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Pressure rises on online retailers to fight fakes

Legislation faces opposition from the tech industry over policing billions of items posted online

Sen. Chris Coons, who chairs the Judiciary Committee’s panel on intellectual property, is pursuing legislation that would hold online retail platforms liable for counterfeits.
Sen. Chris Coons, who chairs the Judiciary Committee’s panel on intellectual property, is pursuing legislation that would hold online retail platforms liable for counterfeits. (Tom Williams/CQ Roll Call file photo)

From clothes and shoes to electronics and even aircraft engine parts, online retail sites and social media marketplaces are awash in counterfeit products, tricking consumers and companies into buying the fake goods.

Of 13,000 online consumers surveyed in 17 countries by the Michigan State University Center for Anti-Counterfeiting and Product Protection, nearly 3 out of 4 reported having bought counterfeit products.

The fakes go beyond simple retail products. The Federal Aviation Administration warned aircraft engine makers in September that a London-based company called AOG Technics sold unauthorized parts by forging documentation of their authenticity. The agency asked airlines to inspect their aircraft to ensure they had genuine parts. 

Against that backdrop, consumer advocates and legal experts are urging Congress to pass legislation that would make online platforms liable for dangers posed by counterfeit goods by putting the retailers on par with brick-and-mortar stores. 

Congress already took a step toward holding online marketplaces accountable by including legislation in the fiscal 2023 appropriations act that requires online retailers to collect, verify and disclose information about third-party sellers on their sites. 

That transparency law, known as the Inform Act, went into force in June. The Federal Trade Commission has said the agency and states “have authority to enforce the new statute and online marketplaces that run afoul of the law could be subject to steep financial penalties.” 

Now, Sen. Chris Coons, D-Del., chairman of the Senate Judiciary Committee’s panel on intellectual property, and Sen. Thom Tillis, R-N.C., the panel’s top Republican, are pursuing legislation that would hold the platforms liable for the sale of counterfeits. 

Not only do such fake goods harm consumers, but they also affect companies whose brands and trademarks are being duplicated, said James Bikoff, a partner in the law firm of Smith, Gambrell & Russell LLP in Washington.

“The two acts together, one for transparency and one for liability, are needed, and they tie into the two major efforts to curtail the distribution of counterfeit products in our country right now,” Bikoff said in an interview. 

At an Oct. 3 subcommittee hearing, Coons said the legislation would open “platforms to liability if counterfeit goods affecting health and safety are sold on the platforms, the same liability brick-and-mortar retailers have been subject to for decades.”

The legislation also would require “brand owners to provide platforms with notice of their trademarks and a critical point of contact” to help online retailers figure out the real from the fake, Coons said.

Counterfeits are everywhere, Tillis said at the hearing, recounting the example of a fake bicycle helmet branded as Specialized that cracked when a 180-pound person jumped on it from a 1-foot height. 

“So I think that’s just one example,” Tillis said. “We hear about them in automobile parts and airplane parts. You see this in children’s toys that the official version may be safe [but] the counterfeit version is very dangerous. There’s no question that we’ve got to fix this problem.” 

Online retailers want changes

The proposed legislation faces opposition from the tech industry. 

Matt Schruers, president of the Computer & Communications Industry Association, which represents Inc., eBay Inc., Meta Platforms Inc. and other platforms, told lawmakers that online retailers share the goal of preventing counterfeits but that the bill in its current form places “major new burdens and liabilities on sellers of all sizes while requiring no significant new contribution from brand owners.”

Schruers told lawmakers that the bill’s definition of health and safety products “would encompass virtually every product in today’s consumer household.”

The Michigan State study, published in September, found that 68 percent of those who bought a fake product on a social media site did so on Facebook. A spokesman for Facebook parent Meta said the company’s policies prohibit trademark violations and that the company has built technology to eliminate counterfeit products on its site. Almost all counterfeit takedowns in 2022 on Facebook stemmed from the use of those technologies, the spokesman said in an email.

Amazon’s anti-counterfeit policy says products offered on the site “must be authentic.” The sale of fake products and failure to abide by the platform’s rules is punishable by a ban on the platform and possible referral to law enforcement. EBay and Meta Platforms’ Facebook have similar policies.

Yet counterfeits still proliferate.

A spokesman for the Senate Judiciary Committee didn’t respond to emails asking how the lawmakers intend to proceed with the legislation. 

In the absence of specific provisions addressing the responsibility of online retailers, the U.S. legal system continues to make a distinction between physical stores and online marketplaces, Kari Kammel, director of the Michigan State anti-counterfeiting center, told lawmakers at the subcommittee hearing.

Kammel cited a 2010 case, Tiffany v. eBay, in which a federal court decided “that it was unreasonable for an e-commerce platform to be able to look through their own platform to find these postings” of fake products. 

But with the evolution of technology and the arrival of artificial intelligence systems, “it’s no longer unreasonable for a platform to be able to see what’s on its own platform,” Kammel told lawmakers. They should be able to proactively vet sellers, their postings and the images uploaded “to make sure once something’s posted it’s actually safe for the consumer to purchase.”

Red Points, a company with offices in New York and Barcelona, employs AI to help brands identify and report counterfeit products on online marketplaces, said Daniel Shapiro, who heads brand relationships and strategic partnerships at the firm.

Online marketplaces like Amazon, Alibaba, eBay and others may collectively see as many as “2 to 3 billion” new items listed by third-party sellers each day, Shapiro said in an interview. Small and large companies alike find it hard to employ a sufficient number of trademark and intellectual property specialists to identify and report counterfeits in such a large volume of products, he said. 

Instead, brands in fields of fashion, electronics, sports and others that contract with Red Points share details on their trademarks, logos, packaging particulars, shipping locations, cost of manufacturing and other proprietary information.

The company uses artificial intelligence tools to scan as many as 35 million online listings daily to identify potential fakes, Shapiro said. When a fake is discovered, the company sends a notice to the online platform on behalf of the brand.

Even with technological solutions, “nobody’s going to stop counterfeiting. … It has been with us since the Middle Ages,” Bikoff said. Fake products are going to be around for “as far in the future I can see, but what we need to do is have measures that are reasonable, that prevent platforms from ignoring the safety and health risks of counterfeiting.”

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