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How e-commerce platforms get drawn into global war on counterfeit goods

Author(s): May Cheng

Feb 27, 2020

On Jan. 24, 2020, the United States issued a new policy paper that delivers a critical hit to e-commerce platforms that sell goods into the country, by making them liable to consumers who unwittingly purchase counterfeit goods on the platform.

Until recently, e-commerce platforms like Amazon had successfully avoided liability by arguing that they were not the sellers but only intermediaries for the sales. However, the United States government is tipping the scales in favour of consumers, since the sellers on such platforms benefit from an aura of legitimacy that entices unsuspecting consumers to purchase online.

The 40-plus page report by Homeland Security to the president of the United States, titled “Combating Trafficking in Counterfeit and Pirated Goods,” provides compelling and well researched arguments for how counterfeit goods are increasingly being sold through established e-commerce platforms and why the platforms themselves need to be held accountable for the threats posed to consumers.

The report builds its case with statistics from the Organisation for Economic Co-operation and Development (OECD) that details a staggering 154 per cent increase in the international sale of counterfeit goods from $200 billion to over $500 billion over a 10-year period starting in 2005. 

The report also highlights a tenfold increase in customs seizures of infringing goods at U.S. borders in the past eight years, from 3,244 seizures per year to 33,810. 

Of note, the report highlights that efforts to curb counterfeiting by e-commerce platforms themselves have not been adequate or effective in waging the fight against the sale of counterfeit goods on their platforms. The report includes evidence provided by an unidentified online e-commerce platform in support:

“The scale of counterfeit activity online is evidenced as well by the significant efforts e-commerce platforms themselves have had to undertake. A major e-commerce platform reports that its proactive efforts prevented over 1 million suspected bad actors from publishing a single product for sale through its platform and blocked over 3 billion suspected counterfeit listings from being published to their marketplace. Despite efforts such as these, private sector actions have not been sufficient to prevent the importation and sale of a wide variety and large volume of counterfeit and pirated goods to the American public.”

It’s widely acknowledged that the sale of counterfeit goods is proliferating at a faster pace thanks to improvements to technology, including 3D printing and continually cheaper ways to print better quality packaging, such that the price of entry and the ability to make good knock-offs has become widely accessible.

However, the ability to sell counterfeit goods in mainstream online marketplaces has levelled up the proliferation of counterfeit dealers that used to be relegated to sales via secondary channels such as flea markets and street vendors. The rapid growth of e-commerce platforms as preferred shopping venues is a further catalyst that has turbocharged third-party online sales, which grew from $100 million in 1999 to $160 billion in 2018 on Amazon’s platform alone.

The e-commerce platforms allow sellers to easily establish attractive storefronts without adequate scrutiny, plus allow the sale of “used or returned” goods that are often counterfeit versions. Further, the geographic reach of such platforms is limitless and there is no disclosure in many cases of the actual identity and location of the seller. This level of anonymity is particularly attractive to sellers of counterfeit goods for obvious reasons.

The report also draws a clear link between the sale of counterfeit goods and terrorism. The manufacturers of counterfeit goods have been linked to transnational organized crime, including the Mafia and Japanese Yakuza, while production is often done using coerced or child labour.

In these circumstances, it’s obvious that counterfeiters enjoy enormous production cost advantages over legitimate businesses, and often create not just substandard goods but goods that are dangerous for health and safety, including fake opiods and lifestyle drugs with toxic ingredients or highly combustible electronic articles that cause fires.

The report recommends as a starting point that the e-commerce platforms bear responsibility for the goods that they sell, and that customs officers treat the warehousing and fulfillment centres as the ultimate consignee of the goods, in order to close the legal loophole of transshipment by the e-commerce platform.

The e-commerce platforms will be required to contractually make sellers liable for counterfeit goods and engage in a more robust “significantly enhanced” vetting process for online sellers. It is also contemplated that the online sellers make their identities and location publicly accessible, so that consumers are better able to assess with whom and where they want to transact business, based on country of origin of the goods and identifiable sellers.  

The report also recommends enhanced notice and take-down provisions, as well as limitations and restrictions on the sale of high risk products, particularly those prone to counterfeiting such as, for example: art, jewelry, automotive parts, food and drugs, computers, sports collectibles and watches, which are all heavily counterfeited.

Among the recommendations that specifically target Chinese and foreign sellers, the report recommends forcing foreign sellers to post security for selling to U.S. consumers and using banks in the jurisdiction to process transactions so that these are fully traceable.

While there has been hype in the media about these initiatives being part of an overall vendetta between the president of the United States and Amazon’s CEO Jeff Bezos, the reality is that the problem of counterfeit goods being shipped through online platforms is a genuine and significant threat to the safety of consumers worldwide. Canada should “take a page” from the report to further enhance the proposed intellectual property strategy that the federal government is currently trying to promote.

In fact, Canada has a dismal record of enforcement in the counterfeiting arena, and the report provides detailed and easy-to-follow recommendations for implementation of a much more robust anti-counterfeiting strategy that could easily be deployed right here at home, to protect the safety of Canadian consumers and to combat organized crime in the process.

This article was originally published by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc.

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