[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
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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
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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
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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.]
APPENDIX
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