New Anti-Counterfeiting Regulations May Crush Amazon and eBay
The Trump administration steps in with a strong counterfeit crackdown
January 28, 2020, Los Angeles, CA – Consumers can no longer be confident in the safety, quality, and authenticity of products they purchase online from e-commerce websites like Amazon, eBay, Walmart, and Alibaba. The President wants to do something about it, and the online third-party marketplaces that facilitate the importation and sale of massive amounts of counterfeit and pirated goods.
The January 24, 2020, Department of Homeland Security Report to the President of The United States concludes: "E-commerce platforms represent ideal storefronts for counterfeits and provide powerful platform[s] for counterfeiters and pirates to engage large numbers of potential consumers" in purchasing counterfeits from the apparel, automotive, electronics, entertainment, luxury goods, pharmaceutical, personal care and software sectors. "This illicit trade must be stopped in its tracks."
The DHS report outlines immediate actions, policy, and also the recommendation that the administration pursue a statutory change to explicitly permit the government to seek injunctive relief against third-party marketplaces and other intermediaries dealing in counterfeit merchandise.
Amazon reports third-party sales on its marketplace grew from $100 million in 1999 to $160 billion in 2018, and Walmart, in 2018 alone, experienced an e-commerce sales increase of 40 percent.
Unless the trafficking of counterfeit and pirated goods is greatly reduced, Americans will continue to face unacceptably high health and safety risks, and American enterprises and workers will continue to endure the severe negative impact and destruction of innovation and economic growth from this highly profitable criminal enterprise.
While the U.S. brick-and-mortar retail store economy has a well-developed regime for licensing, monitoring, and otherwise ensuring the protection of consumers and intellectual property rights, a comparable regime is largely non-existent for e-commerce sellers. Additionally, the online platforms have avoided civil liability for contributory trademark infringement in recent cases.
The DHS concludes that no amount of officers or government resources alone can stem this trafficking. Private sector actions have not been sufficient to prevent the importation and sale of the wide variety and large volume of counterfeit and pirated goods.
DHS published the "best practices" that will be the active role e-commerce platforms, online third-party marketplaces, and other third-party intermediaries such as customs brokers, fulfillment shippers, and express consignment carriers must take for monitoring, detecting, and preventing trafficking in counterfeit and pirated goods. Third-party marketplace listings that falsely claim to have certifications with health and safety standards are also targeted.
These strong actions can be implemented swiftly to promote a safer America and substantially reduce trafficking in counterfeit and pirated goods, and items banned by federal regulators or even the platforms themselves.
The DHS will immediately undertake the following actions, and make recommendations for other departments and agencies to combat the trafficking of counterfeit and pirated goods;
Under Section 321 of the Tariff Act of 1930, as amended by the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA), articles with a value of $800 or less, imported by one person on one day, can be admitted free of duty and taxes. This reduced level of scrutiny is an open invitation to exploit Section 321 rules to transport and distribute counterfeits.
Additionally, the following set of high priority DHS "best practices" will be communicated to all relevant international e-commerce sellers by the National Intellectual Property Rights Coordination Center. It shall be the Center's duty to monitor and report on the adoption of these best practices within the scope of the legal authority of DHS and the Federal government;
On some platforms, little identifying information is necessary to begin selling, and rapid proliferation allows counterfeiters to hop from one profile to the next even if the original account is taken down or blocked. Third-party online marketplaces can quickly and easily establish attractive "store-fronts" for the retailing of counterfeit and pirated goods with low risk of detection that compete with legitimate businesses. In contrast, the infringement reporting process can be particularly time-consuming and resource-intensive for right-holders who currently bear a highly disproportionate share of the burden of identifying, cost, and reporting of counterfeit listings.
Other changes include treating domestic warehouses and fulfillment centers (for example: "Fulfilled by Amazon") as consignees, allowing Customs and Border Protection (CBP) to enhance their ability to identify Section 321 abuses consistent with current authorities, as well as use its other statutory and regulatory authorities to combat trafficking of counterfeit goods in the possession of domestic warehouses and fulfillment centers.
The DHS also recommends;
Strong government action is necessary to fundamentally realign incentive structures and thereby encourage the private sector to increase self-policing efforts and focus more innovation and expertise on this economic crisis. This long overdue and much warranted call to action by the U.S. Government aggressively attacks a massive form of illicit trade that is inflicting significant harm on American consumers and businesses.
The results may be catastrophic for e-commerce platforms that have long overlooked or turned a blind eye to counterfeit, fraudulent, and replica goods on their web platforms.
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