Congress introduced a bill that would hold online marketplace operators, such as Amazon.com Inc., eBay Inc. and Walmart Inc., responsible for counterfeit products—particularly unsafe items—sold on their websites. This is an issue U.S. marketplaces have faced for some time.
A bipartisan group of four U.S. House of Representatives members co-sponsored the legislation— called the The Stopping Harmful Offers on Platforms by Screening Against Fakes in E-Commerce (or Shop Safe) Act—to stop online sales of counterfeit products. The group says counterfeit goods sold on online marketplaces is a growing problem because there is no law that adequately requires multi-merchant platforms to vet who is selling and what they’re selling on their sites.
“The Shop Safe Act would make families safer by requiring online sellers to help prevent the sale of counterfeit products to consumers,” Georgia representative Doug Collins, one of the bill’s authors, said in a statement.
The bill outlines criteria the marketplace operators must follow when vetting third-party sellers on their sites.
“An electronic commerce platform shall be contributorily liable for infringement by a third-party seller participating on the platform for use in commerce of a counterfeit mark in connection with the sale, offering for sale, distribution, or advertising of goods that implicate health and safety, unless following requirements are met,” the legislation says.
Some examples of the requirements the bill outlines include: verifying with reliable identification who the seller is, the seller’s place of business and contact information; requirement of the third-party seller to verify the authenticity of goods to the marketplace; and proof the marketplace took reasonable steps to prevent any alleged infringement from a third-party seller.
For large marketplaces like Amazon and eBay, this is a tough ask. Take Amazon, for example, which has nearly 600 million SKUs listed on its site and more than half of those are from marketplace sellers, according to Digital Commerce 360 estimates. Amazon has millions of sellers and millions of items available on the site because it doesn’t have an extensive vetting process when a merchant signs up to be an Amazon seller. There’s little-to-no barrier to entry, and this allows Amazon to continually grow its seller base.
What Amazon and other marketplaces with a similar model do instead is take action on counterfeits after a product is already posted and available for consumers to purchase.
Amazon in a statement to Digital Commerce 360 says it has processes in place to identify and kick off merchants selling counterfeit products. Here’s Amazon’s full statement:
“Amazon strictly prohibits counterfeit. In 2018 alone, Amazon invested more than $400M to fight fraud, counterfeit and other forms of abuse. In 2019, we launched new programs including Project Zero and IP Accelerator, expanded existing programs like Brand Registry and Transparency, and piloted new innovations including the Utility Patent Neutral Evaluation process. Just last month, we committed to reporting all confirmed counterfeiters to law enforcement to help them build stronger criminal cases that can hold counterfeiters accountable. We are actively fighting bad actors and protecting our store and we will continue to work with brands, government officials, and law enforcement.”
Amazon Brand Registry is a program that provides sellers that have a registered trademark with tools to help them control their brand’s representation on Amazon. More than 200,000 brands are a part of Brand Registry, Amazon says. Project Zero is a new service that allows brands who are a part of Brand Registry to remove counterfeit products on their own. IP Accelerator is a program that connects sellers to a network of law firms that specialize in intellectual property rights and offer competitive rates. Transparency is a tracing service where brands put a unique code on each unit they manufacture. Then Amazon scans the codes and verifies the authenticity of the product before it reaches the customer. More than 6,000 brands have enrolled in Transparency, Amazon says. And the Utility Patent Neutral Evaluation is a pilot program in which a utility patent owner and accused counterfeit seller can have their case investigated by a neutral third-party evaluator.
In a statement to Digital Commerce 360, eBay said, “Counterfeits are not welcome on eBay. We are reviewing the legislation and will continue to work with the Committee on this important issue.”
The Government Accountability Office, a government agency that provides auditing and investigative services for Congress, found that in a sample test 20 of 47 items purchased from third-party sellers on popular consumer websites, or nearly 43%, were counterfeit, according to a statement announcing the bill. It does not specify which websites were purchased from or when they were purchased.
Online retailers react to the Shop Safe legislation
Online office supplies retailer and marketplace seller Jam Paper and Envelope, which does encounter counterfeits of its own products on Amazon, says the legislation will help the retailer because the current process to kick off counterfeiters takes time and resources.
“It’s nearly impossible for us to know for sure whether a seller has a legitimate Jam Paper Brand product or not, so we have to constantly dedicate time and resources in doing test buys on our listings,” says Kelly Ennis, director of marketplace strategy and analytics.
To report a counterfeit product to Amazon, sellers typically have to purchase an item from the counterfeit seller, report the violation to Amazon and show the order number and images of the counterfeit product from the test buy as proof, Ennis says. Amazon does eventually remove counterfeit sellers, but the process can take up to 14 days.
But this bill puts too much responsibility on marketplace operators when there’s only so much marketplaces can do, says James Thomson, partner at consultancy Buy Box Experts, which helps brands sell on Amazon.
“Is Amazon going to vet every unit of every seller’s product before it is sold? No, it’s simply impossible with 600 million products, 5 million sellers and billions of units sold each month,” Thomson says.
A missing piece in the legislation is that it doesn’t mention what local, federal and international police involvement with marketplaces will be, which is an integral part of keeping counterfeiters off these platforms, Thomson says.
“Amazon can only remove a counterfeit product and close the counterfeiter’s account, but Amazon can’t put the counterfeiter in jail, and yet that stick is needed to get some real traction, otherwise the counterfeiter comes back under a different seller name tomorrow,” Thomson says.
There’s still more Amazon can do, says Jed Nelsen, senior compliance manager at etailz, a technology company that helps retailers and brands sell on marketplaces. In addition to requiring merchants to provide such business information as a verifiable address or bank account, Nelsen says transparency on the marketplaces would help too. For example, the verifiable business address should be visible on sellers’ store page, so brands can take legal action without having to go through the marketplace for information.
It’s also possible the legislation could act as a deterrent for counterfeit sellers, Ennis says. “It will help clean up the Amazon selling landscape by removing sellers who repeatedly sell counterfeits, which offers a better experience for legitimate sellers (by saving us the time and resources spent having to get them removed from our listings) and, of course, a better experience for customers who will no longer have product authenticity experiences/concerns,” Ennis adds.
Safety concerns for counterfeit goods
The Shop Safe Act is targeting counterfeit products that are violating U.S. health or safety laws, according to the bill. Counterfeit products often don’t undergo safety testing and therefore may pose health and safety risks for consumers, according to the statement introducing the bill.
One example is children’s Halloween costumes. “We’re seeing a big issue of counterfeits of costumes on Amazon that don’t pass U.S. safety testing,” Tom Fallenstein, founder of HalloweenCostumes.com, told Digital Commerce 360 in the fall.
For instance, a Halloween princess costume that comes with a crown has certain restrictions for 4-year-old children, he says. The crowns have to be fabric and can’t have parts, like gems, that can fall off. However, some merchants do sell these counterfeit products on Amazon.
Consumers may be drawn to counterfeits because the price is low. Prices of counterfeits may be low for a number of reasons, such as the materials used to make the product are cheaper than what the brand name uses or the products are shipping directly from manufacturers overseas.
“Some knockoffs are obvious, but some have the Amazon’s Choice [badge on Amazon.com]. They’re getting good reviews because they’re so cheap, but consumers don’t know [those products] don’t pass U.S. safety testing,” Fallenstein says.
Counterfeits are top-of-mind for consumers too. When citing concerns for shopping on marketplaces, 37% of online shoppers say counterfeit products are a top concern, according to a Digital Commerce 360/Bizrate Insights survey of 1,108 consumers April.
Favorite