U.S. Cracks Down on Marketplaces Allowing the Sale of Counterfeit Goods

Apr 11, 2019 | Blog
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On April 3rd, 2019, President Trump issued a memorandum calling for greater efforts from the Federal Government and third-party platforms towards the policing of counterfeit goods:

“Third-party intermediaries, including online third-party marketplaces, carriers, customs brokers, payment providers, vendors, and others involved in international transactions, can all be beneficial partners in combating trafficking in counterfeit and pirated goods. In order to build on cooperative efforts that are already underway with such partners, a coordinated approach by the Federal Government, including its law enforcement agencies, and private industry is needed.”

The memorandum comes after a finding by the Organization for Economic Co-operation and Development (OECD) revealed that pirated and counterfeit goods amount to $500 billion dollars of trade per year, with 20% of this value ($100 billion) infringing upon the intellectual property rights of U.S. citizens. A separate Government Accountability Office report found that when a sample of commonly counterfeited goods were purchased from various online third-party marketplaces, over 40% of these goods proved to be fakes.

These alarming numbers have made it evident that the use of third-party platforms has been unsuccessful in efforts to effectively police the rising tide of counterfeit sales. Sales of this type not only infringe upon intellectual property rights but can also scare sellers away from a platform they believe they’ll lose business on. A platform fraught with fakes can also lose its integrity in the eyes of consumers, who may refrain from buying if there is doubt about certain products’ authenticity.

In response to these reports, President Trump’s memorandum calls for a variety of Federal agencies—including the Department of Homeland Security and the Department of Commerce—to cooperate on gathering further data regarding the causes, consequences, scale, and scope of this burgeoning illicit trade. These agencies are to then recommend legislative and/or policy changes that will help to more effectively thwart the sale of counterfeit goods and protect the interests of American IP rightsholders.

But the responsibility to prevent the spread of counterfeiting falls more heavily and squarely on the shoulders of third-party platforms themselves. In the past, several of these companies have instituted token policies that fail to make much of a dent in the overall sales of counterfeit goods.

Since the early 2000s, the e-commerce giant eBay has faced a slew of lawsuits  for its lax efforts in rooting out counterfeiters. Luxury brand companies such as Louis Vuitton, Dior, Hermès, and Tiffany & Co. have all made claims against eBay for its failure to control counterfeits on its site. The web platform has since implemented more protective measures for IP owners, including a program where sellers can register their IP rights and submit a Notice of Claimed Infringement if they believe their product is being counterfeited. However, eBay often requires that infringement be proven by a court before it will remove any alleged counterfeit listings.

The Taobao Marketplace, China’s largest e-commerce market, was another heavily criticized culprit of enabling counterfeit sales to run rampant. Despite Taobao’s parent company—Alibaba–claiming to have shored up their anti-piracy policies in the past several years, U.S Trade Representatives have continued to designate the site as a “notorious marketplace” for counterfeiting and IP infringement as recently as 2017. Since then, Alibaba has doubled down on its efforts to curb illicit sales, seizing $536.2 million worth of counterfeit goods in 2018.  Nevertheless, the site continues to host counterfeit and infringing goods.

Alibaba’s major U.S.-based competitor, Amazon, has also unveiled its new anti-counterfeit project in response to pressure from its sellers and the Federal government. On February 28, 2019, Amazon announced Project Zero, an initiative geared towards bringing counterfeit sales on its site down to “zero”. Elements of the project include “automated protections” that scan listings and remove probable counterfeits, tools for brand owners to remove counterfeit listings themselves, and a product serialization service to help keep track of and authenticate purchased items. These measures seem to indicate a marked improvement in Amazon’s battle strategy against a long-running history of knockoffs. Time will tell how effective Project Zero will ultimately be, but for the moment, it appears to be a step headed in the right direction.

While third-party platforms are increasing their efforts to police counterfeit products and infringing goods, manufacturers of luxury goods need to develop and maintain internal policies and resources for locating counterfeit items and taking affirmative steps to have them removed from these platforms.  The platforms cannot currently be relied upon to police themselves. By developing rigorous anti-counterfeit policies, manufacturers can instruct these platforms on how to distinguish authentic goods from counterfeit ones and can foster good working relationships with the platforms to encourage them to aggressively police for the manufacturer’s products. The Presidential Memorandum will help, but the manufacturer must remain active in fighting the battle against counterfeit products.

If you have any questions regarding anti-counterfeiting efforts or the sale of luxury goods, please contact Eric Breitman.