[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
BUYER BEWARE: FAKE AND UNSAFE PRODUCTS
ON ONLINE MARKETPLACES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON CONSUMER PROTECTION AND
COMMERCE
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
MARCH 4, 2020
__________
Serial No. 116-108
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Energy and Commerce
govinfo.gov/committee/house-energy
energycommerce.house.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
53-687 PDF WASHINGTON : 2024
-----------------------------------------------------------------------------------
COMMITTEE ON ENERGY AND COMMERCE
FRANK PALLONE, Jr., New Jersey
Chairman
BOBBY L. RUSH, Illinois GREG WALDEN, Oregon
ANNA G. ESHOO, California Ranking Member
ELIOT L. ENGEL, New York FRED UPTON, Michigan
DIANA DeGETTE, Colorado JOHN SHIMKUS, Illinois
MIKE DOYLE, Pennsylvania MICHAEL C. BURGESS, Texas
JAN SCHAKOWSKY, Illinois STEVE SCALISE, Louisiana
G. K. BUTTERFIELD, North Carolina ROBERT E. LATTA, Ohio
DORIS O. MATSUI, California CATHY McMORRIS RODGERS, Washington
KATHY CASTOR, Florida BRETT GUTHRIE, Kentucky
JOHN P. SARBANES, Maryland PETE OLSON, Texas
JERRY McNERNEY, California DAVID B. McKINLEY, West Virginia
PETER WELCH, Vermont ADAM KINZINGER, Illinois
BEN RAY LUJAN, New Mexico H. MORGAN GRIFFITH, Virginia
PAUL TONKO, New York GUS M. BILIRAKIS, Florida
YVETTE D. CLARKE, New York, Vice BILL JOHNSON, Ohio
Chair BILLY LONG, Missouri
DAVID LOEBSACK, Iowa LARRY BUCSHON, Indiana
KURT SCHRADER, Oregon BILL FLORES, Texas
JOSEPH P. KENNEDY III, SUSAN W. BROOKS, Indiana
Massachusetts MARKWAYNE MULLIN, Oklahoma
TONY CARDENAS, California RICHARD HUDSON, North Carolina
RAUL RUIZ, California TIM WALBERG, Michigan
SCOTT H. PETERS, California EARL L. ``BUDDY'' CARTER, Georgia
DEBBIE DINGELL, Michigan JEFF DUNCAN, South Carolina
MARC A. VEASEY, Texas GREG GIANFORTE, Montana
ANN M. KUSTER, New Hampshire
ROBIN L. KELLY, Illinois
NANETTE DIAZ BARRAGAN, California
A. DONALD McEACHIN, Virginia
LISA BLUNT ROCHESTER, Delaware
DARREN SOTO, Florida
TOM O'HALLERAN, Arizona
------
Professional Staff
JEFFREY C. CARROLL, Staff Director
TIFFANY GUARASCIO, Deputy Staff Director
MIKE BLOOMQUIST, Minority Staff Director
Subcommittee on Consumer Protection and Commerce
JAN SCHAKOWSKY, Illinois
Chairwoman
KATHY CASTOR, Florida CATHY McMORRIS RODGERS, Washington
MARC A. VEASEY, Texas Ranking Member
ROBIN L. KELLY, Illinois FRED UPTON, Michigan
TOM O'HALLERAN, Arizona MICHAEL C. BURGESS, Texas
BEN RAY LUJAN, New Mexico ROBERT E. LATTA, Ohio
TONY CARDENAS, California, Vice BRETT GUTHRIE, Kentucky
Chair LARRY BUCSHON, Indiana
LISA BLUNT ROCHESTER, Delaware RICHARD HUDSON, North Carolina
DARREN SOTO, Florida EARL L. ``BUDDY'' CARTER, Georgia
BOBBY L. RUSH, Illinois GREG GIANFORTE, Montana
DORIS O. MATSUI, California GREG WALDEN, Oregon (ex officio)
JERRY McNERNEY, California
DEBBIE DINGELL, Michigan
FRANK PALLONE, Jr., New Jersey (ex
officio)
C O N T E N T S
----------
Page
Hon. Jan Schakowsky, a Representative in Congress from the State
of Illinois, opening statement................................. 2
Prepared statement........................................... 3
Hon. Cathy McMorris Rodgers, a Representative in Congress from
the State of Washington, opening statement..................... 4
Prepared statement........................................... 5
Hon. Frank Pallone, Jr., a Representative in Congress from the
State of New Jersey, opening statement......................... 6
Prepared statement........................................... 8
Hon. Greg Walden, a Representative in Congress from the State of
Oregon, opening statement...................................... 9
Prepared statement........................................... 11
Witnesses
David Friedman, Vice President, Advocacy, Consumer Reports....... 12
Prepared statement............................................... 15
Answers to submitted questions............................... 188
Dharmesh Mehta, Vice President of Worldwide Customer Trust and
Partner Support, Amazon........................................ 33
Prepared statement............................................... 35
Answers to submitted questions............................... 190
Lori Wallach, Director, Global Trade Watch, Public Citizen....... 42
Prepared statement............................................... 44
Answers to submitted questions............................... 200
Amber Leavitt, Associate General Counsel and Head of IP, Ebay.... 60
Prepared statement............................................... 62
Jeff Myers, Senior Director for Intellectual Property, Apple..... 65
Prepared statement............................................... 67
Answers to submitted questions............................... 201
Andrew Love, Head of Brand Security/Investigations/Global
Enforcement, Specialized Bicycles.............................. 69
Prepared statement............................................... 71
Answers to submitted questions............................... 202
Submitted Material
Letter of March 3, 2020, to Ms. Schakowsky, and Ms. Rodgers, from
Jack Farley, Founder, PreClear, submitted by Ms. Schakowsky.... 108
Letter of March 4, 2020, to Ms. Schakowsky, and Members of the
Subcommittee, by Larry Drummond, Executive Director,
International Precious Metals Institute, submitted by
Ms.Schakowsky.................................................. 111
Letter of March 3, 2020, to Ms. Schakowsky, and Ms. Rodgers, by
Steve Pasierb, President and CEO, the Toy Association,
submitted by Ms. Schakowsky.................................... 115
Report ``Combating Trafficking in Counterfeit and Pirated Goods''
from Homeland Security......................................... 118
Letter of March 3, 2020, to Ms. Schakowsky, and Ms. Rodgers, by
Steve Pasierb, President and CEO, the Internet Association,
submitted by Ms. Schakowsky.................................... 172
Statement of October 22, 2019, from National Association of
Attorneys General, submitted by Ms. Schakowsky................. 175
Letter of April 30, 2019, to Mr. Burgess, from the National
Highway Traffic Safety Administration, submitted by Ms.
Schakowsky..................................................... 187
BUYER BEWARE: FAKE AND UNSAFE PRODUCTS ON ONLINE MARKETPLACES
----------
WEDNESDAY, MARCH 4, 2020
House of Representatives,
Subcommittee on Consumer Protection and Commerce,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:00 a.m., in
the John D. Dingell Room 2123, Rayburn House Office Building,
Hon. Janice Schakowsky (chairwoman of the subcommittee)
presiding.
Members present: Representatives Schakowsky, Castor,
Veasey, Kelly, O'Halleran, Lujan, Cardenas, Blunt Rochester,
Soto, Rush, Matsui, McNerney, Dingell, Pallone (ex officio),
Rodgers (subcommittee ranking member), Upton, Burgess, Latta,
Guthrie, Bucshon, Hudson, Carter, Gianforte, and Walden (ex
officio).
Also present: Representative Eshoo.
Staff present: Evan Gilbert, Deputy Press Secretary; Lisa
Goldman, Senior Counsel; Alex Hoehn-Saric, Chief Counsel,
Communications and Technology; Joe Orlando, Staff Assistant;
Kaitlyn Peel, Digital Director; Lino Pena-Martinez, Staff
Assistant; Alivia Roberts, Press Assistant; Chloe Rodriguez,
Policy Analyst; Andrew Souvall, Director of Communications,
Outreach and Member Services; Sydney Terry, Policy Coordinator;
Anna Yu, Professional Staff Member; Jennifer Barblan, Minority
Chief Counsel, Oversight and Investigations; Mike Bloomquist,
Minority Staff Director; Adam Buckalew, Minority Director of
Coalitions and Deputy Chief Counsel, Health; Robin Colwell,
Minority Chief Counsel, Communications and Technology; Jerry
Couri, Minority Deputy Chief Counsel, Environment and Climate
Change; Jordan Davis, Minority Senior Advisor; Kristine
Fargotstein, Minority Detailee, Communications and Technology;
Margaret Tucker Fogarty, Minority Staff Assistant; Melissa
Froelich, Minority Chief Counsel, Consumer Protection and
Commerce; Theresa Gambo, Minority Human Resources/Office
Administrator; Caleb Graff, Minority Professional Staff Member,
Health; Brittany Havens, Minority Professional Staff, Oversight
and Investigations; Peter Kielty, Minority General Counsel;
Bijan Koohmaraie, Minority Counsel, Consumer Protection and
Commerce; Tim Kurth, Minority Deputy Chief Counsel,
Communications and Technology; Ryan Long, Minority Deputy Staff
Director; Mary Martin, Minority Chief Counsel, Energy and
Environment and Climate Change; Sarah Matthews, Minority Press
Secretary; Brandon Mooney, Minority Deputy Chief Counsel,
Energy; James Paluskiewicz, Minority Chief Counsel, Health;
Brannon Rains, Minority Staff Assistant; Zach Roday, Minority
Communications Director; Kristen Shatynski, Minority
Professional Staff Member, Health; Alan Slobodin, Minority
Chief Investigative Counsel, Oversight and Investigations;
Peter Spencer, Minority Senior Professional Staff Member,
Environment and Climate Change; Natalie Sohn, Minority Counsel,
Oversight and Investigations; Danielle Steele, Minority
Counsel, Health; Everett Winnick, Minority Director of
Information Technology; and Greg Zerzan, Minority Counsel,
Consumer Protection and Commerce.
Ms. Schakowsky. The Subcommittee on Consumer Protection and
Commerce will now come to order. We begin with member opening
statements, and the Chair will now recognize herself for 5
minutes.
OPENING STATEMENT OF HON. JAN SCHAKOWSKY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
So I want to say good morning to all of you on this
beautiful day and thank you for joining us for this hearing,
examining how counterfeit products and fake reviews sold and
found on the internet are making Americans less safe at home,
at work, and on the road.
When we began planning this hearing, I had two clear goals
in mind. One, to strengthen the existing Consumer Products
Safety Commission's relationship with the U.S. Customs and
Border Patrol to keep counterfeit and unsafe products from
entering our country. Number two, to examine what tools the
Federal Trade Commission needs to combat the proliferation of
fake reviews online, since recent cases like its settlement
with cosmetic company Sunday Riley clearly demonstrates that it
is not currently up to the task of taking on some of the worst
problems.
Shortly after we began planning for today, I was pleased to
learn the administration's plan to combat counterfeits entering
the marketplace under the leadership of Dr. Peter Navarro. I
expect them to be able to partner with us in an effort to
strengthen CPSC's relationship with customers. However, I have
to say the vast majority of the commerce shipped to U.S.
consumers skirts normal customs procedures and often all
inspections because they enter the U.S. under de minimis
waivers. Worse, Monday's announcement of Dr. Nancy Beck, her
nomination, leaves me less hopeful about the prospect for
collaboration, given her anti-consumer record at the
Environmental Protection Agency and as an executive at the
American Chemical Council.
Unfortunately, these problems neither began nor end at
ports of entry. Fake Reviews are becoming more and more
widespread, and up to this point, the Federal Trade Commission
has proven that it needs more tools to combat this growing
concern by consumers. Organized retail crime selling
counterfeits and stolen products poses a threat to consumers
who are unwittingly purchasing these items online on online
marketplaces.
The emergence of these unregulated platforms has given
criminal enterprises additional meaning to sell stolen and
counterfeit goods to unsuspecting consumers. Online
marketplaces need to place safety and accountability to
consumers before profits. Unfortunately, we are seeing more and
more companies characterizing online commerce as content,
seeking to use the content liability shield granted through
Section 230 of the Communications Decency Act, a law badly in
need of reform.
Making matters worse, the administration is seeking to
further enshrine the law 230, by exporting it in trade
agreements all over the world. Last week, I wrote a letter to
Ambassador Lighthizer to associate myself with the Chair and
ranking member of this full committee, requesting to leave this
policy out of future trade agreements and I will continue to
work with my colleagues on both sides of the aisle.
I look forward to hearing from our witnesses today about
the current state of play and how we can improve the situation,
including by arming the Consumer Products Safety Commission and
the Federal Trade Commission with the tools necessary to help
root out this problem.
[The prepared statement of Ms. Schakowsky follows:]
Prepared Statement of Hon. Jan Schakowsky
Good morning and thank you for joining us today for a
hearing examining how counterfeit products and fake reviews
sold and found online are making Americans less safe at home,
at work, and on the road.
When we began planning this hearing, I had two clear goals
for it:
. To strengthen the existing Consumer Product Safety
Commission's relationship with U.S. Customs and Border
Protection to keep counterfeit and unsafe products from
entering the country.
2. Examine what tools the Federal Trade Commission needs
to combat the proliferation of fake reviews online since recent
cases, like its settlement with cosmetics company Sunday Riley,
clearly demonstrated that it's not currently up to the task of
taking on this worsening problem.
Shortly after we began planning for today, I was pleased to
learn of the Administration's plan to combat counterfeits
entering the country under the leadership of Dr. Peter Navarro.
I expected them to be a partner in my efforts to strengthen
CPSC's relationship with Customs. However, the vast majority of
e-commerce shipments to U.S. consumers skirt normal Customs
procedures and all inspections because they enter the U.S.
under a de minimis waiver.
Worse, Monday's announcement of Dr. Nancy Beck's nomination
leaves me less hopeful about the prospect for collaboration,
given her anti-consumer record at the Environmental Protection
Agency and as an executive at the American Chemistry
Council.Unfortunately, these problems neither begin nor end at
ports of entry. Fake reviews are becoming more and more
widespread, and up to this point, the FTC has proven that it
needs more tools to combat this growing concern for consumers.
Organized retail crime, selling counterfeits and stolen
products, poses a threat to consumers who are unwittingly
purchasing these items on online marketplaces. The emergence of
these unregulated platforms has given criminal enterprises
additional means to sell stolen and counterfeit goods to
unsuspecting consumers.
Online marketplaces need to place safety and accountability
to consumers before profit. Unfortunately, we are seeing more
and more companies characterize online commerce as content,
seeking to use the content liability shield granted through
Section 230 of the Communications Decency Act, a law badly in
need of reform.
Making matters worse, the Administration is seeking to
further enshrine this law by exporting it abroad via trade
agreements. Last week I wrote Ambassador Lighthizer to
associate myself with the Chairman and Ranking Member of the
full Committee's request to leave this policy out of future
trade agreements. I'll continue to work with my colleagues on
both sides of the aisle to see that Ambassador Lighthizer
listens to this request.
I look forward to hearing from our witnesses today about
the current state of play and how we can improve the situation,
including by arming the CPSC and the FTC with the tools
necessary to help root out this problem.
So now the Chair will recognize our ranking member of the
subcommittee and you will have 5 minutes for your opening
statement.
OPENING STATEMENT OF HON. CATHY RODGERS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF WASHINGTON
Mrs. Rodgers. I thank the Chair. Good morning. Welcome,
everyone, to the Consumer Protection and Commerce Subcommittee
hearing on counterfeit products.
I first want to recognize how President Trump and his
administration are leading to combat counterfeit and pirated
goods online. The President has made this a priority, which is
clear in Phase 1 of the U.S.-China trade deal.
For instance, China agreed to provide enforcement
procedures to facilitate effective and quick takedowns;
consider revoking e-commerce operating licenses for repeated
failures; take action to stop the manufacturing of pirated and
counterfeit products; take enforcement action against
counterfeit medicines and other products that have made a
significant impact on public health or safety; and increase the
number of trained professionals to inspect, detain, and destroy
any counterfeit goods found at the Chinese border.
In addition, on January 24th, the Department of Homeland
Security released its first report required by President
Trump's April 2019 Memorandum on Combating Trafficking in
Counterfeit and Pirated Goods. This was a call to action to
fight against cheaters and bad actors gaming the e-commerce
system. The government recommends where the government should
take action and best practices for e-commerce platforms and
other third-party marketplaces.
Among the best practices, the administration is calling on
companies to enhance the vetting of third-party sellers, limit
high-risk products, clear transactions through banks that
comply with U.S. law, and provide rapid notice and takedown
procedures. Following the report, President Trump signed an
executive order to ensure safe and lawful e-commerce products
people and guard against intellectual property abuse.
I commend the administration for their leadership. As I
have said before, to win the future and beat China, America
must be the global leader in the 21st-century economy. Just
like we must lead to promote artificial intelligence and deploy
autonomous vehicles, America must also lead to stop counterfeit
goods and protect our intellectual property.
If we don't step up, China will dictate the terms and the
rules for the future. The Chinese Communist Party will win with
the playbook they have always used, by undermining human
rights, stealing from our innovators, and cheating and harming
Americans. America innovates and creates, while China cheats
and steals. According to a report by the Organization for
Economic Cooperation and Development, China is ``the single
largest producing market of counterfeit and pirated products.''
Administration officials estimate that more than a hundred
thousand packages from China arrive in America a day that can
harm and defraud people. More than eighty-five percent of all
contraband seized at our borders comes from China and Hong
Kong. While the administration is taking decisive action, the
government and regulations cannot solve this issue alone. The
best way to predict the future is to invent it. American
innovators must be equipped to win the future and beat China in
artificial intelligence, block chain, IoT, and other emerging
technologies.
Companies today are leveraging AI to analyze data points to
discover counterfeit listings and repeat offenders. IoT
provides identification and traceability functions that can be
used to address and track counterfeit sales. Block chain may
provide a unique solution to this complex problem. For example,
a tamper-proof chain of custody that uses smart tags can ensure
only authentic products are included in the block chain and
sold.
As the DHS report suggests, we should leverage public-
private partnerships to develop a national awareness campaign.
We should educate people about the risk of counterfeits as well
as the various ways they can spot and report counterfeits
online Etailz, in Spokane Valley, Washington, is also working
with businesses to navigate online marketplaces and protect
their brands from bad actors. They do it by helping small
businesses conduct test buys, documenting counterfeits, and
filing complaints, among other services. It is proactive, pro-
innovative, and pro-consumer, and actions like this should be
encouraged, especially on e-commerce sites that are convenient
for people and create more opportunities for small businesses
to succeed.
I thank the leaders at like Etailz for taking action for
the health and safety of customers and I encourage this
committee to lead by harnessing, not holding back the
innovation and the agility of the private sector to address
this pervasive problem of counterfeit products. Thank you and I
yield back.
[The prepared statement of Mrs. Rodgers follows:]
Prepared Statement of Hon. Cathy Rodgers
Good morning and welcome to the Consumer Protection and
Commerce Subcommittee hearing on counterfeit products.
I want to first recognize how President Trump and his
Administration are leading to combat counterfeit and pirated
goods online.
The President has made this a priority, which is clear in
``Phase 1'' of the U.S.- China Trade deal. For instance, China
agreed to:
Provide enforcement procedures to facilitate
effective and quick takedowns;
Consider revoking e-commerce operating licenses
for repeated failures;
Take action to stop the manufacturing of pirated
and counterfeit products;
Take enforcement action against counterfeit
medicines and other products that may have a significant impact
on public health or safety; and
Increase the number of trained professionals to
inspect, detain, and destroy any counterfeitgoods found at the
Chinese border.
In addition, on January 24th, the Department of Homeland
Security released its first report required by President
Trump's April 2019 Memorandum on Combating Trafficking in
Counterfeit and Pirated Goods.
This was a call to action to fight against cheaters and bad
actors gaming the e-commerce system.
The report recommends where the government should take
action and best practices for e-commerce platforms and other
third-party marketplaces.
Among the best practices, the Administration is calling on
companies to:
1) enhance the vetting of third-party sellers;
2) limit high risk products;
3) clear transactions through banks that comply with U.S.
law; and
4) provide rapid notice and takedown procedures.
Following the report, President Trump signed an executive
order to ensure safe and lawful e-commerce protects people and
guards against intellectual property abuse.
The Administration should be commended for their
leadership.
As I've said before, to win the future and beat China,
America must be the global leader in the 21st century economy.
Just like we must lead to promote artificial intelligence
and deploy autonomous vehicles America must also lead to stop
counterfeit goods and protect our intellectual property.
If we don't step up, China will dictate the terms and rules
for the future.
The Chinese Communist Party will win with the playbook
they've always used by undermining human rights, stealing from
our innovators, and cheating and harming Americans.
America innovates and creates, while China cheats and
steals.
According to a report by the Organization for Economic
Cooperation and Development, China is the ``single largest
producing market'' of counterfeit and pirated products.
Administration officials estimate that more than 100,000
packages from China arrive in America a day that could harm and
defraud people.
More than 85 percent of all contraband seized at our
borders come from China and Hong Kong.
While the Administration is taking decisive action, the
government and regulations cannot solve this issue alone.
Because the best way to predict the future, is to invent
it. American innovators must be equipped to win the future and
beat China in artificial intelligence, blockchain, IOT, and
other emergingtechnologies.
Companies today are leveraging AI to analyze data points to
discover counterfeit listings and repeat offenders.
IOT provides identification and traceability functions that
can be used to address and track counterfeit sales.
Blockchain may provide a unique solution to this complex
problem too.
For example, a tamperproof chain of custody that uses smart
tags can ensure only authentic products are included on the
blockchain and sold.
As the DHS report suggests, we should leverage public-
private partnerships to develop a national awareness campaign.
We should educate people about the risks of counterfeits as
well as the various ways they can spot and report counterfeits
online.
Etailz in Spokane Valley, Washington is also working with
businesses to navigate online marketplaces and protect their
brands from bad actors.
They do so by helping small businesses conduct test buys,
documenting counterfeits, and filing complaints among other
services.
It's proactive, pro-innovative and pro-consumer actions
like this that we should encourage, especially on e-commerce
sites that are convenient for people and create more
opportunities for small businesses to succeed.
I thank leaders like Etailz for taking action for the
health and safety of customers and encourage this committee to
lead by harnessing-not holding back--the innovation and agility
of the private sector to address this pervasive problem of
counterfeit products.
Thank you. I yield back.
Ms. Schakowsky. The gentlelady yields back, and now the
Chair recognizes Mr. Pallone, chairman of the full committee,
for 5 minutes for his opening statement.
OPENING STATEMENT OF HON. FRANK PALLONE, Jr., A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF NEW JERSEY
Mr. Pallone. Thank you, Madam Chair, and thank you for
holding this very important hearing. And I do also want to--
while I don't agree with Mrs. Rodgers in terms of what she said
about the Trump administration leading on this issue, I don't
think they are, but I do want to thank you for pointing out
that there is a lot more that the private sector could do, and
also for coming down very hard on China because I think you are
absolutely right. That there is so much of this that is coming
from China, and that they are very much to blame for a lot of
the counterfeiting and outright fraud that we are seeing.
But I want to say that thanks to the growth in e-commerce,
we can purchase products from our computers, phones, tablets,
or our smart speakers at any hour of the day, with the
expectation that the products will be delivered at our doorstep
within days or even hours. Third-party sellers on online
marketplaces such as Amazon, eBay, and others are responsible
for much of the convenience, providing a seemingly endless
collection of products for consumers.
On Amazon, where nearly half of online U.S. shoppers start
their product searches, sales by third-party sellers now make
up sixty percent of total sales. But the problem is that this
convenience has come at a price, and that is a proliferation of
dangerous counterfeit goods that endanger consumers and
property, and an army of counterfeit merchants from overseas,
particularly China, that undermine American small businesses
with unscrupulous tactics. And the practices and policies of
the online platforms have made it increasingly difficult for
even the savviest consumers to avoid fake and unsafe products.
For years, brick-and-mortar stores have had policies in
place to ensure the integrity of their supply chain. The stores
also take responsibility for defective or unsafe products and
these traditional practices simply do not exist on the online
marketplace. In fact, many online marketplaces seem to be
taking the opposite approach, abdicating any responsibility
because they are thriving off the sale of fake goods.
A recent survey found that twenty-six percent of American
consumers have been conned into purchasing at least one
counterfeit product in the past year. Too many consumers don't
realize they have purchased counterfeits until it is too late
and this can result in tragic consequences. Hoverboards with
counterfeit batteries caught on fire while charging, burning
down someone's house; fake beauty products have reportedly
caused people's eyelashes to fall out in clumps; and
counterfeit products can result in chronic health effects that
do not present until years later, like water filter cartridges
that not only don't remove contaminants, but actually add new
carcinogens to water.
Investigations by various media outlets have uncovered a
huge number of knockoff children's products that pose serious
safety risks. There have been troubling reports of car seats
that don't meet the National Highway Traffic Safety
Administration's crash test standards; bicycle helmets--I see
Mr. Love brought some. I don't mean yours are bad, but bicycle
helmets that don't meet the Consumer Products Safety
Commission's performance standards and recalled products and
knockoffs of recalled products that federal regulators know can
or already have caused serious death or injury, and these
knockoff products proliferate on online marketplaces.
And consumers and authentic brands cannot fight the
combination of lax policies of online platforms and deceptive
practices of unscrupulous sellers trying to edge out legitimate
businesses. Fake and incentivized reviews drown out authentic
reviews or are used to take down legitimate rivals. On many
marketplaces, misleading user interfaces obscure the identity
of the actual seller for each purchase. And a person may think
they are buying from Amazon when they are instead buying from a
foreign third party who merely ships through Amazon, and a
platform's decision to comingle inventory from different
sellers makes it virtually impossible for anyone to reliably
track whether they received a counterfeit or authentic product.
Counterfeiters also have become much more sophisticated,
producing products that appear authentic and setting prices
more on par with authentic goods to better trick consumers. And
savvy consumers who turn to the online store of a trusted
brick-and-mortar business in search of authentic goods are
increasingly finding a marketplace of third-party sellers,
instead of a place to directly purchase their trusted brands.
Many large traditional retailers--Walmart, Target, Macy's,
Crate and Barrel--have launched third-party marketplaces to
keep pace with Amazon and bolster lagging sales, so it is these
hybrid marketplaces in which a site acts as both a seller and a
platform for third-party sellers that I think are most
confusing. While some of these platforms screen and curate
their sellers, others do less vetting and can give those
sellers an aura of credibility, often undeserved.
So, this week is National Consumer Protection Week, and I
think we can help bring attention to issues that are causing
consumer problems. This week is a perfect time to get answers
from our panel on the scope of the problem and solutions we can
implement to protect consumers. And again, I think this is a
very important hearing. Thank you, Madam Chair.
[The prepared statement of Mr. Pallone follows:]
Prepared Statement of Hon. Frank Pallone, Jr.
Thanks to the growth in e-commerce, we can purchase
products from our computers, phones, tablets, or our smart
speakers at any hour of the day with the expectation that the
products will be delivered at our doorstep within days or even
hours.
Third-party sellers on online marketplaces such as Amazon,
eBay, and others are responsible for much of the convenience,
providing a seemingly endless selection of products for
consumers. On Amazon, where nearly half of online U.S. shoppers
start their product searches, sales by third-party sellers now
make up 60 percent of total sales.
But this convenience has come at a devastating price: a
proliferation of dangerous counterfeit goods that endanger
consumers and property, and an army of counterfeit merchants
from overseas that undermine American small businesses with
unscrupulous tactics.
The practices and policies of the online platforms have
made it increasingly difficult for even the savviest consumers
to avoid fake and unsafe products. For years, brick-and-mortar
stores have had policies in place to ensure the integrity of
their supply chain. The stores also take responsibility for
defective or unsafe products. These traditional practices
simply do not exist in the online marketplace. In fact, many
online marketplaces seem to be taking the opposite approach--
abdicating any responsibility because they are thriving off the
sale of fake goods.
A recent survey found that 26 percent of American consumers
have been conned into purchasing at least one counterfeit
product in the past year. Too many consumers don't realize
they've purchased counterfeits until it's too late, and this
can result in tragic consequences. Hoverboards with counterfeit
batteries have caught on fire while charging, burning down
someone's house. Fake beauty products have reportedly caused
people's eye lashes to fall out in clumps. And counterfeit
products can result in chronic health effects that do not
presentuntil years later, like water filter cartridges that not
only don't remove contaminants but actually add new carcinogens
to water.
Investigations by various media outlets have uncovered a
huge number of knock-off children's products that pose serious
safety risks. There have been troubling reports of car seats
that don't meet the National Highway Traffic Safety
Administration's crash test standards. Bicycle helmets that
don't meet the Consumer Product Safety Commission's performance
standards. And recalled products and knock offs of recalled
products that federal regulators know can or already have
caused serious death or injury. These knock off products
proliferate on online marketplaces.
Consumers and authentic brands cannot fight the combination
of lax policies of online platforms and deceptive practices of
unscrupulous sellers trying to edge out legitimate businesses.
Fake and incentivized reviews drown out authentic reviews
or are used to take down legitimate rivals. On many
marketplaces, misleading user interfaces obscure the identity
of the actual seller for each purchase. A person may think they
are buying from Amazon, when they are instead buying from a
foreign third party who merely ships through Amazon. And a
platform's decision to commingle inventory from different
sellers makes it virtually impossible for anyone to reliably
track whether they received a counterfeit or authentic product.
Counterfeiters also have become much more sophisticated-
producing products that appear authentic and setting prices
more on par with authentic goods--to better trick consumers.
Savvy consumers who turn to the online store of a trusted
brick-and-mortar business in search of authentic goods are
increasingly finding a marketplace of third-party sellers
instead of a place to directly purchase their trusted brands.
Many large traditional retailers--Walmart, Target, Macy's,
Crate and Barrel--have launched third-party marketplaces to
keep pace with Amazon and bolster lagging sales.
Such ``hybrid'' marketplaces, in which a site acts as both
a seller and a platform for third-party sellers, can be
confusing for unsuspecting customers. While some of these
platforms screen and curate their sellers, other platforms that
do less vetting can give those sellers an aura of credibility-
often undeserved.
This week is National Consumer Protection Week, when we can
help bring attention to issues that are causing consumers harm.
Consumer Protection Week is a perfect time to get answers from
our panel on the scope of the problem and solutions we can
implement to protect consumers and businesses from this
unprecedented and growing threat.
Thank you, I yield back.
Ms. Schakowsky. Well, thank you for pointing out that it is
National Consumer Protection Week, OK, so this hearing is
totally appropriate.
The gentleman yields back.
The Chair recognizes Mr. Walden, the ranking member of the
full committee, for 5 minutes.
OPENING STATEMENT OF HON. GREG WALDEN A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OREGON
Mr. Walden. Good morning, Madam Chair. And welcome to our
panelists. We appreciate your being here on this hearing at
counterfeits and unsafe products. When I chaired the committee,
we held a series of hearings on platform responsibility.
Today's hearing builds on I think that really important work we
did in this committee last Congress. Chair Schakowsky, thanks
for holding this hearing where we can explore what steps online
platforms and marketplaces with rights holders are taking to
address counterfeit goods online.
Online marketplaces are attractive digital storefronts that
allow consumers to quickly locate products on their own time.
This low search cost provides consumers with high visibility
and access to so many different options and price points that
allow aspiring small business owners to reach more potential
customers. But within an increased use and attractiveness of
these entities also comes an increase of bad actors, as you all
know. They seek to game the system and sell counterfeit
products and illicit products.
We, of course, have seen these supply channels come via
China, touch every part of this committee's jurisdiction. Given
that, I am pleased that the Trump administration has taken this
issue very seriously, as we can all agree that counterfeit
products threaten our economy, public safety, and consumer
trust. After all, we have an obligation to ensure the e-
commerce policies this committee helped put in place continue
to have positive impacts for American consumers.
We can now order groceries and household supplies online
and expect them to be at our door within hours. This
convenience is truly remarkable, especially for individuals who
do not have access to, or the capability to visit brick-and-
mortar storefronts. But again, the success and benefits of
these marketplaces has given rise to those peddling counterfeit
and illicit products for a quick buck.
Counterfeiters do not care about the existing laws, nor do
they care about the small businesses and people that they
actually hurt. I say that recognizing the complexity involved
here for all of you on the panel. If you find and remove an
account or product today, a bad actor can create a new account
and begin selling the same product tomorrow under a different
name or a different site. Just like the hydra, if you cut off
one head, others generate in its place.
Despite these challenges, the Trump administration does
deserve credit for countering the widespread distribution of
counterfeits. Just last month, the Department of Homeland
Security issued its Combating Trafficking and Counterfeit and
Pirated Goods report. After that report was released, President
Trump issued an executive order making clear this
administration is focused on cracking down on the sale of
counterfeit goods online.
Now let's go to the report. In fiscal year 2018, U.S.
Customs and Border Protection, CBP, seized over 28,000
products. That is what the report found. It also showed the
market for counterfeit pharmaceutical drugs had expanded to
include everything from cancer medications to opioids. Fake
prescription opioids are often laced with fentanyl. That is a
deadly compound that its lethal dose is the size of a few
grains of salt, and much of the fentanyl entering our country
originates in China.
Republicans and Democrats on this committee have worked
together in the past to address the public health crisis of
fake medications and the influx of fentanyl entering our
country, but we all know we have a lot more work to do on this
front. The fight against counterfeits and illicit products must
also include consumer education and awareness. Counterfeits can
be difficult to spot online, especially when stolen graphics
and other forms of deception are used, but sometimes we just
need to know when a deal is too truly good to be true, it
probably is. You can't get the new Apple AirPods Pro in
whatever color you would like for a few bucks.
All sectors must work with appropriate government agencies
to increase awareness among consumers to help them better
identify and report potential conflicts and counterfeits. I am
eager to hear what e-commerce platforms and marketplaces are
doing to address this problem and how they are incorporating
feedback from the Department of Homeland Security report to
increase safety and educate consumers on their platforms.
I also look forward to hearing what steps rights owners are
taking to protect their brands and how they are collaborating
with platforms and marketplaces to do so. I believe
collaboration can and must occur between online platforms and
marketplaces, law enforcement, and rights owners. We have to
all get-together and protect our consumers.
So I want to thank you all for being here today. And, Madam
Chair, I want to thank you for holding this hearing. I know
your cause is consumer protection and so we will look forward
to moving forward, and I yield back.
[The prepared statement of Mr. Walden follows:]
Prepared Statement of Hon. Greg Walden
Good morning and welcome to the Consumer Protection and
Commerce Subcommittee hearing on counterfeits and unsafe
products. When I chaired this Committee, we held a series of
hearings on platform responsibility. Today's hearing builds on
that important work. Chair Schakowsky, thank you for holding
this hearing, where we can explore what steps online platforms
and marketplaces with rights holders are taking to address
counterfeit goods online.
Online marketplaces are attractive digital storefronts that
allow consumers to quickly locate products on their own time.
This ``low search cost'' provides consumers high visibility and
access to so many different options and price points and allows
aspiring small business owners to reach more potential
customers. But, with an increased use and attractiveness of
these entities also comes an increase of bad actors seeking to
game the system to sell counterfeit and illicit products. We of
course have seen these supply channels come via China and touch
every part of this committee's jurisdiction. Given that, I am
pleased that the Trump Administration has taken this issue very
seriously as we can all agree that counterfeit products
threaten our economy, public safety, and consumer trust.
Afterall, we have an obligation to ensure the e-commerce
policies this committee helped put in place continue to have
positive impacts for American consumers. We can now order
groceries and household supplies online and expect them to be
at our door within hours.
This convenience is truly remarkable, especially for
individuals who do not have access to or the capability to
visit brick-and-mortar store fronts. But, again, the success
and benefits of these marketplaces have given rise to those
peddling counterfeit and illicit products for a quick buck.
Counterfeiters do not care about existing laws nor do they care
about the small businesses and people they hurt. I say that
recognizing the complexity involved here for all of you. If you
find and remove an account or product today, a bad actor may
create a new account and begin selling the same product
tomorrow under a different name or on a different site. Just
like the Hydra, if you cut off one head, others will regenerate
in its place.
Despite these challenges, the Trump Administration deserves
credit for countering the widespread distribution of
counterfeits. Just last month, the Department of Homeland
Security issued its ``Combating Trafficking in Counterfeit and
Pirated Goods'' report. After the report was released,
President Trump issued an executive order making clear this
Administration is focused on cracking down on the sale of
counterfeit goods online.
According to the report, in Fiscal Year 2018, U.S. Customs
and Border Protection (CBP) seized over 28,000 products. The
report also shows that the market for counterfeit
pharmaceutical drugs has expanded to include everything from
cancer medications to opioids. Fake prescription opioids are
often laced with fentanyl, a deadly compound that's lethal dose
is the size of a few grains of salt--and much of the fentanyl
entering our country originates in China. Republicans and
Democrats on this Committee have worked together in the past to
address the public health crisis of faked medications and the
influx of fentanyl entering our country.
The fight against counterfeits and illicit products must
also include consumer education and awareness. Counterfeits can
be difficult to spot online, especially when stolen graphics
and other forms of deception are used, but sometimes we just
need to know when a deal is truly too good to be true, it
probably is--you can't get the new Apple Airpods Pro in
whatever color you like for ten bucks. All sectors must work
with appropriate government agencies to increase awareness
amongst consumers to help them better identify and report
potential counterfeits.
I am eager to hear what e-commerce platforms and
marketplaces are doing to address this problem and how they are
incorporating feedback from the DHS report to increase safety
and educate consumers on their platforms. I also look forward
to hearing what steps rights owners are taking to protect their
brands and how they are collaborating with platforms and
marketplaces to do so. I believe collaboration can and must
occur between online platforms and marketplaces, law
enforcement, and rights owners to protect consumers.
I want to thank the witnesses for their time, and I look
forward to your testimony. I yield back.
Ms. Schakowsky. The gentleman yields back. And now the
Chair would like to remind Members that pursuant to committee
rules, all Members' written opening statements shall be made
part of the record.
And now I will introduce the witnesses that we have today,
and I welcome all of you. Dr. David Friedman is Vice President
of the Advocacy at Consumer Reports. Mr. Dharmesh Mehta, Vice
President of World Customer Trust and Partner Support at
Amazon. Oh, I skipped--who did I skip? OK. Next, is my friend,
Lori Wallach, who is Director of Global Trade Watch at Public
Citizen.
And then, Ms. Amber Leavitt, Associate General Counsel and
Head of IP at eBay. Mr. Jeff Myers, Senior Director for
Intellectual Property at Apple, and finally, Mr. Andrew Love,
Head of Brand Security/Investigations/Global Enforcement at
Specialized Bicycles. Welcome all of you, and we want to thank
the witnesses for joining us today. We look forward to your
testimony.
And at this time, the Chair will recognize each witness for
5 minutes to provide your opening statement. Before we begin, I
want to explain the lighting system. I think most of you know
but, if not, I want to tell you that in front of you is a
series of lights. The light will initially be green at the
start of your opening statement. The light will turn yellow
when you have 1-minute remaining, and please begin to wrap up
your testimony at that point. The light will turn red when your
time expires, and we would really like you to keep to that 5
minutes.
So, Mr. Friedman, you are recognized for 5 minutes.
STATEMENTS OF DAVID FRIEDMAN, VICE PRESIDENT, ADVOCACY,
CONSUMER REPORTS; DHARMESH MEHTA, VICE PRESIDENT OF WORLDWIDE
CUSTOMER TRUST AND PARTNER SUPPORT, AMAZON; LORI WALLACH,
DIRECTOR, GLOBAL TRADE WATCH, PUBLIC CITIZEN; AMBER LEAVITT,
ASSOCIATE GENERAL COUNSEL AND HEAD OF IP, EBAY; JEFF MYERS,
SENIOR DIRECTOR FOR INTELLECTUAL PROPERTY, APPLE; AND, ANDREW
LOVE, HEAD OF BRAND SECURITY/INVESTIGATIONS/GLOBAL ENFORCEMENT,
SPECIALIZED BICYCLES
STATEMENT OF DAVID FRIEDMAN
Mr. Friedman. Try that again, how is that?
Ms. Schakowsky. There you go.
Mr. Friedman. Technology. Thank you, Chairwoman Schakowsky,
Ranking Member Rodgers, and members of the subcommittee for
inviting CR to testify today. We are here today because
American families face new threats in the marketplace. A
patchwork of poorly enforced regulations offers few safeguards
for Americans grappling with seismic shifts in the economic and
media landscapes.
With little governing of the accuracy of online claims,
consumers face a true uphill battle engaging the value, the
quality, and the authenticity of goods and products available
to them. Now what is so stunning about this is it is the exact
same challenge Consumer Reports faced when we were founded in
1936. Eighty-four years later we are asking the same
fundamental question: How do we ensure that the marketplace
works for consumers? Of course, this time, it is the digital
marketplace.
Fueled by the incredible power and reach of the internet,
today's 3.4 trillion-dollar global e-commerce system provides
what appear to be hundreds of millions of reasonable choices.
But all too often, it leaves consumers on their own to figure
out which products are defective and dangerous, which ones are
counterfeit, and whether the reviews they rely on are fake or
the websites they are using are manipulating their buying
decisions.
The fact is, core parts of the e-commerce system are
broken. There is no other way to explain the fact that just
this morning, I was able to find Fisher Price Rock 'n Play
Sleepers for sale on both Facebook Marketplace and Craigslist
and from one online retailer, You Are My Everything, despite
the fact that the product was recalled more than ten months ago
after being tied to dozens of infant deaths. Or why you could
buy other hazardous inclined sleepers on Amazon, BuyBuy Baby,
eBay, and Walmart websites until those companies stepped up and
pulled the products after the CPSC and Consumer Reports reached
out.
There is also no other way to explain the fact that until
CR shed light on the problem, you could buy a potentially
counterfeit bike helmet on websites operated by Amazon, Sears,
Alibaba, and LightInTheBox, despite the fact that they did not
have mandated safety certifications, or that in one afternoon,
a Consumer Reports reporter spotted over a dozen different
products on Amazon with inflated ratings fueled by thousands of
fake reviews, including an Amazon's Choice headphone adapter
with reviews for a totally different product, an eyelash growth
serum, of all things.
Today, a core problem in the e-commerce is clear: there is
a fundamental lack of online platform accountability, and
accountability that can be created in three steps. First,
online marketplaces should absolutely be held responsible when
they are or should be reasonably aware of hazardous products or
illegal behavior, including fake reviews and other manipulative
practices. They should also be required by law to reasonably
search for and deter abuses like these.
Second, after being undermined for decades, the authorities
of critical consumer protection agencies must be strengthened
in order to address the limitations or gaps hindering their
ability to police online marketplaces. This is especially true
for the FTC. Finally, the CPSC, FTC, and NHTSA have about half
as many people--half--working for them today compared to 1980,
while the economy has tripled in size and dramatically changed.
Congress should at least double their budgets and significantly
increase their staff so consumers don't have to carry such a
large burden to keep themselves and their families safe in both
the digital and physical marketplaces.
Members of the committee, you are here to help your
constituents, in other words, consumers, and too, often the
digital marketplace is failing them. It is time to fix the
system by shifting greater responsibility to online platforms
and ensuring consumer protection agencies can create and
enforce accountability in the system, accountability that will
spur companies to put their innovative power to use to help
their customers.
Consumer Reports will continue to expose dangerous
products, counterfeits, fake reviews, and other schemes because
consumers deserve a fair, safe, and transparent digital
marketplace, one that they can trust and that fundamentally
delivers on its immense promise. We look forward to working
with this subcommittee and any company interested in realizing
a digital marketplace that puts consumers first. Thank you.
[The prepared statement of Mr. Friedman follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Ms. Schakowsky. The gentleman yields back.
And, Mr. Mehta, you are recognized for 5 minutes.
STATEMENT OF DHARMESH MEHTA
Mr. Mehta. Thank you, Chairwoman Schakowsky, Ranking Member
McMorris Rodgers, and members of the subcommittee for inviting
me to participate in today's hearing. I would also like to
thank the full committee, including Chairman Pallone and
Ranking Member Walden.
My name is Dharmesh Mehta and I am the vice president of
Worldwide Customer Trust and Partner Support at Amazon. I have
the privilege of leading the teams that are dedicated to
ensuring that we prevent fraud, counterfeits, fake reviews, and
other forms of abuse from harming our customers, brands, and
selling partners, as well as the teams dedicated to helping
support our selling partners and succeeding in our stores. I
also work very closely with the Amazon teams dedicated to
ensuring that we prevent unsafe or otherwise noncompliant
products from being sold in our stores.
Amazon's goal is to be Earth's most customer-centric
company and we are regularly cited as one of the leading
companies in this regard. Stores like ours provide tremendous
selection, convenience, and value to consumers but,
unfortunately, this also presents an attractive target for
criminals and bad actors that attempt to attack our stores. To
maintain Amazon's high level of trust with customers, we make
record investments in proactive technology-driven systems and
expert human investigators.
We launch innovative tools and capabilities that continue
to improve, and we partner with government agencies,
policymakers, and law enforcement to hold bad actors
accountable. We know that if customers don't trust us, they can
and will shop elsewhere, and a key part of earning customers'
trust is ensuring that only authentic and safe products are
sold in our stores.
We strictly prohibit the sale of counterfeit products and
we require all products to comply with applicable laws,
regulations, and Amazon policies. But even more importantly,
Amazon invests tremendous resources in preventing counterfeits,
unsafe products, and other types of abuse. In 2019 alone, we
invested over $500 million and had more than 8,000 employees
who focused on preventing fraud and abuse.
As a part of these investments, Amazon invests heavily in
proactive efforts designed to stop bad actors before they are
able to create new selling accounts and to stop bad listings,
including counterfeits and unsafe products, from ever being
seen in our stores. Third parties trying to create a new
selling account go through a set of enhanced vetting, including
a number of identity and payment-related verifications, and we
also use proprietary machine learning technology to stop bad
actors before they can list a single product for sale. In 2019,
our proactive efforts blocked over 2.5 million bad actor
account creation attempts before they were able to publish a
single product for sale.
We also continue to monitor all seller accounts over time,
including through technology that scans each of the more than
five billion listing updates that are submitted daily to our
catalog. When we find something concerning, we may block that
listing, require additional verification to sell that product,
and/or conduct further investigation. We have similar ongoing
processes in place to monitor or stop potentially fake or
abusive reviews.
As a result of these efforts, in 2019, we proactively
blocked over six billion suspected bad listings and proactively
blocked more than 100 million suspected fake reviews. Our
efforts have ensured that 99.9 percent of pages viewed in our
store have not had a valid report of counterfeit infringement.
In addition, we have developed industry-leading brand
protection tools such as Brand Registry, Transparency, and
Project Zero. These tools empower rights owners to partner with
us and help protect their brands so that collectively we can
drive counterfeits to zero.
And they are working. For brands that are using all of our
brand protection tools, we have been able to, together,
virtually eliminate counterfeits for these brands. But we know
we are not perfect and so we also continuously listen to more
than 45 million pieces of weekly feedback that we receive from
customers and others to search for any indication of an issue,
helping us to swiftly remove bad listings that made it past our
proactive controls. Where we find an issue, we not only quickly
take action to address the specific defect, but we also use
this to constantly improve our proactive controls to prevent
these issues from occurring in the first place, allowing our
proactive controls to continually get better.
This monitoring of large amounts of customer feedback can
also allow us to find potential issues well before other
industry participants or regulators have detected them or
developed clear guidelines on how to handle a situation. As a
result, we also regularly alert regulators to the issues we are
seeing and we work together to establish new guidelines, not
just for Amazon, but for the entire industry.
We also partner with government agencies and law
enforcement to hold bad actors accountable. We report all
counterfeiters that we block from our stores to the Department
of Homeland Security and the National Intellectual Property
Rights Coordination Center, aiding them in putting together
stronger criminal cases against bad actors. We also pursue
litigation both on our own and in partnership with rights
owners. Since 2015, we have brought lawsuits against over 1,000
defendants for attempted abuse in our stores.
Amazon will continue to invest heavily and continue to
innovate on behalf of our customers and our selling partners to
ensure that only authentic and safe products are sold in our
stores. However, we know that success will require all of us
across the private and public sectors to partner together in
this fight to stop counterfeit and unsafe products.
We welcome the opportunity to work with this committee and
anyone else who is committed to eradicating counterfeits and
unsafe products from the retail industry. I look forward to
continuing this discussion and I am happy to answer any
questions.
[The prepared statement of Mr. Mehta follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Ms. Schakowsky. Thank you.
And now I recognize Ms. Wallach for 5 minutes.
STATEMENT OF LORI WALLACH
Ms. Wallach. Thank you, Madam Chairwoman and the ranking
member and the full committee and ranking member chairs. I am
Lori Wallach from Public Citizen's Global Trade Watch. Public
Citizen is a national public interest organization founded in
1974, with half a million members and supporters nationwide.
Thank you for the opportunity to testify today on this serious
threat posed to the American consumers by a growing tsunami of
unsafe products facilitated by e-commerce sales.
When many people think about counterfeits or fakes, they
think of knockoff Gucci bags or fake Rolexes and they're being
sold on street corners. But increasingly and to a great extent,
because of the exponential growth of e-commerce as a means by
which Americans buy products, consumers are being widely
exposed to serious consumer health and safety risks by fake
products. Fake products being those which are now bought online
of higher value and high consumer risks.
Fake and unsafe products produced anywhere in the world
gain millions of potential customers with sales and delivery
made quick and easy listed on well-branded, e-commerce
platforms which provide an air of legitimacy. In the face of a
business model designed to evade responsibility with online
retailers claiming not to be sellers and thus not responsible
for the accuracy of the listing or the safety of the good--in
contrast to brick-and-mortar retailers--e-commerce consumers'
last resort is on the government agencies that are responsible
for health and safety.
But no, because today, online retailers are able to use
trade law loopholes to skirt normal Customs procedures and
inspections. Buried in the 2015 Trade Facilitation and Trade
Enforcement Act was a change that has functioned like a deep-
sea earthquake, spawning the tsunami of potentially fake and
dangerous e-commerce imports that evade U.S. safety inspection.
That change was to Section 321 of the Trade Act of 1930.
It allowed goods, it allowed Customs to allow goods with a
value below eight hundred dollars to be imported by one person
on one day, admitted duty-free, tax-free, without any of the
normal data required with respect to where good was made,
detailed descriptions of what it is, or any kind of a
classification number or a tariff number. The idea is
efficiency. We all know of de minimis when you can, for a long
time, list two hundred dollars' worth of goods when you are
flying back in from a trip overseas.
By moving it from two hundred to eight hundred, two very
big consequences emerged. First, products of a much higher
value can get de minimis treatment and so the variety of
products that could be sold expanded enormously. Now e-commerce
retailers use it to bring in millions of individually packaged
goods every day as compared to the two hundred-dollar level
which mainly was travelers. Many of these goods were too
valuable to enter duty-free, tax-free, and inspection-free when
the rate was two hundred dollars, so there are many goods that
have a high risk to consumers: Electric scooters we have heard
about, hoverboards, airbags, medical equipment, major
electronics, et cetera.
Second, the volume of de minimis shipments skyrocketed
because the eight-hundred-dollar limit made it commercially
viable. It is not just individual travelers. So, right now,
according to the Customs Department, 1.8 million de minimis
shipments arrive and are cleared without inspection every day--
1.8 million every day--one million from China by air alone.
And because the de minimis shipments skirt the normal
Customs procedures, it effectively handcuffs the ability of the
Consumer Products Safety Commission and the other agencies
responsible for our safety inspections who are co-located with
Customs in ports, because they all rely on the data that isn't
capped for those products to be able to do the risk assessments
and targeting. So, typically, the CPSC has somebody from their
import surveillance operation in a port and they have data in
advance. Normal shipments come in and in advance, under Customs
rules, if it is not de minimis, you have to know where it came
from, it has various codes.
The risk is----
Ms. Schakowsky. You need to begin to wind down. We are past
time. Oh, no. Yes, we are.
Ms. Wallach. There is a risk assessment system that allows
these goods to be caught. As a result, now we have goods coming
in that are not being caught, and I recommend to the committee
the CPSC's Office of Import Surveillance's report, e-Commerce
Assessments, that lays out the deficiencies and what the agency
needs to deal with them. Thank you very much.
[The prepared statement of Ms. Wallach follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Ms. Schakowsky. I thank you.
And now, Ms. Leavitt, you are recognized for 5 minutes.
STATEMENT OF AMBER LEAVITT
Ms. Leavitt. Chairman Schakowsky, Ranking Member McMorris
Rodgers, members of the subcommittee, I appreciate the
opportunity to appear before you. My name is Amber Leavitt and
I am Associate General Counsel and Head of IP for eBay. eBay is
a global commerce platform that connects buyers and sellers
around the world and promotes commerce that is driven by
people.
Founded in 1995, eBay's core purpose has never changed,
connecting people and empowering economic opportunity for all.
eBay enables hundreds of thousands of American small businesses
in every corner of the country and reaches 183 million buyers
in more than 190 markets around the world. Over a third of
American small businesses on our platform are from rural or
small towns, and thirty-six percent operate a brick-and-mortar
store.
eBay is not a retailer. We do not buy or sell goods, nor do
we compete with our sellers by manufacturing or selling
products on our own. We succeed when entrepreneurs and small
businesses that use our platform succeed. eBay's commitment to
consumer safety and intellectual property rights protection is
longstanding and a central value to our company. Our platform
is built on trust, trust that a buyer will receive whatever he
or she has purchased and that a seller will be paid for that
good. The vast majority of listings on eBay come from honest,
law-abiding sellers.
Counterfeits and harmful items are simply not welcome on
eBay, but bad actors will always try and game the system. We
fully recognize that more needs to be done and we must work
collectively to stop bad actors from using eBay or any other
medium for criminal or illicit activity. As threats against
consumers and rights owners continue to evolve, eBay
continuously seeks to improve our efforts to fight against the
bad actors and remove any product that shouldn't be on the
site.
We started this process a long time ago, but as e-commerce
grows, we, too, need to enhance our efforts. We invest heavily
each year to fight unlawful listings, including counterfeit
goods that appear on the platform. eBay takes an aggressive
approach of prevention, detection, and enforcement to keep
prohibited items off the site, remove them as quickly as
possible if and when they do appear, and take action against
those bad actors improperly using the platform.
Central to eBay's anti-counterfeiting efforts is our
partnership with over 40,000 registered rights owners through
our verified rights owner program, otherwise known as VeRO.
Participation in the VeRO program, which was launched in 1998,
enables rights owners to report potentially unlawful listings
to eBay, including copyright and trademark infringement claims.
The VeRO program allows eBay to promptly remove a listing
typically within 24 hours of being reported by an intellectual
property rights owner.
eBay has invested heavily in a complementary mix of human
resources and technical tools and mechanisms to keep prohibited
items off the site. With over 1.4 billion listings on our site
globally at any given time, eBay continues to develop new
technology focused on the proactive detection of potentially
problematic listings on the site. eBay has a well-established
global investigations team in place to provide support to law
enforcement agencies in the investigation and prosecution of
cases impacting eBay's services, including the sale of
counterfeit goods.
Our teams not only support law enforcement by providing
relevant records upon request, but also conduct our own
investigations into misuse of our platform. We proactively
refer counterfeit goods cases to law enforcement for potential
investigation and prosecution, in particular where the
counterfeit items pose a health or safety risk to eBay's users.
In addition, eBay supports the IPR Center's e-commerce working
group which is exploring ways to share data on bad actors among
participants.
Finally, the investigations teams often work closely with
rights owners who are the true subject matter experts on their
products and can help eBay build a strong case for referral to
law enforcement. We continue to work both proactively and
reactively with law enforcement on cases involving the sale of
counterfeit goods.
eBay is deeply committed to our users' protection. As an e-
commerce leader in developing policies and tools to combat
infringing or unsafe goods, we are committed to working with
you and other partners to combat counterfeit goods and protect
American consumers. Thank you and I look forward to your
questions.
[The prepared statement of Ms. Leavitt follows:]
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Ms. Schakowsky. Thank you.
And now, Mr. Myers, you are recognized for 5 minutes.
STATEMENT OF JEFF MYERS
Mr. Myers. Good morning, Chairwoman Schakowsky, Ranking
Member McMorris Rodgers, and members of the subcommittee. My
name is Jeff Myers and I am Apple's Senior Director for
Intellectual Property. I lead a team that works every day to
protect Apple's revolutionary products and the customers who
use them. I appreciate the opportunity to participate in this
important hearing about the sale of counterfeit goods, an issue
that is first and foremost, about customer safety. I would like
to share my perspectives on the problem, what Apple is doing to
address it, and what more can be done.
Apple is a proud American company with a 40-year history of
innovation. We take pride in making the best products, and the
customer experience is at the heart of everything we do. While
this commitment to our customers has been the foundation of
Apple's success, it has also made Apple a target for criminals
who deceive customers into purchasing counterfeit Apple
products, which puts customers at risk of serious safety
issues.
Today, criminals increasingly use online third-party
marketplaces to sell counterfeit Apple products. Fraudsters use
Apple's name, logos, designs, and marketing images in their
online offers to deceive customers into believing that fake
Apple products are the real thing. Even after making a
purchase, customers might be unaware that they purchased a fake
product, and when that product does not meet Apple's high
standards for safety and performance, it diminishes customers'
trust in the quality of Apple's products and can have serious
safety implications.
Take counterfeit power adapters and replacement batteries,
for example. Unlike genuine Apple products, these products are
not subject to industry standard safety testing and they tend
to be poorly constructed with inferior or missing components,
flawed design, and inadequate electrical installation. This
poses a serious safety threat to customers. UL, one of the
world's leaders in product safety testing and certification,
examined four hundred counterfeit iPhone power adapters and
found that ninety-nine percent of them failed basic safety
tests, sometimes posing a risk of fire or even lethal
electrocution.
Apple works tirelessly to combat counterfeits at all
stages, from global production and distribution, to sale in
both online and brick-and-mortar stores. My enforcement group
consists of over thirty dedicated professionals operating out
of nine global offices and working with law enforcement
authorities in more than a hundred countries. Apple monitors
over seventy-five online marketplaces around the world.
When we discover counterfeit Apple products, we notify
online marketplaces of the problem so they can remove the
offers and hopefully take action against the sellers. While
online marketplaces generally remove these listings when we
report them, the impact can be fleeting as criminals simply
relist counterfeit goods creating a game of whack-a-mole.
We also work collaboratively with industry and governments
around the world to identify trends and to share intelligence
about criminal networks. Apple is participating in the
administration's work to combat the counterfeit trade and we
collaborate with the U.S. Customs and Border Protection and
Homeland Security investigations among many other agencies. By
working with federal authorities to better identify counterfeit
Apple products at the border, we have supported over one
thousand seizures per year.
Of course, Apple cannot address these challenges alone, and
we believe there are actions the marketplace should take to
better protect customers. We agree with many of the best
practices outlined in the recent reports from the Senate
Finance Committee and the Department of Homeland Security,
including the following:
First, marketplaces should do a better job of vetting
sellers to ensure they are real, reputable companies that will
stand behind the goods they sell. If a seller can't pass simple
vetting requirements, they should not be allowed on the
marketplace. Marketplaces should adopt better policies to
address repeat offenders and kick them off marketplaces for
good.
Third, marketplaces should offer customers more information
about the identity of sellers on offer pages, or they could
provide notifications when they learn that a seller was
supplying counterfeits. Fourth, marketplaces should work more
closely with companies like Apple and law enforcement to bring
criminal actions against counterfeiters. We have done this with
some marketplaces and we appreciate those efforts. Finally,
there should be greater proof of authenticity requirements for
certain categories of products where counterfeits comprise a
significant portion of what is sold, particularly if safety
concerns are present.
Thank you for your attention to this issue. Part of the
solution to this problem is increasing public awareness of the
ubiquity of counterfeits online, and we appreciate the
opportunity to appear today in that effort.
[The prepared statement of Mr. Myers follows:]
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Ms. Schakowsky. Thank you.
And now, Mr. Love, I see that you have some show-and-tell
as well. You are recognized for 5 minutes.
STATEMENT OF ANDREW LOVE
Mr. Love. Thank you very much for this kind invite, and
thank you, committee members, for all of your legislative work
when it comes to cycling.
Chairman Schakowsky, thank you for sponsoring the Bicycle
Commuter Act of 2019 and being a member of the bipartisan
Congressional Bike Caucus. And I am grateful for so many
members of this committee who are supportive of cycling with
your actions. When I looked into all of you and what you have
done, almost all of you are active in some respect in your
local communities.
My name is Andrew Love and I am the head of Brand
Protection and Global Investigations for Specialized Bicycles.
Specialized created the first production mountain bike, the
Stumpjumper, in 1981, and our entire mission since has been
innovation and improving the ride for both experienced cyclists
and those just discovering the sport. Everybody counts.
May I see a show of hands of the people in this room who
ride, casually or seriously? Great. I have been fighting
counterfeits for the past 12 years on e-commerce and social
media platforms. Other panelists here are speaking very
eloquently on a macro level. I am a hands-on investigator and
so I will speak granularly and make my testimony here as
immediate and tangible as the counterfeit bikes and helmets I
have brought with me.
When I started fighting fakes in 2008, I remember being
able to go through the entirety of the threatened parts of the
eBay cycling section in a day or two. I could look at it all
and think with satisfaction, my job here is done. Fast forward
12 years. As of last night, the eBay cycling section has 2.57
million new items for sale and 154,000 used ones.
Of the new items, 1.27 million of them were being sold
direct from China, half of those being branded; half of them
are unbranded, generic items I will speak more about later, and
eBay is one of eighty-five marketplaces and social media
outlets we are active on. Mrs. Wallach, one of the other
panelists, referred to the tsunami and that is an exact
description of what we face.
I am grateful for the longstanding partnership I have had
with eBay's investigators and VeRO teams. As tough as the fight
is, it would be so much worse without their engagement, not
just for counterfeits but also for bike theft and fraud that
threaten consumers. The counterfeit bicycle you see here is a
model called the Specialized Tarmac SL6. One of our athletes,
Julian Alaphilippe, led the Tour de France for three weeks last
year on a bike that looked exactly like that.
Success and being an innovative technology driver have made
Specialized the number one target in the cycling industry. When
our professional athletes win, the counterfeiters see a
business opportunity. When this counterfeit frame and wheels
were surrendered to Specialized, it was a complete bike, so I
took it for a ride. The rear wheel frame's interface was so
badly made, I pulled the rear wheel out of the dropouts twice
in the first couple miles. In my 15-minute, very tentative
ride, it showed itself to be a terrible bike with all sorts of
basic construction problems and a front fork with the
structural integrity of a wet sponge.
We all ride at Specialized and so do our families. Safety
is so personal to us. These helmets you see here, I ride the
real version of these fakes and so does my wife, so does my
daughter, and so does my mother. I am very passionate about the
danger these counterfeits represent. And during the question
and answer session, if someone asks me to, I will happily
destroy one of these fake helmets in a rough approximation of
the CPSC test.
I have read all the submitted testimony from my fellow
panelists and I fully support the big pictures they outline as
well as the points laid out in the January 24th Presidential
Memorandum on combating counterfeiting, and I would like to
highlight a few specifics that would help Specialized protect
cyclists.
One, platforms need to provide more seller information so
consumers know who they are buying from and investigators like
me can peel the onion layers and see which sellers are very bad
actors. De minimis at eight hundred dollars is way too high; we
have all been speaking to that. It needs to come down. And
generic items for sale on e-commerce marketplaces that don't
bear trademarks must have someone take responsibility. The eBay
cycling helmet section as of last night, has 27,406 listings
being sold directly from China into the United States. Now I am
sure some of those helmets are fine. I am equally sure that
many of them are not.
And Consumer Reports did some investigations on this. I
have privately emailed CPSC and spoken to every platform
privately, urging action. Also, financial attack vectors are
crucial. If you can frustrate the counterfeiters moving money
around that hurts them. People talk about the frustration of
anti-counterfeit work as being like whack-a-mole. I prefer to
starve and poison the moles. It works very well. Follow the
money is an old and effective tactic.
In summary, our main advantage versus the bad guys is
exactly what we are doing right now, collaboration. We have an
internal saying here at Specialized: Together we win. I deeply
believe that. And thank you so much for your time and your very
thoughtful engagement today.
[The prepared statement of Mr. Love follows:]
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Ms. Schakowsky. Thank you very much.
So we have now concluded the witness opening statements,
and at this time we will move to member questions. Each Member
will have 5 minutes to ask questions of the witnesses and 5
minutes total for your answers. I will start by recognizing
myself for 5 minutes.
Ms. Wallach, in your testimony you explained how a vast
majority of e-commerce shipments to the United States skip
normal, or at least we thought normal, Customs procedures and
all inspections because they enter the United States under a de
minimis waiver. I said my goal is to increase CPSC's staff
presence at ports of entry.
Why do I need to care about de minimis waivers, and what
actions do you think need to be taken to make sure that we
protect consumers?
Ms. Wallach. Thank you, Madam Chairwoman.
Number one, why to care about de minimis is that right now
the policy under which most e-commerce individual packages are
entering basically makes it almost impossible for the Consumer
Products Safety Commission or the other agencies of the
government responsible for health and safety to actually screen
dangerous goods.
So Customs did a spot inspection in 2017 of de minimis
goods that would otherwise not be inspected. They found a 43
percent fail rate. They found a variety of dangerous drugs. But
they also found many counterfeit and dangerous products. In
2018, there was another round of this at seven international
mail, not shipping, not ocean shipping facilities,
international mail and express package deliveries, and they
found again an enormous number of violations. Two-thirds of it
is from China, Hong Kong is second, with Turkey and a couple of
other countries.
What it means is that all of the CPSC good targeting and
risk assessment programs basically are skirted. So the answer,
according to the CPSC, is on three levels. One, they need the
data. Right now, because of the de minimis data runaround, they
don't know what the good is to be able to figure out if they
ought to be inspecting it.
Number two, they need to be basically funded and slightly
reorganized to be at the places where the de minimis shipments
come. The surveillance, the import surveillance unit found that
seventy-five percent of de minimis packages come in five ports
where express shipments come in, and CPSC has people at only
one of them part-time at JFK. So all the other places where
CPSC has folks are the places that used to make a lot of sense,
the big ports where lots of high-value shipments came and they
got advance notice of containers.
That is not where these shipments are coming. So they need
more staff in different places and, currently, only Customs has
any information about the international mail shipments. So the
numbers that CPSC has laid out of what they face, which--brace
yourself--they think fifty-seven percent of all the products
under their jurisdiction that come into the country will be
coming in under de minimis, which, if not changed, means
uninspected, by 2023. Right now, that number is--and that would
be sixty million packages. Right now, it is thirty-six million
packages, thirty-eight percent of the stuff that CPSC is
supposed to be looking at.
So the change is dramatic. It means the difference between
goods being inspected and not.
Ms. Schakowsky. Thank you.
So I think I am going to move on. Mr. Love, do de minimis
waivers affect your company? If products aren't inspected at
ports of entry, what does that mean for people who are buying
bicycle helmets and what does it mean for your business?
Mr. Love. It absolutely affects us. And what you were
describing of it, there is five ports where de minimis
shipments come in. When I have looked into the fake ID buys I
make of counterfeits, and I have hundreds and hundreds of
these, I found it is actually only three ports where China
postal comes into the U.S. Postal Service and all of these
shipments are de minimis. They are very inexpensive. Even that
counterfeit bicycle, the fake sold for $650. That is under the
eight-hundred-dollar de minimis level, so that package that
that bike came in would not have been inspected. And it is not
a huge number, as you pointed out, of places that you would
need to put a number of people to make an impact.
Ms. Schakowsky. Thank you. I am just about running out of
time. But fake reviews have crowded out real comments. They
trick consumers into buying unworthy products and they put
honest sellers at an unfair disadvantage. And, let's see. Let's
see, Mr. Friedman, I wonder if you wanted to comment on that.
Mr. Friedman. Look, fake reviews under current law are
illegal, but the platforms do not have an incentive right now
to police them. In fact, in many ways the better the reviews,
the more products they sell, the more money they make. That is
why we have to completely upend the incentives in the system.
Even actions that are illegal right now are going on day after
day after day in the system.
And I appreciate that the platforms are trying to police
them, but even as you heard earlier, Amazon talking about
investing, say, 500 million dollars in policing their system,
that is a rounding error in their annual revenues. That is not
what we need from these companies and that is why we need both
the companies and government to step up and require them to
take more responsibility.
Ms. Schakowsky. OK. The 5 minutes goes fast. And I now
recognize Ranking Member Mrs. Rodgers for 5 minutes.
Mrs. McMorris Rodgers. Thank you, Madam Chair.
During times of panic and anxiety like we are currently
experiencing with the spread of coronavirus here in the United
States, and it is hitting my home state Washington State
particularly hard, bad actors try to prey on consumers.
Mr. Mehta, I imagine you are seeing a lot of traffic on
your platform right now, both with people worried to leave
home, scammers trying to sell fake products promising to treat
or cure coronavirus. What steps is Amazon taking to prevent the
sale of fake products related to the coronavirus?
Mr. Mehta. Thank you, Ranking Member, for the question. It
absolutely is a trying time; as someone who just flew in from
Washington two nights ago, I can tell you, that there are a
number of actions Amazon is taking to prevent the spread of
fake products related to the current coronavirus situation.
Whether it is products making false claims, products attempting
to gouge customers, there is no place for false claims or price
gouging on Amazon.
We have removed proactively more than a million products
making false claims and tens of thousands of products that were
attempting to price gouge customers. This is a rapidly evolving
situation and we are being vigilant in making sure we continue
to monitor as things develop and that we protect customers to
the best of our abilities.
Mrs. McMorris Rodgers. Thank you. E-commerce platforms and
third-party marketplaces online provide undeniable benefits to
consumers and small businesses alike, but they also present
opportunities for bad actors. This problem is complex and it is
clear that the heavy hand of government will not solve it. We
must leverage technology and innovation here.
Ms. Leavitt, can you explain the technological tools eBay
uses to identify counterfeit listings?
Ms. Leavitt. Thank you for your question. Yes, as I
mentioned in my opening statement, we are focused heavily on
prevention, detection, and enforcement. With respect to
prevention, we have a number of different filtering methods in
place to try to block listings that we suspect may be
problematic from appearing on the site. We also have different
algorithms in place that are monitoring for seller behavior and
flagging different sellers for review.
So we have the technological means and then we also have
human review that is taking place. Important to this is the
partnership that we have with third parties, with brand owners,
industry associations, and government agencies to provide the
inputs that we need to continually go back and improve those
methodologies that we use. We also have different measures in
place to prevent sellers who have been suspended from using our
services, from reappearing on the site again.
Mrs. McMorris Rodgers. Thank you.
Mr. Mehta, would you address Amazon's use of technology
addressing counterfeit vetting?
Mr. Mehta. Thank you, Ranking Member, for the question.
Absolutely. Technology is critical to preventing counterfeit at
scale. As part of the investments we make, we invest in a large
amount of not only technology and machine learning to
constantly scan every listing update as it comes into our
store, but we have also delivered innovative solutions such as
Transparency.
As you mentioned in your opening remarks, being able to
trace every individual product unit from manufacturing through
the supply chain to the end customer is critical to how we
solve this at scale. Transparency is a program we launched two
years ago that allows brands and manufacturers to apply a
unique code to every unit they manufacture. We have over 7,500
brands with over 25,000 products that are using Transparency
that have allowed us to stop 400,000 counterfeit products
before they were ever shipped to a customer. And it is those
types of technological solutions that we think really will work
at scale.
Mrs. McMorris Rodgers. Thank you.
Mr. Myers, as I noted in my opening statement, China is the
main source of counterfeit and fake products coming into the
United States. How does the administration revising the trade
agreement with China combined with DHS enforcement efforts
provide us an opportunity to reset the fight to combat the
counterfeit issue? How does it impact Apple's thought process
when it comes to your own supply chain and countering
counterfeits coming out of Chinese factories?
Mr. Myers. So I think relative to counterfeiting, you know,
at Apple, customer experience is everything and safety comes
first for our customers. And we view the counterfeit problem as
a definite global problem, something that affects what we see
worldwide. We have team members all over the world. We monitor
seventy-five platforms worldwide in a hundred countries, and so
China is definitely one that we monitor closely. And I think,
you know, we certainly think that it is not necessarily
surprising that that might be the fact given the number of
consumer electronics that are manufactured in that region.
Mrs. McMorris Rodgers. Is the trade agreement helping?
Mr. Myers. I would say that is something that I would, you
know, I would look into to tell you definitively if that is
helping and what provisions therein are helping. I think that
we are focused, certainly, on working in any and all capacities
and interested in doing so with any government and customs
agency, law enforcement, et cetera.
Mrs. McMorris Rodgers. OK, thank you. Thank you all. I
yield back.
Mr. Cardenas. [presiding]. The gentlelady yields back. The
Chair recognizes Mr. Pallone, the chairman of the full
committee, for 5 minutes.
Mr. Pallone. Thank you.
I wanted to start with Mr. Mehta. I wanted to get more
clarity on Amazon's practice of comingling inventory from
different sellers. Under this practice from what I understand,
consumers purchasing a product from a third-party seller or
even from Amazon directly may unknowingly receive a product
supplied by a different seller, and I think that can create
serious problems when unsafe counterfeit products are mixed
together with authentic goods.
I wrote to Amazon on this issue before, but really did not
receive an adequate response. So let me ask, yes or no, Mr.
Mehta. Does Amazon comingle inventory from different sellers?
Mr. Mehta. Thank you, Chairman Pallone, for the question.
By work----
Mr. Pallone. I am only trying to make it quickly because I
have to go to Mr.--I have another series of questions for----
Mr. Mehta. The question of comingling is often used to
refer to our practice of virtually tracking different units
that are identical and shipping the one closest to a customer.
Yes, we do engage in that practice.
Mr. Pallone. OK.
Mr. Mehta. As part of our fulfillment.
Mr. Pallone. All right. So is there any way for customers
to be sure that they are getting the products supplied by the
seller they see listing the product or to know when they
aren't?
Mr. Mehta. Thank you for the question. So when we virtually
track products and deliver them, the program is designed to
deliver the identical product that is closest to a customer. We
do this because it allows us to deliver products to customers
faster. We allow any one of our sellers to opt-out if they
don't----
Mr. Pallone. Well, I think the answer is no, right? You may
not be able to, you know, in other words like an example, I
will go on and I will see a book that I want to buy, right. Now
it may be new, it may be old, various qualities. Presumably, if
you are buying the older one, you are not going to switch that,
I would assume, right?
Mr. Mehta. We do not virtually track and ship the nearest
product for used products as every used product is different.
Mr. Pallone. All right, but with new products, presumably
it would be the one from the seller, but it may not be. That is
what you are saying and that is the problem.
Mr. Mehta. Well, what I would say is the root of the
problem is if there was ever a counterfeit or unsafe product in
our store, the root of the problem is how did that product get
available for sale, how is it ever shipped into our fulfillment
centers? And that is where we put our energy in how we
proactively stop----
Mr. Pallone. All right. But I mean, I do think that is a
problem. I think the answer is no. There is no way for
customers to be sure they are getting their products supplied
by the seller they see listed or know when they aren't. The
answer is no at this point, correct?
Mr. Mehta. Currently, we do not display anything to
customers.
Mr. Pallone. OK. All right, and let me ask you this. In
your testimony you say that you proactively provide refunds for
any consumers who received a counterfeit product. If the
inventory is comingled, how do you know which consumers receive
the counterfeit or unsafe product?
Mr. Mehta. Thank you for the question. Again, we refer to
this as virtual tracking. For every unit in our fulfillment
centers we know where the source of that unit was and where it
was sent to. And so----
Mr. Pallone. So a person would get a refund if they want
it?
Mr. Mehta. I am sorry? I didn't----
Mr. Pallone. In other words, if I say, look, I am concerned
that the product is counterfeit or it is unsafe, you know, I
can always get a refund, right?
Mr. Mehta. Every purchase in our store is protected by our
A to Z guarantee. And so regardless if whether Amazon sold the
product or a seller sold the product, if that customer has a
problem and the seller doesn't take care of them, Amazon will
take care of them. In addition, if a customer doesn't come to
us and we learn of a counterfeit, we know the source of that
inventory and we know the customer that purchased it, we
proactively refund customers.
Mr. Pallone. All right, so you will give them a refund. I
mean, I think you are saying I will give them the refund, but
the problem is how are they going to know? I mean that is the
problem because you don't have any--there is no way for them to
know for sure whether that product was supplied by a given
seller. They may not know it is counterfeit.
Mr. Mehta. A customer may be able to determine this, a
rights owner may tell us, or we may detect it on our own. There
is a variety of means.
Mr. Pallone. Maybe. Maybe. All right.
All right, Mr. Myers, you stated in your testimony, keeping
up with all the unscrupulous sellers on online marketplaces is
like a game of whack-a-mole. You shut one down only for another
to pop up. You also say that online marketplaces should adopt
better policies to address repeat offenders and make sure they
are kicked off marketplaces for good. Just tell me, what are
some policies online marketplaces could implement to accomplish
this, you know, how effective are you, you know, are they at
accomplishing this and preventing unsafe counterfeit products
from reaching consumers?
Mr. Myers. Sure. And I think one of the things and the
issues are that counterfeiters, the incentives that they have
are mainly profit. It is not safety and so it is a significant
issue. And so we think if you look at the sellers who are
actually selling the actual products, and there is better
vetting done of who they are, actually knowing that they are a
reputable business and there is something behind the particular
entity.
In addition, in the repeat offender problem, I mentioned
that in my opening statement but that is a significant issue. A
lot of times, individuals who sell counterfeit products will
have multiple listings, will have multiple sorts of stores
within marketplaces, and it is difficult for an outsider, not
the marketplace necessarily, to understand what is going on and
how prolific that and how quickly that seller can actually
repost something.
But also, for consumers, better identity of who the sellers
actually are, who am I buying something from and understanding
who that entity is. In some marketplaces, that is difficult to
determine as well as notifications when a counterfeit is
identified. Letting the consumer know that something they
purchased was counterfeit, and then information sharing with
marketplaces such that we can together build criminal cases
together that would be helpful to do as well.
And then, finally, there are certain high-risk categories
of products where we have found in our test buy programs are
highly counterfeited and that they also present safety issues.
And those are areas we would love to have a different way to
focus on those types of products where authenticity is really
something that we should, you know, increase the rigor of our
review prior to those being listed on a marketplace, for
example.
There are also other things that can be done. You know, I
think this hearing is great, again, I think creating an
opportunity for the public to learn more about the
counterfeiting problem. I think more resources for law
enforcement and Customs. We work considerably with both
agencies and I think more resources there would be incredibly
valuable.
Design rights, design patents. Today in Customs you cannot
use design rights to address a counterfeit problem and it is a
situation in which, you know, counterfeiters become more
sophisticated and they will remove trademarks from your, the
counterfeited products so that you can't use your trademark or
copyright, potentially, to address the issue. So having design
rights is another tool.
Mr. Cardenas. The gentleman's time has expired.
The Chair now recognizes the ranking member of the full
committee, Mr. Walden.
Mr. Walden. Thank you, Mr. Chairman, and thanks again to
the witnesses. As I mentioned, we have hearings going on
upstairs and downstairs, so. I want to again thank all of you
for being here, and I appreciate the work the President has
done as well and his administration because I think they have
been laser-focused on this. And it is clear the President is
committed to fighting against this massive form of illicit
trade that inflicts harm on American consumers and businesses.
And Chair Schakowsky and now Mr. Chairman, I would like to
offer the DHS report entitled ``Combating Trafficking and
Counterfeit and Pirated Goods'' for the record. Mr. Chairman,
without objection, would you accept that?
Mr. Cardenas. Without objection.
[The information appears at the conclusion of the hearing.]
Mr. Walden. Mr. Mehta, I am pleased to hear that Amazon is
supportive of the administration's efforts on this complex
issue and, in particular, many of the recommendations included
in that DHS report. Can you explain some of the practices that
Amazon implements that are suggested in the report?
Mr. Mehta. Thank you, Ranking Member, for the question. We
agree. There are a number of best practices in that report that
we already implement today or plan to in the future, including
the enhanced vetting of sellers, the efficient and fast notice
and takedown processes, the higher qualification requirements
for risky products and who can sell those. And we would also
like to see even above and beyond that increased enhanced
prosecution for counterfeiters. That as many folks have talked
about are about resources for the Department of Justice and
other law enforcement agencies.
But, in addition, efforts like the current administration's
Phase 1 agreement that is requiring China to increase
prosecution for counterfeiters, we need to strike in more
countries around the world, including in America.
Mr. Walden. Is that a good proposal what the administration
is doing with China?
Mr. Mehta. I am not intimately familiar with all the
details.
Mr. Walden. All right.
Mr. Mehta. But specifically as it relates to counterfeiting
and increasing the penalties and stopping the manufacturing and
distribution in China, we absolutely support that initiative.
Mr. Walden. Are there other big state actors or other
countries where this is prevalent that we need to focus on? I
mean we focus on China a lot, but.
Mr. Mehta. You know, thank you for the question.
Unfortunately, we find bad actors in every country, whether it
is China, whether it is Russia, Ukraine, but also America.
Mr. Walden. Yes.
Mr. Mehta. And so we have got to stop counterfeiters
everywhere.
Mr. Walden. Wherever they are, OK. Then in your testimony
you reference Project Zero, which is a new program. It gives
power to brands and rights owners to remove counterfeits
directly from the platforms themselves. Can you speak about the
verification process for brands receiving access to remove
these counterfeit listings?
Mr. Mehta. Thank you for the question. So Project Zero is a
new program and it really is a way for us to partner with and
empower rights owners so collectively we can drive counterfeit
to zero. We have over 9,000 brands that are already
participating in Project Zero. It includes automated
protections, and product serialization capabilities, but also
allows brands to directly remove a counterfeit from our store.
They don't need to report it to us and have us investigate. We
have now given them the power. It does mean a great deal of
power that now sits with rights owners to control what is in
our store.
Our vetting includes vetting who the brand is, the accuracy
of their submissions, and we continue to monitor that over time
to ensure that type of tool is not used to harm small or medium
businesses.
Mr. Walden. Yes. Yes, you don't want an anticompetitive
situation to crop up, either.
So, Mr. Love, bicycles and related accessories are items at
high demand and especially for many of my constituents in the
great state of Oregon. Anybody who ever visits my colleague,
Mr. Blumenauer, will walk away with a plastic bicycle pin. They
rely on this for recreation and everyday transportation.
So, I understand helmets are a highly counterfeited good on
e-commerce marketplaces. Are there any tips we can arm
consumers with that might help them identify the counterfeit
bicycle accessories before they are purchased? Turn on your
mike there.
Mr. Love. Absolutely. There are a couple of things you can
do. Specifically, for Specialized products, we have a part of
our website on specialized.com at the bottom, it is called
``counterfeit awareness,'' at the very, very bottom of the
opening page. And you can look, and if you have a helmet, you
can ID it based on some things we talk about.
The problem with putting items like this online, which we
do, is the counterfeiters are pretty web-savvy, so when they
see that they will fix the problem. So the biggest thing I can
tell--and I have seen that. I have seen that.
Mr. Walden. Yes.
Mr. Love. Yes, the biggest thing I can tell customers to do
is to be very savvy. And all of you have bike shops in your
neighborhoods. You can think of them right down--I know many of
the dealers in Oregon. You can think of the bike shops down
your street.
Mr. Walden. Literally.
Mr. Love. Yes, visit those businesses.
Mr. Walden. A block away.
Mr. Love. And buy from them.
Mr. Walden. Yes.
Mr. Love. And if you are going to buy online in the
marketplace, use common sense. Counterfeits fly in flocks. You
won't just see fake Specialized helmets. You will also see fake
helmets from a number of companies. And for some reason, the
counterfeit Specialized helmets and fake Oakleys always go
together. I don't know why.
Mr. Walden. All right.
Mr. Love. So just use your common sense and if you see a
two hundred dollar helmet for sale for fifty bucks, yes.
Mr. Walden. Yes.
Mr. Love. So.
Mr. Walden. I think I said that in my opening statement.
Maybe yes, too good of a deal is too good of a deal.
Thank you, Mr. Chairman, and thanks to all of you for the
work you are trying to do to protect consumers. We join you in
this effort, and I yield back the balance of my time.
Mr. Cardenas. The gentleman yields back. The chairman, I
will recognize myself for 5 minutes.
All the burden seems to be on the patent or copyright
holder to police the online marketplace for infringing and
unsafe versions of products. For startups and small businesses
that might just, who might just have a few employees, this can
divert significant resources and make it almost impossible to
do anything about it. It is unfair that bad actors can so
easily swoop in and enjoy all the success without shouldering
any risk or investing in any of the research or design or
testing of their product.
Take Magformers, the popular toy that young people can use.
I have some knockoffs here and I have some originals. And the
bottom line is, when you look at them you cannot tell the
difference. As an adult you can't tell the difference and as a
child wanting to play with them, they probably could care less
if they are originals or not. And it is really important to
understand that for example, the knockoff that I have here, it
is broken, and the issue here is that you have these strong
magnets, it is even hard to get a hold of one.
These strong magnets, once it breaks can get and be
ingested by a child. This is very dangerous. It might not seem
like much. You would probably think that the magnet will just
pass through. But no, the child has to go through a dangerous
surgery if they are found to have swallowed one of these
magnets.
In many districts across America, you have children who
have swallowed these magnets. For example, to date we have
recorded at least 1,600 poison control centers, excuse me,
1,600 cases in our poison control centers just for these kinds
of magnets that have been ingested by children all across
America. This is something that affects rural America, big city
America; this affects our most vulnerable population, our
innocent children.
Mr. Mehta, in your testimony, you talk about a new brand
protection program called ``Amazon Transparency.'' Transparency
allows brands to use bar code technology to protect their brand
from counterfeits and enable customers to authenticate
products. How much does it cost for businesses to participate
in this program?
Mr. Mehta. Thank you for the question, Congressman. The
Transparency program has two primary costs for brands that
choose to use it and one is a per unit fee that they pay Amazon
that ranges between one penny to five pennies per unit. It
decreases for higher volume. And then, secondly, brands will
have some implementation costs, because the glory of the
Transparency program is that as part of the manufacturing
process, rather than having the same UPC code or the same ISBN
code on every product, brands will apply a unique Transparency
code on every product that uniquely identifies it. And when
products are sold----
Mr. Cardenas. So when you say ``per product,'' it is like
this comes in a package of a few units. So what you are saying
is the bar code that is on the outside box that consists of one
unit?
Mr. Mehta. That box would have a unique code.
Mr. Cardenas. And that is considered one unit. That is one
box.
Mr. Mehta. And that is one unit, so.
Mr. Cardenas. Not if this has a hundred units inside the
box it is the actual container.
Mr. Mehta. The box.
Mr. Cardenas. OK, go ahead.
Mr. Mehta. So it goes on the packaging or the outside of
the product, or a swift tag if it is a, you know, apparel item,
and that code uniquely identifies that package.
Mr. Cardenas. OK. Does this cost--is that cost exactly what
it costs Amazon to administer this?
Mr. Mehta. That cost is basically to cover our variable
costs for maintaining that program and scanning every one of
those products. We don't design this program as a place to make
profit. It really is to help brands and us.
Mr. Cardenas. So Amazon is a break--this is a breakeven
technique, technology and opportunity for Amazon?
Mr. Mehta. This is a program and technology that is about
how we better protect customers and better protect brands.
Mr. Cardenas. But when it comes to the costs, because there
are costs. I talked about small businesses earlier.
Mr. Mehta. Yes.
Mr. Cardenas. All I am saying is, so what you are telling
us on the record is this is a breakeven system within Amazon.
Mr. Mehta. What I would tell you today is this program is
not even breakeven. We lose money on that program, but we do it
because----
Mr. Cardenas. OK, thank you. It could have saved us a whole
minute if you would have just told me that from the beginning.
I am glad to hear that. Thank you so much for your commitment.
Mr. Love, does Specialized's use of Amazon Transparency, is
that something that you are aware of?
Mr. Love. We don't sell on Amazon, so--and we have no plans
to. So it is a--we are committed to our local bike shop network
for the distribution of our products.
Mr. Cardenas. OK, thank you.
Ms. Wallach, how can we make sure all the burden isn't on
the small businesses and that the online marketplaces and law
enforcement are doing their part?
Ms. Wallach. Thank you, Mr. Cardenas, for that question and
that is an excellent question. There need to be changes on two
levels. One is for the government changes with respect to the
funding and the authorities for the Consumer Products Safety
Commission that I reference in my written testimony, as well
for the FTC to step up and do its job. It has its authorities.
And for Customs to make some of the changes so that the other
agencies can have the data.
However, as well there is a strong responsibility on the
companies. And with respect to some of the programs Mr. Mehta
is mentioning, those are some of the same responses made when
the Wall Street Journal did its scary expose about all the
products it found. And just over the weekend I went through the
Prohibited Products List and found six different prohibited
categories of goods on the website, so that it is not clear
that the technological fixes are addressing the safety issues.
And, moreover, Amazon clearly has very powerful technology to
be able to deal with these problems because since then, the
times I have gone on Amazon I am getting advertisements for
small crossbows, flares, and other prohibited items.
Mr. Cardenas. Thank you very much. Next, the Chairman
recognizes Mr. Burgess for 5 minutes.
Mr. Burgess. And I thank the Chair.
Mr. Friedman, I noted in your testimony you referenced
counterfeit airbags. This subcommittee did some of the original
work and it has continued to do work on the Takata airbag and
the subsequent recalls. In fact, just this weekend I learned
that a manufacturer said that their airbag was un-recalled, and
then I was informed by NHTSA that a recall can't be recalled,
so I am fighting that fight on another front.
But counterfeit airbags are really something that was
unknown to me until perhaps a year and a half ago. There was a
story widely reported on our television stations back in the
Dallas-Fort Worth market and on the radio. I have become very
familiar with the case. I will say upfront, I never was able to
obtain a privacy waiver from the family so I can't talk, don't
feel I can talk about specifics even though the case was
mentioned in the news media.
But it dealt with a crash in 2017 involving a counterfeit
airbag in a 2013 Kia Soul. I did contact the National Highway
Traffic Safety Administration. They wrote me back and they have
issued recommended dealer guidance for managing counterfeit
airbags, along with the fact that an airbag could be
counterfeit. As you might imagine, in this crash in 2017, the
counterfeit airbag not only did not deploy, it had nothing
within the guts of the airbag to deploy. It was filled with a
shop rag and some other junk, but was not really an airbag.
The car had been in a crash, the airbag had deployed,
insurance had almost totaled it but not quite, went to a repair
shop, got this aftermarket item inserted, and then was sold on
a car lot. And an unsuspecting consumer bought the car and his
daughter subsequently was involved in a very, very serious
accident and did not survive. I don't know whether it was
survivable with a real airbag, but I know it wasn't survivable
with a counterfeit airbag.
Now the reason I am bringing this up--and, Madam Chair, I
am going to ask to make a copy of this letter available for the
record. NHTSA did say they are going to be vigilant and they
are going to coordinate across state, local, and federal
government agencies. To date, the full scope of the problem
remains difficult to assess. Industry plays a crucial role in
this effort and NHTSA is therefore pleased that the Automotive
Anti-Counterfeiting Council has formed to work on identifying
and eliminating counterfeit auto parts. So I have gone a long
way to say that their website is A2C2.com. It is a rare
problem, but it can be a fatal problem when encountered. And
again, I would ask that a copy of this be made available for
the record.
Now, Mr. Mehta, just before my time expires, I was also
intrigued in your testimony. You talked a little bit about what
you were doing with the--in the realm of copyright infringement
or patent infringement. This committee also worked a lot on
patent letters. In fact, there was a bill out of this
subcommittee that I don't think ever got to completion, but it
was the Targeting Rogue and Opaque Letters Act, or the TROLL
Act, interestingly named, of several years ago.
You talk about this voluntary effort that Amazon has.
Parties put forward a deposit and it is sort of like the winner
gets the--if there is a dispute: the winner gets their money
back and it avoids having to go through the litigation process.
I do wonder if people will give up the litigation process
because it does seem to be very profitable to some people,
probably our brethren in the legal profession. And I know the
Eastern District of Texas has been one of the most active
places for these types of lawsuits.
But it is significant and it is a problem. I am just
intrigued by your approach because it is not a legislative
approach; it is a voluntary approach and I just wonder what
type of success you have had with it.
Mr. Mehta. Yes. Thank you, Congressman, for the question.
And the program you are referring to is a Utility Patent
Neutral Evaluation program. The challenge with utility patents,
as you note, in some cases, there are absolutely patent owners
who want to go through the litigation and they will go through
the cost of that given the significant value a formal court
proceeding will provide them if successful.
The challenge is, there are many utility patents that are
not worth that effort for rights owners. And because utility
patents are so complex, it is tough for marketplaces, stores,
or service providers to figure out which utility patents to
enforce. So this program allows each entity to put up a
deposit. If either entity doesn't put up a deposit, they lose,
and that deposit pays for an outside evaluator/mediator to look
at the case and make a decision.
And Amazon will uphold that case. That doesn't uphold in a
court of law, but it makes a decision for Amazon. And we have
noticed a number of other stores who watch Amazon's decision
and use that to make the same utility patent decision on their
sites.
Mr. Burgess. So it has been useful.
Mr. Mehta. It has been super useful, and the rights owners
that have been part of that program, so far, love it because it
takes a process that can be years and millions of dollars----
Mr. Burgess. Right.
Mr. Mehta [continue]. And turns it into weeks and no cost
if they are successful.
Mr. Burgess. Very good. I thank you. I yield back.
Mr. Cardenas. The gentleman yields back. The Chairman now
recognizes Ms. Blunt Rochester.
Ms. Blunt Rochester. Thank you, Mr. Chairman, and thank you
to the panel. As Mr. Pallone stated in his opening, it is
fitting that during National Consumer Protection Week we
discussed the significant safety concerns of online counterfeit
products. After all, between 2015 and 2019, e-commerce doubled,
and in fiscal year 2019, the Customs and Border Patrol seized
$1.5 billion in fake or pirated goods.
It is obvious that the number of seized fake products is
merely a fraction of the total number of faked goods. Many
studies suggest counterfeits have proliferated the online
marketplace. They also suggest that virtually everyone in this
room has purchased a potentially hazardous counterfeit product.
That should give us all pause. And while there is certainly a
discussion about stolen intellectual property, these
counterfeits pose a significant public health and safety risk.
Fake phone chargers can cause fires. Batteries that burst can
do harm. And even counterfeit water filters are being sold.
This is especially timely as many members of this committee and
constituents in Delaware understand having access to safe and
clean drinking water is a major concern.
Currently, it appears refrigerator filters are the main
culprit, but filtration manufacturers like DuPont and Ecosoft
are increasingly reporting other counterfeit filters like
reverse osmosis systems. With increasing concerns for
contaminants like lead, arsenic, and most recently, PFOA and
PFAS, this trend is worrisome.
Mr. Friedman, how widespread is the counterfeit water
filter problem online and how can Congress facilitate improved
transparency and accountability?
Mr. Friedman. Thank you very much for the question. We see
this as a really serious issue. Back in 2018, we looked at this
very carefully because we were trying to help consumers get
water filters that were less expensive. And what we found is we
really had a hard time finding brands on Amazon that were
certified to international quality and safety standards at all.
I mean that is just shocking. It is shocking that was not a
requirement. It is shocking that also wasn't always clearly
disclosed. Only one of the aftermarket brands had a proper,
verifiable certification for its filter, and these were the
only ones we identified that even came close to matching the
high standards that most refrigerator brand filters need.
So it is a serious issue. One, we need to call on all of
these platforms to step up. They are investing, effectively,
pennies when they should be investing dollars in informing
consumers, getting these products off their platforms, and
putting their consumers instead of their profits first.
And in terms of Congress, I think it is a mix of things.
One, again they have to be held accountable for when they knew
or should have known about these problems, and they have to be
required to actively police these problems. Until then, the
incentives are upside down and their innovations are going to
tend to go towards marketing more than they are going to go
towards protecting their consumers.
Ms. Blunt Rochester. Thank you.
And, Ms. Wallach, I wanted to build on the points of Mr.
Pallone and Ms. Schakowsky. I understand that counterfeiters
avoid scrutiny by sending the filter and packaging in separate
shipments. How does this avoid scrutiny by CBP and do
counterfeiters employ other tactics?
Ms. Wallach. Thank you, Congresswoman, for the question.
Yes, by sending in separate packages, the package is considered
under the de minimis Customs level and therefore skirts all of
the normal Customs procedures. Not only aren't the goods
inspected, some 1.8 million packages each day cleared by de
minimis, individual packages that then go on to consumers and
that doesn't count the 475 million, annually, international
postal packages. That is just the express consignment hubs and
the air shipments.
All of that goes uninspected because, in part, the data is
not even required to be able to figure out. For instance, if
you knew that filters were a crisis that would go into the
Office of Import Surveillance at CPSC to start targeting, to
look for the actual either tariff code or SIC product code for
that category of goods to start inspecting. Except that basic
information isn't even provided, so there is no way to actually
get on top of it.
Ms. Blunt Rochester. Thank you.
And, Mr. Mehta, I will follow up with you because I only
have about ten seconds left, but I wanted to ask if you could
talk about your seller verification process. So in second
seconds, if you could.
Mr. Mehta. Yes. So we have a very robust seller
verification process. It includes a number of verifications
about the identity of a person, their payment instruments,
where they are located. And in addition, we invest tremendously
in machine learning to be able to monitor behaviors or signals,
the devices, the places these folks are signing in from to
detect related accounts and bad actors that we detected in the
past explicitly to prevent whack-a-mole type of situations.
Ms. Blunt Rochester. I know my time has expired and I will
follow up with you just to make sure that we talk about
disproportionately targeting, you know, marginalized
communities with algorithms. We have a lot of concerns about
those issues as well. Thank you and I yield back.
Mr. Cardenas. The gentlewoman very cleverly yields back.
The Chairman now recognizes Mr. Guthrie.
Mr. Guthrie. I thank the Chair for the recognition.
And, look, these questions are for Mr. Mehta and Ms.
Leavitt. Last year, Dr. Burgess has left, but I went to visit
the JFK International Mail Facility at his request because when
you are there it is just amazing what the volume of product
that flows through, and there were counterfeit items they found
and some of them on your platforms.
The second thing, I have three Amazon facilities in my
district. I have been there. It is just, when you go through it
is just the sheer volume, how big our economy is and how big a
player Amazon is and the volume moving forward. I know in your
testimonies, I know both of eBay and Amazon have tools that try
to figure out how to prevent counterfeit items from coming
through.
First, Mr. Mehta, since your Amazon has a lot of employees
in my district, and Ms. Leavitt, if you would kind of describe
your processes and how the efforts that you have underway. And
also I notice that a lot of items were from China and it seemed
China was a big culprit in counterfeit, and do you agree with
that and what process do you have to make sure things that come
from China are authentic?
So, Mr. Mehta, if you go first.
Mr. Mehta. Yes. Thank you for the question, Congressman. We
want to prevent counterfeits regardless of the country they
come from. We outlaw them. We have significant technology
investments that scan every listing, every seller before they
are able to sell in our store, before a listing is able to be
published and available for sale.
In addition, we have programs like Transparency that every
unit that shows up at one of our fulfillment centers we scan
that product and know whether it is authentic or not, and can
reject the product before it even ends up being stored in our
fulfillment centers and potentially sold to someone. But there
is more we can do here. As you note, and I am glad you visited
one of our fulfillment centers as well as the Customs
facilities, there is more we can do to partner with Customs in
being more effective.
There have been comments earlier about requiring pre-
arrival information for every shipment whether it is above or
below the de minimis threshold. We are currently engaged in a
pilot as part of the Section 321 with Customs and Border Patrol
not only to get some of that information, but for Amazon to
provide the information we have so that collectively, we can
aid Customs in finding potentially risky products at the ports
or at the facilities where those products come in.
And, in addition, when Customs finds an issue, we would
love to have them share information with us because we may have
other shipments from that same bad actor. We may be able to
shut their account down. We may be able to hold their funds and
take greater action that can put together a better criminal
case to go after those bad actors.
Mr. Griffith. And, Ms. Leavitt, and I will say it this way
because I know the Customs situation, so maybe domestically.
One of the big issues in my area is people who distill spirits,
bourbon, Kentucky bourbon, particularly the high-end bourbons
that people are buying not from a distillery, but from somebody
who goes and buys a bottle of Pappy Van Winkle and they put it
on the marketplace, or one of the Heaven Hill Brands. I should
list all my distilleries, shouldn't I?
But, and so it is going from one person to another, but it
tends not to be not the real product, counterfeit. So how do--I
know you are not supposed to sell alcohol on your site, but I
don't know if people do. And if they do, how do you try to
trace this down and make sure? Not just bourbon, but products
from me to you, domestically, are also not counterfeit.
Ms. Leavitt. So, in that instance where there is a good
that is maybe stolen and then sold under a different brand, we
have a team who is dedicated to working with law enforcement.
They are our global asset protection team and they are focused
both on proactive investigations, so they have their own
internal referrals from different sources throughout the
business. They have different analytics and tools that they use
to essentially find that behavior and do investigations and if
it is--if it looks to be a more serious level case, then they
will work to refer those cases out to law enforcement.
And then vice versa, if law enforcement is aware of that
type of activity, they can make data requests through our--we
have an external facing portal that law enforcement uses to
request data on users that they are conducting criminal
investigations for, and then they will also share additional
information from investigations just to help us, you know, both
address the issue at hand, but then also implement proactive
measures so that we can prevent those types of situations from
arising in the future, both on the listing product-specific
level, but then also the seller level as well.
Mr. Griffith. So, Mr. Mehta, your fulfillment center is
about five miles from Jim Beam, so how do you ensure your
fellow corporate citizens of Bullitt County that their products
aren't being counterfeited?
Mr. Mehta. Yes, so we invest heavily in that. You know, as
I mentioned in my testimony, last year in 2019, we invested
over $500 million in preventing fraud and abuse, and that is
primarily focused on proactive means. And so, every listing,
every seller that attempts to enter our store, we are scanning
multiple data points. We have expert human investigators, but
we also have advanced machine learning that is scanning every
one of these.
It is the reason that last year; we stopped over six
billion suspected bad listings before they were published to
our store, and over 99.9 percent of pages viewed in our store
have never received or reported counterfeit infringement. But
it is not perfect. We have got to keep working until we get
that to a hundred percent and zero counterfeit.
Mr. Griffith. Well, thank you very much. And my time has
expired, I yield back.
Mr. Cardenas. The gentleman yields back. The Chair
recognizes Mr. Rush.
Mr. Rush. I want to thank you, Mr. Chairman. Mr. Mehta,
what is Amazon doing to ensure proper compliance with state
alcohol laws and regulations, including how the purchaser
receives the product, the price and terms of the sale, and the
limits on retail sales imposed by the states?
Mr. Mehta. We require all sellers in our store, whether
that is Amazon the seller or the third-party sellers in our
store, to adhere to all applicable laws, regulations, and
Amazon policies. In addition, we invest tremendous resources in
proactively screening every product before it is published to
our store in looking for signs of potential infringement or
violation of policies.
And we constantly monitor over forty-five million pieces of
feedback that we receive every week from customers, regulators,
and others for anything we have potentially missed to learn
from that and figure out how we proactively prevent that in the
future.
Mr. Rush. I am also concerned that bad actors are using
social media sites like Facebook to recruit people to leave
false positive reviews of products that are often in your
store. And as a result, these bad actors are able to make
shoddy products look more legitimate, and this is a practice
that results in both defrauding and creating great risk for
consumers and also manufacturers.
What is Amazon doing to combat these practices?
Mr. Mehta. Thank you, Congressman, for that question. It is
absolutely true that bad actors, one of the tactics they
attempt to use to generate fake reviews is they go to social
media sites. They create private groups with otherwise honest,
American customers, and offer incentives or free product to try
and get positive reviews. The challenges in these situations is
often that communication in that activity is only known by the
social media sites.
Amazon doesn't have any data about what is going on, we
just see these reviews coming up on our site from otherwise
honest-looking customers. There is a great deal we do to look
for signs or behaviors that look abusive to us. We report those
to social media sites to get those groups broken up and taken
down. It doesn't always move as fast as we would like, but this
is absolutely another area where we have all got to partner
together, and social media sites have to do more to detect such
abusive behavior on their sites and to partner with the rest of
us to stop those types of fake reviews.
Mr. Rush. So has Amazon made other manufacturers and
customers aware of these shoddy practices? How are you all
proactively alerting and informing the buying public and also
manufacturers of these practices?
Mr. Mehta. Thank you, Congressman. Yes, so when customers
may have thought they were just getting a free product or a
heavy discount to provide a positive review, if we detect that
we will warn that customer. We will notify them that such
practice is not OK. It violates our policies, and in some
cases, violates laws. If there is continued fake review
activity, we will ban customers from being able to leave
reviews or Q&A responses or other types of community content.
And, similarly, for every one of the sellers and brands and
manufacturers in our store who are selling products, they are
made aware of these policies and if they don't take the
appropriate action, we will close their accounts. We have had
over a thousand defendants that we have gone after through
civil litigation. We have provided information to the FTC and
are partnering with them to similarly stop these types of
practices.
Mr. Rush. Well, Mr. Friedman, I am very much appreciating
your mention of existing federal limits on lead and the use of
small, high-powered magnets in toys. In '08, I was the chairman
of this subcommittee and drafted the Consumer Product Safety
Improvement Act in response to a plethora of reports of
children being injured by lead, high-powered magnets and on the
dangers that were present in toys. Needless to say, I am
severely disappointed that here, some 12 years later, we still,
this practice is still going on.
Given that these dangerous products are most often coming
from third-party sellers, should online marketplaces collect
and record information about third-party sellers like the name,
location, and contact information to ensure that people are
purchasing what they intend to and not an imitation or a
knockoff?
Mr. Friedman. Absolutely, they should. And, Mr. Rush, I
also just want to thank you for your leadership on consumer
protection in general and on these important areas. I would
also like to say it is great to hear about what a lot of the
companies are doing to help consumers, but the fact of the
marketplace is it hasn't been enough. People are being exposed
to these dangerous products, they are not investing enough, and
they need to do a lot more.
Mr. Rush. I want to thank you. I ran out of time. Thank you
so much. I yield back the rest of my time.
Ms. Schakowsky. The gentleman yields back, and now Mr.
Carter is recognized for 5 minutes.
Mr. Carter. Thank you, Madam Chair. And thank all of you
for being here. This is certainly an important subject, one
that we are obviously very interested in and want to help in
every way we can.
I want to start off by saying that the ranking member, Ms.
McMorris Rodgers, in her opening statement she talked about
emerging technology. And, Mr. Mehta, I know that you, or I
should say Amazon has invested a lot of money, a lot of
employees in this. I am just wondering, obviously, you are
using AI as well? Are you doing that? Is this in any way a part
of your game plan?
Mr. Mehta. Thank you, Congressman, for the question. AI and
machine learning is absolutely a part of the game plan, as is
the use of expert human investigators. As we address these
problems and prevent counterfeits from entering our store, the
only way that we can collectively stop counterfeits at scale is
through technology. Bad actors are using technology. They have
hired their own engineers and their own scientists. These
organized criminal organizations are attempting to find any
crack between our systems.
So we absolutely use technology, whether it is in the
vetting of our sellers and the way we were able to stop two and
a half million accounts that bad actors attempted to create
last year, or the six billion bad listings that we stopped
before they were published to our store. The only way we do
this is through technology that is mining hundreds of different
signals about the person, about their product, about
information that brands and rights owners about their brands
and their logos and their distribution that helps us be more
effective in stopping counterfeits and unsafe products.
Mr. Carter. Great, thank you.
Ms. Leavitt, what about you? Does your company utilize AI
at all?
Ms. Leavitt. We have made significant technology
investments as well and continue to look to do so in 2020.
I would like to note one thing about AI and machine
learning. I think an important part of all of this is
collaboration, because our AI or machine learning is only as
good as the information that we are feeding into it. And so, I
think, increasingly, it is important that the platforms are
coordinating with social media sites, with the brands, with
consumer protection groups, to make sure that the data and the
inputs that we are using to build and to strengthen and to
modify those technologies is accurate and up to date. Because I
think we all know we wouldn't be here today unless
counterfeiters were pretty savvy, right?
Mr. Carter. Right.
Ms. Leavitt. And they know what to do, they know how to
evade. And so, I think that is an important piece that when we
talk about technology. Yes, technology is extremely important,
but the collaboration that goes into building that technology
amongst all the stakeholders is key.
Mr. Carter. And that is a good point and I appreciate you
bringing it up.
To kind of dovetail onto that, Mr. Mehta, tell me about
your Amazon Brand Registry. How many products do you have on
that and how is that working?
Mr. Mehta. Thank you, Congressman, for the question. So we
launched the Amazon Brand Registry in 2017. It is a completely
free service for any rights owner with a registered trademark.
To date, we have over 350,000 brands worldwide that are
enrolled in Brand Registry. They have enrolled for free. They
don't have to have any kind of economic relationship with
Amazon. They don't have to sell on Amazon. And those brands
span from large, global multinational brands to small
entrepreneurs who have invented a product out of their garage.
What Brand Registry does is in partnership rights owners,
they provide us with a basic set of information about their
intellectual property, their logos, and their distribution, and
we use that to aid our machine learning and our technology, so
that as we are vetting sellers, as we are scanning listings
before they are published, we are able to more effectively
detect potentially infringement products and stop them
proactively without a rights owner or a customer or anyone else
having to find them.
Since the launch of Brand Registry, on average for brands
reporting infringement to Amazon, brands in Brand Registry
report ninety-nine percent fewer infringements per brand than
before the launch of Brand Registry.
Mr. Carter. Really. That is quite impressive. You mentioned
earlier social media sites and what they were doing to recruit
bad people and to leave false and fake positive reviews. What
about that? How are you handling that? How are you approaching
that?
Mr. Mehta. Yes. So we have absolutely seen situations where
bad actors are using social media sites, often private groups
within social media sites that are not visible easily to
companies like ours or to the government, and using, bad actors
use those groups to recruit people and provide them discounted
or free products to get incentivized reviews. It is completely
unacceptable that type of activity would occur.
We sometimes detect it because we see irregular patterns of
reviews being left on products. When we see that and we
investigate, we report those to social media sites and expect
them to take those sites down. It is something we are working
with a number of social media sites to get that process to not
only be faster and more effective but, more importantly, for
social media sites to proactively monitor for such types of
abuse and inform other partners in this fight.
Mr. Carter. Well, great. Well, thank you for your efforts.
Thank all of you for your efforts. And as you know, if it is on
the internet it is true, so we have to always keep that in
mind. Thank you and I yield back.
Ms. Schakowsky. The gentleman yields back, and now Mr.
McNerney is recognized for 5 minutes.
Mr. McNerney. I thank the Chair and I thank the witnesses
for this testimony. It is useful and informative.
Mr. Mehta, how does your company determine what products
receive the Amazon Choice badge?
Mr. Mehta. Thank you, Congressman, for the question. We
have designed the Amazon Choice badge to really help customers
simplify their discovery and shopping experience.
Mr. McNerney. Right, but how does that badge come about?
Mr. Mehta. So that badge is designed to show well-priced,
highly-rated products that are available for delivery.
Mr. McNerney. How does that badge get awarded?
Mr. Mehta. It is awarded through an algorithm that uses
products that have been popular that have high ratings that
have low return rates. It uses a number of factors that
indicate that other customers purchasing that product have had
a great experience.
Mr. McNerney. Thank you. In order for a product to receive
the Amazon Choice badge, is it required to undergo any safety
testing by Amazon? Please answer with a yes or no.
Mr. Mehta. Congressman, no. There is no unique safety
testing to get that badge.
Mr. McNerney. OK, thank you. In order for a product to
receive the Amazon Choice badge, is it required to undergo any
screening to ensure that the product is authentic?
Mr. Mehta. Congressman.
Mr. McNerney. Please answer with a yes or no.
Mr. Mehta. There is no unique screening for authenticity to
receive that badge.
Mr. McNerney. Well, do you think it is possible that some
customers may interpret the Amazon Choice badge to signal that
the product is one that Amazon trusts?
Mr. Mehta. Congressman, we use that badge to show a product
that other customers have found to be highly rated, to have
great prices, and to be available for delivery. Amazon does not
manually curate or assign that badge.
Mr. McNerney. So the customer may think that is some sort
of a promotion by Amazon.
Mr. Friedman, do you have a comment on that?
Mr. Friedman. I don't know how a consumer could see it any
other way. I mean it is Amazon's Choice. And this is a brand
that has worked very hard to be a trusted brand and yet you
have Amazon Choice products as we found that are littered with
fake reviews. They are not policing the system. They are not
doing enough.
We have heard a lot of ninety-nine percent here in terms of
impressive numbers of what they are talking about. Well, one,
there is lies, damn lies, and statistics. Part of what you----
Mr. McNerney. I am a mathematician, so be careful.
Mr. Friedman. Statistics can be great, but it can also be
misused.
Mr. McNerney. Right.
Mr. Friedman. They are talking about, basically, with a lot
of these ninety-nine percent, ninety-nine percent are verified
reported things. They are saying consumers. Sellers are the
ones who have the burden to report these problems to them and
when they finally figure it out, potentially, after being hurt
or misled, then they do something about it. We can't wait for
the problems to happen. They need to be on this in the first
place.
Mr. McNerney. Thank you. You have discussed review
hijacking. Can you walk us through what that means and how it
works?
Mr. Friedman. Sure. Review hijacking is, it basically
manipulates one of the systems on Amazon where in various ways
you can associate a review with one product with other
products. Sometimes it is great. For example, if you have a
blue version of product A and a red version of product A, it
makes sense to be able to associate those reviews together. But
when you have a review of a bicycle helmet and a review of an
eyelash lengthener, there is no reason why those should be able
to be associated.
But loopholes in the system allow people to either take
dormant reviews or reviews from their own products and package
them together.
Mr. McNerney. So how widespread to you think this problem
is, review hijacking?
Mr. Friedman. We have certainly, in our investigations we
have seen it rather consistently. And what is even more
troubling is while Amazon responds when we point it out to
them, for a while we monitored what was happening on their site
and didn't report things and we saw the practice continue. So,
clearly, they are waiting until victims speak up rather than
proactively protecting their customers.
Mr. McNerney. Well, I mean, I use Amazon all the time, so I
want to have confidence in what I am getting.
Mr. Myers, can you talk a little about review hijacking,
what it means to consumers?
Mr. Myers. I think that is, certainly, we monitor all
marketplaces including Microsoft--or including Amazon, excuse
me. And in terms of counterfeit related products what we do are
test buys. So we don't necessarily look closely at the reviews,
per se, but what we do look at is the test buys. And when we do
that across all platforms, we still find a significant degree
of counterfeit items on those sites.
Mr. McNerney. OK, thank you.
Ms. Wallach, why is it important for customers to be able
to easily discern who is selling the product?
Ms. Wallach. Thank you for the question, Congressman. For a
customer to be able to make an informed decision about what
product might be reliable or safe, they need to have the right
information. And to your point about what kind of investment by
the company is put into deciding to have a choice label, and
this reflects other questions that I have been asked by your
colleagues, I note that while Amazon has reported in spending
half a billion dollars in enforcement, they in the same period
have invested fifteen billion in making it easier with a 150
more tools to get more third-party sellers.
So to reflect the comment Mr. Friedman made, the level of
investment as well as the decisions made, for instance, of what
gets to be chosen but even what gets to be listed. As you have
pointed out, these things aren't pretested. They aren't
certified. It is not an invitation only, it is the wild, wild
West.
Mr. McNerney. Thank you. All right. And I understand how
hard it is to verify products so, but Amazon and eBay and all
the online platforms need to make the right investment because
they are making money doing this.
Thank you. I yield back.
Ms. Schakowsky. And now I recognize Mr. Lujan for 5
minutes.
Mr. Lujan. Thank you so much, Madam Chair. And I want to
thank everyone for making time to be here today. I have two
lines of questions, the first of which is something that you
may not have been asked before, with the exception of eBay who
we were able to contact before the hearing. And I want to thank
them for the work they did, but I will get into that with the
line of questioning.
In New Mexico, Native American art and work is critically
important. It amounts to one in eighteen jobs that Native
Americans participate in, twice the rate of other workers. It
generates one billion dollars in economic activity. However, by
one estimate, Native artists lose about 500 million dollars'
worth of income a year to fake goods sold from non-Native
sources.
My home state of New Mexico accounts for eighteen percent
of all Indian Arts and Craft Board complaints. An estimated one
in three fraudulent Native American products originates from an
online sale, second only to retail sales.
Ms. Leavitt, what steps has eBay taken to work proactively
with tribal governments and dealers to help authenticate
sellers and combat misrepresentation?
Ms. Leavitt. Yes. Thank you for the question, Congressman.
So, just to clarify, your question isn't so much about the
tribal entities, it is more about seller verification; is that
correct?
Mr. Lujan. That is correct.
Ms. Leavitt. OK. Yes, so we have a number of steps in place
during the registration process to try to verify a seller's
identity. In addition to that we implement a number of limits
or controls on what a seller can sell and what quantities they
can sell, because they are not, you know, ``trusted'' yet, they
are new to the platform.
And in addition to that, you know, currently, eBay does not
intermediate most payments, so we don't have access to the same
financial data that perhaps some other platforms or some of our
intermediation platforms such as PayPal may have. But as eBay
moves more into that space, our objective is to leverage that
data better, financials and other data sources that we will
have as a result of that and the federal obligations that we
will have to improve our processes for vetting sellers.
Mr. Lujan. I appreciate that.
Mr. Mehta, does Amazon have any work in this space that you
partner or you work with the Indians Arts and Crafts Board?
Mr. Mehta. Thank you, Congressman, for the question. So we
actually have an explicit policy that bans sellers from selling
illegal Native American burial items or products that have been
removed from Native American sites. We would be happy to
continue to engage with you and your office on this area.
Mr. Lujan. Very good.
Mr. Mehta. It is a very important topic.
Mr. Lujan. And so it is not so much the artifacts that have
been taken, it is the imposters. It is the fakes.
Mr. Mehta. Yes.
Mr. Lujan. There is actually a federal law that requires
the stamping of the country of origin on these pieces of art,
but it doesn't exist, and so what we are hoping to do is to
work with you to make sure that is a reality and the policy.
And again, to eBay specifically, we reached out to some local
art dealers in northern New Mexico and it was flagged for
several listings of counterfeit Native American goods currently
being sold on eBay.
When we shared those with you all, it is my understanding
that they were taken down; is that correct?
Ms. Leavitt. That is correct.
Mr. Mr. Lujan. I really appreciate that so we want to work
closer in that area.
Now because I also am a cyclist, Mr. Love, I really
appreciated you being here today, especially after a recent
tumble on a mountain bike where I found myself going over my
handlebars into a bed of rocks. Sadly, I don't have any video
footage of it, so I am sure everyone would appreciate that. It
was not pretty. But nonetheless, that bicycle helmet saved me.
Bicycle helmets, as you know, according to one meta-
analysis of the available research, reduce head injury by
forty-eight percent, serious head injuries by sixty percent,
traumatic brain injuries by fifty-three percent. Can you tell
me what happens if someone is wearing a counterfeit bike helmet
or what is happening with goods that are being counterfeited
and what it could mean to the detriment of people's health?
Mr. Love. And it is also appropriate that just down the
hall from us there is some traumatic brain injury symposium
going on right now. And I can absolutely tell you what would
happen, but I would much rather show you what would happen. I
would love your assistance in the destruction of a counterfeit.
Would you like to come down and destroy a helmet?
Mr. Lujan. Madam Chair, with your permission?
Ms. Schakowsky. So ordered.
Mr. Love. So what we are going to do here is the CPSC test
replicates an impact which is about six feet in the air, about
a 200-pound guy, head first, onto either a rock or a curb. Now,
I am almost six feet tall, I am 200 pounds, and I have done
that. It is a terrifying impact. Now in a CPSC test, any impact
over 300 gs fails the test. So over 300 gs that is the brain
injury death line. A real specialized helmet will keep you down
to 100 gs-ish and you are going to walk away. It doesn't feel
good after a hit like that. But I would like you to jump on
this or just hit this hard and let's see what happens to this
counterfeit helmet.
Mr. Lujan. Jump on it?
Mr. Love. Yes, if you can.
Mr. Lujan. Ready?
Mr. Love. Do it.
Now, I said you--the 300 g----
Ms. Schakowsky. I just want to point out the gentleman is
already out of time, but finish your sentence.
Mr. Love. OK. The 300 g line is the death line. This
registers 994 gs, on our testing equipment. And our testing
equipment only goes to 994 gs. It is worse. So this is why we
are so passionate and we really appreciate working with you all
on this.
Mr. Lujan. Thank you.
Ms. Schakowsky. So Mr. Lujan would have been in serious
trouble had that been a fake.
Mr. Lujan. And, Madam Chair, I know my time is up. I
wouldn't be standing here today if I would have been wearing a
helmet like this with that tumble that I told you about. I went
into two boulders. I went headfirst in. I rolled it. I popped
my shoulder out. I probably would have been dead on the side of
that trail until someone found me or with some traumatic brain
injury.
Ms. Schakowsky. We are very happy that you aren't. I mean
dead, that is. Thank you.
Mr. Love. Mrs. Leavitt has had a similar crash. She is also
a serious mountain biker, so helmets make an impact.
Ms. Schakowsky. Thank you.
Ms. Dingell, you are next, 5 minutes.
Mrs. Dingell. Thank you, Madam Chair, for holding this
hearing, and thank you to all of the witnesses. I am from
Michigan, as you all know, and I am a car girl, so I want to
start with a few questions on automotive safety.
As you know, counterfeit airbags and their components pose
a severe danger to consumers just like we saw with the helmet.
I understand that while other major e-commerce platforms have
moved to ban the listing of airbags and their components
because these products are particularly even more prone than
the helmet to counterfeiting, eBay continues to allow the
listing of airbags and components. A recent search for airbag
and component listings on eBay generated hundreds of results
for airbags and various airbag components.
So, Ms. Leavitt, I want to ask you a few questions on this.
Why has eBay refused to adopt the industry norm to ban the
listing of airbags and safety restraint components?
Ms. Leavitt. Thank you for your question, Congresswoman. So
eBay has worked with the National Highway Traffic Safety
Administration as well as the automotive manufacturers on
several of our policies around airbags. So you are aware----
Mrs. Dingell. They are not happy.
Ms. Leavitt [continue]. There is a big recall.
Mrs. Dingell. Yes, very. It hurt people.
Ms. Leavitt. Yes. And so----
Mrs. Dingell. It killed people.
Ms. Leavitt. Correct. And that is very unfortunate. And we
worked very closely with NHTSA on the communications not only
with past purchasers of the airbag that had been recalled, but
also worked with them to remediate through sanctioning and
essentially--
Mrs. Dingell. OK, but you still haven't--I know that I only
have a short amount of time. How do you verify the authenticity
of airbag and airbags components, and what do you do to--what
are you doing now to keep people from buying bad parts that
could kill them?
Ms. Leavitt. Thank you. Yes, so we do ban airbag covers
because those can be used to circumvent, right. You could put
something in the airbag cover that could be an airbag,
essentially, so those are banned on the site. In terms of the
other airbags and parts that are allowed, they are only allowed
by a group of vetted sellers, and those sellers have to provide
proof or demonstrate that they have sourced those items
directly from the manufacturer.
Mrs. Dingell. So can you tell me how the auto industry is
working, you are working with them to make the public aware of
the safety risks posed by these counterfeit bags, and if you go
quickly because I want to do--
Ms. Leavitt. Oh, yes. So we work closely with A2C2 which I
am sure you are familiar with.
Mrs. Dingell. Yes, I am.
Ms. Leavitt. Yes. We are actually meeting with them in our
offices in San Jose, I believe, next week. And so, again, the
purpose of those meetings is to sit down, reassess our measures
doing----
Mrs. Dingell. This matters. We really are talking about
lives.
Ms. Leavitt. Yes, absolutely. And I suspect----
Mrs. Dingell. So I hope you will pay attention.
Ms. Leavitt [continue]. This will be a big topic of
conversation.
Mrs. Dingell. Thank you.
Now with the remainder of my time I want to focus on the
coronavirus. Anytime there is a danger or fear will almost be
certainly be someone offering a product designed to protect
against that fear. But this in turn becomes very dangerous when
the product doesn't work and, in fact, helps perpetuate the
problem.
So, Mr. Mehta and Ms. Leavitt, this represents a real
public health risk. How are Amazon and eBay addressing this
issue? I will start with Mr. Mehta.
Mr. Mehta. Thank you, Congresswoman, for the question. The
coronavirus situation is rapidly evolving, but from the moment
it started, we started to actively scan our site, proactively
looking for any seller who is trying to list a product, making
false claims, claiming that the product could cure their virus,
claiming that the product would save them in some fashion.
In addition, we look for bad actors who are trying to take
advantage of a crisis situation to try and price gouge
customers. We have no tolerance for false advertising claims or
price gouging in our store. We have removed a million products
that had false claims in them. We removed tens of thousands of
products that were listing products at gouging type of levels
from a pricing perspective, and we are continuing to monitor
our site. This is a very fast-evolving situation.
Mrs. Dingell. So let me ask you two questions before we go
to Ms. Leavitt. How quickly can you take it down, and then, for
instance, I tried to order bleach and I got a notice this week
my order had been canceled. I don't know why. It didn't give me
a reason. But when you think someone is gouging or it is not
there and a customer is trying to order, do you try to replace
their order? Do customers think they are getting something? So,
for instance, if they ordered it a week ago and you said it was
coming, how do you deal with customer expectations?
Mr. Mehta. Yes. Congresswoman, in terms of the question on
how quickly we can respond, we monitor every listing as they go
up and then we continue to monitor them. And so sometimes this
is happening before the listing ever gets up and sometimes
within minutes of it being in our store. If a customer ever did
purchase a product and was unhappy with that product whether it
was sold by Amazon or sold by a third party, every product is
covered by our A to Z guarantee. I am not sure what happened
with your bleach order.
Mrs. Dingell. Well, I don't care about that. What I am more
worried about is how do people know whether it really works?
And I think you have a lot of people ordering products that
they think are coming, and then I was not the only one that had
their order canceled in the last week, so I think people are
counting on you on some of these things as well.
Ms. Leavitt, I am already over my time so you are safe, but
I am going to send a letter. Thank you.
Ms. Schakowsky. Thank you. The gentlewoman yields back, and
I recognize Congresswoman Kelly for 5 minutes.
Ms. Kelly. Thank you, Madam Chair. Thank you for holding
this hearing today. As more consumers migrate from buying
products in stores to buying them online, new challenges have
emerged, as we talked about. One area that has been
particularly frustrating for me is the sale of firearms online.
While many platforms have said they do not allow the sale of
firearms or bump stocks, simple code words and private groups
are used to get around algorithms designed to detect illegal
activity. While one of the most egregious offenders is not
testifying today, I believe that companies need to do more than
lower illegal activity to an acceptable level, as one company
representative put it.
Ms. Leavitt, eBay is a third-party platform that connects
sellers with buyers. I know that in 1999, eBay decided to
prohibit sales of firearms and ammunition. What does eBay do
besides just using machine learning algorithms to crack down on
firearm sales and how do you ensure that bad actors are not
able to continue posting using code words?
Ms. Leavitt. Thank you for your question, Congresswoman. So
I think we approach the problem twofold, right. There is one
problem with the listing and the items itself, and then the
second problem is with these bad actors who are listing the
items. So with respect to the listings themselves, we do have a
prohibition on those items on our site. We have a number of
blocking and detection technologies in place. Those are coupled
with manual reviews. We actually have pretty substantial
physical teams who are scrubbing and reviewing the site looking
for those types of listings. As part of that process, we are
constantly going back and revising and refining those blocks,
because as you mentioned, these individuals are using different
terminology to try to circumvent our measures.
And with respect to bad actors, we have again in place an
algorithm in the background that is trying to search for
fraudulent and problematic behavior and then those accounts are
suspended from using our services. And then again, we have a
number of measures in place that are attempting to prevent
those sellers from re-registering with our site.
Ms. Kelly. Do you have any idea how often it happens,
like----
Ms. Leavitt. Probably more often than any of us would like.
I don't have the exact numbers, but we can get back to you with
that.
Ms. Kelly. OK, thank you.
Mr. Mehta, I know Amazon has a similar policy. What actions
has Amazon taken to crack down on direct gun sales on your
platform?
Mr. Mehta. Thank you, Congresswoman, for the question. We
do have a policy and like a number of our prohibited products
policies, we are constantly scanning every listing as it goes
up in our store to look for a potentially prohibited product
and stop that before it ever is available for sale. In
addition, we know that bad actors try to game our systems.
And so, we work both with regulators and different
organizations that help us identify new products that are
coming on the market that may be legal to sell in other places
but are prohibited on Amazon, to understand what those products
are and understand the different ways that folks may advertise
or communicate those products.
In addition, when we find bad actors that are violating our
policies, we block their accounts. We stop them from being able
to sell more products. We hold the funds in their account to
make this a crime that does not pay. And there are multiple
cases where we are working with law enforcement currently to go
after bad actors that have violated our prohibited products
policies.
Ms. Kelly. OK. Increasingly, we are seeing social media
companies play a social role in directing consumers directly to
companies. Last summer, British regulators found ``troubling
evidence'' of a thriving marketplace for fake online reviews on
eBay and Facebook. On eBay they found more than 100 listings
offering fake reviews in exchange for payment. On Facebook they
found over two dozen groups recruiting writers for fake or
incentivized reviews.
Consumers depend on online reviews before making new
purchases. One survey found that ninety-seven percent of
consumers depend on reviews for purchasing decisions. Ms.
Leavitt, can you tell me how eBay has responded to concerns
raised by British regulators?
Ms. Leavitt. Yes, thank you for your question.
Ms. Kelly. And as quickly as possible.
Ms. Leavitt. Yes, so we worked with the Competition Markets
Authority in the U.K. We immediately took down the listings
that they had identified and then we performed our own separate
searches to take down additional listings that were
problematic. We took appropriate action by suspending those
sellers and in addition to other sellers that we found. We went
back and revisited our policies to make sure that they were
clear that those types of services were prohibited from being
offered on our site, and again we have that formula of looking
at listings and sellers to try to prevent problems.
Ms. Kelly. And, Mr. Friedman, do you think companies like
eBay and Facebook have responded adequately?
Mr. Friedman. No. They definitely haven't. I mean you even
heard here in response to a tragedy associated with a
counterfeit airbag, it was referred to as unfortunate. It is
not unfortunate, it is tragic. It is unacceptable and so much
more needs to be done. That bike helmet, that is the one
percent. That is the 0.1 percent that shows up. People's lives
are at risk. We need to stop quoting numbers. We need to stop
using platitudes. We need to invest in the innovation at these
companies and in Congress to block the counterfeits, the
dangerous products, and the fake reviews.
Ms. Kelly. My time is up. Thank you, Madam Chair.
Ms. Schakowsky. The gentlewoman yields back, and now I
recognize Mr. Soto for 5 minutes.
Mr. Soto. Thank you so much, Madam Chair. What a
fascinating area to be able to work on. When I look at even in
my own household the evolution of how we purchase goods and
services is just going almost as fast as I could keep track of.
In our own household, my wife orders groceries online and they
arrive at our doorstep, because she works very hard as a
schoolteacher, a math/science coach to be exact, and doesn't
feel like going to the grocery store anymore, and I don't blame
her. Boxes show up on our doorstep.
We even have a doorbell that can video people to know who
it is and have an idea whether people are going to be trying to
be porch pirates and steal our boxes or not. And yet we also go
to the mall when my wife has an important purchase she wants to
make and wants to try on things or even get quick purchases. So
we have to obviously look at continuing regulations in this
area because it has become such a major part.
Seventy-nine percent of Americans have made online
purchases, a staggering number. Twenty-six have purchased
counterfeit products. In 2016, sixteen items were seized at the
border that posed a direct and obvious threat to human safety.
So we want to make sure that people have, and consumers have
various options and we can keep up with technology and a busy
lifestyle. But we also want to make sure that people are
getting the goods that they purchase.
Mr. Love and Mr. Friedman, some counterfeit products pose
a greater threat than others because they are used for things
tied to human health and safety. Should these products face
greater scrutiny and, if so, what should that scrutiny be?
Mr. Love. I would absolutely encourage greater scrutiny and
not just for the branded counterfeits but also for the
generics. The helmet that Mr. Lujan jumped on, actually it was
a copy of one of our products, but it didn't have our logo on
it. I mean it is--any cyclist would look at that and know that
is a Specialized helmet and that is why they sell. But our
logos were removed. And I had him jumping on that to make the
point, because I legally can't take those down.
And so, something that should be addressed, and this is a
matter for CPSC and engagement with all the parties at these
tables, is how to deal with the generic products that are
dangerous. Not just the current one here. This has our
Specialized logos on it. When this appears on e-commerce, I can
knock this down. But if I just peel off the sticker, I can sell
hundreds of them all day long and no one has any legal
recourse.
Mr. Soto. Thank you, Mr. Love.
And, Mr. Friedman?
Mr. Friedman. Absolutely, these products, anytime a product
is involved with health and safety, it requires double, triple,
or quadruple the effort because people trust those products.
They depend on those products to save their lives and to
protect them. Part of the challenge here is every single one of
these products should include in many cases, specific
certifications. I expect every platform to be screening those
products for those certifications.
I expect more resources and more efforts at the border to
block those products from being able to come in, and I expect
the platforms not just to certify companies up front, but to
regularly audit and follow back with them and when they find
illegal practices always report them to the authorities. Don't
just ban them.
Mr. Soto. Thank you. Thank you, Mr. Friedman.
Mr. Mehta and Ms. Leavitt, it would be great to understand
what you all think should be the rules of the road with regard
to fraudulent sellers and how we could use things like
artificial intelligence and block chain to be able to keep
integrity in the system of online sales.
Mr. Mehta. Thank you, Congressman, for the question. We
absolutely agree that artificial intelligence and machine
learning are critical to how we stop these bad actors. While
there is a number of criminals and bad actors that operate in a
kind of old school fashion, increasingly, we see bad actors
that are using sophisticated technology themselves to try and
game our systems to try and attack American customers.
And so we have to use machine learning to detect patterns,
detect behaviors not just from when someone registers, but on
an ongoing basis when they are selling in our stores. We think
things like block chain or solutions like our Transparency
program that uniquely identify every product that is
manufactured, are technology solutions that can scale
throughout the entire supply chain much more effectively and
proactively.
Mr. Soto. Ms. Leavitt?
Ms. Leavitt. I would just add to that again as I testified
earlier. I think another important component to that is the
cooperation, because our systems and technology can only detect
so much and I feel like a lot of what we have seen in our
experience is sometimes brands or consumer groups see
activities or behaviors that sellers are engaging in that we
don't have visibility to. And that may be off-platform or on
other platforms, and once that information is shared that helps
us to perform a more comprehensive investigation and improve
our own detection methodologies.
Mr. Soto. Thanks, and I yield back.
Ms. Schakowsky. The gentleman yields back. I am so happy to
yield to Congresswoman Eshoo, who is always so kind to me when
I waive on to her Health Subcommittee, and I am very happy to
yield to you right now for 5 minutes.
Ms. Eshoo. Thank you, Madam Chairwoman, for your kind
remarks and for your leadership here and at the Health
Subcommittee. That never stops with Congresswoman Schakowsky.
So I guess it is afternoon now. Good afternoon, everyone.
Welcome to the big hearing room of the Energy and Commerce
Committee, and a special welcome to Ms. Leavitt from eBay. I am
proud to have eBay in my congressional district and have
watched just that very, very tiny idea just grow and grow and
grow and there are a lot of people that have benefited from it.
So thank you for coming across the country to testify today.
I don't think everyone understands the difference between
eBay, Amazon, and other e-commerce platforms. I think to
understand a business you have to understand how it makes
money. So, Ms. Leavitt, would you just take a minute and tell
us how eBay makes money? What is your business model? And tell
us what business practices eBay avoids relative to your peers
so that people that are tuned in and listening to this
understand the differences.
Ms. Leavitt. Yes, thank you for your question. I think the
biggest difference is that eBay is a peer marketplace, so we
provide a platform for independent sellers and buyers to
connect to transact a sale, essentially. I think another big
difference that exists between us and our competitors is that
we don't compete against our sellers on the site. So eBay does
not sell. We don't otherwise touch or disturb you or retail the
products that are sold on our site, and so our success as a
business really does depend on the success of our individual
sellers.
Ms. Eshoo. How do you know they are safe?
Ms. Leavitt. I am sorry. What was that?
Ms. Eshoo. How do you know they are safe products?
Ms. Leavitt. So we have--the products? So we have----
Ms. Eshoo. Or the item, whatever you want to call it, but.
Ms. Leavitt. Yes. Yes, so we have a number of different
measures in place in addition to partnerships. So, we have
talked a lot today about the different technologies that we
have both to look at the listing and the seller level to ensure
that there are no violations going on there, but then we also
rely heavily on partnerships with third parties, including
government agencies such as the CPSC to keep us informed about
not only recalls, but also issues that can pose a pose a
serious safety risk to consumers. So we kind of couple those
two things together, in addition to efforts with law
enforcement.
Ms. Eshoo. Thank you.
To Mr. Mehta, good afternoon to you. Knowing who is selling
a product, and this has been taken up by different members
since I came in and was absorbing what the questions and the
answers were, but knowing who is selling a product is really
important for buyers, obviously. Now on a product page in the
Amazon app, a user has to scroll past the buy now button to see
who is selling the product. Now I think that this seems like
information I certainly would want to know and I think others
would like to know before, not after, or ever, but before they
are buying, especially if the seller isn't Amazon.
Now I had in my wonderful opening statement that I am going
to submit for the record, I use the example of helmets, and we
saw today how calamitous a faulty product can be. So it is one
thing to buy a knockoff designer handbag, but it is an entirely
different issue when, as we saw when helmets don't meet
required standards, fake iPhone chargers cause fires,
counterfeit toys, you know, can injure children.
So why is the seller information listed after the buy now
button? And, well, is Amazon willing to change that? Seems to
me you have a real headache on your hands.
Ms. Leavitt. Congresswoman, thank you for the question. We
also consider----
Ms. Eshoo. Do you really mean that? Thank you for the
question.
Mr. Mehta. No, I really do mean that because----
Ms. Eshoo. Good, OK.
Mr. Mehta [continue]. I completely agree that it is
completely unacceptable for unsafe products to be sold in our
stores, and it is the reason we invest so much in proactive
efforts to stop that. On every product----
Ms. Eshoo. But, you know, and Ms.--excuse me. Ms. Wallach
kind of took that apart. You are making an investment, but the
investment made on that side relative to safe products and
people knowing who is selling it versus the other dollars that
you are spending, that just didn't--I mean it is like this. So
I think you need to address that.
Mr. Mehta. Yes. So if I go to your question around the
product detail page, and every time a customer views a product
detail page, we try to make it very transparent. It is the
reason it is right next to that buy now button that we say
ships from----
Ms. Eshoo. Why don't you reverse it? Why do you make it
afterward? Why not just state it up front? Wouldn't that be
better for you as a business model and confidence in terms of
consumers? It seems to me that it is an easy thing to do unless
you don't want to for whatever reasons.
Mr. Mehta. We try to put it right next to that and we want
it to be easy for customers, you know, to be----
Ms. Eshoo. Why don't you say, ``Before you buy you should
know the following?''
Mr. Mehta. To be honest, I have not heard this feedback
from customers. I would be happy to follow up and look at
whether customers believe this would be helpful. We have had it
in that location, and in general customers are very clear. We
say it ships from and sold by, and so it is very clear which of
those are, and you click on that name and get more information
about that seller.
Ms. Eshoo. Well, my time has expired. But I have to tell
you if it was my business model, I would go with consumers
because they are your customers. Thank you very much, Madam
Chairwoman. I yield back.
Ms. Schakowsky. I thank the gentlewoman.
Normally, this would complete our questions, but I had
asked the ranking member, Ms. Rodgers, if I could ask a few
more. And if you want to ask any questions, Mr. Shimkus is
taking her place. But if you don't mind, I am going to go
through just a couple more questions.
In October, the Federal Trade Commission reached a
settlement with the skin care brand Sunday Riley for directing
employees to post false reviews and to down vote negative
reviews. But the Federal Trade Commission settled with the
company as I had mentioned in my opening statement, but it did
not include any money, compensation for consumers, or penalties
on the company.
So I wanted to ask you, Mr. Friedman, first, what kind of
message is that that the FTC is sending to a business who might
be thinking about falsifying reviews and ratings?
Mr. Friedman. It sends a terrible message, Madam
Chairwoman, very much in contrast to all the work that you have
done throughout your career to protect consumers. What this
says instead is business as usual is fine. This is exactly what
I am talking about in terms of how the incentives are not there
for the companies to do the right thing even when they are
clearly violating the law.
Obviously that FTC settlement completely missed an
opportunity for them to lead, for consumers to put----
Ms. Schakowsky. I think most normal people wouldn't
consider that a settlement at all. No money and no punishment.
Mr. Friedman. Yes.
Ms. Schakowsky. Remarkable.
Mr. Friedman. It is not even a slap on the wrist.
Ms. Schakowsky. Mr. Myers and Mr. Love, do you think that
this settlement establishes a sufficient deterrent in any way
to a seller thinking about engaging in fake reviews?
Mr. Myers. Yes, anytime that a customer is deceived it is
not a good situation. It is concerning. I think relative to how
we look at the issue of just counterfeit products overall, you
know, one counterfeit is too many and wherever that is
happening, it is something that should be addressed. Ideally,
jointly has been discussed today with marketplaces as well as
with government agencies.
Mr. Love. Exactly what he said.
And I do want to quickly follow up on something that
Congresswoman Eshoo brought up in the last discussion about
putting customer information on stores. Speaking as an
investigator, when you go to an Amazon.uk store or an eBay.uk
store that information is all there because it is required by
law. I love it when I find a bad actor on Amazon that they also
have a UK store because then I can research them. I am
completely incapable of doing that on .com today.
So that is an aspect for legislation in terms of disclosing
who you are actually doing business with, which it must be
mandated by law in the UK, it could be something that could be
looked into.
Ms. Schakowsky. I assure you, Ms. Eshoo and our
subcommittee will be interested in following up on that as
well.
Mr. Friedman, so what do you think is an appropriate
punishment for businesses that seek out fake reviews?
Mr. Friedman. From my----
Ms. Schakowsky. I am not really asking for a dollar figure,
but I am assuming you think there ought to be some compensation
to the consumers and also some sort of punishment?
Mr. Friedman. Yes. I mean A, they should be prosecuted to
the full extent of the law. They should certainly be charged
not only a penalty associated with the harm that they caused,
but an additional penalty maybe even relative to the size of
the company so that they actually feel it, that it means
something to truly deter the actions. Many of these companies
out here, we are talking hundreds of billions of market
capitalization in some cases. A few million, a few hundred
million here and there isn't going to make a difference to the
decisions they make every single day.
Ms. Schakowsky. Thank you. I wanted to clarify something as
well. I want to make sure that the ordinary consumers
understand what we mean. I was thinking back on the question
about de minimis. So I ordered something, I ordered a bike
online and it is six hundred and something dollars, you said.
So it could be sent with a lot of other bikes that have been
ordered, but it is sent to me as a way to get under the
threshold; is that right? I mean things, for example, that are
boxed that could be in a container are then sent individually
to get away from inspections. Is that how that works that you
can avoid inspections?
Ms. Wallach. Thank you for the question, Madam Chairwoman.
Yes, the combination of the de minimis being higher and the
lack of information and combined with the platform's contention
that they are not the seller, creates basically a perfect chain
of uninspected goods getting delivered in huge amounts to
individual consumers.
As a practical matter, and this is detailed in my written
testimony, there are several different ways you can game the
system if you pick and pack things in the fulfillment center
overseas into particular boxes addressed to a U.S. ultimate
consumer and the value of what goes into the boxes is less than
eight hundred dollars you are into de minimis.
A new scam that there was a recent ProPublica story about
is to have big containers, because those individual shipments
are typically done by air freight, which is expensive. But to
make it cheaper to go by ocean shipping now, companies have
designed a system where they basically have big containers full
of many counterfeit bikes shipped to Mexico or Canada. They are
landed there as goods in transit, so they are not entered into
Mexican or Canadian customs. They are picked and packed out of
the ocean container into the individual, then they are trucked
over the border to a U.S. Post Office or to an express
consignment, a FedEx or whatever, and sent to the U.S.
consumer, at which point they don't get inspected because they
are de minimis. It is a serious problem.
Ms. Schakowsky. Thank you. I wanted to just make sure
everybody understood what is going on.
Ms. Wallach. One individual, one thing to add, which is
perhaps the most alarming and with respect to the
administration's investing----
Ms. Schakowsky. You know what, I am going to have to skip
that because I am out of time.
Ms. Wallach. OK. Customs considers these mass shipments to
actually be individual shipments as the added thing, so Customs
can change the rule as well.
Ms. Schakowsky. Oh, OK. Thank you for that.
Mr. Shimkus. Madam Chairman?
Ms. Schakowsky. Yes. I have completed my questions and I
yield to Mr. Shimkus.
Mr. Shimkus. Thank you. I won't be long. This is not my
subcommittee. Members of Congress have to be extra generalist,
and you are getting lesson 101 on being an expert generalist.
So I am just going to finish and make sure that, you know, a
statement from our side would be that from my understanding we
have rights holders, online marketplace, and consumer advocates
at the panel. And I think we would argue that if you want a
better, quicker, faster solution to this problem, it is
probably best to be working together before we let the, you
know, the political legislative process try to solve this. And
I think from what I have been told of the opening statements
and the testimony that people understand the challenges and the
problems, and I would just encourage you to do that. With that
I yield back my time. Thank you, Madam Chairman.
Ms. Schakowsky. I thank the gentleman for helping us to
finish this hearing. Thank you so very much and for your
remarks.
OK, I now ask unanimous consent to insert into the record
letters--oh, I see. Here we go. And they are a letter from
PreClear; a statement from the International Precious Metal
Institute; a letter from The Toy Association; a letter from The
Internet Association; a letter from the National Association of
Attorneys General; a letter from the former Acting NHTSA
Administrator Heidi King, offered by Representative Burgess; a
letter from the National Association of Manufacturers.
Unanimous consent?
Mr. Shimkus. Without objection.
Ms. Schakowsky. Without objection, so ordered. And with
that the--oh yes. I need to remind our witnesses. And, first of
all, thank you for being here. But I wanted to remind members
that pursuant to committee rules, they have ten business days
to submit additional questions for the record to be answered by
the witnesses who have appeared. I ask each of the witnesses to
respond promptly to any question that you may receive. And now,
at this time, the subcommittee is adjourned.
[Whereupon, at 12:43 p.m., the subcommittee was adjourned.]
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