Earlier this week the House passed America COMPETES, a companion bill to the Senate’s science and technology package. While the Senate bill focuses on competitiveness with China, America COMPETES is a more of a grab bag. The bill’s 2,912 pages cover everything from research funding to shark fin sales. Most of the bill’s spending provisions can be seen as somehow bolstering American competitiveness, albeit inefficiently. However, it also includes sweeping e‑commerce regulations that create new liabilities and filtering expectations for eBay, Etsy, and other online marketplaces. These regulations will hobble, not help, America’s ability to compete.
Section 80103 of America COMPETES, titled “Stopping Harmful Offers on Platforms by Screening Against Fakes in Ecommerce,” is Sen. Chris Coons (D‑DE) Shop SAFE Act. When Shop SAFE went through markup in September other members expressed concerns about its breadth and potentially anticompetitive effects. Rep. Zoe Lofgren (D‑CA) has worried it will “raise the administrative burdens and transaction costs of many small businesses and small sellers.” Despite these concerns, Shop SAFE was included in America COMPETES unchanged. If survives reconciliation, its effects on American e‑commerce will illustrate how one bad apple can spoil the bunch.
Shop SAFE is intended to discourage the sale of counterfeit products in online marketplaces. To do this, the bill creates a new contributory trademark infringement claim that can be brought against e‑commerce platforms that have hosted listings for counterfeit products. Although the claim is ostensibly limited to harmful products, the bill’s definition of products that “implicate health and safety” are broad enough to include clothing and all consumer electronics.
The new claim upsets a settled, functional, detente between e‑commerce platforms and trademark owners. In its 2010 Tiffany v. eBay decision the Second Circuit held that as long as eBay honored takedown notices from Tiffany and other trademark owners it could not be held liable for the presence of counterfeit goods on its website. The opinion recognized that at scale perfect enforcement is impossible, and platforms must balance between the harms of over‐ and under‐removal. Shop SAFE would upset this precedent, reopening the door to trademark infringement suits that expect perfect moderation.
Platforms can escape liability for the new contributory trademark claim, though not the process of litigation, by taking thirteen enumerated steps to curb counterfeiting. These anticounterfeiting provisions are the heart of the bill. While some are anodyne, others are costly, onerous, and intrusive.
One requires e‑commerce platforms to implement “reasonable proactive measures for screening goods before displaying the goods to the public” – this is a description of upload filters. Such filters would be both expensive to implement and imperfect. Given their scale, platforms would have to rely upon automated review. It would become more difficult for new firms to break into the e‑commerce platform market if they had to develop filters or license filtering software from a more established competitor. Upload filters will be imperfect, at scale they will reject countless infringing products alongside counterfeits. Even to the extent they are successfully implemented, these product filters will make Americans worse off. Many Americans purchase counterfeit luxury goods as a cheaper alternative to their officially branded counterparts. This isn’t simply a matter of consumers being ripped off — they are more scrupulous than regulators and garment industry representatives admit.
Another step requires e‑commerce platforms to implement “reasonable measures for screening third‐party sellers to ensure that sellers who have been terminated do not rejoin or remain on the platform under a different seller identity or alias.” This is another unfunded screening mandate, although unlike the goods screening provisions, it is likely to intrude on users’ privacy. Like any other automated filter, it will be fallible, and false positives will bar unlucky Americans from the platforms used by their neighbors.
Shop SAFE will entangle more than just dedicated e‑commerce platforms. Its newly created contributory infringement liability applies to websites with “features that allow for arranging the sale or purchase of goods,” which could be read to include messaging apps or forums. The bill only applies to platforms with over $500,000 in sales in the past year, unless the platform has received 10 notices of trademark infringement. In practice, even small platforms will be affected, as it will be relatively easy for trademark owners to find ten independent listings for counterfeit items over an indefinite period of time.
Heaping screening obligations on intermediaries and encouraging litigation is not how America competes. Even if limited to dedicated ecommerce platforms, Shop SAFE would advantage larger marketplaces at the expense of smaller ones, and discourage small‐sellers across the board. The economic benefits of more stringently policing counterfeits are unproven, likely ephemeral, and would accrue to foreign firms as much as they accrue to American ones. It is counterproductive to include Shop SAFE in any legislative package intended to bolster American competitiveness.
