The Legislative Branch’s Answer to Stopping Counterfeit Goods: The SHOP SAFE Act

BakerHostetler

This post is the second in our ongoing series on the heightened focus in 2020 on combating the sale of counterfeit goods. Our first article focused on the actions of the executive branch, while this article discusses the actions of the legislative branch in the fight against the sale of counterfeit goods.

In early March, a bipartisan bill was introduced in the House of Representatives aimed at curbing the sale of counterfeit goods online.[1] The bill is titled “Stopping Harmful Offers on Platforms by Screening Against Fakes in E-Commerce Act of 2020,” or the SHOP SAFE Act of 2020 for short. The legislation is currently pending before the House Committee on the Judiciary and aims to address the wide array of counterfeit products being offered for sale on third-party marketplace platforms. This act comes on the heels of the Jan. 31 executive order issued by President Donald Trump that called for a crackdown on companies that import or facilitate the import of counterfeit goods.[2]

The SHOP SAFE Act of 2020 forces e-commerce platforms to bear the burden of fighting counterfeiting on their platforms for goods implicating “health and safety” issues. Under the new bill, an e-commerce platform is liable for a third-party seller’s trademark infringement unless the platform takes 10 specified steps to prevent the sale of the counterfeit goods on its platform. The act therefore creates somewhat of a safe harbor for e-commerce platforms that take the 10 “reasonable” steps outlined in the bill. These requirements include vetting sellers to ensure their legitimacy, expeditiously removing counterfeit listings and terminating repeat offenders.

On its face, the SHOP SAFE Act of 2020 is intended to relax the high notice standards for holding third parties contributorily liable for the sale of counterfeit goods by others. Currently, brand owners are required to prove third parties, like e-commerce platforms, have knowledge of the counterfeiting before they can be held contributorily liable. This often leaves brand owners with little recourse, as holding the merchant sellers directly liable is a difficult task. Often, the sellers are located outside the U.S. and therefore outside the jurisdiction for civil liability under U.S. law. Sellers often use multiple merchant accounts and provide no identifying information. Even when enforcement action is taken and the account is shut down, the seller regularly pops right back up through the creation of a new merchant account. The SHOP SAFE Act of 2020 provides some reprieve to trademark owners, shifting the burden to e-commerce platforms to prove they took the reasonable steps, specifically the 10 outlined in the bill, to avoid contributory liability for trademark counterfeiting.

The current draft of the bill is limited to counterfeit “goods that implicate health and safety.” The bill defines goods that implicate health and safety as “goods the use of which can lead to illness, disease, injury, serious adverse event, allergic reaction, or death if produced without compliance with all applicable Federal, State, and local health and safety regulations and industry-designated testing, safety, quality, certification, manufacturing, packaging, and labeling standards.” It is unclear what showing, if any, brand owners must make to implicate health and safety. Arguably, most counterfeit goods can implicate health and safety when made under conditions outside brand owners’ typical quality control.

Going forward, brand and e-commerce third-party platforms will need to keep apprised of developments concerning the proposed SHOP SAFE Act of 2020 so that they have the necessary knowledge to police their trademark rights and/or implement necessary steps to avoid contributory liability.

[1] Stopping Harmful Offers on Platforms by Screening Against Fakes in E-Commerce Act of 2020, H.R. 6058, 116th Congress (2020), https://www.congress.gov/bill/116th-congress/house-bill/6058/text.

[2] Executive Order, “Ensuring Safe & Lawful E-Commerce for US Consumers, Businesses, Government Supply Chains, and Intellectual Property Rights” (Jan. 31, 2020), https://www.whitehouse.gov/presidential-actions/ensuring-safe-lawful-e-commerce-us-consumers-businesses-government-supply-chains-intellectual-property-rights/.

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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