The sale of counterfeit goods has exploded with the growth of e-commerce.
According to a 2020 report published by the US Department of Homeland Security, counterfeiting “has intensified to staggering levels” with “a 154 percent increase in counterfeits traded internationally — from $200 billion in 2005 to $509 billion in 2016.” [1]
This growth can be significantly linked to the structure of e-commerce platforms where the geographic reach of selling platforms is limitless and sellers can maintain anonymity in their identities and locations.
This growth of counterfeiting creates a variety risks to consumers and economically harms IP rights holders.
On the consumer side, counterfeits cheaply produced in violation of safety standards create risks to health and safety. For example, the World Health Organization has found that ‘in more than 50% of cases, medicines purchased over the internet from illegal sites that conceal their physical addresses have been found to be counterfeit”[2] In fact, in 2007, a woman in BC died from drugs purchased online that contained extremely high traces of metal. [3]
The sale of counterfeit goods has also notably been identified by the United Nations Interregional Crime and Justice Research Institute as one of the biggest sources of revenue for organized crime and terrorist organizations.[4] In 2015, the guns used in the Charlie Hebdo attack were bought using proceeds from the sale of fake Nikes in Paris.[5]
Based on these issues, it is important to consider how consumers and IP rights holders can be protected.
On the civil side, problems emerge when both trying to stop the sale of online counterfeits when counterfeiters are located out of the jurisdiction. For example, counterfeiters can avoid court orders banning them from using the plaintiffs’ marks and ordering to stop operating their business online and simply continue their operations in a clandestine manner through different websites.
This is what happened in Google Inc v Equustek[6] where the SCC ultimately upheld a global injunction against Google, a non-party and non-resident corporation to an infringement action that ordered Google to de-index the defendant’s websites from its worldwide search engine. In this decision, the court reasoned that Google’s assistance was necessary to prevent the facilitation of the defendant’s ability to defy court orders and do irreparable harm to the plaintiff and the injunction had to be global to be effective given the borderless nature of the internet.
However, the effect of this global injunction was limited by further litigation brought by Google in the US. In 2017, the District Court for the Northern District in California found that the order was a violation of s.230 of the Communication Decency Act that protects free speech on the internet and gives immunity to providers of interactive computer services stating that “no provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.”[7]
Courts in the US have also considered whether online selling platforms could be held liable for counterfeiting by third party sellers based on the application of the doctrine of contributory infringement.
The leading case on this doctrine’s application in the context of an online marketplace is Tiffany (NJ) Inc. v. eBay, Inc.[8] from 2010.
In this case, Tiffany brought an action against Ebay for listing counterfeit Tiffany products for sale on its website. Tiffany alleged that Ebay had constructive knowledge or “reason to know” of the widespread infringement on its website given that a significant portion of the Tiffany jewelry listed on Ebay was counterfeit. However, this claim did not succeed. The Court rejected Tiffany’s argument that general knowledge of widespread infringement was sufficient to meet the test set out for contributory infringement set out in Inwood. Because Ebay had measures to protect against infringement including a notice takedown system through which trademark owners could contact Ebay to get particular infringing posts taken down and Ebay had promptly acted on each particular notice given by Tiffany in this case, Ebay was able to avoid liability.
Later cases have imposed liability based on this standard but it remains unclear whether courts are willing to expand the knowledge requirement in respect of online platforms selling counterfeit goods beyond particularized knowledge of infringement and a failure to respond promptly to take down infringing listings after notice is given to the platform.
Recently, the US has also sought to legislate contributory infringement liability for online marketplace by proposing the Shop Safe Act. This bill was proposed in March 2020 but did not receive a vote.
Under the proposed Act, s.32 of the Trademarks Act would be amended to include the following:
‘‘(4)(A) 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” [9] unless certain requirements are met.
Under the requirements, the platform must ensure that the seller has an address for service in the US and take reasonable steps to prevent unauthorized use of the mark including:
- Verifying the seller’s identity, place of business and contact information
- Requiring the 3P seller to attest to the authenticity of the goods
- Entering into a contractual agreement with the 3P seller where it is agreed that the seller will not use counterfeit marks and consents to the jurisdiction of the US respecting claims of related to its participation on its platform
- The conspicuous display of the seller’s identity, place of business and contact information on the website
- Use of accurate images that seller has permission to use to depict goods
- The implementation of proactive technological measures for screening goods before displaying the goods to the public
- The implementation of a program to promptly take down listings of counterfeit goods
- The termination of a seller’s account who has engaged in more than 3 instances of use of a counterfeit mark
- Screening programs to ensure terminated users do not rejoin/remain on the platform
- Providing law enforcement with counterfeiters’ information
Lastly, outside of the courtroom, another avenue for attacking the online sale of counterfeits that has proven to be effective is the Canadian Anti-Fraud Centre’s attack on the financing of counterfeit sales through the creation of a charge back policies in cooperation with payment processors VISA and MasterCard. These policies allow consumers who have purchased counterfeit goods to chargeback the cost of the counterfeit goods to the merchants. Through this policy, VISA or Mastercard refunds the purchase and charges back the refund to the merchant accounts set up with the bank that received the customer’s payment. To the extent the merchant account’s funds are insufficient to pay the refund, the merchant’s bank is then liable to cover the chargeback. Of note, the majority of seller accounts to which chargebacks have been made in China are held at 4 state banks and it has been suggested that due to corrupt actors, these banks have been willing to absorb the losses from the chargebacks.[10]
[1] Report available here: https://www.dhs.gov/sites/default/files/publications/20_0124_plcy_counterfeit-pirated-goods-report_01.pdf
[2] https://www.who.int/bulletin/volumes/88/4/10-020410/en/
[3] https://www.theglobeandmail.com/news/national/counterfeit-drugs-caused-womans-death-coroner-concludes/article688808/
[4] http://www.unicri.it/topics/counterfeiting/organized_crime
[5] https://www.theglobeandmail.com/report-on-business/rob-magazine/how-canada-is-failing-to-keep-dangerous-counterfeit-products-off-storeshelves/article36714272/
[6] 2017 SCC 34
[7] https://jolt.law.harvard.edu/digest/google-v-equustek-united-states-federal-court-declares-canadian-court-order-unenforceable
[8] 600 F.3d 93 (2d Cir. 2010): https://cyber.harvard.edu/people/tfisher/IP/2010%20Tiffany%20Abridged.pdf
[10] See this article for more: https://www.theglobeandmail.com/report-on-business/rob-magazine/how-canada-is-failing-to-keep-dangerous-counterfeit-products-off-storeshelves/article36714272/
Communications Law