The Stopping Harmful Offers on Platforms by Screening Against Fakes in E-Commerce Act, or the Shop Safe Act 2020, for short, was introduced in Congress on March 2, 2020 by a bipartisian group of members of the U.S. House of Representatives.[1] The bill is one of several introduced in Congress to address the growing concern over counterfeit products flooding e-commerce platforms as online shopping continues to capture a growing share of the retail market.[2] The Shop Safe Act proposes to amend the Trademark Act of 1946 and establish contributory trademark liability for online marketplaces based on the sale of counterfeit products by third-party sellers on their platforms.

Consumers typically associate counterfeit goods with commonly bogus goods like purses, t-shirts and sunglasses sold in flea markets, not respected retailers where they do their everyday shopping. Counterfeits were once mostly limited to back alley deals and flea markets because most brick-and-mortar stores carefully vet and manage the products they carry. These stores are liable for what they sell, so consumers can trust that products are genuine. Unfortunately, consumers are now at much greater risk of buying counterfeit goods. E-commerce, alongside its revolutionizing of the retail market, has created a proliferation of counterfeits on online marketplaces.

Goods purchased on large e-commerce platforms are often not actually sold by the platform itself, but instead are sold by third-party sellers. Amazon, the largest online retailer in the United States, relied on third-party sellers for 54% of its sales in the second quarter of 2019.[3] Third-party sellers are in part what makes e-commerce giants like Amazon so appealing to consumers. Thousands of third-party sellers from around the world can list the same product for sale, increasing the supply of the product and reducing its price. Platforms are motivated to have as many third-party sellers selling products as they can, and have little incentive to properly vet the sellers or their products. With potentially thousands of sellers competing for the same customer, selling counterfeit products is an easy way for sellers to lower the price and make the sale.[4] Algorithms push the cheapest options to the front page, making counterfeit goods the first and potentially only option consumers see when shopping.[5]

Consumers are paying a dire price.

A study conducted by the Government Accountability Office found that 20 of 47 items purchased from third-party sellers on popular consumer websites were counterfeit.[6] Consumers are especially harmed when counterfeit goods deal with their health and safety. Counterfeits may not undergo proper safety testing, posing a substantial health and safety risk to consumers buying products like pharmaceuticals and cosmetics. Americans attracted to the cheap prices offered by online pharmacies face potentially lethal dangers like buying counterfeit prescription opioids laced with fentanyl.[7] Counterfeit cosmetics often contain ingredients such as arsenic, mercury, aluminum or lead.[8] “Consumer lives are at risk because of dangerous counterfeit products that are flooding the online marketplace. Congress must create accountability to prevent these hazardous items from infiltrating the homes of millions of Americans,” said Representative Doug Collins, a co-sponsor of the Shop Safe Act.[9]

Consumers injured by counterfeits sold by third-party sellers currently have little legal recourse available. Counterfeiters employ strategies to avoid liability, like operating several seller accounts so that if one account is identified and/or removed a counterfeiter simply switches to another account.[10] Also, many third-party sellers are shielded from legal accountability because they are located outside of the United States.[11] The e-commerce platforms themselves, although under U.S. jurisdiction, have not been liable for harm caused by the products they sell or distribute under U.S. law and regulations.[12] This jurisdictional and liability gap leaves consumers with little in the way of legal recourse when they are harmed.[13]

Yet, the liability gap may be closing. A recent California appeals court ruled that Amazon can be liable for injuries caused by products sold by third-party sellers.[14] Angela Bolger, a San Diego resident, sued Amazon after she suffered severe burns from a computer charger catching fire. The charger was sold by a third-party seller under the fictitious name “E-life,” which was actually Chinese company Lenoge Technology HK Ltd.[15] Explaining why Amazon is liable for Bolger’s injuries, the court held: “Whatever term we use to describe Amazon’s role, be it ‘retailer,’ ‘distributor,’ or merely ‘facilitator,’ it was pivotal in bringing the product here to the consumer.”

Whether this decision signals the beginning of a wider judicial trend to impose liability on e-commerce platforms for third-party sales remains to be seen. Of course, liability could be created nationwide through federal legislation like the Shop Safe Act. The Act would establish contributory infringement of platforms for use of counterfeit trademarks in “connection with the sale, offering for sale, distribution, or advertising of goods that implicate health and safety.”[16] 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.”[17] Platforms would be required to comply with 10 best practices to make sure sellers are sufficiently vetted to ensure their legitimacy, counterfeit listings are removed, and sellers who repeatedly sell counterfeits are banned and prevented from establishing new accounts. Platforms would escape liability if they can demonstrate that they took all preventative measures enumerated in the Act.[18]

E-commerce platforms have not adequately addressed the abundance of counterfeit products being sold by third-party sellers. The Shop Safe Act will create necessary incentives to protect consumers from dangerous counterfeits by imposing trademark liability on e-commerce platforms for counterfeit sales by third-party sellers.

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A copy of the full bill text can be found here.
A section-by-section analysis of the bill can be found here.
A one-pager on the bill can be found here.

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[1] Press Release, U.S. House Committee on the Judiciary, Nadler, Collins, Johnson & Roby Introduce Bipartisan SHOP SAFE Act to Protect Consumers and Businesses from the Sale of Dangerous Counterfeit Products Online (Mar. 2, 2020), https://judiciary.house.gov/news/documentsingle.aspx?DocumentID=2838.

[2] The Stop All Nefarious Toys in America Act (SANTA Act) and the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (INFORM Consumers Act) have also been introduced.

[3] https://www.statista.com/statistics/259782/third-party-seller-share-of-amazon-platform/

[4] Ganda Suthivarakom, Welcome to the Era of Fake Products, N.Y. Times (Feb. 11, 2020) https://www.nytimes.com/wirecutter/blog/amazon-counterfeit-fake-products/.

[5] Id.

[6] https://www.gao.gov/assets/690/689713.pdf

[7] U.S. Dept. of Homeland Security, Combating Trafficking in Counterfeit and Pirated Goods (Jan. 24, 2020), available at https://www.dhs.gov/sites/default/files/publications/20_0124_plcy_counterfeit-pirated-goods-report_01.pdf

[8] Id.

[9] https://judiciary.house.gov/news/documentsingle.aspx?DocumentID=2838.

[10] https://www.dhs.gov/sites/default/files/publications/20_0124_plcy_counterfeit-pirated-goods-report_01.pdf.

[11] Id.

[12] Id.

[13] Id.

[14] Jefferson Graham, Amazon Liable for Defective Products from Third-Party Sellers, California Court Says, USA Today (Aug. 14, 2020) https://www.usatoday.com/story/tech/2020/08/13/amazon-retailer-liable-3rd-party-product-defects-california-court-rules/3369886001/.

[15] California Court Rules Amazon is Liable for Injuries from Defective Products, NBC News (Aug. 13, 2020) https://www.nbcnews.com/tech/tech-news/california-court-rules-amazon-liable-injuries-defective-products-rcna82.

[16] The Shop Safe Act 2020, https://judiciary.house.gov/uploadedfiles/shop_safe_-_bill_text.pdf.

[17] Id.

[18] Id.