Etsy Targeted Over Sale of Counterfeit Products

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U.S.-based international trade group Cashmere and Camel Hair Manufacturers Institute (CCMI) recently filed a lawsuit against global online marketplace Etsy, Inc. in U.S. District Court for the District of Massachusetts for allegedly advertising and marketing third-party counterfeit cashmere products through its platform. CCMI claimed Etsy violated the Lanham Act; Massachusetts’ false advertising law; common law prohibitions on unfair competition; and Massachusetts’ Anti-Dilution Statute. CCMI also brought a novel civil claim that Etsy conspired with the fake cashmere suppliers.

Etsy provides a third-party global marketplace for various goods and products. Currently, Etsy counts approximately 96 million active buyers, 7.5 million sellers, over 100 million listings, and $2.32 billion in 2021 revenue. In its suit, CCMI seeks to protect the market interest and reputation of its membership against products falsely advertised and marketed as “100% Cashmere” or “Cashmere” when they are made from “cheaper synthetic or man-made materials.” CCMI alleged Etsy’s website, ads, and automated consumer marketing emails sometimes feature shops selling counterfeit cashmere products, implicating the website in the scheme. CCMI also argued that Etsy failed to regulate these false claims, and instead profited from the counterfeit products via fees charged to sellers.

To succeed, CCMI must overcome considerable precedent favoring Etsy under the Communications Decency Act Section 230 — relied on by courts nationwide — which does not consider an “interactive computer service” like Etsy as the publisher or responsible for third-party information on its platform. Not surprisingly, Etsy relied on Section 230 when answering CCMI’s motion for a temporary restraining order and preliminary injunction, contending it is not responsible or liable for its sellers’ postings, and its terms of use do not warrant the products offered by third-party sellers. Instead, Etsy maintained its platform merely provides a forum for sellers to operate their own shops, and it cannot “pre-screen” the 100+ million platform listings. Etsy also argued that it neither took possession of any sales items nor materially contributed to the product listings, further insulating it from liability.

Why It Matters

This case represents a growing trend to hold online marketplaces liable for third-party conduct. For instance, courts recently held against online marketplaces if they stored, packed, and/or shipped these products to customers, and a 2021 California bill proposed imposing strict liability on online marketplaces for defective goods, even if the marketplace provider never takes possession of the goods. Now with CCMI v. Etsy, Inc., the court could decide to support traditional immunity rationale or hold that the marketplace plays a meaningful role in distributing these allegedly counterfeit products. Regardless, online marketplaces should monitor these trends and evaluate ways to protect themselves from similar claims.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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