiting¹. In fact, why not adopt the full DMCA framework for counterfeiting concerns: allow brands to file complaints under penalty of perjury, allow sellers to dispute them, and require brands to sue if there is a dispute, just as we do right now for copyright disputes?
This is not a merely academic concern: as I documented and as BloombergLaw recently noted, there’s many lawsuits going on right now over false counterfeit complaints to Amazon and other platforms. If the ability to file such complaints was enshrined in law, abusive use would substantially increase.
Finally, 8 provides for the automatic termination of accounts after “more than three” (why not just say four) counterfeit listings or sales. Combining this with the loose requirements in 7 above, this would predictably and inevitably lead to bad actors filing multiple false complaints against their competitors, knowing that the marketplace would have no choice but to remove them. At a minimum, this needs to be restricted to cases where there’s actual proof of counterfeit sales, not simply an assertion by a brand. Also, even assuming there were actual counterfeit products sold or listed, a cutoff of 4 is unreasonable. Every single major retailer has most definitely sold more than 4 counterfeit products in their lifetime. If you dig through federal lawsuits, you’ll find plenty of cases where Walmart, Costco, even Amazon themselves (not third party sellers) sold counterfeit products. Presumably never knowingly, of course, but when you buy from a wide assortment of suppliers, sometimes bad goods enter the supply chain. We wouldn’t and shouldn’t shut Costco down just because a store once sold a counterfeit product. The same should apply to online sellers — if you have hundreds of suppliers, sell millions of products, and have one bad order sneak in, that shouldn’t mean your entire business is destroyed. The bill is ostensibly about safety, but it’s applying a double standard. Many products have been recalled for safety reasons: should every store that sold more than 4 units of a recalled product be shut down? All I’m saying is, apply the same standard to online sellers as we apply to stores and every other business. So sure, require identity verification, require a real person to stand behind all products sold. But don’t allow unverified complaints to shut down legitimate businesses, and don’t apply double standards to online businesses.
Footnotes:
- Current law is unsettled. Brands such as TP-Link have argued in various lawsuits that they have a First Amendment right to tell Amazon that products are counterfeit, even if done with actual malice and even if they know that it’s not true. However, other courts have rejected this argument, see PROEXPRESS DISTRIBUTORS LLC, v. GRAND ELECTRONICS, INC. I think there should be strict liability for false claims of counterfeiting.
- In particular, Molson Hart has proposed requiring every seller to carry liability insurance that will pay if they are found to be selling counterfeits. That solves the problem of unaccountable Chinese sellers in one fell swoop.
