Should e-commerce platforms be liable for third-party counterfeits?

On Behalf of | Mar 11, 2020 | Trademark Law |

Earlier this year, President Trump signed an executive order calling for crackdown on counterfeit or pirated goods. Specifically, it targeted U.S. companies that import, or who facilitate the import of, those goods. Now, a bipartisan bill has passed the House of Representatives that would incentivize online sales platforms like eBay and Amazon to follow a set of best practices to prevent counterfeiting.

The “Stopping Harmful Offers on Platforms by Screening Against Fakes in E-Commerce” or SHOP SAFE Act is meant to keep fakes off third-party selling websites. Specifically, when a counterfeit product “poses a risk to consumer health or safety” and the sales platform did not follow the best practices outlined in the law, the sales platform could face contributory trademark liability. That basically means that the owner of a trademark could sue the sales platform in addition to the counterfeiter.

According to the House Judiciary Committee, the best practices include:

  • Vetting sellers to ensure their legitimacy
  • Removing counterfeit listings
  • Removing sellers who repeatedly sell counterfeits

The bill is an effort to overcome a 2004 court case called Tiffany & Co. v. eBay. In that case, Tiffany’s was able to show that there were substantial amounts of counterfeit or infringing goods available for sale on eBay and attempted to hold eBay liable for trademark infringement.

The Second Circuit Court of Appeals ruled that eBay had no primary liability for trademark infringement because it had not itself counterfeited the goods. Moreover, that court held that eBay could not be held contributorily liable unless it knew or had reason to know that the counterfeits were being sold on the site. That level of knowledge was never proven in the case.

Moreover, the court found that eBay routinely made substantial investments toward anti-counterfeiting initiatives and had a robust internal enforcement mechanism. And, there were substantial quantities of real Tiffany products also for sale on eBay, making it virtually impossible for eBay to police unless it simply removed all the listings altogether.

The case remains settled law, at least in the Second Circuit, as the U.S. Supreme Court turned back an appeal from Tiffany & Co.

Product counterfeiting is a growing problem. Amazon alone generated $42.75 billion in third-party sales in 2018, many of which could have been counterfeit.

It’s clear that manufacturers and retailers would like Amazon, eBay and other third-party selling platforms to do more to prevent the sale of infringing goods. But how realistic is this? When do counterfeit goods pose a risk to consumer health or safety? How closely would the platforms have to comply with the best practices laid out in the bill?

You can bet that eBay and Amazon will be fighting to limit their liability and defeat the SHOP SAFE Act.