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Would the SHOP SAFE Act really fix e-commerce?

Updated: Nov 2, 2021

Counterfeiting is the biggest criminal enterprise on Earth, and the government of the United States might finally be ready to do something about it.

Over the last several years, online shopping has utterly upended the world’s commercial environment. A cast of corporate juggernauts has rerouted much of the world’s commerce to new, quasi-anonymous internet marketplaces that act as havens for criminal organizations to hawk their counterfeit goods directly to consumers. After generations of relative safety from unregulated knockoff products, millions of people throughout the developed world are ill-prepared to deal with the sudden glut of fake medicines, foods, clothing, and more being delivered to their doorsteps every day.

Counterfeiting is the by far the largest criminal enterprise on Earth, with little to stop it from growing further aside from a technological silver bullet or decisive government action. While several companies are racing to produce the former, the prospect of the latter is increasingly gaining traction in the United States, which remains the world’s largest consumer market.

In March of 2020, a bipartisan group of U.S. lawmakers introduced a bill which aimed to compel the owners of online marketplaces to crack down on illegitimate third party vendors who are using these platforms to sell counterfeit goods. In the grand American tradition of creating overwrought acronyms for legislative proposals, they named it the Stopping Harmful Offers on Platforms by Screening Against Fakes in E-Commerce Act, or the SHOP SAFE Act.

Unfortunately, the Covid-19 crisis came to dominate the attention of Congress shortly after the bill was introduced, and the first iteration of the SHOP SAFE Act died without being voted on by either chamber. However, the bill was reintroduced in May of this year and has ample time to wind its way through the legislative process.

So, what exactly is in the SHOP SAFE Act? Fortunately for us, the bill clocks in at a whopping one page, making it much more readable than most pieces of legislation. You can view the full text here, as well as a simplified summary here.

The bill is written as an amendment to the 1946 Trademark Act and essentially makes e-commerce platforms legally liable for IP infringement that occurs within their marketplaces, even if the infringement is carried out by third party sellers. Under this system, e-commerce platform owners would be penalized if they do not take the steps below to prevent counterfeits from being sold under their auspices:

· Verify and document the identity of all third party sellers.

· Require third party sellers to agree to not sell counterfeit goods and to consent to the jurisdiction of the United States in matters of IP enforcement.

· Prominently and publicly display information on all third party sellers, including identity, location, and contact information.

· Require third party sellers to use real images in advertisements that depict the actual goods being sold.

· Implement “proactive technological measures” for screening goods sold on e-commerce platforms to guard against counterfeiting and false advertising.

· Establish a mechanism for swiftly removing confirmed counterfeit products from platforms.

· Enforce a “three strikes” termination policy for third party sellers who have engaged in counterfeiting.

· Ensure that terminated third party sellers are not able to rejoin platforms under a different name.

· Provide all available information about third party sellers who have been caught selling counterfeits to law enforcement and consumers upon request.

The upshot of all this is fairly straightforward: if the SHOP SAFE Act were to become law, e-commerce platforms like Amazon and eBay would formally own the problem of counterfeiting. In a stark departure from the current ‘wild west’ status quo, the owners of online marketplaces would suddenly be legally obligated to enforce IP laws throughout their sprawling online ecosystems.

However, it must be noted that the bill is extremely brief and lacking in detail. The bullet points above are essentially a wish list, stating what the authors of the SHOP SAFE Act want the owners of online marketplaces to do while providing basically no information about how they are to do it. While many e-commerce companies have already begun experimenting with limited anti-counterfeiting policies, a federal mandate of this scale would undeniably present an enormous logistical hurdle.

It is also very clear that the legislators who authored the SHOP SAFE Act consider third party sellers to be the single biggest factor behind the current counterfeiting crisis. Virtually all measures outlined in the act target these heretofore under-regulated entities, which currently evade consequences for their IP infringement by operating many different vendor profiles and forcing authorities into a ‘whack-a-mole’ paradigm. When one seller profile is caught with counterfeits, the owners will simply shut the account down, make some superficial tweaks, and do the exact same thing from a new account.

It's encouraging to see that the authors of the SHOP SAFE Act understand this core issue, but there are some obvious disadvantages to their proposed policy solution. Outsourcing IP enforcement to the private sector on such a large scale is a risky proposition, and could create a spate of new and unforeseen consequences. While there’s a case to be made that severe levels of counterfeiting pose a threat to the underlying business model of e-commerce companies, it must be noted that a certain amount of counterfeiting is actually good for their bottom line. Sales are sales, and platform owners receive a cut regardless of whether the products changing hands are authentic.

It doesn’t take a particularly brilliant mind to understand why it may be unwise to deputize these corporations to solve the problem of counterfeiting when they have such a clear conflict of interest. If e-commerce companies were unable or unwilling to fully execute the Herculean task assigned to them by Congress, would the federal government really be able to force them to change course? One can envision a scenario where ambivalent e-commerce corporations pay lip service to the goals of the SHOP SAFE Act while doing little to enforce it in practice. These companies could resign themselves to paying a modest fine every so often knowing that they will easily make that money back, Congress could congratulate itself for “solving” the problem of online counterfeiting, and very little would change on the ground.

There are other foibles to consider as well. For starters, the SHOP SAFE Act completely divorces the issue of counterfeiting from the brands that are being counterfeited, even though these entities have a much greater

natural incentive to fix the problem. In addition to this, the policies outlined in the bill seem to ignore the issue of smaller online businesses with websites that act as a single virtual storefront rather than vast multiparty marketplaces with many vendors. For example, the owners of an illegitimate online pharmacy (i.e., one which relies on direct sales from those visiting a standalone website) is not obviously affected by the provisions of the SHOP SAFE Act and can still play whack-a-mole with authorities by creating an entirely new website whenever it needs to.

At the end of the day, passage of the SHOP SAFE Act in its current form would not be a bad thing. Large e-commerce platforms are making money hand over fist in the new digital economy, and it is only fair to hold them to the same commonsense standards that brick-and-mortar stores must adhere to. However, it is clear that the answer to the rhetorical question in this article’s headline is “no”. The Act is reactionary, lacking in detail, and contents itself in dealing with low hanging anti-counterfeiting fruit rather than systemically attacking the underlying economic rationale for producing and selling counterfeit products in the first place.

We shouldn’t be too harsh on Congress, though. Ultimately, the problem of online counterfeiting is a global one, and there is only so much that national bodies can do to stop it. Short of imposing draconian screening policies on every truck, cargo plane, train, and shipping container operating in the United States, the government is stuck with mitigative measurements such as the SHOP SAFE Act for the foreseeable future.

Instead, truly fixing this problem without causing undue harm to the legitimate economy will likely require a kaleidoscope of new anti-counterfeiting technologies. Our best hope is that cutting-edge solutions in intelligent packaging, machine vision, unique taggants, and more will reduce the opportunities for deception within our existing e-commerce paradigm. Ideally, these advances will provide such a high degree of security that the profit opportunities associated with producing counterfeits begin to wither away. Until then, we should be rooting for the passage of the SHOP SAFE Act – imperfect, clunky acronyms and increased liability for e-commerce giants are preferable to doing nothing.


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