    [House Hearing, 117 Congress]
    [From the U.S. Government Publishing Office]

       THE SHOP SAFE ACT: STEMMING THE RISING TIDE OF UNSAFE COUNTERFEIT
                                PRODUCTS ONLINE

    =======================================================================

                                    HEARING

                                   BEFORE THE

        SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND THE INTERNET

                                     OF THE

                           COMMITTEE ON THE JUDICIARY

                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED SEVENTEETH CONGRESS

                                 FIRST SESSION

                                   __________

                             THURSDAY, MAY 27, 2021

                                   __________

                               Serial No. 117-25

                                   __________

             Printed for the use of the Committee on the Judiciary

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                   Available via: http://judiciary.house.gov

                                ______

                  U.S. GOVERNMENT PUBLISHING OFFICE
    45-396                 WASHINGTON : 2021

                           COMMITTEE ON THE JUDICIARY

                        JERROLD NADLER, New York, Chair
                    MADELEINE DEAN, Pennsylvania, Vice-Chair

    ZOE LOFGREN, California              JIM JORDAN, Ohio, Ranking Member
    SHEILA JACKSON LEE, Texas            STEVE CHABOT, Ohio
    STEVE COHEN, Tennessee               LOUIE GOHMERT, Texas
    HENRY C. ``HANK'' JOHNSON, Jr.,      DARRELL ISSA, California
        Georgia                          KEN BUCK, Colorado
    THEODORE E. DEUTCH, Florida          MATT GAETZ, Florida
    KAREN BASS, California               MIKE JOHNSON, Louisiana
    HAKEEM S. JEFFRIES, New York         ANDY BIGGS, Arizona
    DAVID N. CICILLINE, Rhode Island     TOM McCLINTOCK, California
    ERIC SWALWELL, California            W. GREG STEUBE, Florida
    TED LIEU, California                 TOM TIFFANY, Wisconsin
    JAMIE RASKIN, Maryland               THOMAS MASSIE, Kentucky
    PRAMILA JAYAPAL, Washington          CHIP ROY, Texas
    VAL BUTLER DEMINGS, Florida          DAN BISHOP, North Carolina
    J. LUIS CORREA, California           MICHELLE FISCHBACH, Minnesota
    MARY GAY SCANLON, Pennsylvania       VICTORIA SPARTZ, Indiana
    SYLVIA R. GARCIA, Texas              SCOTT FITZGERALD, Wisconsin
    JOE NEGUSE, Colorado                 CLIFF BENTZ, Oregon
    LUCY MCBATH, Georgia                 BURGESS OWENS, Utah
    GREG STANTON, Arizona
    VERONICA ESCOBAR, Texas
    MONDAIRE JONES, New York
    DEBORAH ROSS, North Carolina
    CORI BUSH, Missouri

                    PERRY APELBAUM, Majority Staff Director
                     CHRIS HIXON, Minority Staff Director
                                     ------

               SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND
                                  THE INTERNET

                 HENRY C. ``HANK'' JOHNSON, Jr., Georgia, Chair
                      MONDAIRE JONES, New York, Vice-Chair

    THEODORE E. DEUTCH, Florida          DARRELL ISSA, Ranking Member
    HAKEEM JEFFRIES, New York            STEVE CHABOT, Ohio
    TED LIEU, California                 LOUIS GOHMERT,
    GREG STANTON, Arizona                MATT GAETZ, Florida
    ZOE LOFGREN, California              MIKE JOHNSON, Louisiana
    STEVE COHEN, Tennessee               TOM TIFFANY, Wisconsin
    KAREN BASS, California               THOMAS MASSIE, Kentucky
    ERIC SWALWELL, California            DAN BISHOP, North Carolina
    MONDAIRE JONES, New York             MICHELLE FISCHBACH, Michigan
    DEBORAH ROSS, North Carolina         SCOTT FITZGERALD, Wisconsin
    JOE NEGUSE, Colorado                 CLIFF BENTZ, Oregon

                          JAMIE SIMPSON, Chief Counsel
                     BETSY FERGUSON, Minority Chief Counsel

                                C O N T E N T S

                                  ----------

                             Thursday, May 27, 2021

                                                                       Page

                               OPENING STATEMENTS

    The Honorable Henry C. ``Hank'' Johnson, Jr. a Representative in
      the Congress from the State of Georgia, Chairman, Subcommittee
      on Courts, Intellectual Property, and the Internet.............     1
    The Honorable Darrell Issa, a Representative in the Congress from
      the State of California, and Ranking Member, Subcommittee on
      Courts, Intellectual Property, and the Internet................     3
      Prepared Statement.............................................     6
    The Honorable Jerrold Nadler, a Representative in the Congress
      from the State of New York, Chairman, Committee on the
      Judiciary......................................................     9

                                   WITNESSES

    Ms. Kari Kammel, Assistant Director of Education and Outreach,
      Center for Anti-Counterfeiting and Product Protections,
      Michigan State University
      Oral Testimony.................................................    12
      Prepared Statement.............................................    14
    Ms. Meredith Simpson, Vice President, Federal Government
      Relations and External Relations, Personal Care Products
      Council
      Oral Testimony.................................................    29
      Prepared Statement.............................................    31
    Mr. Jonathan Berroya, Senior Vice President and General Counsel,
      Internet Association
      Oral Testimony.................................................    37
      Prepared Statement.............................................    40
    Ms. Natasha Reed, Partner, Co-Chair, Trademark, Copyright &
      Unfair Competition Practice, Foley Hoag, LLP
      Oral Testimony.................................................    49
      Prepared Statement.............................................    51

              LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

    A letter from Engine to Members of the Subcommittee on Courts,
      Intellectual Property, and the Internet for the record
      submitted by the Honorable Henry C. ``Hank'' Johnson, Jr., a
      Representative in the Congress from the State of Georgia,
      Chairman, Subcommittee on Courts, Intellectual Property, and
      the Internet...................................................    82
    A letter from Matt Schruers, President, Computer & Communications
      Industry Association for the record submitted by the Honorable
      Henry C. ``Hank'' Johnson, Jr., a Representative in the
      Congress from the State of Georgia, Chairman, Subcommittee on
      Courts, Intellectual Property, and the Internet................    85
    A statement from American Apparel & Footwear Association for the
      record submitted by the Honorable Henry C. ``Hank'' Johnson,
      Jr., a Representative in the Congress from the State of George,
      Chairman, Subcommittee on Courts, Intellectual Property, and
      the Internet...................................................    89
    A letter from Alliance for Safe Online Pharmacies, ASOP Global
      for the record submitted by the Honorable Henry C. ``Hank''
      Johnson Jr., a Representative in the Congress from the State of
      Georgia, Chairman, Subcommittee on Courts, Intellectual
      Property, and the Internet.....................................    92
    A letter from undersigned organizations representing U.S.
      property Intellectual Property rights holders for the record
      submitted by the Honorable Henry C. ``Hank'' Johnson, Jr., a
      Representative in the Congress from the State of Georgia,
      Chairman, Subcommittee on Courts, Intellectual Property, and
      the Internet...................................................    94
    A letter from Chris Netram, Vice President, Tax and Domestic
      Economic Policy, National Association of Manufacturers for the
      record submitted by the Honorable Henry C. ``Hank'' Johnson,
      Jr., a Representative in the Congress from the State of
      Georgia, Chairman, Subcommittee on Courts, Intellectual
      Property, and the Internet.....................................    96
    A statement from the National Fire Protection Association for the
      record submitted by the Honorable Henry C. ``Hank'' Johnson,
      Jr., a Representative in the Congress from the State of
      Georgia, Chairman, Subcommittee on Courts, Intellectual
      Property, and the Internet.....................................    98
    A letter from Christine Burdick-Bell, Executive Vice President,
      General Counsel & Corporate Secretary, Pharmavite LLC, for the
      record submitted by the Honorable Henry C. ``Hank'' Johnson,
      Jr., a Representative in the Congress from the State of
      Georgia, Chairman, Subcommittee on Courts, Intellectual
      Property, and the Internet.....................................    99
    A statement from Lezlee Westine, President and Chief Operating
      Officer, Personal Care Product Council, for the record
      submitted by the Honorable Henry C. ``Hank'' Johnson, Jr., a
      Representative in the Congress from the State of Georgia,
      Chairman, Subcommittee on Courts, Intellectual Property, and
      the Internet...................................................   101
    A statement from Steve Pasierb, President & Chief Operating
      Officer, The Toy Association for the record submitted by the
      Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in
      the Congress from the State of Georgia, Chairman, Subcommittee
      on Courts, Intellectual Property, and the Internet.............   102
    A statement from Jeffrey P. Hardy, Director-General,
      Transnational Alliance to Combat Illicit Trade for the record
      submitted by the Honorable Henry C. ``Hank'' Johnson, Jr., a
      Representative in the Congress from the State of Georgia,
      Chairman, Subcommittee on Courts, Intellectual Property, and
      the Internet...................................................   106

                                    APPENDIX

    Questions for the record to Ms. Kari Kammel Assistant Director of
      Education and Outreach, Center for Anti-Counterfeiting and
      Product Protections, Michigan State University, submitted by
      the Honorable Steve Chabot, a Representative in the Congress
      from the state of Ohio, Member, Subcommittee on Courts,
      Intellectual Property, and the Internet........................   108
    A response to questions for the record from Ms. Kari Kammel
      Assistant Director of Education and Outreach, Center for Anti-
      Counterfeiting and Product Protections, Michigan State
      University.....................................................   109

       THE SHOP SAFE ACT: STEMMING THE RISING TIDE OF UNSAFE COUNTERFEIT
                                PRODUCTS ONLINE

                                  ----------

                             Thursday, May 27, 2021

                         U.S. House of Representatives

        Subcommittee on Courts, Intellectual Property, and the Internet

                           Committee on the Judiciary

                                 Washington, DC

        The Committee met, pursuant to call, at 2:04 p.m., in Room
    2141, Rayburn House Office Building, Hon. Hank Johnson
    [chairman of the subcommittee] presiding.
        Members present: Representatives Nadler, Johnson of
    Georgia, Jones, Deutch, Lieu, Stanton, Bass, Ross, Issa,
    Chabot, Gohmert, Massie, Bishop, Fischbach, and Bentz.
        Staff present: John Doty, Senior Advisor; Moh Sharma,
    Director of Member Services and Outreach & Policy Advisor;
    Cierra Fontenot, Chief Clerk; John Williams, Parliamentarian;
    Merrick Nelson, Digital Director; Jamie Simpson, Chief Counsel
    for Courts & IP; Mary Beth Walker, Detailee for Courts & IP;
    Rosalind Jackson, Professional Staff Member for Courts & IP;
    John Lee, Minority USPTO Detailee; Andrea Woodard, Minority
    Professional Staff Member; and Kiley Bidelman, Minority Clerk.
        Mr. Johnson of Georgia. I now call to order the
    Subcommittee. Without objection, the chair is authorized to
    declare recesses of the Subcommittee at any time.
        Welcome to this afternoon's hearing on the SHOP SAFE Act,
    stemming the rising tide of unsafe counterfeit products online.
        Before we begin, I'd like to remind Members that we have
    established an email address and distribution list dedicated to
    circulating exhibits, motions, or other materials that Members
    might want to offer as part of our hearing today, and if you'd
    like to submit materials, please send them to the email address
    that has been previously distributed to your offices and we
    will circulate the materials to Members and staff as quickly as
    we can.
        I'd also ask all Members to mute your microphones when you
    are not speaking. This will help prevent feedback and other
    technical issues. You may unmute yourself anytime you seek
    recognition.
        I will now recognize myself for an opening statement. I'm
    pleased to convene today's hearing on the Stopping Harmful
    Offers on Platforms by Screening Against Fakes in E-Commerce
    Act of 2021, also known as the SHOP SAFE Act.
        It has been a pleasure to work with the full Committee
    Chairman Nadler, Subcommittee Ranking Member Issa, and
    Representative Cline in reintroducing this important
    legislation.
        Brand owners have been sounding the alarm about dangerous
    counterfeit products plaguing the internet for years and we are
    no longer in the era of fake watches and handbags being sold
    out of car trucks.
        As consumers have moved online, counterfeit--counterfeiters
    have embraced the internet also. Their tools are becoming more
    sophisticated and their targeted products becoming more wide
    ranging as they dupe unwitting consumers into purchasing fakes.
        Last Congress, this Subcommittee examined the issue of
    unsafe counterfeits closely, and in July of 2019 we held a
    hearing during which we heard about the dangers that
    counterfeits can and have caused.
        In that hearing, we were able to see, among other things,
    the devastating consequences that can result when counterfeit
    car products do not meet the safety standards of authentic
    products.
        We also heard how frustrated brand owners are with the
    challenges in enforcing their trademarks online. Endless
    counterfeit storefronts have turned brand protection into a
    game of whack-a-mole and repeat counterfeiters seem to
    continually reappear.
        Insufficient vetting of these third party sellers leaves
    brand owners with false or incomplete seller information, which
    means they have no avenue for recourse against the counterfeit
    sellers that hide behind this false information.
        Platforms' reactive measures are inefficient and their
    voluntary efforts are inconsistent and insufficient to address
    this growing consumer safety and brand protection problem.
        The SHOP SAFE Act is a legislative solution that builds on
    our July 2019 hearing and on the outreach we have continued
    since that time. In 2019, the need for congressional action was
    clear. This past year has further highlighted the importance of
    addressing this issue head on.
        Throughout the COVID-19 pandemic consumers turned to online
    shopping in increasing numbers and counterfeiters took full
    advantage.
        During the height of the pandemic, reports found online
    counterfeiters hawking knock off respiratory masks, gloves, and
    sanitizer. One report estimated that listings of illegitimate
    hygiene-related projects on online platforms had increased by
    more than 270 percent over the previous year. The platforms
    promote their voluntary efforts to combat counterfeiting.
        The purported goal of these programs is commendable, but I
    have concerns about the lack of transparency in these efforts.
    We do not know how universally they are applied. Because they
    are voluntary, there is no requirement that the programs apply
    evenly across all listings or to all brands, and many of the
    brand protection programs offered by the platforms come with
    terms of service a brand owner must accept before receiving the
    benefits of those programs.
        As the adage goes, the best defense is a good offense. It
    is clear that the fight against dangerous fakes in e-commerce
    requires proactive measures by the platforms. SHOP SAFE takes
    an important step in ensuring that what consumers see online is
    what they will get.
        The bill would create a universal standard for proactive
    screening measures to be undertaken by platforms to keep
    dangerous counterfeits off the platforms from the start,
    guaranteeing that they will never reach consumers.
        The legal framework in the SHOP SAFE Act is a balanced one.
    In exchange for undertaking the best practices set forth in the
    bill, platforms are immunized from liability for counterfeit
    products sold by third party sellers.
        The bill is expressly directed at those products that
    affect the health and safety of the consumers who buy them.
    Brand owners would continue to play a role in the process as
    well.
        I want to thank the witnesses for their participation today
    and I look forward to hearing their perspectives on the SHOP
    SAFE Act.
        Now it's my pleasure to recognize the Ranking Member of the
    Subcommittee, the gentleman from California, Mr. Issa, for his
    opening statement.
        Mr. Issa. Thank you, Mr. Chairman. You said it all and you
    said it extremely well. This hearing and this legislation is
    balanced. It's narrow. It's been an outreach for now several
    years, and I'm delighted to join in the effort to finalize it,
    get it to the Senate, and make it law.
        Today we'll hear from witnesses. Virtually anyone who's
    bought online becomes a witness. My own legislative staff
    includes people who have used makeup that made them break out
    only to find out it wasn't real.
        I have two Advils here. One is real. One is not. Which one
    do you take for a headache? Here is, and very expensive, it's
    called SK-II face treatment. This one is real.
        This one comes in the perfect box, looks identical, except
    this one is from Japan, made in Japan, and shipped from Japan.
    This one, perfectly knocked off or nearly perfectly, is shipped
    directly from China for a few dollars less on one of the major
    platforms.
        These are not the most dangerous. As Chairman said, over
    the last several years we have had to deal--or year--we have
    had to deal with fake N-95 masks, some of them bearing the 3M
    brand name, that came by the millions from plants mostly in
    China, but some from other parts of the world.
        A mass that does not work, in fact, very well could have
    taken lives from those 600,000 who died of COVID. The list goes
    on. This bill is narrow because it is only dealing with health
    and safety.
        In a perfect world, we would deal with every counterfeit,
    including, quite frankly, those Gucci handbags. But we're not.
    We're dealing with the ones for today where we want to see the
    industry rise to the standard that they should have.
        If I were to go to Walmart, walk in, and purchase a good
    from the shelf and it turned out to be counterfeit, there would
    be no question at all but that under the intellectual property
    that the rights holder has, they would be able to sue, plus, of
    course, the injured party who got the fraud.
        As soon as it's online, many companies say, we don't know
    and we can't. Many of these companies take into their vast
    warehouses the products, see the country of origin on it, in
    many cases even participate in the logistics of bringing it
    from a country that, in fact, may not even be the country of
    origin of the authentic good.
        So, today what we're going to do is we're going to hear
    from witnesses a little further on the current State of damage
    that these fakes can cause. We're going to hear from the rights
    holders whose names and brands are diminished every day by
    counterfeits that, of course, do not perform and hurt the
    reputation even if they do not hurt the health or safety of the
    individual.
        Mr. Chairman, probably the one that is most egregious might
    not even be one that I've brought today. Every day, there are
    real toys and fake toys. The real toys pass rigorous tests to
    make sure they won't burn or be swallowed by an infant.
        The fakes, of course, do not. Every day in America, some
    child playing with a fake toy does not get the protection and
    might very well lose an eye or their--or their life as a result
    of it.
        We, in Congress, need to do just what you're doing with
    your leadership and that is take steps to encourage and require
    that we all work together to narrow this kind of fake activity.
    It will not eliminate it, but it certainly will give the rights
    holders and the public an opportunity for the first time in
    years to at least curtail the massive growth.
        Mr. Chairman, I look forward to our witnesses, I look
    forward to moving the legislation, and I want to be maybe the
    second to say here today there's no more bipartisan piece of
    legislation, no more cooperative between our staffs and our
    Members legislation than this one, and I'm proud to be a co-
    sponsor, and candidly, just great that you've allowed me to
    participate.
        So, Mr. Chairman, with that, I ask that my entire statement
    be placed in the record, and I yield back.
        [The statement of Mr. Issa follows:]

                        MR. ISSA FOR THE OFFICIAL RECORD

    =======================================================================

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Johnson of Georgia. I thank the gentleman from
    California and his modesty must be recognized. He has been a
    long-time proponent of protection for intellectual property
    owners, and we appreciate his contribution to what we're doing
    today.
        Now, I'm pleased to recognize Chairman of the full
    Committee and the author of this legislation, the prime
    sponsor, the gentleman from New York, Mr. Nadler, for his
    opening statement.
        Mr. Nadler, you may begin.
        Chairman Nadler. Well, thank you, Mr. Chairman, and thank
    you for holding the hearing on this important bill. I was proud
    to reintroduce the bipartisan SHOP SAFE Act last week with you,
    Ranking Member Issa, and Mr. Cline, and I'm pleased to see that
    a bipartisan Senate companion was introduced yesterday by
    Senators Coons and Tillis.
        From toys to contact lenses to cosmetics, no industry is
    immune from counterfeiting. While attempting to appear
    legitimate to unsuspecting consumers, counterfeit products
    avoid the health and safety standards with which authentic
    products must comply.
        What results? Counterfeit airbags that deploy fractions of
    a second too late, counterfeit bike helmets that break in half
    upon impact, and counterfeit batteries that explode from poor
    construction.
        The internet and e-commerce have revolutionized the way
    products are marketed and sold. A decade ago, just over 20
    percent of Americans reported making purchases online. Today,
    nearly 80 percent of Americans have made purchases online.
        Americans spent more than $790 billion in e-commerce in
    2020, driven in part by the global COVID-19 pandemic. Online
    sales to U.S. consumers were up more than 30 percent in 2020
    over 2019.
        At the same time, the products Americans were purchasing
    online were exactly the type for which compliance with health
    and safety standards are most critical--masks, gloves, and
    cleaning supplies, for example, and counterfeiters were quick
    to move in, too. Reports of counterfeit personal protective
    equipment and other COVID-19 essentials sprung up almost
    immediately.
        Whether a purchase is made online or in a brick and mortar
    store, consumers must be able to be confident that what they
    see is what they will get.
        In a brick and mortar store, consumers can see firsthand
    what they're purchasing, and the liability structure for brick
    and mortar retailers incentivizes those companies to thoroughly
    vet their supply chains to ensure that the products they sell
    are authentic.
        In the online world, however, without the benefit of the
    look and feel opportunity before purchase, consumers are at the
    mercy of the accuracy of the online listing information and the
    scruples of the seller.
        Consumers may never become aware that they have purchased a
    counterfeit product, particularly if a sales listing included
    misleading images of the authentic product or fake reviews that
    made the listing appear more legitimate--unaware, that is, but
    still susceptible to the worst case scenario in which a product
    they believe to be legitimate actually poses a threat to their
    health or safety.
        Most marketplace platforms know that they have a
    counterfeiting problem. They tout anti-counterfeiting measures
    and profess their commitment to keeping counterfeits off their
    website.
        As reports of dangerous fakes become nearly constant, many
    platforms seem to have settled into a status quo that puts the
    brunt of the burden on policing counterfeiters on brand owners,
    and that leaves consumers unsafe.
        It is clear, now more than ever, that we cannot be merely
    reactive when it comes to combating counterfeits in online
    marketplaces. That is especially true when counterfeit products
    implicate the health and safety of the consumers who buy them.
        The current liability structure for online marketplace
    dates back more than a decade. It has not proven to be up to
    the task of preventing significant counterfeiting on e-commerce
    platforms.
        Similarly, the anti-counterfeiting measures imposed by the
    platforms themselves have not sufficiently addressed the
    problem, either.
        In general, a platform must take down a listing once it's
    informed by a brand owner of that specific listing's
    infringement. The platform is not legally obligated to take
    corrective action, even when there's general knowledge that,
    for example, the majority of a particular brand's products sold
    on the platform are counterfeit.
        This means that brand owners must consistently play a game
    of whack-a-mole as they constantly monitor marketplace
    platforms in search of counterfeit products.
        It is past time to revise this structure to address today's
    realities in electronic commerce. The SHOP SAFE Act takes a
    balanced approach to solving this problem.
        It imposes legal liability on e-commerce companies if
    counterfeit products affecting health and safety are sold on
    their platform, but it holds these companies immune if they
    adopt proactive best practices to keep dangerous counterfeits
    out of the hands of consumers.
        These best practices include greater vetting, transparency,
    screening, information sharing, and standardized enforcement
    measures.
        Under this framework, platforms would be incentivized to
    take proactive steps to prevent counterfeit sales and protect
    consumers while receiving a safe harbor if they take the steps
    set forth in the bill.
        We explored the issue of unsafe counterfeit products in a
    2019 hearing when I first introduced the SHOP SAFE Act in the
    116th Congress just over a year ago. The reintroduction of this
    legislation last week came after much work, including outreach
    to stakeholders impacted by the legislation and I appreciate
    their valuable input.
        I look forward to hearing from today's witnesses as we
    continue to consider this important consumer protection issue,
    and I hope that today's hearing will serve as a stepping stone
    on the path to moving this critical legislation forward.
        I yield back the balance of my time.
        [Pause.]
        Mr. Bishop. You're muted, Mr. Chairman.
        Chairman Nadler. Hank, you're muted.
        Mr. Johnson of Georgia. I'm sorry. I thank the gentleman
    from New York for his opening statement and I'll now introduce
    the witnesses.
        Ms. Kari Kammel is the Assistant Director for Education and
    Outreach at Michigan State University's Center for Anti-
    Counterfeiting and Product Protection, where she runs the
    Center's Executive Education Program and the United States'
    first professional certification program for anti-
    counterfeiting and brand protection.
        Ms. Kammel is also an Adjunct Professor at Michigan State
    University's College of Law, teaching courses on trademark
    counterfeiting, food counterfeits, and international
    intellectual property.
        Ms. Kammel received her BA from the University of Chicago,
    her MA from the American University in Cairo, and her JD from
    DePaul University College of Law.
        Welcome, Ms. Kammel.
        Meredith Simpson is Vice President of Federal Government
    affairs and external relations for the Personal Care Products
    Council, the PCPC.
        In her role, she leads PCPC's Federal Government relations
    effort and stakeholder outreach, and helps lead the cosmetic
    industry's public policy development. She joined PCPC in 2009
    from TechNet, where she served as director of political
    outreach and previously served on the--on then Representative
    Marsha Blackburn's professional staff.
        Ms. Simpson graduated from the University of Mississippi
    with a degree in political science and minors in business and
    journalism. Welcome, Ms. Simpson.
        Jonathan Berroya is the Senior Vice President and General
    Counsel for the Internet Association. There, he leads the
    Internet Association's legal, policy, and regulatory
    initiatives, including its anti-counterfeiting policies.
        Prior to joining the Internet Association, Mr. Berroya
    worked as legal director for Yahoo, senior director of global
    internet enforcement for BSA, the Software Alliance and, most
    recently, vice President of legal affairs for the Entertainment
    Software Association.
        Mr. Berroya holds a Bachelor of Arts in American government
    from Georgetown University and a JD from Boston College Law
    School. Welcome, Mr. Berroya.
        Natasha Reed is a Partner at Foley Hoag LLP and serves as
    the Co-Chair of the firm's trademark, copyright, and unfair
    competition practice. At the firm, Ms. Reed's practice covers
    all aspects of trademark and copyright law with a focus on
    global brand protection.
        Ms. Reed specializes in intellectual property enforcement
    and anti-counterfeiting and anti-piracy litigation, and is the
    Co-Editor of Foley Hoag's trademark and copyright law blog. She
    earned her BA from Amherst College and her JD from Pepperdine
    University.
        Welcome, Ms. Reed.
        Before we proceed with testimony, I hereby remind the
    witnesses that all of your written and oral statements made to
    the Subcommittee in connection with this hearing are subject to
    penalties of perjury pursuant to 18 USC 1001.
        Please note that your written statements will be entered
    into the record in its entirety. Accordingly, I ask that you
    summarize your testimony in five minutes. There is a timer in
    Zoom to help you stay within that time limit.
        Ms. Kammel, you may begin, and I hope I'm pronouncing your
    name correctly. Kammel, is it not?
        Ms. Kammel. It's Kammel, but that's okay. Thank you.
        Mr. Johnson of Georgia. All right. Thank you, and sorry.
        Ms. Kammel. No problem.

                        STATEMENT OF KARI KAMMEL

        Ms. Kammel. Chairman Johnson, Ranking Member Issa, and
    Members of the subcommittee, thank you for inviting me to speak
    on the problem of the sale of counterfeit goods by third party
    sellers on online marketplaces and the SHOP SAFE Act.
        My name is Kari Kammel. I'm the assistant director for
    education and outreach at the Center for Anti-Counterfeiting
    and Product Protection, or the A-CAPP Center at Michigan State
    University, and an adjunct professor of law at MSU College of
    Law.
        My remarks draw on our research on online trademark
    counterfeiting as well as my work with brand protection
    industry professionals. At the A-CAPP Center, I and my
    colleagues focus on research, education, and outreach around
    trademark counterfeiting and brand protection.
        We work both with intellectual property rights owners and
    governments as well as online marketplaces, social media
    platforms, and other industry experts across the field, giving
    us the unique ability to examine this significant problem
    holistically from a neutral academic perspective.
        Today, I'll give an overview of online counterfeit sales by
    third party sellers and the current State of secondary
    liability, and make two recommendations.
        One, I support the SHOP SAFE Act and I have some
    recommendations that could be considered as the bill moves
    forward.
        Two, I recommend continued collaboration, data sharing, and
    the funding and expansion of research on the trade in
    counterfeit goods and anti-counterfeiting responses.
        I would like to start by painting a picture of what is
    occurring in online marketplaces and the legal landscape for
    secondary liability for trademark counterfeiting.
        Counterfeit goods impact national economies as well as
    companies of all sizes. The sale of goods in online
    marketplaces, both authentic and counterfeit, has exploded in
    the past decade. The financial impact is staggering.
    Counterfeit goods have been estimated to have displaced,
    roughly, over $500 billion dollars' worth of global sales in
    2016, and the onset of COVID-19 has led to increased online
    shopping as well as a risk of purchasing counterfeits.
        Counterfeiters' success by using other companies on a
    product or package and rely on their reputation without
    authorization, and sell a fake and usually substandard or even
    dangerous good.
        They also take advantage of the opportunity online
    marketplaces provide and rely on brands' goodwill and products
    to reach often unwitting consumers who cannot examine the goods
    before purchase, which is dealt with by online marketplaces in
    varying ways.
        In order for a counterfeit to be sold to a consumer on an
    e-commerce platform, there must be a meeting in time and space
    between, one, the consumer, two, the counterfeiter's posting,
    and three, the e-commerce platform.
        While reactive removal of the postings after they're listed
    is still necessary, it also means that the posting has already
    reached consumers. The most effective way to disrupt this is to
    remove one of these factors from the situation proactively
    before they ever reach that meeting at the same time and place
    on the platform.
        This can be done through a variety of activities that could
    include the e-commerce platform protecting an e-commerce
    selling space to keep counterfeit postings out, to protecting
    and educating consumers, as well as many more.
        However, the current State of the law rests primarily on
    the 2010 2nd Circuit case of Tiffany v. eBay. This created the
    current legal standard, which is that an e-commerce platform
    only is required to react after a posting is already live, and
    they have specific knowledge from a brand as to which listing
    is infringing or will infringe in the future, known as the
    contemporary knowledge requirements.
        This is problematic because--as there is no legal
    obligation on an e-commerce platform to do anything to prevent
    counterfeits from being listed or to monitor their own
    platforms for counterfeit, even though they are in the best
    position to do so and have the most control over that space and
    time of where the consumer and counterfeiter meet on their
    platform.
        The SHOP SAFE Act helps to protect consumers and brands by
    requiring activities for e-commerce platforms to undertake to
    disrupt the meeting of consumers and counterfeiters on their
    platform and has some strengths and some opportunities to
    improve the language, which I note in my written testimony.
        Two of the top strengths of the Act are, one, requiring e-
    commerce platforms to implement at no cost to the registrant
    reasonable proactive technological measures for screening
    goods, and two, requiring the conspicuous display of each
    listing, the country of origin and manufacturer of the goods,
    and identity and location of the seller.
        Three of my suggestions for consideration are, one, to
    remove the limit on protection only to goods that implicate
    health and safety so as to not create a two-class system of
    counterfeit marks, and if it is not removed, to clarify the
    provision to include any good, counterfeit or genuine, that
    would implicate health and safety.
        Two, edit the language to include proactive measures
    including technology but not limited to only technological
    measures.
        Three, add a requirement for e-commerce platforms to have a
    clear easy-access mechanism for consumers to report suspected
    counterfeiting.
        I also recommend continued and expanded collaborations
    regarding data sharing between marketplaces, brands, the IPR
    Center and academia, and to expand research on the trade in
    counterfeit goods and anti-counterfeiting responses.
        Thank you for the opportunity to participate in this
    hearing for property rights holders and U.S. consumers and I
    look forward to answering your questions.
        [The statement of Ms. Kammel follows:]

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        Mr. Johnson of Georgia. Thank you, Ms. Kammel.
        Next we will hear from Ms. Simpson for five minutes. The
    floor is yours, Ms. Simpson.

                     STATEMENT OF MEREDITH SIMPSON

        Ms. Simpson. Chairman Nadler, Chairman Johnson, Ranking
    Member Issa, and distinguished Members of the Subcommittee,
    thank you for the opportunity to testify today on behalf of the
    Personal Care Products Council on our support of the SHOP SAFE
    Act and the subcommittee's efforts to address the critical and
    growing risk of online sales of counterfeit products, including
    cosmetics and personal care products.
        My name is Meredith Simpson. I'm Vice President of Federal
    Government affairs for the Personal Care Products Council, the
    leading national trade association representing global
    cosmetics and personal care products companies.
        E-commerce platforms create valuable opportunities for
    legitimate companies to grow, reach new consumers, and provide
    buyers with numerous choices and convenience.
        However, the current structure is vulnerable to
    exploitation and contributes significantly to a rise in illegal
    trade. Global trade in counterfeit and pirated goods is
    expected to reach $991 billion by next year.
        Counterfeit products are fraud. They damage businesses, are
    a drain on the economy and, most importantly, threaten
    consumers' health and safety. Our member companies are
    committed to product safety, quality, and innovation.
        The average consumer uses 12 personal care products each
    day and trusts the makers of those products to supply them and
    their families with safe and high quality products.
        The U.S. cosmetics industry invests nearly $3 billion each
    year in scientific research and development to evaluate and
    ensure the safety of their products before they reach the
    consumer.
        The cosmetics industry loses more money to counterfeit
    products each year than any other industry, with annual losses
    of approximately $5.4 billion to fraudulent sellers. One of our
    member companies reports that all of their 30 brands have been
    counterfeited, everything from nail polish to fragrance to
    shampoo to eye shadow.
        Counterfeit products pose health risks to consumers since
    they're produced illegally without adherence to federal or
    State safety and quality requirements.
        Counterfeit cosmetics can be tampered with, expired, and
    contain materials not of cosmetic grade, meaning consumers may
    be applying adulterated or impure ingredients directly to the
    skin, lips, eyes, and other sensitive areas including products
    indicated for children's use.
        In a January 2020 report, the U.S. Department of Homeland
    Security noted that counterfeit cosmetics can often contain
    elements such as arsenic, mercury, and aluminum, and have been
    found to be contaminated with substances from harmful bacteria
    to human waste.
        Consumers are at a risk of purchasing a dangerous
    counterfeit product because they can't tell the difference
    between an authentic and counterfeit product when shopping
    online, as sellers will often use brand owners' own product
    images and trademarks in online offers.
        The burden of enforcing against counterfeit goods on online
    platforms falls on the makers of the authentic products rather
    than the platforms.
        A single personal care product's company may spend as much
    as $15 million annually to fight counterfeits, including
    monitoring the platforms and social media sites, enforcing
    against counterfeits through notice and takedown processes,
    test buys and lab testing of purchases, and working and sharing
    information with competitors and federal, state, and local law
    enforcement, including training to better detect counterfeits.
    Many smaller companies lack the necessary resources to tackle
    online counterfeit.
        While we applaud some platforms' efforts to address
    counterfeits in recent years, many do not have any proactive
    measures in place, and the ones that do are often not
    transparent about their counterfeit prevention policies and
    processes and there's a lack of standardization.
        Brand owners continue to have significant difficulty
    accessing verified information on sellers that have been known
    counterfeiters from the platforms. For example, one of our
    member companies employs 10 external firms to manage their
    online platform notice and takedown processes.
        Another brand has seen notice and take downs more than
    double over the last year. Despite the personal care products
    industry's aggressive efforts to mitigate the harms of
    counterfeit goods through direct engagement with the platforms,
    too often our Members cannot keep up with the sheer number of
    counterfeit listings or hindered by a lack of cooperation from
    the platforms and by the difficulty in identifying sellers who
    can too easily hide and change their information.
        All the while, consumers are put at risk from these
    potentially dangerous products. PCPC strongly supports the SHOP
    SAFE Act's establishment of a framework to advance best
    practices for online platforms, incentivize platforms to
    address the sale of counterfeits on their channels, and help
    ensure that products sold online are safe, authentic, and
    comply with U.S. laws and regulations and, most importantly,
    protect unsuspecting consumers from unsafe products.
        We look forward to working with this Committee and other
    stakeholders to advance the SHOP SAFE Act. Thank you again for
    the opportunity to testify, and I look forward to your
    questions.
        [The statement of Ms. Simpson follows:]

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        Mr. Johnson of Georgia. Thank you, Ms. Simpson.
        And now we will proceed to Mr. Berroya.
        Mr. Berroya, you may begin.

                     STATEMENT OF JONATHAN BERROYA

        Mr. Berroya. Subcommittee Chairman Johnson, Ranking Member
    Issa, and Members of the Subcommittee, thank you for the
    opportunity to appear before you today to discuss the SHOP SAFE
    Act.
        My name is Jonathan Berroya and I'm the Senior Vice
    President and general counsel at Internet Association (IA). IA
    represents over 40 of the world's leading internet companies
    and is the only trade association that exclusively represents
    leading global internet companies on matters of public policy.
        We can all agree that protecting consumers from harmful
    counterfeit products, no matter how they enter the supply
    chain, is an important priority.
        While a small percentage of online sellers are bad actors
    who use the internet to market and sell counterfeit goods,
    internet companies including IA Members have been working with
    trademark owners and law enforcement officials to protect
    consumers from counterfeits for many years.
        Because professional counterfeiters are incredibly
    resourceful and adept at circumventing enforcement activities,
    it is also critical to examine and understand the unintended
    consequences of proposed solutions.
        Ultimately, the experiences of IA's Members demonstrate
    that online marketplaces are adequately incentivized to
    collaborate with brands to fight counterfeiting and that
    existing trademark doctrine strikes the right balance between
    protecting consumers and brand owners from counterfeit goods,
    while also allowing the online economy to thrive.
        While mass scale counterfeiting, obviously, did not begin
    with the internet, the complexity of the modern supply chain
    makes trademark enforcement incredibly challenging, and all
    stakeholders have important and complementary roles to play in
    the fight to protect consumers from harmful counterfeit goods.
        Trademark holders possess unique knowledge that is
    essential to determining whether an item is counterfeit or
    genuine.
        Retailers and online platforms must use that information to
    identify counterfeit goods and prevent them from entering or
    remaining in the stream of commerce, and law enforcement
    officers must have reliable leads from brands, retailers, and
    online platforms in order to investigate counterfeiting
    operations and bring manufacturers of illegal products to
    justice.
        If any of these stakeholders are unable to fulfill their
    roles, the consequences can be dire. Internet companies
    understand this fact and have every incentive to support IP
    enforcement activities because their businesses depend on
    consumer and brand trust in order to succeed.
        The law does not shield online services from liability when
    they know that a particular listing is infringing or a service
    is willfully blind to infringing listings. Trust is an even
    more compelling business reason for online services to
    collaborate with brands and protect their customers from
    counterfeit goods.
        To put it plainly, customers who were duped into purchasing
    fake goods through a particular service will vote with their
    dollars and shop elsewhere, and trademark owners will refrain
    from entering into partnerships with services that fail to take
    counterfeiting seriously.
        IA Members have demonstrated their commitment to protecting
    consumers from counterfeit goods in several ways, including by
    investing millions of dollars each year to stem the flow of
    counterfeits on their platforms and by going far beyond what
    the law requires to collaborate with brand owners and other
    stakeholders.
        IA member companies have taken the lead by implementing
    clear anti-counterfeiting policies and by proactively creating
    transparent and innovative counterfeit reporting prevention
    tools that allow third parties to identify counterfeit items
    listed for sale and remove them in a timely manner.
        IA Members have also developed close relationships with law
    enforcement agencies to combat counterfeit goods, like U.S.
    Customs and Border Protection and the National Intellectual
    Property Rights Center, as well as other federal and State
    enforcement agencies.
        Online services regularly report misconduct to law
    enforcement agencies and several have proactively created
    training programs to ensure that law enforcement officers
    understand how their services work and are aware of evolving
    online infringement and investigative techniques.
        Despite the fact that major online platforms already work
    closely and productively with brand owners and law enforcement
    officials, the SHOP SAFE Act would drastically change the roles
    and responsibilities of stakeholders.
        For example, the bill would replace trademark holders'
    actual expertise and judgment in differentiating between
    legitimate products and fakes with a vague reasonable awareness
    standard that platforms would have to apply in the absence of
    any specific knowledge about the underlying trademark goods.
        Rather than keep these judgment calls in the hands of the
    IP owners who have this expertise, SHOP SAFE would effectively
    push platforms to toss the baby with the bath water by removing
    millions of listings posted by sellers who are making
    permissible use of trademarks in an effort to eradicate a small
    minority of listings posted by bad actors who will not easily
    be deterred in their efforts to circumvent detection.
        The bill would also require platforms to verify the
    identity of every single third party seller, presumably using
    government identification that the platforms are not in a
    position to physically inspect or properly verify.
        They would also be required to investigate and periodically
    confirm the physical address of each seller or their U.S.-based
    registered agent to determine that the address exists and,
    presumably, its nexus to the seller.
        In conclusion, IA and its member companies share the
    subcommittee's goal of promoting consumer health and safety,
    which is why our Members have created a range of tools and
    programs to help brands police the misuse of their marks and
    work productively with law enforcement agency prosecuting
    intellectual property crimes.
        The internet industry understands that counterfeiting is a
    significant global problem, and we will continue to engage with
    this Subcommittee to confront existing and emerging challenges.
        Thank you.
        [The statement of Mr. Berroya follows:]

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        Mr. Johnson of Georgia. Thank you, Mr. Berroya.
        Ms. Reed, the time is now yours. You may begin.

                      STATEMENT OF NATASHA N. REED

        Ms. Reed. Thank you, Chairman Johnson, Ranking Member Issa,
    and Members of the Subcommittee. I appreciate the opportunity
    to testify before you today concerning the challenges that
    brand owners currently face under the current legal framework
    when holding third party sellers liable for counterfeiting
    products on e-commerce marketplaces and how the best practices
    set forth in the SHOP SAFE Act will actually help to protect
    against these issues.
        My name is Natasha Reed and I'm a partner at the law firm
    Foley Hoag. I have the privilege of representing both large and
    small businesses in a variety of fields in connection with
    trademark and copyright enforcement, brand protection, and
    anti-counterfeiting litigation.
        These companies invest a substantial amount of time and
    resources into building consumer confidence in the safety and
    quality of their products associated with their brands, but
    they encounter counterfeit versions of their products,
    sometimes on a daily basis, on various e-commerce marketplaces.
        Counterfeits thrive on e-commerce marketplaces in
    particular for a variety of reasons, including the relatively
    low barrier to establish an online storefront and the fact that
    these marketplaces give the sellers an air of legitimacy and
    because sellers can often operate anonymously under aliases,
    fake names, and even stolen identities.
        Brand owners will often utilize the reporting mechanisms
    offered by the marketplaces as an initial enforcement action to
    stop the counterfeiters by filing takedown complaints. It's not
    uncommon for these sellers to be taken down by the
    marketplaces, only to pop up again under a different storefront
    name on the same marketplace or transfer to a different
    marketplace.
        The counterfeiters will also often operate multiple
    storefront accounts at the same time on the same marketplace
    using aliases, different mailing addresses and different
    financial accounts so that one of its storefronts, when it's
    taken down for counterfeiting, it will already have another
    backup storefront ready to continue its counterfeit sales.
        This leads to a never ending game of whack-a-mole for brand
    owners who are forced to file takedown requests day after day,
    often against some of the same sellers. Some brand owners will
    decide to bring a court action against these counterfeit
    sellers, but these cases often present procedural issues.
        First, without an accurate name and address, brand owners
    are often forced to file John Doe actions against these
    sellers, and they will need to seek early and expedited
    discovery by issuing subpoenas to force the online marketplaces
    to produce information about the sellers' identities and their
    financial accounts.
        As noted earlier, counterfeiters often provide these
    marketplaces with false names and false contact information. So
    this leaves the brand owners with the burden of trying to
    verify their identities, and it makes it very difficult to
    freeze these counterfeiters' assets when the names don't match
    the financial accounts.
        The use of false addresses also makes it virtually
    impossible to--particularly for online counterfeiters to serve
    these defendants with process unless the court allows the brand
    owners to serve by email or by some alternative means.
        Establishing personal jurisdiction against the third party
    marketplace sellers can also present challenges. Courts often
    question whether these defendants use the online marketplaces
    to reach the forum in a meaningful way or purposeful way, since
    it is the online marketplaces and not the sellers themselves
    that actually control the interactivity of the websites.
        Even if favorable judgments are obtained in a lawsuit,
    including a permanent injunction and monetary damages,
    counterfeiters, especially those overseas, often ignore them,
    popping up on marketplaces again under different names and
    moving any assets that they may have had in the U.S. overseas,
    and this presents challenges because it's very difficult to
    enforce these judgments overseas, especially if the seller's
    identity has not been verified.
        I believe many of the best practices in the SHOP SAFE Act
    will help to address these challenges. However, the current
    scope of the Act is limited only to goods that would implicate
    health and safety.
        While, arguably, most counterfeit goods would implicate
    health and safety if they're not manufactured based on the
    brand owners' quality controls and policies, I believe
    determining whether certain products qualify may be difficult
    for marketplaces, and there will be gray areas that could
    expose the marketplaces to liability if they make the wrong
    determination.
        Also, having two separate best practice standards in place
    for the marketplaces for certain goods but not others will
    cause confusion, and so for that reason, I would recommend
    broadening the scope of the products covered under the SHOP
    SAFE Act to include all goods.
        Thank you.
        [The statement of Ms. Reed follows:]

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        Mr. Johnson of Georgia. Thank you, Ms. Reed, and we will
    now proceed under the five-minute Rule with questions. I will
    begin by recognizing myself for five minutes.
        Ms. Simpson, your written testimony includes some
    staggering figures about the money and resources that your
    member companies expend to combat counterfeits.
        You mentioned, for example, that a single personal care
    products company can spend up to $15 million a year on
    combating counterfeits. You also noted that one of your member
    companies has 10 outside firms managing its notice and takedown
    processes.
        Now, that's remarkable. Your testimony also references the
    critical role that small businesses play in the personal care
    products industry.
        Can you give us any additional details about how these
    smaller businesses manage the online counterfeiting problem and
    what particular hurdles they face?
        Ms. Simpson. Absolutely. I think counterfeit personal care
    products are fraud. They damage businesses, they're a drain on
    the economy and, most importantly, threaten consumers' health
    and safety.
        According to a report from the OECD, the cosmetics industry
    loses more money to counterfeiters than any other industry,
    $5.4 billion annually. Small businesses make up two-thirds of
    the personal care products sector.
        Small personal care companies often don't have the
    resources to employ brand protection efforts. The best
    practices outlined in this legislation would help prevent
    counterfeits from ever being offered for sale, and set in place
    a process for removal of counterfeit listings and infringing
    sellers, therefore, protecting small companies' brands and
    their consumers from potentially harmful counterfeits.
        Mr. Johnson of Georgia. Thank you. In what ways do you see
    the best practices that are outlined in the SHOP SAFE Act
    easing the burden for your Members and other brand owners?
        Ms. Simpson. We think paramount is the verification of
    these third party sellers. Also, the screening efforts in
    place. These proactive measures would go a long way.
        Also, if there are counterfeits listing having clear
    processes in place for take downs for repeat--to address repeat
    infringers and terminations of those accounts, we think would
    go a long way in preventing counterfeits from ever getting into
    the hands of consumers.
        Mr. Johnson of Georgia. Thank you.
        Ms. Reed, you have extensive experience on the front lines
    of brand enforcement and in litigating counterfeiting and
    trademark infringement cases. You've testified about the
    challenges your clients have experienced in trying to identify
    and pursue claims directly against third parties.
        Do you, and if so, how do you see the best practices in the
    SHOP SAFE Act helping to address those challenges?
        Ms. Reed. In a variety of ways. First of all, I think the
    verification requirement will go a long way. One of the issues
    that I addressed in my full testimony is that brand owners
    often have the burden of verifying these sellers after they
    have filed lawsuits--John Doe lawsuits--and then subpoenaed the
    online marketplaces for the actual names and addresses of these
    sellers, only to learn that some of these names are completely
    false and addresses are completely false, which leads to a very
    lengthy process of trying to actually locate these sellers.
        Oftentimes, we never do, and they get away with
    counterfeiting, and they know this. They operate almost as if
    they're untouchable and this is why the counterfeits are able
    to proliferate.
        In addition to verification, also requiring that the
    sellers have an agent for service of process in the United
    States or have a U.S. location or address will also go a long
    way.
        Again, as I mentioned, it's very difficult sometimes to
    serve these individuals with process. Obviously, if we don't
    have a real address we cannot serve them. So that will
    absolutely go a long, long way as well.
        Other provisions in the SHOP SAFE Act that will be helpful
    in litigating these cases include--or not just even litigating,
    just for protection on a daily basis include the proactive
    measures that brand owner of that marketplace will need to take
    to ensure that these counterfeits don't ever make their way on
    the marketplaces.
        The whack-a-mole game is also very expensive. Many small
    businesses cannot afford to have brand protection agents or
    multiple agents monitoring the websites and then filing
    numerous take downs day after day against some of the same
    sellers.
        So, I think that will also go a long way as well.
        Mr. Johnson of Georgia. All right, thank you. I'll yield
    the remainder of my time.
        We'll next call upon the gentleman from California, the
    Ranking Member of the subcommittee, Mr. Issa, for five minutes.
        Mr. Issa. Thank you, Mr. Chairman.
        I'm going to pick up where Chairman left off. Ms. Reed, I'm
    going to take advantage of your legal practice and go through a
    couple of quick questions.
        Earlier, I was showing real and fake medicines. Let me just
    go through a real example that most people haven't seen.
        So, this is a skateboard, and that is a registered
    trademark and actually a facsimile of a piece of artwork. This
    was sold at JC Penney some years ago. Filed a suit against JC
    Penney because, of course, it was trademark infringement and
    copyright.
        They had a choice of paying countless hundreds of thousands
    of dollars or quickly settling. They settled. If today we were
    to have this same product--let's say one is being sold at
    Walmart and the other is being sold at walmart.com, would it be
    fair to say that you could sue Walmart, but you couldn't sue
    walmart.com because they would say it's somebody else's
    product--we're simply passing it through?
        Ms. Reed. It is fair to say that. If you're buying the
    product or if the brand owner, obviously, has confirmed that
    it's counterfeit on a marketplace and the actual seller is not
    considered the marketplace but, instead, a third-party seller,
    it would be very difficult to hold that marketplace liable.
        Mr. Issa. So many of the marketplaces would say that they
    don't know the product. Isn't it true that some of the largest
    warehouses, larger than even Walmart's warehouses, are owned by
    Amazon?
        That, in fact, countless hundreds of millions of products
    go in and out of their warehouses every day for fulfillment,
    including probably more than half of all the beauty and health
    care products actually are fulfilled through Amazon and,
    currently, you would not be able to sue them without this
    legislation?
        Ms. Reed. That is accurate. Yes. Many of these
    marketplaces, Amazon in particular, operate and maintain large
    warehouses where they store these products for third-party
    sellers and move these products and ship them directly to the
    consumers.
        Mr. Issa. Mr. Berroya, you sort of get the less than
    envious opportunity to sort of pick up from there. We have
    worked with all of your Members. Almost all of them have had
    their general counsels on the phone with us and today you,
    basically, said the standard was vague.
        This reasonableness had ambiguity. Many of those changes
    that are in the current law, or the current bill are the result
    of that negotiation.
        So, I'm going to follow back on. If you don't like this
    bill as it is and if Ms. Reed is correct that, in fact, a brick
    and mortar facility that passes through a product is sueable
    while, currently, many of your Members pass through, have in
    their warehouses, logistically assist in the product coming in
    and out, know its country of origin, but currently are allowed
    to take a blind eye to these counterfeits, even if notified,
    what would you have us do?
        If you could be brief and just tell us what it is that
    caused us to negotiate, only to find ourselves with no support
    from the companies in a way in which we could do this without,
    essentially, you're saying, no, we can't do it?
        Mr. Berroya. Thank you for the question, Ranking Member
    Issa. I'll do my best to be brief but forgive me if I stretch
    it a little bit, because I want to be thorough as well.
        Mr. Issa. Well, but I will narrow the question. This
    question of, let's just say, Amazon--a product comes in and out
    of their warehouse and, currently, they get to treat it like
    they've never seen it when, in fact, they logistically manage
    it.
        If we limited the legislation only to a possession passing
    through, would that cure it for you? Or would you still object,
    based on the fact that you don't take ownership, perhaps?
        Mr. Berroya. I would have to refer a specific question
    about how one of my member companies would handle a particular
    scenario to one of my member companies, and I would be happy to
    ask them for--
        Mr. Issa. Okay. Let's do that. I've got one last question,
    which is for Ms. Kammel. For both of the first witnesses.
    Currently, we are limited to health and safety and, currently,
    we don't have an anti-trust exemption for companies working
    together.
        In your suggestions, would you say that those are two
    critical items, potentially lifting the health and safety,
    making it more uniform?
        The second one and probably the bigger one, an anti-trust
    exemption allowing companies to, essentially, share information
    so that they could be more proactive in fighting these
    counterfeits?
        Mr. Johnson of Georgia. The time has expired, so please be
    brief with your answers.
        Ms. Kammel. Thank you for the question. I do believe it is
    essential to harmonize the type of goods to include any good
    under that.
        I think without that it's going to make it more onerous,
    both for the brands and for the e-commerce platforms, but also
    create two goods under the Lanham Act and actually drive
    counterfeiting to different industries if there's more
    attention paid to one or the other.
        I'm not one to speak on issues of anti-trust. Thank you.
        Mr. Issa. Thank you, Mr. Chairman.
        Mr. Johnson of Georgia. Thank you. Next, we will turn to
    the gentleman from New York, Chairman of the full committee,
    Chairman Nadler, for five minutes.
        Chairman Nadler. Thank you, Mr. Chairman.
        Before I begin with my questions, I wanted to thank all the
    witnesses for their testimony today.
        Mr. Berroya, I understand that, generally speaking, many
    marketplace platforms have taken the position that SHOP SAFE is
    unnecessary because, in their view, their voluntary measures
    are sufficient to combat the counterfeiting problem on their
    websites.
        Some have gone even further and suggest that SHOP SAFE will
    undermine voluntary practices because platforms will be
    disincentivized to go beyond the practices set out in the bill.
        I find both positions hard to square with reality, that we
    continue to see and hear reports of dangerous counterfeit
    products being sold by third party sellers on those sites.
        In the current landscape, how can consumers and brand
    owners be assured that the platforms are applying their brand
    protection and counterfeiting policies uniformly?
        Mr. Berroya. Thank you for the question, Chairman Nadler.
        Our member companies are using industry best practices to
    work with brand holders, collaborate with them, and rely on
    those brand holders' expertise in order to identify infringing
    products.
        There are somewhere between 2 and 3 million trademarks
    actively in use in the United States alone, and one of the big
    challenges here is that the onus in this bill would shift from
    trademark owners who have expertise and can identify and
    differentiate between genuine and fake products to online
    platforms that have zero expertise in doing that type of work.
        Nevertheless, our companies are committed to doing work. In
    some cases, our companies have created training programs for
    law enforcement. They've worked to create different programs to
    flag infringing products, and our goal as an industry is to
    remove these products that are dangerous to consumers before
    consumers are harmed.
        We don't want to wait until after somebody is harmed and
    worry about liability. We want to work collaboratively with
    brands to remove these things before they are in the full
    stream of commerce or pull them out of the stream of commerce
    when they are identified as counterfeit.
        Chairman Nadler. Can you explain how setting a level
    playing field that requires minimum best practices would
    discourage platforms from doing more, as they currently claim
    they are?
        Mr. Berroya. I'm sorry, Chairman. Would you mind repeating
    that question? I didn't quite understand that.
        Chairman Nadler. Can you explain how setting a level
    playing field that requires minimum best practices would
    discourage platforms from doing more, as they currently claim
    they are?
        Mr. Berroya. Well, Chairman, the practices that are used
    differ from platform to platform. These platforms aren't sort
    of a single approach to providing services to sellers or
    buyers.
        So they have to be a little bit different in how they
    handle things, and they're working with brand owners. This is
    an evolutionary process. You've got counterfeiters who are
    constantly--it's not just whack-a-mole.
        This is cat and mouse, and I'm somebody who has spent
    nearly a decade enforcing IP online myself. It is incredibly
    challenging, and it requires collaboration and commitment on
    the part of all stakeholders, including law enforcement, to
    work with one another in trying to identify these bad actors
    who are in this space.
        They are a small minority, and while they are a small
    minority they're, nevertheless, very important to identify and
    deal with before consumers are feeling the harm it has cost.
        Chairman Nadler. Thank you. Thank you.
        Ms. Kammel, I have a related question for you. Based on
    your research and experience, do you share the concern that
    enacting the SHOP SAFE Act could be a step backward in
    combating the counterfeit problem in online marketplaces, and
    why or why not?
        Ms. Kammel. Thank you for the question.
        No, I believe that it prevents--presents actually a uniform
    approach to what some platforms may already be doing in various
    capacities. As has been mentioned, it's voluntary. So, it's not
    always transparent and it is not required by the law.
        So at any time, they could discontinue the practice if they
    wanted to. I do think the Act provides a baseline and guidance
    on some of these proactive as well as some reactive measures.
        I also believe the language is open ended to allow for an
    iterative process on behalf of the platforms to continue with
    their ongoing efforts or technological advances in their work.
        Thank you.
        Chairman Nadler. Thank you.
        Ms. Reed, you have testified about your significant
    experience in litigating counterfeiting cases. Can you talk
    about how your practice and your clients' experience with
    online counterfeits has changed over the course of your career?
        In particular, have there been any notable more recent
    changes that you think might be relevant for our consideration
    of the issue of counterfeits sold by third party sellers on
    marketplace platforms?
        Ms. Reed. Thank you for the question.
        So my practice has changed over the 15 years that I've been
    handling these types of cases, for obvious reasons, because
    counterfeits were offline previously and now they're online.
    Then they were on websites; now they're on marketplaces.
        I would say the most challenging part of the change relates
    to personal jurisdiction. When counterfeiters are selling on
    their own websites, it's a lot easier to establish jurisdiction
    because they actually control the websites, whereas on online
    marketplaces, courts will sometimes find that there is no
    personal jurisdiction because the sellers did not necessarily
    ship products to the forum, and it becomes very difficult to
    prove that they did without subpoenaing the marketplaces and it
    becomes a very expensive task to establish personal
    jurisdiction.
        So, I think that's the biggest difference from moving from,
    you know, brick and mortar to websites and now to marketplaces.
        Chairman Nadler. Thank you. My time has expired so I yield
    back.
        Mr. Chabot. Hello, can you hear me?
        Chairman Nadler. I can hear you.
        Mr. Chabot. Okay. Now--okay. Sorry about that. I lost my--
        Mr. Johnson of Georgia. I'm sorry. I was on mute. I do want
    to now extend this to you. The gentleman from Ohio for five
    minutes.
        Mr. Chabot. Thank you, Mr. Chairman. I thought you were
    just messing with me there.
        So, one of our most important responsibilities as elected
    representatives is to enact legislation that protects our
    constituents. As the Ranking Member of the Foreign Affairs
    Subcommittee on Asia and the Pacific, I've studied the immense
    threat that the PRC, China, poses to our country.
        Whether it's opioids, particularly fentanyl, coming in to
    our country and killing just an untold number of Americans
    efforts by the Chinese Communist Party to sabotage our
    democratic elections or steal our intellectual property or
    flood our online marketplaces with illegal and often dangerous
    counterfeit materials, as we're discussing here this afternoon,
    it seems that there's virtually nothing that they'll stop at
    that can harm our citizens and our businesses and our overall
    economy.
        While unscrupulous sellers continue to appear and reappear
    on our online marketplaces with counterfeit products that
    mostly originate in China, sites like Alibaba, one of the
    largest online marketplaces operating in China, seems to be
    able to keep those same counterfeit products off those sites.
        Now, American companies like Procter & Gamble, which
    happens to be headquartered in my district, as well as
    businesses all across the country, collectively, lose huge
    amounts of money, as we have already talked about today, each
    year due to the presence of counterfeited and pirated products.
        This not only has a negative impact on our economy but also
    introduces products into our communities which can often be
    hazardous and sometimes deadly to American consumers.
        Ms. Simpson, let me begin with you, if I can, and thank you
    and thank all of you for being with us today. I think your
    testimonies have been great, really.
        Given that we know that 80 to 90 percent of counterfeit
    products originate in China, could you discuss what we know
    about how closely--how aware the government is? I mean, there's
    no doubt in my mind nothing happens substantially in China
    without the government knowing about it, if not being involved
    in it.
        Could you could you discuss that element? What role do you
    believe the government plays in what we're discussing here on
    the counterfeit products?
        Ms. Simpson. I'm not sure what role, are you talking about
    the Chinese government plays.
        Mr. Chabot. I am, yes.
        Ms. Simpson. We know that according to the OECD report from
    2019 the majority of fake goods picked up in Customs checks
    originate in mainland China and Hong Kong.
        I would say, the SHOP SAFE Act addresses country of origin
    and platforms are required to display information on the
    seller, location of where the product is shipping from and
    manufactured to consumers, and additional the contact
    information.
        So we are pleased to see the legislation address that point
    and think it would be helpful in preventing counterfeit
    products from getting into the hands of consumers.
        Mr. Chabot. Thank you. Would any of the other witnesses
    like to take a shot at that? Just how much do you believe the
    government there is aware of what's going on here?
        [No response.]
        Mr. Chabot. I'll take by the silence that none of the
    witnesses necessarily either wants to comment or can't comment
    on that. So I'll move on.
        Ms. Reed, let me ask you this. What are the main obstacles
    that American businesses face in trying to enforce their
    trademarks and block counterfeits from overseas, particularly
    from China?
        Ms. Reed. Thank you for the question. There are many
    obstacles. I mean, the main obstacle, I would say, is because
    these counterfeits proliferate on online marketplaces and they
    can potentially be purchased by thousands, if not millions, of
    U.S. consumers and global consumers, brand owners really have a
    difficult time in educating the consumers about counterfeits.
        They have a difficult time in actually holding those third
    party sellers liable. If they're in China or other countries
    outside of the U.S., they often have assets that are not in the
    U.S. and it's difficult to actually hold them monetarily
    liable, and often that's really the only way to stop them is to
    take their money away. When you can't do that, it becomes
    extremely difficult to disincentivize them to just stop
    counterfeiting.
        Mr. Chabot. Thank you.
        Mr. Chairman, my time is expired. I'll yield back.
        Mr. Johnson of Georgia. Thank you, sir. I will next turn to
    the gentleman from California, Mr. Ted Lieu, for five minutes.
    You are recognized, Mr. Lieu.
        Mr. Lieu. Thank you, Chairman Johnson and Ranking Member
    Issa, for holding this important hearing.
        A question for Ms. Simpson. I'm curious, for personal care
    products and for your member companies, on average, how long
    does it take you to figure out that a product is being
    counterfeited?
        Ms. Simpson. That's a great question. I think our member
    companies work very closely with the platforms to--and are
    constantly monitoring social media sites, monitoring the
    platforms and working to identify what could be potential
    counterfeits, and work directly with them on the notice and
    takedown process, which I mentioned earlier, which can vary
    from platform to platform.
        So, as soon as they see potential infringing content, they
    will file that notice and takedown with the individual platform
    which the various requirements could vary from platform to
    platform.
        Then it will go get turned over to a brand protection team
    there and then it determines whether or not they remove the
    infringing listing. So that's the general process.
        Mr. Lieu. In your experience, when they do this notice and
    takedown on their online platforms, are they generally
    responsive? Are we talking about a day? Are we talking about
    five weeks? So what are we talking about here?
        Ms. Simpson. That's a great question. Sometimes it's
    immediate, but I've heard from our member companies it could
    even take several months and even involve a back and forth with
    the sellers or with the platforms.
        The number of notice and take downs really only increasing
    from--one of our member companies from 2019 to 2020 saw over a
    211 percent increase in their notice and take downs, over
    110,000 of those in the U.S. alone, and a third of those from
    social media sites.
        Mr. Lieu. Great. Thank you.
        Mr. Berroya, I have a question for you. So, can you tell us
    what is it that your online platforms do to verify a seller
    before they can start selling?
        Mr. Berroya. Thank you for the question, Congressman Lieu.
        It really depends from platform to platform. All platforms
    do some level because otherwise you wouldn't be able to
    register as a seller.
        Mr. Lieu. Tell me about the platform that does the least.
    What do they do?
        Mr. Berroya. I couldn't tell you what platform does the
    least.
        Mr. Lieu. If you could provide that information to the
    committee, that would be great. I'd be interested in knowing
    what is the minimum needed for a seller to just start selling
    stuff to the American people on one of the internet platforms.
        Mr. Berroya. We'll do our best to pull that information
    together for you, Congressman Lieu. I guess on that point,
    though, if you would permit, I think one of the big challenges
    with this bill is the verification aspect of it.
        We're talking about professional counterfeiters, and the
    idea somehow is that online platforms will have an ability to
    verify credentials that they never touch and handle to confirm
    the identities and physical locations of individuals who are
    selling goods virtually.
        These are counterfeiters. They have ability to get access
    to counterfeit identification, and without being able to look
    at a hologram on an ID or even having expertise in the
    verification of an ID, it is difficult for me personally to
    understand how that process is going to result in the value
    proposition of this bill, which is an important one, which is
    protecting consumers before they are harmed by these
    problematic products.
        Mr. Lieu. So let me sort of try--I'm just trying to
    understand the issue. I'd like to follow up on what Ranking
    Member Issa said.
        Let's say Walmart sells a counterfeit item. My
    understanding is that Walmart can get sued. If walmart.com
    sells the exact same counterfeit item, they cannot get sued. Am
    I understanding that correctly?
        Mr. Berroya. That is my understanding as well.
        Mr. Lieu. Okay. Do you see a problem with that?
        Mr. Berroya. That Walmart and walmart.com can be sued? I'm
    sorry, I didn't understand the question.
        Mr. Lieu. Yeah, because isn't really the only difference
    that Walmart--maybe they have an additional store clerk that
    might place the item on the shelf and maybe someone in
    inventory that takes the item out of a box and gives it to that
    store clerk.
        It's not clear to me why Walmart brick and mortar has any
    more knowledge of this counterfeit item than walmart.com would.
        Mr. Berroya. Right. I think as compared to the platforms
    that I represent, the difference could be that the platform
    itself never has physical possession of the product. They can't
    independently verify nor do they have specific knowledge about
    the characteristics of the underlying IP.
        Again, there's 2 to 3 million trademarks in use in the
    United States alone. That's just U.S. trademarks. There is no
    way any single platform would be able to have the requisite
    knowledge.
        In some cases, it comes down to the quality of thread used
    for stitching that is the difference between the types of
    products that Ranking Member Issa was demonstrating at the
    beginning of his opening statement that are legitimate versus
    the ones that are fake, and there is no specialized knowledge
    on the part of these platforms.
        That specialized knowledge resides with the trademark
    holders, which is why it's so important that online platforms
    collaborate with them to understand how to identify these
    products and take them out of the stream of commerce before
    anyone is harmed.
        Mr. Lieu. Thank you. My time is up and I yield back.
        Mr. Johnson of Georgia. Thank you. If the gentleman from
    Texas, Mr. Gohmert, chooses to invoke his video, he will be
    recognized for five minutes.
        The gentleman from Texas, my friend, Judge Gohmert.
        Mr. Gohmert. Okay. Thank you very much, and I appreciate
    everybody's input.
        On a trip some years back that some Members of Congress
    made to China, our group met with a top Chinese government
    bureaucrat that assured us that the Chinese government took
    violations of patent, copyright, and trademark very seriously.
        A couple of us met privately with another bureaucrat, who
    was very nice, and he said, yeah, they could probably do more.
    That's an understatement, of course.
        They had over 500 arrests of violations of patent,
    copyright, and trademark and they had seized so much illegal
    material, and when asked, what did you do with all those
    illegal products, said, well, he believed that it's against
    Chinese law to just dispose of things that had value, so they
    were probably sold.
        We're not getting a lot of help out of the Chinese
    government. They're taking us to the cleaners so many different
    ways.
        To your knowledge, any--and this is to any of our
    witnesses--what is the Biden Administration doing to enforce
    our current patent, trademark, and copyright laws with China?
        [No response.]
        Mr. Gohmert. Wow.
        Mr. Johnson of Georgia. Was that directed at any particular
    witness, Judge Gohmert?
        Mr. Gohmert. No, just anybody that might have had an
    answer. If you know what's being done and, apparently, as we
    used to say picking juries, I take it from your silence you
    don't know of anything.
        So, well, and one of the things that we have dealt with in
    the overall Judiciary Committee and in prior sessions, it's
    been an important bicameral and bipartisan issue trying to
    reform our criminal laws. We, supposedly, have over 5,000, and
    nobody really knows--they hadn't been put together. They're not
    all in 18 USC.
        So, I get a little reluctant to pass laws we may not need
    if we enforced existing law. So, if you're aware of any
    websites that are truly successful in keeping counterfeit
    products off their websites, then is that something that we
    could use existing law to require more thoroughly?
        Are there any solutions besides new legislation? Again,
    that's to anyone on the panel witnesses.
        [No response.]
        Mr. Gohmert. Well--
        Mr. Berroya. Representative Gohmert, this is John Berroya.
    Let me take a stab at that one.
        So, best practices in this space are constantly evolving,
    and I think one of the things that is helpful for the
    Subcommittee to understand is exactly that. My member companies
    are on--day after day, month after month, year after year
    trying to improve the types of solutions and tools that they
    make available to brand owners to remove access to infringing
    products.
        I don't know that anybody's doing it perfectly and I can't
    remember which one of the Members who gave an opening
    statement, but acknowledged that it's impossible to aim for
    perfect, essentially, because that's a boiling the ocean kind
    of approach.
        I think one of the things, to your point about concerns
    with the international source of counterfeiting, however, is
    the Department of Justice has a lot of very strong programs
    that are used to identify infringement, work with foreign
    governments, and then bring the manufacturers of infringing
    products to justice, including the intellectual property law
    enforcement coordinators, the computer crime and intellectual
    property section within the Department of Justice, and within
    U.S. Customs and Border Patrol you've got the national IPR
    Center.
        I think any work that this Subcommittee or Congress
    generally could do to increase resources to those and other
    entities within the Federal Government that are tasked with
    identifying and prosecuting trademark crime and IP crime,
    generally, would be things that every member of this panel
    would support.
        I don't mean to speak for others, but, certainly, our
    industry would 100 percent support that.
        Mr. Gohmert. I see my time is expired.
        Mr. Chairman, thank you very much.
        Mr. Johnson of Georgia. Thank you, Judge Gohmert.
        It's now my pleasure to recognize the distinguished
    gentleman from New York and the Co-Chair of the Subcommittee on
    Courts, Intellectual Property, and the Internet, Mr. Mondaire
    Jones for five minutes.
        Mr. Jones. Thank you so much for your leadership, Mr.
    Chairman, and I'm grateful for the opportunity to participate
    in what is a bipartisan hearing on protecting the health and
    safety of our constituents from counterfeit products sold
    online.
        I thank our witnesses for their testimony today, and I
    especially thank Chairman Nadler and Chairman Johnson, of
    course, for reintroducing the SHOP SAFE Act this Congress.
        As the COVID-19 pandemic has illustrated, millions of us
    turn to online retailers for products that affect our health
    and safety, from masks to medications. When we shop online for
    these necessities, the stakes are as high as it gets.
        The difference between real and counterfeit medicine, for
    example, can be the difference between life and death. Everyone
    should be able to shop online for what they need to stay
    healthy in confidence that they are getting what they have paid
    for.
        So, I'm glad to see this bill make that our top priority. I
    have a question for all of the witnesses. In your written
    testimony, each of you has suggested that the bill's definition
    of goods that implicate health and safety may be too vague.
        If the Committee wants to focus on health and safety, how
    would you suggest defining that phrase? What kinds of goods
    should the bill reach?
        Ms. Simpson, let's start with you.
        Ms. Simpson. Sure. From our perspective, all counterfeits
    are fraud. They all count--cause harm and have potential to be
    dangerous. Efforts to distinguish between those that could
    cause health and safety risks and those that may not could be
    confusing for consumers and cause potential impediments to
    effective implementation.
        So, we want to see legislation here that really does
    address this issue of counterfeits in works and practice, and
    we look forward to continuing to work with the Committee on
    that.
        Mr. Jones. Okay. Mr. Berroya?
        Mr. Berroya. Thank you for the question, Representative
    Jones.
        I'll be honest, I don't envy the committee. This is
    difficult work. It is very difficult to tightly define some
    things that it covers, just the types of products that you want
    to cover for all of the reasons that other panelists
    acknowledged.
        Health and safety can touch almost any product, and where
    the edges of that are very blurry lines. We'd be happy to
    continue our engagement with the Subcommittee and with the
    sponsors of the bill, as discussions move forward, to try and
    hem in or cordon off the specific types of products that you're
    most concerned about.
        Mr. Jones. I'm hoping someone will be more specific.
        Ms. Kammel, would you please give it a try?
        Ms. Kammel. Thanks for the question.
        So, from my perspective, I think it should cover all types
    of counterfeit marks and not be limited to it. If it is limited
    to health and safety that it should be health and safety of any
    good, genuine or counterfeit.
        So, as we know from a lot of industries or even product
    lines that might not on their face look like they implicate
    health and safety, we hear lots of stories from brand owners
    about what happens when they actually purchase a counterfeit of
    a product that, upon first glance, we might think implicates
    health and safety.
        Lots of testing has been done by brand owners, everything
    from toxicity to safety testing on the counterfeits and it
    shows that a lot of these products can actually harm the
    consumer.
        So, to differentiate, it should include--if that language
    is going to stay in, from my perspective, that it would include
    health and safety concerns for either genuine or counterfeit
    products.
        Thank you.
        Mr. Jones. Thank you.
        Ms. Reed?
        Ms. Reed. Yes, I agree with Ms. Kammel. I do see
    improvement as it relates to a limitation on products that
    implicate health and safety, particularly because it forces the
    marketplaces to make that determination, and for all intents
    and purposes, it would hold them liable if they get it wrong.
        I believe virtually all counterfeits implicate health and
    safety because they're not being made under the same quality
    controls as the brand owners' quality controls. Counterfeiters
    are just not going to do that. They're not going to test
    products.
        So, for an example, an apparel company may test its
    garments to ensure that the materials used aren't harmful.
    Counterfeiters won't do that, and a marketplace would have to
    make the determination about whether apparel would be the type
    of product that could be harmful.
        So I see that as a gray area, and I would hope that there
    is a consideration to expanding the meaning to all products.
        Mr. Jones. Thank you very much.
        Mr. Chairman, I yield back.
        Mr. Johnson of Georgia. Thank you.
        We next turn to the gentleman from Kentucky, Mr. Massie,
    and also the winner of today's most scenic backdrop. We
    recognize you for five minutes.
        Mr. Massie. Thank you, Chairman Johnson. That's my farm
    back there.
        There are things to like about this bill that seem kind of
    common sense. Maybe a third party seller should have to list an
    address. I like the fact that the country of origin label for
    things would be listed.
        I think this bill may have problems that the other bills in
    this same category have, which the category is bills that try
    to solve crimes before they happen or bills that assume that
    everybody who's doing business is doing it unscrupulously until
    they can prove that they are scrupulous.
        Mr. Berroya, I want to address you with most of my
    questions but, generally, I want to cover some issues or talk
    about some issues that I'm concerned about in this bill.
        One is will this bill solve the problem that we're trying
    to solve? I mean, any legislation that should be the first
    question, does it solve the problem.
        I would think that providing a fake government ID or a fake
    address would be the easiest thing a counterfeiter has ever
    done. That's probably a warm-up exercise for most
    counterfeiters who are trying to design printed circuit boards
    or fabrics and have them manufactured.
        So, I'm not sure that putting that onus on the platforms is
    going to solve the problem. The other thing is will this cause
    other problems? Is the scope too broad? Do we understand how
    broad the scope is?
        For instance, if somebody's selling a device that has a
    Bluetooth symbol on it and they haven't submitted it to the
    Bluetooth special interest group for certification, are they a
    counterfeiter?
        Because that would probably make, you know, 90 percent of
    Bluetooth products out there counterfeits right now. So that's
    how broad is this? What doesn't touch health or safety?
        Is everything that's got an Underwriters Laboratory symbol
    affixed to it, is that health and safety? Are the tractor parts
    that I'm going to buy online to work on this farm, are those
    covered under it?
        That gets me to another thing. Why is there even a small
    business exemption in here? It's at $500,000. If you were
    making 10 percent profit as a platform, you would make $50,000
    a year. You would have one--you wouldn't even be able to pay
    for one employee and have benefits and make the minimum wage
    for your one single employee.
        Furthermore, the small business exemption has a problem in
    that it says it goes away if you've been served notice 10
    times.
        Well, if you've been served notice 10 times, as I
    understand it, you're already covered under the existing law.
    You could already be liable for selling counterfeit goods.
        So anyways, I just wonder is this bill going to be applied
    equally? Do we understand how broadly it's going to be applied?
        Why don't we have a real small business exemption that
    could cover a small profitable business instead of a small
    hobby exemption, which is what this is, and it's not even
    really an exemption?
        So, I just want to lay those thoughts out there and ask
    you, Mr. Berroya, if you could speak to any of them.
        Mr. Berroya. Sure. So there was a lot there, and I don't
    disagree with any of your assessments, Representative Massie.
        In terms of will this bill solve the problem, the problem
    of counterfeit goods that are injuring and harming consumers, I
    don't believe that it will.
        It is very broad. It is massively broad in a variety of
    different ways, including the definition of electronic commerce
    platforms themselves. That definition is so broad that it can
    include email service providers, and I don't know how email
    service providers would go about doing some of the best
    practices that are identified in the list.
        Furthermore, I can't help but agree with the point that you
    made that the verification process is something that I think
    sophisticated counterfeiters are going to easily overcome and
    that will not stop them from putting harmful products out
    there.
        We'll solve this problem and we'll--it's an iterative
    process. It requires a lot of collaboration is anything that
    puts more resources in the hands of law enforcement, anything
    that encourages further collaboration, and there's a lot of
    collaboration going on already.
        Further collaboration between online platforms, traditional
    retailers, and brands, because it is the brands who understand
    what is and is not infringing. They have specific knowledge.
        They can identify and they can let both retailers and
    online platforms know how to identify these products. They can
    share URLs and say this is infringing.
        They can say, this is the text of a template that it
    appears this individual is using on five different websites--
    can we use this to kind of initiate a takedown process or work
    with you to identify these bad actors?
        So, all those things need to happen. They are happening.
    They need to continue to happen.
        Mr. Massie. Thank you. My time has expired. I yield back,
    Mr. Chairman.
        Mr. Johnson of Georgia. Thank you, sir.
        Next, we will turn to be distinguished gentlewoman from the
    great State of North Carolina, Congresswoman Ross, for five
    minutes.
        Ms. Ross. Thank you, Chairman Johnson, and it's great to
    see you twice, virtually, in a day. We have been very active on
    the Judiciary Committee today. Thank you very much to the
    witnesses for testifying.
        Like my colleagues, I'm deeply concerned about the
    proliferation of counterfeit goods.
        The perpetrators of the counterfeiting crime really commit
    two crimes. They steal from innovators and then they endanger
    consumers, and so I see this is a two-pronged problem.
        In my home State of North Carolina, authorities have seized
    counterfeit goods ranging from clothing to medicine and even to
    air bags. Counterfeiting is not a victimless crime.
        Unknowing consumers put themselves and their families at
    significant risk and our economy suffers when intellectual
    property is stolen. Legitimate businesses lose sales and
    governments lose tax revenue.
        I represent the Research Triangle area of North Carolina
    where a number of pharmaceuticals are tested and made and where
    we have personal care products. We're the home to Virtue Labs.
    I don't know if you know about Virtue Labs, but fantastic
    products.
        So, my first question is for Ms. Simpson. Your Members'
    personal care products are sold in brick and mortar stores as
    well as online.
        What types of issues have your Members seen arise in
    counterfeit versions of the products? Can you discuss the
    stringent safety and quality standards your Members' products
    have to meet to be sold in the brick and mortar stores and how
    those differ from what online platforms currently require?
        Ms. Simpson. Absolutely. Cosmetics and personal care
    products are regulated by the Food and Drug Administration. The
    Food, Drug, and Cosmetic Act requires that every product and
    its individual ingredients are safe before they're put on the
    market, and cosmetics companies have a legal responsibility to
    ensure that products are safe and properly labeled and current
    federal law provides for penalties for failure to meet these
    requirements.
        Our member companies take their responsibility to make safe
    products very seriously. Consumer and product safety are top
    priorities for our industry with careful scientific research
    and development serving as the foundation for everything we do.
        The U.S. cosmetics industry invests nearly $3 billion
    annually in scientific research and development. In terms of
    counterfeit products, inherently they pose health risks to
    consumers since they're produced illegally without adherence to
    federal or State safety and quality requirements.
        Counterfeit products could be adulterated. They could be
    tampered with. They could be expired. They could contain
    materials not of cosmetic grade, meaning consumers could be
    applying adulterated or impure products directly to the skin,
    lips, eyes, and other sensitive areas, including products
    indicated for children's use.
        A 2020 Department of Homeland Security report noted that
    counterfeit cosmetics often contain elements such as arsenic,
    mercury, and aluminum, and that counterfeit personal care items
    have been found contaminated with substances from harmful
    bacteria to human waste.
        Ms. Ross. Thank you very much.
        My next question has to do with some of the transparency in
    the SHOP SAFE Act that would ensure consumers and brand owners
    have accurate information available to them, things like
    listing who the seller is, where they're located, where you can
    contact them, where the products are shipped from.
        Ms. Reed, how would having this information aid your
    Members and clients, and are there certain red flags that
    consumer brands would be able to point to if they got this
    information?
        Ms. Reed. Thank you for the question.
        So, this information would aid my clients in a number of
    ways. Usually, when my clients come to me, it's either because
    they've already confirmed counterfeits, they've done their own
    take downs for brand protection agents and the take downs have
    not been successful, meaning they were taken down but they
    popped up again, and my clients want to litigate.
        Having verified names and addresses would help us
    investigate. So, we would likely commence a full-blown
    investigation prior to filing a lawsuit. It would help us in--
    and that would and it might include visiting the locations
    where these counterfeiters might be because they might actually
    be the source of the counterfeits, meaning they might be
    manufacturing, which would be highly relevant for my clients.
        Requiring that the sellers have an agent for service of
    process would make the process of serving these individuals a
    lot easier and, ultimately, I believe the transparency and
    being able to verify and then know that the contact names are
    accurate would give clients confidence that they can
    successfully litigate against these individuals without facing
    motions to dismiss for lack of jurisdiction and other
    procedural issues.
        Ms. Ross. Thank you very much, Mr. Chairman. I yield back.
        Mr. Johnson of Georgia. Thank you. Today we are favored to
    have not just one but two distinguished people from North
    Carolina--Congress people. Next, I present to you the
    distinguished Mr. Dan Bishop for five minutes.
        Mr. Bishop. Thank you, Mr. Chairman, and I guess maybe I
    should note that not only did Congresswoman Ross and I graduate
    in the same class at the University of North Carolina Law
    School, we were in the same small section together.
        Who could have known, right, Deborah?
        I'm going to offer to yield my time to the Ranking Member,
    Mr. Issa. Did you have an additional question?
        [Laughter.]
        Mr. Bishop. Darrell's coming alive. Give him a second to
    react. If you'd like to ask additional questions, Mr. Issa.
        Mr. Issa. I'm in shock. I'm in shock. Thank you. I thank
    the gentleman for yielding.
        Let me go through a couple of things because I want to make
    sure we characterize the legislation in an appropriate way, and
    I think I'll actually ask it this way.
        Is there anyone here that thinks that the Digital
    Millennium Copyright Act is a failure, overly burdensome, or in
    some other way has done nothing to deal with counterfeits of
    music and the like on the internet?
        [No response.]
        Mr. Issa. Hearing none, basically, let's use Ms. Simpson.
    Would you contrast this bill with the DMCA--DMCA requiring
    notice and takedown and it's worked for, if you will,
    intangibles versus these tangible items?
        Ms. Simpson. I can't speak to specifics of the DMCA, but
    just aware of the current system that we're working on for
    counterfeits right now and that our Members are facing for
    notice and take downs.
        Just would say that, currently, that system, isn't working.
    They're unable to keep up and get this verified information.
        Mr. Issa. Right. DMCA has worked fairly well for music. Mr.
    Berroya, would you say that your Members, they deal with that
    every day. Amazon is probably one of the largest music
    providers. Have they been able to verify the legitimacy of
    the--what they sell online?
        Mr. Berroya. Thank you for the question, Ranking Member
    Issa. I can't speak to Amazon's specific experience. As
    somebody who's been a practitioner of IP enforcement for almost
    a decade, I can tell you that the DMCA works but there's also
    stark differences between the legislative regime that was
    created by the DMCA and what is here.
        For example, notice and takedown in the DMCA requires the
    rights holder to identify infringement and this SHOP SAFE Act
    it's the opposite. The burden is--
        Mr. Issa. Let's go through that. Under this Act, there is a
    requirement--it's, basically, three strikes and you're out. If
    someone says something's a counterfeit, don't they have to show
    more than one event to even cause the takedown?
        Mr. Berroya. With due respect, Ranking Member Issa, the Act
    also has provisions that require platforms to implement
    automated processes, essentially, notice and stay down, which
    is something that was rejected by the Copyright Office within
    the last year when they were reviewing section 512.
        Mr. Issa. Let's go through that. Notice and stay down, in
    this case, is for a counterfeit tangible good, correct?
        Mr. Berroya. It would be, but it also assumes that the
    online platform is capable of identifying something as
    counterfeit. So, the difference between enforcing for Scott
    paper products and Scott bicycles, the two--
        Mr. Issa. Sure. Let's go through and I'm using the
    gentleman's time. I want to use it wisely.
        You said that it's burdensome to deal with this--the
    origin. In other words, the authenticity of the vendor, and you
    talked about seeing his identification and we wouldn't be able
    to. After all, they're counterfeiters.
        Isn't it almost universally true that your Members, in
    fact, collect the money or participate in the money and ensure
    that they get their share of it, either because they collect it
    and pass the remainder on to the source or they have to
    guarantee that they're going to get what they're entitled to
    from that source?
        So, let me just ask a simple question just as a plain old
    country businessman. If they can verify the source well enough
    to make sure they get paid dollars, millions of dollars,
    whatever amount, why is it that it's so difficult to verify the
    source for purposes of who they are?
        Mr. Berroya. Well, Representative Issa, one doesn't need to
    have the name, the address, to be able to verify that those
    things are exactly true in order to make a one-to-one
    connection between one bank account and another bank account.
        Mr. Issa. Well, let's go to Ms. Reed. When you're trying to
    find an entity and he's already said, basically, he's okay,
    knowing that they have a U.S. bank account.
        Is that a significant step that you would see in this
    legislation that these companies already have, which is they're
    holding money, they're transferring money to an entity, and
    under international law and U.S. law, they have to verify that
    entity for purposes of fraud is a real entity, don't they?
        Mr. Johnson of Georgia. Mr. Bishop, your time has expired.
        Mr. Issa. Thank you, Mr. Bishop.
        Mr. Johnson of Georgia. We won't hold it against you. Will
    the witness please answer the question succinctly?
        Ms. Reed. Yes, sure. Thank you for the question.
        Yes. In terms of the marketplaces having access to receive
    payment and to make payments, my understanding is that--and
    these payments are usually either with payment service
    providers or banks--ultimately, these payments--there's a third
    party involved.
        There is an intermediary. There's a financial institution
    who likely has some information that would verify the identity
    of the sellers.
        In fact, when I litigate these cases and I subpoena the
    marketplaces, they provide the bank financial details. I then
    subpoena the banks and then I get the actual names. That's how
    we sometimes get to the actual identity.
        So, it is possible to know who these people are because
    they want to get paid. The counterfeiters want to get paid, and
    they have to pay also Amazon or eBay or whoever it is that
    they're doing business with.
        Mr. Issa. Thank you, Mr. Chairman.
        Mr. Johnson of Georgia. Thank you.
        We now have the opportunity to view the backdrop of the
    gentleman from Oregon, Mr. Bentz, should he choose to show it.
    He will not be able to compete with Mr. Massie on the backdrop,
    unfortunately.
        You're recognized, sir, for five minutes.
        Mr. Bentz. Thank you so much, Mr. Chair, and having not had
    the opportunity to participate in these discussions over the
    last year, I fear my questions would be an embarrassment,
    particularly to me. That gives me an opportunity to yield to
    Ranking Member Issa yet again, since it seems like he wasn't
    quite yet done.
        Mr. Issa. Well, let's--thank you. I really appreciate that.
        Ms. Reed, let's go through that again. You've got a history
    of litigation. Let's just use, hypothetically, eBay and Amazon
    just as straw companies.
        If they must have the financial information and they have
    it, if they know the banks and if they, quite frankly, these
    intermediaries, they work with them thousands or tens of
    thousands of times, if this legislation were passed, wouldn't
    it be relatively simple for them to ensure that this one more
    step in the law, which is a domestic service point were added,
    would it be burdensome to those companies?
        We'll get to small companies later. To those companies, do
    you see anything burdensome there?
        Ms. Reed. In terms of the--
        Mr. Issa. The process of service.
        Ms. Reed. I don't. I don't see that being burdensome at
    all. I actually see that as being one of the easiest things to
    require the businesses' chief sellers to do and for the sellers
    to actually implement it.
        Mr. Issa. We were--it was suggested to us during the markup
    or pre-markup of this legislation that they could even--
    potentially, we could include in the law a recognition that
    they would accept service by email.
        We didn't put it into the law because there were some
    questions about whether or not that would be sufficient in the
    courts, and we're checking it.
        From a standpoint of if a company wants to do business in
    the United States, asking them to have someplace that they
    would accept service would seem to be the source.
        Let me go back. Let's just say we don't have that service
    and the--if you will, these major carriers tell us that they
    can't get it, isn't the real meat of this bill the question of
    whether or not they take down the infringer in a timely
    fashion?
        So, even if that wasn't in the bill, isn't the real meat
    the fact that this, for the first time, says if you don't
    cooperate when you're being informed about counterfeits three
    times or 10 times, depending upon the size of the company, that
    you can take liability? Isn't that really what we're discussing
    here today?
        Ms. Reed. Is that question for me?
        Mr. Issa. Yes, as a litigator.
        Ms. Reed. I think that--yes, I think the contributory
    liability portion is the meat and bones of the legislation.
    Yes, I agree.
        Mr. Issa. So, briefly, on behalf of all of them--anyone
    I'll let take it--if, in fact, what we're doing is trying to
    have this for those who don't and then create a safe harbor,
    any of you want to ask the question of why is it we have had a
    very difficult time with these online platforms defining the
    safe harbor they would like rather than simply telling us that
    they don't like whatever we legislate?
        Ms. Reed, I'm going to go back to you again. You've been a
    very good witness. Would you say that you could write the safe
    harbor as well or better and, simply, these companies are
    choosing to say they don't want a safe harbor--they just don't
    want the legislation?
        Ms. Reed. Well, I don't know if I would characterize it
    that way, and I do believe that marketplaces have similar goals
    that they want to get these counterfeits off of their platforms
    and I know that there are marketplaces that proactively are
    doing things.
        I do think that, ultimately, the issue is whether they want
    it to be voluntary or required, and then that's really the
    issue.
        Mr. Issa. Well, and as a litigator, when we put in this
    bill--this legislation 14 times the word ``reasonable'' I know
    that is considered vague. Isn't every one of those an
    impediment to your litigation in that we have made this a piece
    of legislation that is not easy to overcome? You'll have to
    show repeatedly that people were unreasonable if this
    legislation becomes law.
        Ms. Reed. That's right. I mean, there is a standard and the
    standard has to be argued in a court of law in terms of whether
    the marketplace is acting reasonably or not. So, that is
    accurate.
        Mr. Issa. Thank you. I yield back.
        Mr. Johnson of Georgia. Thank you.
        Ladies and gentlemen, that concludes today's hearing.
    Unless there's someone on the Zoom call that I'm not
    recognizing that needs to be recognized, speak now or forever
    hold your peace.
        [No response.]
        Mr. Johnson of Georgia. So, assuming that there is none, we
    are at the bottom of the hearing. I want to thank the witnesses
    for their testimony today, thank the Members of the
    Subcommittee for their attendance today.
        Without objection, all Members will have five legislative
    days to submit additional written questions for the witnesses
    or additional materials for the record.
        With that, and with no gavel, the hearing is adjourned.
    Thank you.
        [Whereupon, at 3:51 p.m., the Committee was adjourned.]

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