[Senate Hearing 117-433]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 117-433

                    CLEANING UP ONLINE MARKETPLACES:
                       PROTECTING AGAINST STOLEN,
                     COUNTERFEIT, AND UNSAFE GOODS

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

                                HEARING

                              BEFORE THE

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            NOVEMBER 2, 2021

                               __________

                          Serial No. J-117-44

                               __________

         Printed for the use of the Committee on the Judiciary
         
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                       COMMITTEE ON THE JUDICIARY

                   RICHARD J. DURBIN, Illinois, Chair
PATRICK J. LEAHY, Vermont            CHARLES E. GRASSLEY, Iowa, Ranking 
DIANNE FEINSTEIN, California             Member
SHELDON WHITEHOUSE, Rhode Island     LINDSEY O. GRAHAM, South Carolina
AMY KLOBUCHAR, Minnesota             JOHN CORNYN, Texas
CHRISTOPHER A. COONS, Delaware       MICHAEL S. LEE, Utah
RICHARD BLUMENTHAL, Connecticut      TED CRUZ, Texas
MAZIE K. HIRONO, Hawaii              BEN SASSE, Nebraska
CORY A. BOOKER, New Jersey           JOSH HAWLEY, Missouri
ALEX PADILLA, California             TOM COTTON, Arkansas
JON OSSOFF, Georgia                  JOHN KENNEDY, Louisiana
                                     THOM TILLIS, North Carolina
                                     MARSHA BLACKBURN, Tennessee
             Joseph Zogby, Chief Counsel and Staff Director
      Kolan L. Davis, Republican Chief Counsel and Staff Director
                            
                            C O N T E N T S

                              ----------                              

                      NOVEMBER 2, 2021, 9:59 A.M.

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Durbin, Hon. Richard J., a U.S. Senator from the State of 
  Illinois.......................................................     1
Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa.     3

                               WITNESSES

Witness List.....................................................    33
Dugan, Ben, director of Organized Retail Crime and Corporate 
  Investigations, CVS Health, Woonsocket, Rhode Island...........    11
    prepared statement...........................................    34
Kammel, Kari, assistant director, professor of law, College of 
  Law Michigan State University, Senior Academic Specialist, 
  Center for Anti-Counterfeiting, East Lansing, Michigan.........     7
    prepared statement...........................................    40
Muderick, Aaron, founder and president, Crazy Aaron's, 
  Norristown, PA.................................................     5
    prepared statement...........................................    54
Snowden, K. Dane, president & CEO, Internet Association, 
  Washington, DC.................................................     9
    prepared statement...........................................    58

                               QUESTIONS

Questions submitted to Ben Dugan by:
    Ranking Member Grassley......................................    74
    Senator Cruz.................................................    80
    Senator Tillis...............................................    85
    Senator Blackburn............................................    91
Questions submitted to Kari Kammel by:
    Ranking Member Grassley......................................    75
    Senator Leahy................................................    78
    Senator Tillis...............................................    87
    Senator Blackburn............................................    92
Questions submitted to Aaron Muderick by:
    Ranking Member Grassley......................................    76
    Senator Tillis...............................................    89
Questions submitted to K. Dane Snowden by:
    Ranking Member Grassley......................................    77
    Senator Leahy................................................    79
    Senator Cruz.................................................    84

                                ANSWERS

Responses of Ben Dugan to questions submitted by:
    Ranking Member Grassley......................................    93
    Senator Cruz.................................................    95
    Senator Tillis...............................................   102
    Senator Blackburn............................................   107
Responses of Kari Kammel to questions submitted by:
    Ranking Member Grassley......................................   109
    Senator Leahy................................................   111
    Senator Tillis...............................................   112
    Senator Blackburn............................................   119
Responses of Aaron Muderick to questions submitted by:
    Ranking Member Grassley......................................   122
    Senator Tillis...............................................   124

                MISCELLANEOUS SUBMISSIONS FOR THE RECORD

Submitted by Aaron Muderick:

    Taking Fake Toys Offline, 2020...............................   145
    The Real Threat of Fake Toys, 2019...........................   129
    The Toy Association, June 21, 2022...........................   167

Submitted by Various Sources:

    American Apparel & Footwear Association, November 2, 2021....   204
    Consumer Reports (CR), November 1, 2021......................   172
    Fender Musical Instruments Corporation, November 2, 2021.....   178
    National Association of Attorneys General, Jim Buckmaster, 
      October 22, 2019...........................................   193
    National Association of Attorneys General, Scott Schenkel, 
      October 22, 2019...........................................   185
    National Association of Attorneys General, Mark Zuckerberg, 
      October 22, 2019...........................................   189
    National Association of Manufacturers, November 1, 2021......   170
    National Retail Federation (NRF), November 1, 2021...........   197
    Overstock.com, October 28, 2021..............................   181
    Sazerac New Orleans, November 2, 2021........................   202
    STIHL, November 9, 2021......................................   207
    USA Strong, Statement of Krissy Mashinsky, November 11, 2021.   208

 
                    CLEANING UP ONLINE MARKETPLACES:
                       PROTECTING AGAINST STOLEN,
                     COUNTERFEIT, AND UNSAFE GOODS
                     
                               ----------                              


                       TUESDAY, NOVEMBER 2, 2021

                               United States Senate
                                 Committee on the Judiciary
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:59 a.m., in 
Room 226, Dirksen Senate Office Building, Hon. Richard J. 
Durbin, Chairman of the Committee, presiding.
    Present: Senators Durbin [presiding], Whitehouse, 
Klobuchar, Coons, Blumenthal, Hirono, Padilla, Ossoff, 
Grassley, Lee, Cruz, Hawley, and Blackburn.

          OPENING STATEMENT OF HON. RICHARD J. DURBIN,

           A U.S. SENATOR FROM THE STATE OF ILLINOIS

    Chair Durbin. The hearing will come to order. Today, the 
Senate Judiciary Committee will consider the challenge of 
stolen, counterfeit, and unsafe products sold to unsuspecting 
customers online.
    I'd like to start by showing a brief video that highlights 
this issue.
    [Video presentation.]
    I've been working on this issue since 2008, and enlisted 
the support of Bill Cassidy, who has been cosponsor of major 
legislation on this subject. It was then that I'd met with 
representatives of Home Depot who told me about a problem they 
were facing. There were certain brands of power tools that they 
sold exclusively at Home Depot stores. They weren't supposed to 
be available anywhere else legally, but it turned out these 
tools were being offered for sale, new, still in the original 
box, by anonymous sellers on online marketplaces like Amazon.
    It wasn't hard to figure out what was going on. These tools 
were being stolen from the original manufacturer and resold 
online. It wasn't just tools. It happened with all kinds of 
products as we'll hear. Cosmetics, electronics, clothes, over-
the-consumers--counter drugs, toys, even baby formula. I see 
some on the table there as an example.
    Third-party sellers were flooding the internet with 
products stolen and counterfeited. Often, these products posed 
serious health and safety risk to customers who thought they 
were buying the original product.
    Back in 2008, I introduced my first bill to address the 
problem of illicit products sold online, and the marketplaces 
told me, ``Don't worry. We're taking care of this. You don't 
need a legislation.'' Well, here we are 13 years later, and 
this problem hasn't gone away. It's gotten much, much worse.
    When you buy products from third-party sellers on online 
marketplaces, you're really rolling the dice. In 2018, the 
Government Accountability Office ran a test.
    They bought a sample of 47 consumer products from third-
party sellers on leading e-commerce websites to see how many 
just might be counterfeit. Out of 47, 20--20 of the 47 were 
counterfeit.
    In January, the U.S. Trade Representative reported that, 
quote ``The rapid growth of e-commerce platforms has helped 
fuel the growth of counterfeit, parted goods into a half 
trillion-dollar industry.'' Half trillion. Stolen goods 
continue to be offered online by sellers who pop up, disappear, 
and then pop up again. Retailers lose $45 billion each year in 
these schemes.
    My staff asked Home Depot if their tools are still being 
offered online as new by third-party sellers. They sent me nine 
postings that popped up just last week, and that was a small 
sample. Here's one of them.
    A brand of lithium batteries that is only available at Home 
Depot being offered for sale in the box by a third-party seller 
on Amazon for 20 percent below the retail price.
    After the fact, one-off investigations aren't stopping the 
problem. We need to take steps to deter shady sellers from 
using these marketplaces in the first place.
    Consumers do better--deserve better than being deceived 
into buying sham products. Retailers are tired of how easy it 
is for organized groups of thieves to steal their goods and 
resell them online. Manufacturers are sick of seeing knockoffs 
of their products hocked onsites like Amazon. Congress needs to 
do something. That's what we were elected for. There are 
several principles that guide us.
    First, if somebody's going to sell large volume of goods 
online on a marketplace, they should tell the marketplace who 
they are. Doesn't that sound pretty basic? The sellers should 
be verified.
    Second, if a product sold online turns out to be a fake, or 
stolen, or dangerous, consumers should be able to report it and 
find the seller, and the marketplace must ensure that the 
seller can't just disappear and pop up later under a new 
account name.
    Third, if a consumer orders a product from one seller 
online and the order is actually filled by another company, the 
marketplace should inform the consumer.
    Verification, transparency, accountability. No more bait 
and switch. These are principles we should follow as we work to 
clean up online marketplaces.
    I've introduced a bipartisan bill as I mentioned with 
Senator Bill Cassidy, Republican of Louisiana that promotes 
these principles. It's called the Informed Consumers Act. I'm 
honored to have as cosponsors Senator Grassley, Senator Hirono, 
Coons, Tillis, Warnock, and Rubio. I thank them all.
    In the House, our bill is sponsored by my friend, 
Representative Jan Schakowsky, Democrat from Illinois. She has 
been a consumer advocate all her life. Before she was ever 
elected to public office, she was a mom who was raising hell 
about expiration dates being printed on dairy products. We take 
that for granted now, but she was one of the originals in that 
fight. She's joined by Republican Representative Gus Bilirakis 
from Florida. Her bill has been endorsed by a broad range of 
consumer groups, retailers, labor, and online marketplaces like 
Etsy and eBay. The day after we announced this hearing, Amazon 
endorsed it, too.
    We've negotiated and worked hard on this bill to achieve 
consensus, and I hope we can make it the law, soon. There are 
other good bills out there, including the Shop Safe Act 
introduced by Senators Coons--thank you for being here--and 
Tillis, which addresses secondary liability for online 
marketplaces.
    Today, we'll hear form a distinguished panel of witnesses 
who will talk about the scope of the problem. There is 
bipartisan support and momentum for addressing it. I hope we 
get it done.
    I turn to my colleague and friend, Congressman, Senator. 
Did I cover every possibility? Chuck Grassley of Iowa.

         OPENING STATEMENT OF HON. CHARLES E. GRASSLEY,

             A U.S. SENATOR FROM THE STATE OF IOWA

    Senator Grassley. I thank you for your remarks, and thank 
you for calling this hearing. It's very important that we look 
into the roles of big tech in this area.
    Americans increasingly rely upon the internet to purchase 
everything from healthcare products and infant formula to 
iPhone chargers and even automobile parts. Unfortunately, 
criminals are using the online platforms to sell counterfeit or 
stolen items that can be very dangerous to consumers. This 
hearing will explore the problem. We must stop this activity.
    Thanks to the internet, we can now purchase nearly anything 
from nearly anywhere. Companies of all sizes can reach new 
customers all over the world. In the same way, counterfeiters 
and other criminals are exploiting online platforms. These 
activities threaten consumer safety and businesses' bottom 
lines.
    Criminals can easily open online store fronts on e-commerce 
marketplaces. Criminals operate under fake names and stolen 
identities. They use false credentials. If a marketplace takes 
them down, these criminals simply resurface under a different 
storefront identity. All the while, their listings look 
authentic to unsuspecting customers.
    Counterfeit products are usually substandard and often 
unsafe. Products often don't meet strict safety standards or 
comply with quality controls. For example, drug traffickers are 
using social media and other e-commerce platforms to market 
their products. We've also seen a spike in professional 
shoplifters of highly valued items to resell online.
    According to a 2020 survey by the National Retail 
Federation, organized retail theft has increased nearly 60 
percent since 2015. Brand owners, manufacturers, and retailers 
are doing their very best to fight this epidemic, but even our 
largest companies who can afford to have dedicated staff 
monitor online don't seem to be able to keep up.
    Small businesses lack the necessary resources to pursue 
online counterfeiters. Law enforcement is also overwhelmed. 
That's why I introduced S. 1159, a bill that was included in 
the U.S. Innovation and Competition Act, so businesses can get 
more information to shore up the integrity of their supply 
chain.
    Customers should have the same confidence buying online 
that they do if they went to a mortar and brick store. 
Consumers have to rely on the accuracy of online listings. If a 
product listing consists of misleading images or fake reviews, 
it's more likely that the consumer will be then tricked into 
purchasing a counterfeit or stolen goods.
    It's clear that voluntary efforts by big tech companies, 
while a very good first step, are not enough. Online companies 
profit off of every sale on their platform, even if it's 
counterfeit or stolen.
    Consumers need more accountability and transparency 
including who's operating online and selling these products. We 
should promote better screening, more transparent seller 
information, and increased collaboration and data sharing. It's 
very essential that businesses and platforms work with law 
enforcement to identify criminals selling counterfeits and 
stolen goods online.
    Congress should consider legislation to protect consumers 
from criminal enterprises operating online. None of the 
proposed solutions is a silver bullet. There needs to be a 
multifaceted approach to addressing the problem.
    Online shoppers deserve to have confidence that they're 
getting exactly what they're paying for, and that their 
purchases are safe and authentic. Thank you.
    Chair Durbin. Thanks, Senator Grassley. We have four 
witnesses this morning. I'm going to introduce three, and 
Senator Whitehouse will introduce the fourth.
    The first witness is Aaron Muderick. Did I pronounce that 
right, Aaron?
    Mr. Muderick. You did.
    Chair Durbin. Founder and president of Crazy Aaron's, a toy 
manufacturer in Norristown, Pennsylvania. He invented Thinking 
Putty. Thinking Putty, which is made here in America by his 
small business and 100 employees. His company is known for 
developing unique production methods to employ individuals with 
special needs. That's good.
    Mr. Muderick is on the board of the Toy Association. He's a 
volunteer firefighter. He received his BS from University of 
Rochester. Glad you're here.
    Kari Kammel is the Assistant Director for Education and 
Outreach and Senior Academic Specialist at Michigan State 
University Center for Anti-Counterfeiting and Product 
Protection and takes today's prize for the longest title. She 
also serves as an adjunct professor of law at Michigan State 
University College of Law, teaches intellectual property and 
trademark law.
    Previously worked for DePaul University College of Law, 
including in the Iraq office of their International Human 
Rights Law Institute. Received her BA from University of 
Chicago, her MA from the American University in Cairo, and her 
JD from DePaul.
    Dane Snowden, president, CEO of the Internet Association. 
That association represents global internet companies on 
matters of public policy, and the members include Amazon, eBay, 
Etsy, Facebook, and Google.
    Prior to joining the association, Mr. Snowden was the chief 
operating officer at NCTA. That's the Internet and Television 
Association, and vice president of CTIA, the wireless 
association. He's also served on the Federal Communications 
Commission as Chief of the Consumer and Government Affairs 
Bureau, BA from William and Mary.
    Mr. Whitehouse. Senator Whitehouse.
    Senator Whitehouse. Thank you very much, Chairman. It's my 
great pleasure to introduce to the Committee Ben Dugan, who's 
the director of organized retail crime and corporate 
investigations for Rhode Island's CVS Health.
    CVS Health is a great growing and successful Rhode Island 
company that has shown leadership in many issues including 
refusing to sell tobacco products as part of its commitment to 
its customers' health.
    Chair Durbin. Amen.
    Senator Whitehouse. Amen. Online marketplaces have been an 
important part of everyday life during the COVID shutdown, but 
they present convenient avenues for organized theft and crime. 
Orchestrated criminal schemes in online marketplaces flourished 
over the past year and a half.
    Mr. Dugan is at the vanguard of investigating and combating 
these crimes. For three decades, he's fought retail theft from 
big box, catalog pharmacy, and specialty retailers. He's a 
national leader in retail loss prevention, particularly where 
it relates to e-commerce, and he's been featured in the news 
media as one of the foremost experts in dismantling organized 
retail crime.
    He's a veteran of the United States Army Military Police, 
serves as president of the National Coalition of Law 
Enforcement and Retail, and I'm delighted to have him here.
    I will say that as U.S. Attorney and Rhode Island Attorney 
General, it was my privilege to work with many skilled Rhode 
Island investigators, both in law enforcement and from the 
private sector, and Mr. Dugan continues our tradition of 
investigative excellence in Rhode Island. Delighted that he's 
here.
    Chair Durbin. Thanks, Senator Whitehouse. We're going to 
follow the customary hearing process. After they're sworn in, 
witnesses will have 5 minutes for opening statements, then 
Senators 5 minutes of questions.
    Would the witnesses please stand to be sworn in. Please 
raise your right hand.
    [Witnesses are sworn in.]
    Let the record indicate that all answered in the 
affirmative. Mr. Muderick, your turn.

              STATEMENT OF AARON MUDERICK, FOUNDER

          AND PRESIDENT, CRAZY AARON'S, NORRISTOWN, PA

    Mr. Muderick. Good morning. My name is Aaron Muderick. I'm 
the founder and president of Crazy Aaron's, a toy manufacturer 
based in Norristown, Pennsylvania.
    Thank you for the opportunity to testify today. Chairman 
Durbin, Ranking Member Grassley, I applaud your commitment to 
protecting consumers from unsafe, unreliable, and unregulated 
products sold through these channels.
    Curbing the flow of counterfeit and unsafe goods in e-
commerce is critically important to me as a toy manufacturer 
and a small business owner.
    I founded Crazy Aaron's in 1998 with a mission to create 
toys that inspired a sense of wonder and creativity. I quickly 
realized that to make my product right, I was going to have to 
build my own factory, so that's what I did. Today, our 
headquarters is part of the revitalization of Norristown, where 
Thinking Putty is proudly made in the United States. We employ 
over 100 people, and for over 18 years with the support of our 
customers, we have provided meaningful daily work to hundreds 
of additional individuals with disabilities in the Philadelphia 
area.
    While my business has seen successes since the days of 
experimenting in my parents' basement, it has come with 
unanticipated challenges. As our Thinking Putty became more 
popular, I discovered a tidal wave of infringing products being 
sold online through third-party sellers.
    We have spent significant time and resources policing these 
one by one. I have submitted to this Committee a list of 
hundreds of third-party sellers, many based outside the United 
States, across numerous marketplaces, who we identify as 
infringing our marks. Today, I appreciate the opportunity to 
share three serious concerns.
    First, the enormous resources required from a small 
business to endlessly police these marketplaces for bad actors. 
Second, that due to many of these bad actors being outside the 
jurisdiction of the United States, our recourse to protect our 
intellectual property and reclaim damages is severely limited 
and, in many cases, is nonexistent. Third, and most 
importantly, these bad actors often sell unsafe goods which do 
not meet the stringent Federal safety standards required of 
legitimate producers. These violations range from labeling 
requirements, illegal levels of regulated chemicals, and 
mechanical hazards which cause acute physical harm. Consumers 
visit online marketplaces assuming that the products they see 
meet safety standards.
    I created the world's first magnetic putty. It's a putty 
toy that crawls over to a magnet as if it was alive, and it was 
a tremendous commercial success, and it differentiated us from 
competitors. We invested significant R&D to making it a reality 
and in making it a safe product.
    As counterfeiters, infringers, and knockoffs flooded the 
marketplace, magnetic putty sales began to decline. I scrambled 
to dedicate resources to beating back infringers but became 
increasingly concerned that almost every one of the competing 
products did not comply with mandatory Federal safety 
standards.
    Today, I have brought with me products I purchased last 
week from two of the largest online marketplaces in the U.S. I 
also have brought independent third-party laboratory results 
showing their noncompliance with mandatory Federal standards.
    Our company has done this testing at our own expense and 
communicated this noncompliance to online marketplaces again 
and again, following up with them repeatedly. We have done this 
for years. Nonetheless, these products remain available for 
sale. They are purchased in the hundreds of thousands by 
unsuspecting consumers.
    They contain loose as received, high-strength, hazardous 
magnets which are not legal in children's products. You will 
note that the product packaging and online listings for these 
products include language like, ``Safe for children ages 3 
plus,'' or, ``Safety tested.'' They include photos of children 
as young as toddlers playing with them. Accidental ingestion of 
these hazardous magnets can cause serious internal injuries, 
debilitating lifelong disability in some, and unfortunately, 
numerous fatalities have been documented. Their magnetic 
strength is so high, they destroy themselves when drawn to each 
other. You can see in the video and photo I have provided that 
when these magnets collide, they not only shatter into razor-
sharp shards, but due to the nature of their materials, they 
will spark and have the capacity to start a fire.
    If my words, demonstration, or laboratory results aren't 
enough, you need only look at the consumer reviews of these 
products, which are publicly available in the marketplaces 
themselves. An example, quote, ``The magnet broke apart while I 
was showing this off to a friend. He was pulling them apart, 
sliced open his finger. I do not recommend this to anyone.''
    Thank you for the opportunity to share the story of one 
product, amongst a sea of millions, available in online 
marketplaces. I appreciate your efforts to secure consumers 
from counterfeit and unsafe goods, and I look forward to 
answering your questions.
    [The prepared statement of Mr. Muderick appears as a 
submission for the record.]
    Chair Durbin. We appreciate your testimony and the fact 
that your business philosophy is embracing people with 
disabilities.
    Mr. Muderick. Thank you.
    Chair Durbin. Thank you for doing that. Professor Dr. 
Kammel, you're next.

         STATEMENT OF KARI KAMMEL, ASSISTANT DIRECTOR,

            EDUCATION AND OUTREACH; SENIOR ACADEMIC

         SPECIALIST, CENTER FOR ANTI----COUNTERFEITING

        & PRODUCT PROTECTION, ADJUNCT PROFESSOR OF LAW,

           COLLEGE OF LAW MICHIGAN STATE UNIVERSITY,

                     EAST LANSING, MICHIGAN

    Professor Kammel. Chair Durbin, Ranking Member Grassley, 
and Members of the Committee, thank you for inviting me to 
speak today.
    My remarks draw on my research on online trademark 
counterfeiting, as well as my work with brand protection 
industry professionals.
    At the ACAP center I focus on research, education, and 
outreach around trademark counterfeiting and brand protection 
with my colleagues. We work with both 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 the 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 the law and make 
two recommendations. One, I support the Informed Consumers and 
Shop Safe bills, and two, I recommend continued and expanded 
data sharing and research on the trade and counterfeit goods 
and anti-counterfeiting responses.
    I'd like to start by painting a picture of what is 
occurring with trademark counterfeiting on online marketplaces 
and the current state of the law. The sale of counterfeit goods 
online impacts national economies, companies of all sizes 
including small and medium-size enterprises, and consumers, and 
has exploded in the past decade, and even more so since COVID-
19.
    The financial impact of the sale of counterfeit goods is 
staggering, estimated roughly over $460 billion worth of global 
sales in 2019.
    Counterfeiters find success by using another company or 
brand owner's trademark on a product or package without 
authorization to sell a fake and usually substandard or even 
dangerous good. They also take advantage of the opportunity 
online marketplaces provide to reach often unsuspecting 
consumers who cannot examine the goods before purchase. 
Consumers struggle to be able to report suspected counterfeit 
or cannot find a third-party seller for service of process if 
they're injured or killed.
    Online marketplaces have varying levels of proactive and 
reactive efforts. In order for a counterfeit to be sold to a 
consumer on an e-commerce platform, there must be a meeting and 
time and space of the consumer, the counterfeiter's posting, 
and the e-commerce platform. The most effective way to disrupt 
this is to remove one of these factors from the situation 
proactively before they ever reach that meeting and time and 
space on the platform.
    In the brick-and-mortar space, the current state of the law 
requires service providers, such as flea markets or malls, to 
take steps to disrupt the sale of counterfeits and consumers. 
However, in the e-commerce space, we don't find the same 
parallel currently in the law. The current state of the law 
rests primarily on the 2010 Second Circuit case of Tiffany v. 
eBay, which notes that an e-commerce platform only needs to act 
if they have specific knowledge of a counterfeit posting from a 
brand known as the contemporary knowledge requirement. There is 
no proactive requirement for the prevention of counterfeit 
postings or monitoring of their own platforms for counterfeit, 
even though they have the most control over the platforms that 
they've created. Thus, an imbalance is evolved where brand 
owners attempt to take down counterfeit postings but cannot get 
at the root of the issue.
    Tied into this is a lack of transparency about third--party 
sellers, details on vetting, takedown, repeat sellers, or any 
education awareness or reporting mechanisms for consumers.
    While Informed Consumers and Shop Safe reflect the growing 
urgency on this topic and take different approaches, they both 
seek to require e-commerce platforms to proactively take 
measures to vet third-party sellers from selling counterfeits 
and provide multiple avenues for tackling this complex issue.
    In my opinion, both pieces of legislation are essential to 
balance the obligation of brand owners and e-commerce platforms 
in the space due to the shift from brick-and-mortar 
environments to the current online e-commerce space that the 
law did not foresee, and importantly, to provide consumers with 
more education, protection, and avenues in which to report 
suspected counterfeit goods.
    I also recommend continued and expanded data sharing and 
research on the trade and counterfeit goods and anti-
counterfeiting responses.
    Thank you again for the opportunity to participate in this 
hearing on this very important issue, and I look forward to 
answering your questions.
    [The prepared statement of Professor Kammel appears as a 
submission for the record.]
    Chair Durbin. Thank you, Dr. Kammel. Mr. Snowden is next.

           STATEMENT OF K. DANE SNOWDEN, PRESIDENT &

           CEO, INTERNET ASSOCIATION, WASHINGTON, DC

    Mr. Snowden. Chairman Durbin, Ranking Member Grassley, and 
Members of the Committee, on behalf of the Internet Association 
and the internet industry, thank you for the opportunity to 
appear before the Committee today to discuss the ways that 
online platforms are partners in the fight against illegal and 
counterfeit goods, retail theft, and protecting consumers from 
bad actors online.
    IA represents over 40 of the world's leading internet 
companies on public policy. Our mission is to foster 
innovation, promote economic growth, empower people through the 
free and open internet.
    Online marketplaces and platforms are the virtual main 
streets that enable us to purchase the things we want and need. 
Not all marketplaces are the same. Different items, different 
sellers, different audiences. In households across America, we 
use online marketplaces and platforms to get our groceries for 
the week, sell our children's old clothes that they grow out of 
too fast, and find handmade goods and crafts to decorate our 
homes, all with the click or swipe on a screen.
    As we continue to live through the COVID-19 global 
pandemic, online marketplaces and platforms have helped 
Americans by delivering the essential goods and products that 
consumers need to maintain their daily lives and keep our 
economy going.
    While the vast majority of online sellers and goods sold 
online are legitimate, the internet industry recognizes that 
online systems have created new challenges for brand owners, 
rights holders, retailers, and consumers. However, 
counterfeiting, retail theft, and organized crime are not new 
problems, nor were they created by online platforms and 
marketplaces. It will take all of us, law enforcement, big box 
retail, brands and rights holders, State AGs, and online 
marketplaces to work together to combat the illegal activity by 
organized crime.
    Online marketplaces have made this a priority and work 
every day to stop organized crime and counterfeiters. We 
recognize the responsibility and the important role we play in 
the ecosystem in stopping this activity. We continue to 
innovate and cooperate to ensure our marketplaces are safe and 
trusted by the consumers and sellers who use our stores. We are 
on the right path to addressing these issues.
    It is important to stress internet companies do not permit 
illegal or counterfeit goods on their platforms. They have 
invested hundreds of millions of dollars in tools and deployed 
thousands of team members to implement clear policies. When 
they find something that violates their terms of service, they 
take it down, or in other cases, never allow it up.
    Online platforms and marketplaces vet sellers up front 
through the direct and indirect means. They use advance tools 
like image detection and machine learning, as well as reports 
from brand owners.
    Rights holders and consumers continue monitoring for any 
issues. The partnership with brand owners and rights holders 
are critical, because they are in the best position to identify 
counterfeit goods. The investments the internet industry made 
in tools, teams, and partnerships is finding success.
    Last year, Amazon enrolled more than 500,000 brands in its 
free reporting tool. Those brands reported a 99 percent 
reduction in suspected infringements, and less than .01 percent 
of products sold on Amazon last year received a counterfeit 
complaint from a customer.
    eBay works with 40,000 individual right holders to identify 
intellectual property infringement, and Etsy's investments in 
trust and safety teams have led to a 58 percent increase in 
intellectual property-related takedowns.
    Beyond these proactive efforts, we support the Chairman and 
Committee's goals of further minimizing the availability of 
counterfeit and other illegal goods online.
    Internet Association encourages the Committee to consider 
two aspects when taking legislative action that impact sellers, 
consumers, and online marketplaces and platforms.
    First, a national framework that clearly preempts a 
patchwork of states or local laws would ensure that Americans 
continue to receive a consistent internet experience 
nationwide. While states have an important law enforcement role 
to play in protecting consumers and stopping retail theft, 
Federal law should be the sole source of regulation for 
internet companies that operate across State lines.
    Second, any information collection and disclosure 
requirements should be careful not to impose unnecessary 
burdens or barriers on small businesses. Many online sellers 
are very small homegrown operations. Information collection 
disclosure requirements should consider their challenges by 
establishing reasonable thresholds and timelines and protecting 
their privacy.
    For these reasons, we recognize the changes made in the 
Senate version of the Informed Consumers Act, and we are 
encouraged by the version that was recently introduced in the 
House. The House bill sets natural expectations about the type 
of information online platforms or marketplaces should collect 
by high-volume sellers and disclose to consumers, we 
recognized--while recognizing burdens and risks to small 
businesses.
    The internet industry are partners in the fight to protect 
consumers and rights holders from the threats posed by fake 
goods and bad actors. We hope that today's hearing will further 
discussion about clear, reasonable requirements within the 
national framework that can enable online platforms and 
marketplaces to continue providing convenient and safe 
opportunities to connect sellers and consumers. Thank you and I 
look forward to your questions.
    [The prepared statement of Mr. Snowden appears as a 
submission for the record.]
    Chair Durbin. Thank you very much. Mr. Dugan.

         STATEMENT OF BEN DUGAN, DIRECTOR OF ORGANIZED

           RETAIL CRIME AND CORPORATE INVESTIGATIONS,

              CVS HEALTH, WOONSOCKET, RHODE ISLAND

    Mr. Dugan. Good morning. Chairman Durbin, Ranking Member 
Grassley and Members of the Committee, my name is Ben Dugan and 
I'm the director of organized retail crime and corporate 
investigations for CVS Health. I also serve as the president of 
CLEAR. It's the Coalition of Law Enforcement and Retail, 
dedicated to reducing organized retail theft nationwide.
    Thank you for the opportunity to testify today on the 
massive growth of organized retail crime and the impact it has 
on our consumers, our employees, and the communities that we 
service.
    I want to share firsthand today what I've experienced over 
30 years of working on this problem. Organized retail crime 
represents a massive and growing threat to the tune of $45 
billion a year. The internet is riddled with illegitimate 
sellers that hide behind the anonymity and the lack of 
transparency. These criminal organizations employ teams or 
crews of professional thieves that steal the products by any 
means necessary and sell them through online marketplaces.
    Unfortunately, these means often include daytime retail 
thefts, threats, intimidation, violence, horrifying stories 
that play out in our stores every day, and which a lot of us 
see playing out in the media every day.
    There's one thing I want to leave you with today, Senators, 
is that we're not talking about shoplifting. We're not talking 
about individuals that go into a store to steal something for 
personal use. These crimes are connected to organized crime, 
and carefully planned and controlled by large-scale criminal 
enterprises with serious economic and human implications.
    These professional crews can victimize the same store over 
and over in the same day, or they can go to dozens of stores in 
the same day and travel over multiple states. This is all part 
of this national retail theft epidemic that we're in, and it's 
being all controlled by organized crime. It's fueled by an 
increase in demand and facilitated by unregulated online 
marketplaces.
    Perhaps the most disturbing is the direct physical harm 
these retail crime organizations cause retail employees every 
day. Very recently, a CVS manager was assaulted and remains in 
serious condition. These incidents are not uncommon. Reported 
violent events at CVS have doubled in the last year. To give it 
some scale, Senators, there's an organized retail crime event 
reported from a CVS store every 3 minutes, and two-thirds of 
those involve threat of actual violence or weapon.
    There are far less obvious dangers to this crime, including 
infant formula. This is a favorite target of these criminal 
organizations. In the investigations that I've worked, these 
criminals blatantly disregard all of the safety protocols for 
these products. They ignore or manipulate the expiration dates, 
and they're not storing it at proper temperatures. It 
compromises the product integrity and is endangering the health 
of an infant.
    Just last week, I received some disturbing photographs of a 
surveillance that my team had conducted where it showed 
criminals retrieving stolen baby formula from the basement of 
an abandoned home, cleaning it up, and then sending it off, 
repackaging it to appear as new for an online seller to sell to 
an unsuspecting consumer. These products go from the hands of 
criminals to the hands of families.
    Our investigations involve illicit wholesale operations 
that recruit hundreds of professional thieves who steal up to a 
million dollars in product per month, just from CVS. Criminal 
organizations closely coordinate the movements of these crews. 
They provide specific instructions on what items and quantities 
to target, and purposely direct them to stores in urban and 
suburban neighborhoods in virtually every state.
    These stolen products are repackaged, distributed, and 
distributed to the largest online marketplace sellers, and then 
eventually onto unsuspecting customers. We're talking about 
dozens of professional thieves, traveling to multiple states, 
heading to 20 to 30 retail stores per day, and stealing tens of 
thousands of dollars per store.
    CVS Health has resolved over $75 million in organized 
retail cases so far this year. The current law doesn't provide 
us or law enforcement with the tools we need to hold these 
people accountable. These criminal organizations are growing 
more sophisticated, more entrenched, and they do--the harm they 
do to consumers and businesses is only becoming more severe.
    We work closely with law enforcement to address this in 
addition to try to educate our consumers. We are running out of 
tools, like Senator Grassley said in his opening statement, to 
keep up.
    We need urgent action from this Congress. The Informed 
Consumers Act, championed by the leadership of this Committee 
and several of its Members, will make a meaningful difference 
for us. This bill will help protect the consumers. It will aid 
law enforcement, and it will prevent crime. Making it harder 
for criminals to easily dispose of stolen goods to online 
marketplaces is the most significant step that we can take to 
curtail retail theft and reduce the real harm the organized 
retail crime represents to our employees and our customers.
    Chairman Durbin, Ranking Member Grassley, I appreciate your 
leadership on this issue and the entire Committee's commitment 
to combatting organized retail crime. Thank you again for this 
opportunity today, and I welcome your questions.
    [The prepared statement of Mr. Dugan appears as a 
submission for the record.]
    Chair Durbin. Thanks, Mr. Dugan.
    Mr. Muderick, you had a CNN interview a couple years ago, 
and you said that one of your employees was spending 15 to 20 
hours a week submitting forms, asking Amazon and other e-
commerce sites to remove products with your company's 
trademarks. Is that still going on?
    Mr. Muderick. What has happened is the producers of these 
goods have realized that infringing our marks is more difficult 
for them. They have changed to not infringe our marks, but it 
doesn't change the fact that they do not comply with safety 
standards and flood the marketplace at severely discounted 
prices.
    The problem remains. We just no longer have standing to go 
to the marketplace through these brand-owner protection 
mechanisms and say please take this down.
    Chair Durbin. They aren't using your trademarks or 
identification.
    Mr. Muderick. It is. It's dropped off significantly because 
we were so aggressive. They do use key words and other things 
that we can't enforce with our trademark to drive consumers 
toward purchasing these types of items rather than the 
legitimate product.
    Chair Durbin. Dr. Kammel, what I heard you say I think was 
that the controlling law case on this subject requires that the 
marketplace have knowledge of deception or counterfeit status. 
Is that true?
    Professor Kammel. That is correct. They need to be 
notified, often by the brand owner, that--which is the notice 
and takedown procedure, that there is a counterfeit posting 
before they're required by the law to take it down. Many 
marketplaces of course, you know, still take down counterfeits 
beyond this, but in order for them to be held liable--
secondarily liable for trademark counterfeiting, that's the 
standard for it. They only have to respond to specific 
knowledge of a counterfeit posting.
    Chair Durbin. Mr. Snowden, I guess the thing that has 
always mystified me is that these internet marketplaces which 
have grown in size, and all of us use them I think it's pretty 
safe to say. If they're going to maintain their reputation and 
integrity, they should be on our side in this battle. It took 8 
years to bring them around to that point. Why?
    Mr. Snowden. I would say we are on your side. We're on the 
side of the consumer. If you look at our customer satisfaction 
reports, you'll see that consumers actually enjoy the online 
experience for the convenience, but also, they get good 
products.
    What I think, as Ms. Kammel just said, is right in the 
sense that yes, when we have knowledge of something, we have to 
take it down, but we don't just wait for that. In 2020, Amazon 
took down over ten billion bad listings. This process was going 
on, online stores--we don't want this information on our 
marketplaces. It is not our goal. It hurts our reputation as 
online stores to have this type of activity on our store, so we 
want to get it off as fast as we can. It takes us working with 
retailers, rights owners, and law enforcement.
    Chair Durbin. I would say my observation, Amazon is late to 
the party, but we welcome them as a guest. They have said 
recently, quote, ``We look forward to working with lawmakers to 
further strengthen the bill.'' The proposals that they've made 
over the years do not strengthen the bill. They strengthened 
Amazon's hand in avoiding the bill. I, for one, am not going to 
stand by and watch this water down any further. We need to move 
on this. We're going to test your statement that they're on our 
side.
    Mr. Dugan, I asked a competitor of yours that happens to be 
located in my State of Illinois, and you can guess who I'm 
talking about.
    Mr. Dugan. Yes, sir.
    Chair Durbin. Why do you have these plastic flaps with keys 
necessary for underarm deodorant, for goodness sakes? What is 
going on here?
    Mr. Dugan. Senator, actually, that's actually a direct 
result of organized retail crime. Unfortunately, it varies 
sometimes in product by demographic or by city, or suburban 
neighborhood. We have to lock up those types of products to 
prevent organized retail crime groups from stealing them. 
Sorry.
    Chair Durbin. Let me pursue this for a second since we just 
have a minute left.
    Mr. Dugan. Yes, sir.
    Chair Durbin. They swoop in with some container and drag 
everything off the shelf. Where do they end up selling these 
products that they've stolen?
    Mr. Dugan. Online marketplaces are the No. 1 place for 
these professional crews to dispose of their products. Like to 
the Chairman's point, they don't come in and steal one or two 
of these. They steal all the deodorant in the store to maximize 
profits with their fence. Unfortunately, most of that product 
winds up on an online marketplace.
    Chair Durbin. Flea markets?
    Mr. Dugan. Flea markets are kind of a thing of the past, 
Mr. Chairman, quite frankly. I mean, they still exist. The 
online marketplaces and most flea market sellers also have an 
online presence, so they're not mutually exclusive from one 
another. They do both. Flea markets don't play the role that 
they used to because, quite frankly, the internet provides a 
much larger customer base that they can sell these products to.
    Chair Durbin. I'll just close by saying in 2019, the U.S. 
Customs and Border Protection reported that 83 percent of IP-
based seizures of goods came from one country, and you can 
guess what it is, the equivalent of $1.4 billion. We have 
retail theft at home being translated into the fencing of 
stolen goods and these internet marketplaces, and then we have 
the foreign suppliers of counterfeit goods, such as Mr. 
Muderick has referred to, that is another venue. There may be 
more, but those are the two that have been identified so far. 
Senator Grassley.
    Senator Grassley. Yes. To each of you, if you support 
legislation, what tools would you like to see in those 
legislations? What tools do you need?
    Mr. Muderick. Thank you. A more formal process to identify 
product we know is unsafe or does not meet safety standards and 
communicate that to the marketplaces versus only having 
intellectual property protection as the channel to communicate 
to that marketplace that would be a tool that would be very 
useful.
    Senator Grassley. Ms. Kammel.
    Professor Kammel. From my perspective, transparency is very 
important. We have a lot of statistics about takedowns and 
sellers, but not necessarily how many of those sellers had sold 
counterfeit prior to the takedown procedure, or what is 
happening on the backend beyond those initial statistics.
    At least from my perspective, the ability to use some of 
that data for research to study the problem further.
    Mr. Snowden. I would say information sharing is very 
important among all parties. It is something critical for this 
particular issue to understand who's doing what. Also, 
reporting requirements for particularly small sellers. Right 
now, I think in your bill it's about two days, and I think it's 
important if we have a little longer, like the House bill has 
10 days. I would encourage you to consider that as well.
    Mr. Dugan. I would say transparency, Ranking Member. 
Transparency equals accountability. We can hold people 
accountable. We've got to first figure out who they are, so we 
need that transparency first before any other remedy.
    Senator Grassley. Okay. To Mr. Muderick, Snowden, and 
Dugan, what collaborations or voluntary initiatives across or 
within stakeholder groups have you participated in? Have these 
been successful efforts? Are some marketplaces more cooperative 
than others?
    Mr. Muderick. As a member of the Toy Association, we work 
with our members, many of whom are manufacturers. Some 
retailers and online marketplaces are also members and have 
come to the table to have conversations. I have seen progress 
over the probably 8-year period that I've been involved in that 
conversation, specifically around again intellectual property 
protection, but have not seen progress at the table regarding 
these unsafe products or products that don't meet safety 
standards.
    Senator Grassley. Mr. Snowden.
    Mr. Snowden. I think what we're seeing right now with 
attorneys general across the country, we have Utah, Illinois, 
Arizona, California, the AGs are setting up organized crime 
taskforce, which brings in all the parties, brings in 
retailers, brings in us, brings in rights holders. That's 
important, because they're looking at it in a holistic point of 
view, which is the way we need to go and tackle this issue.
    This is organized crime. The key thing about them, they're 
organized. We have to make sure we get organized on our side as 
well, and that takes all of us.
    Senator Grassley. Mr. Dugan.
    Mr. Dugan. Yes, sir. Unfortunately, there hasn't been a lot 
of progress in that regard. There are some online marketplaces 
that do cooperate. eBay is a great example of a great partner 
on the investigative side.
    I will tell you that none of the online marketplace 
currently have the transparency to the level we're looking for 
to actually prevent crime. The Attorney General's State 
taskforces that are being stood up, that we're working very 
closely with, that talk about increased penalties, tougher 
penalties. They talk about resources they want to add. They all 
say the same thing, right? The thing we need to make this work 
from the online marketplaces, which right now we don't have.
    Senator Grassley. What do each of you believe has been the 
most successful strategy to counter illegal activity? Start 
with you, Mr. Muderick.
    Mr. Muderick. I think persistence. You know, our internal 
efforts nonstop to communicate this even when we feel like 
we're hitting a brick wall. I'm hopeful that one day we'll 
break through.
    Senator Grassley. Ms. Kammel.
    Professor Kammel. Proactive approaches to dealing with the 
problem. Reactive approaches, such as the notice and takedown 
procedures, are very necessary, but when we see either 
marketplaces or brands really trying to take a proactive 
approach before it ever gets posted, we find those the most 
effective.
    Mr. Snowden. I would agree with the proactive nature, with 
the last thing she said. I would also add that it's important 
that what's been successful is being able to have the 
partnership with brands and rights holders. They know what's 
counterfeit and they know what's illegal. Working that angle 
and having us work together I think has been the most success.
    Mr. Dugan. What I've learned in my years investigating this 
crime is that we're not going to be able to arrest our way out 
of this problem. We do need proactive solutions to really stem 
the tide of this growth of organized retail crime.
    Proactive measures, but preventative measures have been the 
most effective, and I think will be the most effective going 
forward, and I believe this bill does that.
    Chair Durbin. Mr. Dugan, I'm just going to jump in because 
I don't believe you've identified the percentage of the retail 
theft impact on a business, a drug store. Can you give a 
percentage of sales?
    Mr. Dugan. Unfortunately, Mr. Chairman, I'm unable to talk 
about specific retail shrink numbers, loss numbers to CVS. I 
will tell you this, Mr. Chairman; that it is pretty consistent 
across all retail, all types of retail. We're all seeing the 
crime affect us at a similar level, and it's higher than any 
other level it has been in history.
    I know that there are some CEOs that have made public 
statements about how that ORC is affecting their overall 
profitability, so I think those are available to you. We could 
possibly get back to you, Mr. Chairman, if needed.
    Chair Durbin. Please do. Senator Klobuchar.
    Senator Klobuchar. Very good. Thank you very much, Senator 
Durbin, for your leadership, long-time leadership on this 
issue, and all of you for your work.
    I want to focus on some bipartisan legislation that Senator 
Grassley and Durbin and others introduced with me, and that 
would prevent dominant digital platforms from engaging in 
behavior that unfairly harms competition like, relevant here, 
knocking off products sold on their platform.
    Recent reports in places like The Wall Street Journal have 
documented how Amazon has created knockoff products based on 
the data that they get from innocent companies that are selling 
on their platform. And of course, it's the big platform in 
town, and then engages in self-preferencing of their own brands 
above other brands.
    Mr. Snowden, do you support legislation in making it 
illegal to use special access to online seller data to create 
copycat versions of popular products?
    Mr. Snowden. Senator, this is an issue that I have members 
on both sides, so I have traditionally not taken a stance on 
the competition issues, and I don't plan to make news today.
    Senator Klobuchar. Okay. I just wondered. I knew that but I 
thought I'd ask. We have a lot of people on a lot of sides 
here, but just to be clear, I get this. At some point, this 
Congress has to take a side. Do you want to add anything, Mr. 
Dugan?
    Mr. Dugan. No, I'm sorry, Senator. This is the first I've 
heard of that, and I was kind of----
    Senator Klobuchar. You were nodding your head, so I thought 
you agreed with me.
    Mr. Dugan. I was learning something, Senator. You were 
teaching me something. I find it amazing. Thank you.
    Senator Klobuchar. Okay. Well, it's true. Mr. Muderick.
    Mr. Muderick. Thank you. A few months ago, I was sent a 
link to a new product on Amazon, an Amazon Basics version of 
our product, and I was obviously concerned. Then I looked a 
little deeper and I saw that not only was it a knockoff of our 
product, but it violated a number of our trademarks, so someone 
did not do their homework. We were able to quickly get it taken 
down through the Amazon brand registry, which speaks to some of 
the progress they've made, but I think it speaks also to an 
underlying problem that you have brought up here.
    Senator Klobuchar. Very good, and I appreciate that. I 
think we're seeing so much more of it than--you know, you just 
happen to be on this panel. We've had people who have 
experienced this as we know from the reporting, and I think 
there's just a lot of it. My view is that we've got to update 
our laws, which is part of the work that Senator Durbin and 
Senator Grassley have been doing.
    I'm also, of course, concerned about safety when consumers 
buy products online. Just last week in the Commerce Committee, 
I questioned SNAP about the heart-wrenching stores of young 
people in Minnesota who died after taking drugs that were 
purchased on SNAP. In one case, they didn't know that it was 
laced with fentanyl.
    Mr. Dugan, what are some of the harm consumers can 
experience when they unknowingly purchase unsafe goods online?
    Mr. Dugan. Thank you for that question, Senator. There's a 
lot of harms. I will say that there's virtually no product 
integrity online, so I would caution buying sensitive products 
online unless you know that they're safe.
    We spoke about infant formula. There's other cases that 
I've worked unfortunately involving organized crews that steal 
millions of dollars in diabetic test strips and sell them and 
store them at different temperatures, and then wind up 
counterfeiting the diabetic test strips, and then sell them to 
unsuspecting patients with diabetes across the country. There's 
a lot of harm across there. The effectiveness of over-the-
counter drugs, they expire. They get less effective. It's 
really a domino effect on the type of safety hazards that are 
out there when there's no product integrity.
    Senator Klobuchar. Of course, the fentanyl example is an 
example of drugs that shouldn't be sold at all on a platform. 
You know, SNAP has pledged to take these down and do what they 
can to get, in the witness' words at the last hearing, ``drug 
dealers off their platform.'' The truth is I continue to 
believe that when you have these new marketplaces with people 
making tons of money, that they have to start being responsible 
for taking this stuff down.
    Ms. Kammel, in your experience when consumers are making 
purchases online, do they have enough information to decide for 
themselves whether a product might be unsafe?
    Professor Kammel. No, they don't. Often, they are looking 
just at an image. Sometimes it's a copy of another brand's 
copyrighted image, and what information the seller decides to 
put on the site. One cannot tell what they're actually buying 
until they receive the product, even if it appears genuine at 
first glance.
    Senator Klobuchar. Whether it's counterfeit PPE on Amazon 
or advertisements for fake COVID-19 vaccines on Facebook, do 
you think that online platforms are doing enough to stop this 
conduct? What else should they be doing?
    Professor Kammel. There were a lot of initiatives around 
fake PPE and counterfeit COVID-related products for sure, and I 
do applaud the marketplaces for looking at that. Across the 
board, we see counterfeits in almost every industry that we 
work with, almost every product line that's successful. I 
believe more should be done proactively.
    Senator Klobuchar. Very good. I really appreciate it, and 
again, thank you very much, Mr. Chairman, for all your work on 
this and for being a cosponsor of our bill, which I think is so 
timely given what we're talking about here today. Thank you.
    Chair Durbin. Thank you, Senator Klobuchar. Senator Lee.
    Senator Lee. Thank you, Mr. Chairman. Thanks to all of you 
for offering your insights today.
    We've all seen that e-commerce has revolutionized the 
marketplace. It's revolutionized the way we live and operate 
and do business, and it's given a lot of people opportunities 
that they wouldn't otherwise have.
    There are some challenges that have of course accompanied 
this technological revolution and the corresponding social and 
economic revolution that it's occurred with it. As we seek to 
make the world a better place and the online experience to be 
better, we've got to be careful. Because any time we enact 
laws, those laws can have consequences. We want to make sure 
that any laws we enact and codify don't make things worse, or 
don't create one problem while purporting to solve another.
    The legislation we're talking about today is something that 
we ought to scrutinize carefully to make sure that we've got it 
right. I do have some concerns with it.
    Mr. Snowden, I'd like to start with you, if that's all 
right. The Inform Act has a laudable goal, one that I think all 
of us would share, of cracking down on counterfeit and stolen 
merchandise sales on the internet. Nobody wants that. Everyone 
wants to crack down on that, at least everyone in this room.
    I wonder how difficult some of the requirements might be 
for some companies, especially smaller online marketplaces. By 
smaller online marketplaces I mean, to a degree, anything other 
than the largest--anything smaller than the largest among them 
could suffer.
    For example, the bill requires verification of high-volume 
third-party sellers, and requires that within three business 
days, and then it also requires annual--continuous annual 
certification of all sellers. The threshold definition of a 
high-volume seller is set fairly low. It's triggered once you 
pass the required sales of between 5 and 7 thousand dollars 
annually. It's pretty low. It would take in a lot of people.
    Do you have any idea? I'm imagining that the combined 
sellers of your member companies can certainly be numbered in 
the many thousands, if not millions. Am I on track there 
roughly?
    Mr. Snowden. In the millions, yes.
    Senator Lee. In the millions. We're talking about millions 
and millions of sellers. Amazon might, just might be able to do 
this verification with technology. It might be able to do it 
just fine. I'm not sure. I doubt all of your members would. I 
definitely worry about smaller platforms that might not be able 
to do this.
    Could the bill--assuming that I'm right, that some really 
large online marketplaces, Amazon for example, might be able to 
do this, but smaller companies wouldn't, could the bill end up 
actually helping a company like Amazon while making it more 
difficult for smaller businesses to operate and do so in 
compliance with the law?
    Mr. Snowden. Senator, I think your characterization of 
sellers who use our online marketplaces is accurate. It can be 
someone, a mom who's working on handmade goods or something 
that she makes in her basement. She would fall to the 
verification process of having to do it every three days.
    I think what happens in the House bill, which is about ten 
days, gives a little bit more time and flexibility. We don't 
want to have barriers that will limit sellers from being able 
to get online and sell their goods.
    The beautiful thing about online marketplaces is that it 
opens up the door for more sellers, but also opens up the door 
for more buyers to see your products.
    Senator Lee. Right.
    Mr. Snowden. I would say that--the 10-day threshold I think 
would be important, and also raising the limit to $20,000. 
Right now I think it's, like you said, five or seven thousand 
dollars.
    One of the issues is if you think about someone selling 
something, if it's $5,000 over 200 sales, that's about $13 a 
week selling the product. That's not a lot of money.
    Senator Lee. Right. Right. Which gets to another concern 
that I've got. I do worry about language from the Inform Act, 
and in the Shop Safe Act, that would mandate the public 
disclosure of the platforms' sellers' names and contact 
information. This worries me for three independent reasons.
    Number one, there are a lot of individuals, moms and dads 
out there who work from home, or at least partially from home, 
who operate out of their homes. If they have to provide their 
name and their address, that could present some privacy and 
safety and security issues for them. Some of them might be 
deterred from engaging in that line of work at all.
    Number two, it could end up stifling competition by giving 
larger companies the ability to poach sellers, the sellers who 
have been affiliated with their smaller competitors. Number 
three, the sheer regulatory burden associated with this could 
itself create a natural barrier on entry, a natural restriction 
on entry, making it harder generally for smaller competitors to 
compete. Am I right to be concerned about those three things?
    Mr. Snowden. I think you are. The one concern or one I 
would applaud the Chairman and Members of the Committee who 
have worked with us and others, particularly in the House side 
as well as the Senate side, to increase to allow consumers or 
sellers to be able to report their business information versus 
their personal information, because that is definitely a 
barrier. If I'm a single mom working, creating products out of 
my basement, I don't want everyone to know where my home 
address is. I would definitely say that we need to keep going 
down that path.
    Senator Lee. Okay. Thank you very much. Thank you, Mr. 
Chairman.
    Chair Durbin. Senator Coons.
    Senator Coons. Thank you, Chairman Durbin, Ranking Member 
Grassley for holding this important hearing. The Ranking Member 
and I have been Co-Chairs of the Trademark Caucus for a long 
time and have held a number of Caucus meetings and hearings 
over the last decade about the risk that counterfeit goods 
provide or pose to American consumers.
    This testimony today is riveting and challenging. It 
reminds us that as the marketplace for the purchase of goods 
online has grown and grown, and particularly strongly during 
the pandemic, that the number of stolen and counterfeit goods 
that are now being stolen and fenced or produced and sold to 
American consumers has taken off dramatically.
    We've heard about unsafe goods, whether they're cell phone 
batteries or bike helmets or spoiled baby formula or 
counterfeit drugs that have harmed Americans. They also ruin 
the trust built between brand owners and consumers, as Crazy 
Aaron--not-so-Crazy Aaron--pretty wise and capable Aaron--has 
demonstrated to us today.
    I think we need to take stronger steps to address the 
online sale of these goods before they reach consumers' hands. 
There are some studies that suggest as much as a quarter of all 
Americans who have purchased goods online have unknowingly 
purchased a counterfeit good. That's why I'm proud, along with 
my colleague Senator Tillis, to have introduced the Shop Safe 
Act.
    I was pleased to see a strong bipartisan vote over in the 
House Judiciary Committee to send Shop Safe to the floor. It 
will encourage electronic commerce providers to adopt anti-
counterfeiting best practices in exchange for a safe harbor 
from contributory liability for trademark infringement. That 
bill will increase transparency, keep counterfeit goods with 
the health and safety impact out of consumer hands, and I think 
promote the health and safety of our country and continue to 
accelerate the growth of these innovative sales platforms.
    There's also an urgent need to provide transparency to 
consumers. That's why I'm also proud to support the Informed 
Consumers Act. As Mr. Dugan made clear, there's a great need 
for greater transparency.
    I think Shop Safe and Inform compliment each other to 
significantly increase transparency and accountability, and I 
urge my colleagues to support both of these important bills.
    Let me turn to some quick questions, if I could. Mr. 
Muderick, my daughter's a satisfied customer, really loves 
putty and slime and so forth, and had commented on just how 
inventive your products are. I'm struck by your descriptions 
about how hard it has been to enforce your trademark, and how 
much time you've had to dedicate to it. Could you just briefly 
give us a little more detail? How many other competitors, how 
many other small business owners like you have had to dedicate 
enormous amount of resources to the whack-a-mole game of notice 
and takedown, notice and takedown, notice and takedown with the 
online platforms?
    Mr. Muderick. We go to trade shows, at least pre-pandemic. 
So, us owners sit around, and we talk, and the toy industry in 
particular is a sort of started my life with something else, 
invented something, and landed here.
    Imitation is the finest form of flattery, and I think many 
of us are very, very flattered. I think if we have a successful 
product, you are going to see these outright knockoffs, 
counterfeiters coming into the marketplace.
    Senator Coons. You described how magnetic putty that has 
much lower safety standards posses a real threat to children 
and infants in particular. What would it mean to you and other 
small business owners if platforms took more proactive steps to 
combat counterfeit good sales?
    Mr. Muderick. It would reduce, on the one side, the 
resources we need to spend sort of pounding against a wall 
trying to get someone to listen. It would also, I think, would 
help our brand integrity. It would help consumer confidence, 
and we would probably receive more of the legitimate sales of 
the product than the sales which are going to illicit product.
    Senator Coons. Thank you. Mr. Dugan, how will the 
information that Inform would collect assist in combating the 
online sale of stolen goods?
    Mr. Dugan. Thank you for the question, Senator. I think it 
will do more to prevent these accounts from even being opened 
in the first place. It will definitely protect the consumers 
from these sellers. It will aid law enforcement. It'll enable 
us to identify the bad actors much quicker and will prevent the 
further expansion of the crime. I think right now, what's vital 
right now is that we're in the middle of an epidemic, that we 
take immediate action to slow this down.
    Senator Coons. Thank you, Mr. Dugan. Mr. Snowden, some 
platforms have said they'd like to see affirmative requirements 
for brand owners in Shop Safe. Why isn't the current duty brand 
owners have to police their own trademarks as Mr. Muderick has 
enough to encourage them to assist platforms in policing 
counterfeit goods, and what requirements would platforms like 
to see of brand owners in the bill?
    Mr. Snowden. I think one of the things you're doing in the 
bill is changing the liability, so the contributory liability 
is going to put the burden on us and not on them. They have no 
responsibility in this.
    It's important that they stay at the table as well. We 
cannot do this alone. It takes all of us. We have been 
proactive for many years working on this particular issue. I 
mean, when I look at the retail side, eBay has a program for 
over 10 years working directly with retailers to help identify 
suspicious products. This is something we want to do, but we 
need retailers. We need rights holders to make sure that they 
are still at the table, and they have a responsibility to help 
us police their products, as well.
    Senator Coons. Mr. Chairman, if I might have one final 
question. Professor Kammel, just help us understand how this 
balance works. If you would, describe the whack-a-mole problem 
experienced by brand owners. I've heard some argue Shop Safe is 
a handout to big tech, but it immunizes them from liability 
they already have in exchange for nothing meaningful. Is that 
accurate, or is it true that online platforms are not 
frequently broadly liable for trademark infringement?
    Professor Kammel. Sure. To the first part of your question 
about the whack-a-mole approach, this is when, as has been 
described today, a counterfeit posting is up. A brand owner 
tries to react to it, and they spend hours searching for these 
counterfeit postings across multiple e-commerce platforms. An 
entire subindustry has actually sprung up to basically monitor 
these platforms to the best of their ability, verify with the 
brand owners, and then submit for notice and takedown, so hence 
the term whack-a-mole. Once you take down one, another 10 or 20 
come up in its place.
    The second part of your question would you please repeat?
    Senator Coons. About contributory liability and whether 
this is just a handout to big tech, Shop Safe, that immunizes 
them from liability they already have in exchange for nothing 
meaningful. That's been one criticism after the House markup.
    Professor Kammel. Sure. I don't believe that. I think it 
addresses what I've written about, which is law disruptive 
technology. This technology has been wonderful for all of us. 
Everybody--I'm sure almost everybody in this room uses e-
commerce, but there still has to be a balance to it. We're sort 
of reaching that tipping point where we've seen all of these 
strict products liability cases being brought because people 
who are being injured cannot find the seller of the goods. To 
flip that back to the secondary liability, it creates the space 
where e-commerce platforms do have to proactively do something 
to prevent the postings from ever coming up. Brand owners still 
need to be involved to help identify what their trademarks are, 
but we find a more balanced meeting between them.
    Senator Coons. Thank you. Thank you for indulgence, Mr. 
Chairman. I look forward to working with all of you to reform 
this further. Thank you very much.
    Chair Durbin. Thank you, Senator Coons. On the floor, we've 
started the first of three roll calls. I'm going to go make the 
first one, and Senator Blumenthal is going to preside after I 
recognize Senator Blackburn.
    Senator Blackburn. Thank you, Mr. Chairman. Ms. Kammel, I 
want to come to you, if I may. Section 230. I know that some 
online sellers have used Section 230 as a shield to prevent 
them from liability. I come from Tennessee. Of course, we have 
aftermarket auto parts that copyrights have been infringed. We 
have things like Gibson guitars that have been infringed, and 
not to mention books that have been published, music.
    You know, when you talk about the auto parts, the engines 
for boats and motorsports, things of that nature, what 
sometimes we've seen in these cases where online sellers really 
tried to hide behind Section 230.
    Do you see that specific part of the law as something that 
is a potential obstacle to consumers who are trying to get 
recourse for having bought something that's a fraudulent 
product?
    Professor Kammel. I'm very aware of Section 230. It's not 
an area that I've spent a significant amount of time 
researching, but I do know that the sellers of counterfeit 
goods will try to hide behind almost anything they possibly 
can.
    Senator Blackburn. Oh, yes. Why don't you take a look at 
that, and then weigh back in with us?
    Mr. Muderick, let me come to you. Country of origin 
labeling. I've heard from so many people that sell online that 
they think this is a good thing. Also, from people who buy 
online because specifically, they don't want to be buying 
products from China, because many times, they feel like they're 
an infringed or a knockoff. Certainly, in Tennessee with some 
of our toy inventors, we have had problems. I'm certain you've 
met with some of these guys. Talk to me about why that type 
disclosure and how it can be done so that people get the 
protection and the knowledge, but their privacy is protected. 
Why is it a good thing?
    Mr. Muderick. Sure. I mean, when I was starting a business, 
I was making putty and selling it out of my home. When the time 
came that I felt like I needed some protection of my privacy of 
my home, I got a PO Box. At least there's a way to trace it 
back, right? Then eventually I got an office. There's ways to 
communicate to the customer, a place to go, especially if 
there's legal recourse, while maintaining personal privacy.
    In terms of country of origin labeling, obviously it's 
required by law. It's important for consumers. When I look at 
these products, sometimes they have it, sometimes they don't. 
Sometimes it will be in the online listing, sometimes it won't. 
Often, it is in conflict with whatever the online listing says. 
It's absolute chaos.
    Senator Blackburn. Mr. Snowden, I want to go back. Senator 
Klobuchar was asking you about protections. I think you might 
want to explain. It sounded, in your response, that you do not 
support intellectual property protections for U.S. innovators, 
and that's a protection to them under law. When you said you 
have members that are for disclosure, members that are against 
disclosure. Intellectual property protections are very 
important to this Committee.
    Mr. Snowden. I one hundred percent agree with you, and it's 
important to us as well. What I was referring to was Senator 
Klobuchar, she was mentioning her--the self-preferencing part 
of her bill, and that's the part that I said that I was not 
going to make a comment on today.
    Senator Blackburn. Okay. I think that's it. Let's go to the 
country of origin labeling. Where are your members on that?
    Mr. Snowden. The country of origin is a challenge for us, 
because sometimes, we may not even know. We don't touch the 
product in some cases. In other cases, some of our--well, let 
me back up. It's important to recognize that online 
marketplaces aren't just one company. I think someone said a 
moment ago, this is about big tech.
    There are small tech online stores, as well. When we try to 
track country of origin, a lot of that's tied up with trade 
agreements. It's also enforced by Border Patrol.
    Senator Blackburn. Do you think that everyone in the online 
marketplace has a responsibility to know what they're selling 
and what they're bringing to the marketplace? Would you agree 
with that?
    Mr. Snowden. What they're selling, yes, but the country of 
origin is very difficult.
    Senator Blackburn. Okay. Mr. Dugan, you want to weigh in on 
that?
    Mr. Dugan. This is a 50-State problem, Senator. We have 
plenty of homegrown thieves and organized retail crime 
organizations to deal with. Transnational organized retail 
crime is part of this, but not a major factor as far as we can 
see right now.
    Senator Blackburn. Okay. My time has expired. Ms. Kammel, 
I'm going to come back to you for a written answer on your 
comments on law disruptive technology. I think that that would 
be helpful as we look at how we're going to move forward on 
this issue and protect U.S. innovators, and protect a healthy, 
productive online place that consumers can feel and be certain 
that they know they're getting fraudulent, counterfeited 
products. Thank you.
    Senator Blumenthal [presiding]. Thanks, Senator Blackburn. 
I will preside while Senator Durbin is voting and recognize 
myself.
    To all the witnesses, thank you for being here today. As 
the Chair of the Commerce Subcommittee on Consumer Protection, 
I've been focused on the role of the Consumer Product Safety 
Commission and our consumer product safety laws, particularly 
in the struggle to get online marketplaces to take seriously 
their responsibility to recall dangerous items.
    We have a procedure now to protect people, recall dangerous 
products. All too often, the online marketplaces feel they have 
no responsibility to inform consumers or to in any way 
participate in recalls.
    Just as one example, in April 2019, I wrote to Facebook 
Marketplace and Craigslist about the fact that they were not 
effectively preventing the sale of recall products, including 
Rock 'n Play sleepers that have been linked to 32 infant 
deaths. They have been laggard, slow inconsistent in taking on 
responsibilities that other sellers and retailers observe. I am 
now considering reforms that should be made that would 
strengthen the CPSC.
    One of them is that we need to make sure online 
marketplaces are covered by the product safety and recall laws. 
Let me ask the witnesses, all of you, what role you think that 
the CPSC can have, along with the FTC, in enforcing these laws. 
I should just emphasize we have a lot of good laws. Often, 
they're unenforced. We've spent a lot of time making news laws 
that are then unenforced. Frustrating? Yes. Dangerous? Yes. We 
need to focus on enforcement and give the FTC and the CPSC the 
tools they need to assure that the law is more than just dead 
letter. Let me go down the panel.
    Mr. Muderick. Thank you. I've had conversations with CPSC 
and shared my information about the products that we have and 
the infringers that we see. I think that CPSC does an effective 
job at looking at the ports and bulk shipments that are coming 
into the United States, but I think they are very challenged, 
as is the Postal Service, at the single parcels that come 
through third-party sellers into the United States. It's just a 
torrent of small envelopes, and it's very hard for them to 
develop a strategy to interdict them or prevent them from 
reaching consumers' hands. I don't know. It's sort of outside 
the scope of my knowledge what we might do about it, but to me, 
that's where I see a major problem.
    Senator Blumenthal. Ms. Kammel.
    Professor Kammel. The areas that we research focus 
primarily on trademark counterfeiting, and then any overlap 
with consumer product safety issues. I think it's important for 
platforms or anyone who is in the business of providing a space 
for consumers to purchase product that whatever laws are in 
place, they uphold whether they're brick-and-mortar or whether 
they're an online space.
    Mr. Snowden. Senator, I think this is something I would 
like to come and talk to you about more. I will share that when 
we are notified of recalls or are made aware of recalls, we do 
pull the product down in most cases where we can, and also, we 
try to inform the consumer.
    In some cases, when you're trying to inform the consumer, 
the product may have been bought two or three years ago, and 
the email address, whatever we may have for that particular 
consumer we may not have, or they may not be able to be 
contacted. That is something that we are working on, and we 
take it very seriously.
    Mr. Dugan. I apologize, Senator. That's beyond my role at 
CVS Health. I'm not familiar with some of the laws that you 
mentioned earlier, but I would assume that we would be in 
support of any action that helps protect consumers.
    Senator Blumenthal. Thank you. Let me ask one more 
question. You know, one of the obstacles to effective 
accountability currently is Section 230, which in effect 
creates broad immunity for the platforms. Let me ask you, Ms. 
Kammel, whether you're familiar with the impediments of Section 
230 to effective accountability to consumers on the part of the 
platforms. I'm an advocate of reforming Section 230. We've 
managed in certain discreet areas to do it. We are proposing 
additional measures. Senator Graham and I have a proposal which 
we've introduced in past Congress. It's called the Earn It Act. 
It's bipartisan. It passed unanimously from the Judiciary 
Committee. Just one example of what we can do to impose greater 
accountability if we reform Section 230.
    Professor Kammel. Thank you for the question. I'm very 
aware of Section 230. It's not part of my current research, but 
I'm happy to provide you with some follow-up afterwards.
    Senator Blumenthal. That would be great. Anyone else who 
wants to add any views on Section 230, I'd welcome it. Thank 
you. Senator Hawley.
    Senator Hawley. Thank you, Mr. Chairman. Thanks to all the 
witnesses for being here. Mr. Dugan, I just want to start with 
you, if I could. I noticed something in your testimony that I 
thought was interesting. You said that much of the problem with 
counterfeit goods online is due to organized crime in brick 
stores, in brick-and-mortar stores, and that organized 
criminals shoplift from those stores, and then they turn around 
and they sell the goods online. Have I got that right?
    Mr. Dugan. No, Senator. I don't think I commented on 
counterfeit goods. Probably stolen goods.
    Senator Hawley. Yes, I'm sorry. Yes, stolen. I'm sorry. I 
introduced the word counterfeit. I mean, the goods online that 
are stolen, and then they steal them from brick-and-mortar 
stores and turn around and sell them online. Have I got that 
right?
    Mr. Dugan. Yes, sir.
    Senator Hawley. Okay. The New York Times earlier this year 
had a story in which you were quoted, I think, as saying, 
quote, ``Our security officers are assaulted on a pretty 
regular basis in San Francisco,'' and that San Francisco is one 
of the epicenters of organized retail crime. Have I got that 
right?
    Mr. Dugan. Yes, sir. You do.
    Senator Hawley. Okay. Can you just say more about that? 
Because I think this is something that is--has not been widely 
reported. It is not widely understood that part of the problem 
that we're seeing and counterfeit, or in this case, stolen 
goods online. We've got a deluge of these goods and it's linked 
also, it now turns out, to this crime wave that we're also 
seeing across the country. Maybe say something more about that.
    Mr. Dugan. Yes, thank you for that question, Senator. I 
will start by saying that this is not a big-city crime, that 
this occurs in all 50 states. Thefts of organized retail crime 
occur just as much in low-crime suburban neighborhoods as they 
do in America's largest cities. I know that's probably news to 
a lot of folks, because it's not covered on the media as it in 
some of our major cities.
    What I meant to say is, we were talking about San Francisco 
specifically. There's a lot of stolen product there that gets 
filtered to other states, specifically like Texas, North 
Carolina, and New Jersey. They get a lot of that stolen product 
from San Francisco. Like I said when I was trying to make a 
point was even though the product is stolen in one area, the 
problem is statewide. That's why we need Federal legislation.
    Senator Hawley. Right. Like in other words, it could be 
stolen from one place, San Francisco, New York, St. Louis, 
whatever, wherever. Then it finds its way online. It shows up 
in online marketplaces in some context, and it's competing with 
legitimate goods, with goods that are entirely legal online. 
Then you've got competition that's making its way to these 
online marketplaces that's due to organized crime at the brick-
and-mortar level, is that fair to say? Have I got that right?
    Mr. Dugan. That is fair to say, except I would add that 
it's unfair competition.
    Senator Hawley. Right. Yes, exactly.
    Mr. Dugan. They're getting the products for much, much 
cheaper. That's what our team does. We track these 
investigations State to State, all across the country, and then 
ultimately, it leads us to the same place, which is an online 
marketplace, which is why we're looking for your help today.
    Senator Hawley. What do you think is the best way for this 
body to address that phenomenon?
    Mr. Dugan. I think the swift passage of the Inform Act is a 
vital first step.
    Senator Hawley. Very good. Thank you for that. I want to 
turn to the Amazon self-preferencing question here for a 
moment. Mr. Muderick, I think that you testified to Senator 
Klobuchar earlier that your product in particular, that Amazon 
for a while had an Amazon Basics knockoff of your product. Have 
I got that right?
    Mr. Muderick. That's correct.
    Senator Hawley. It's now been taken down. Is that right?
    Mr. Muderick. It was taken down, only because it----I'll 
say accidentally infringed on some of our registered 
trademarks.
    Senator Hawley. I see. I just want to highlight this 
problem because I think it's so central. Last year, The Wall 
Street Journal reported that Amazon collects detailed data 
about merchandise, so Amazon can create copycat products. They 
did that with your product, it sounds like. The Report--The 
Wall Street Journal report said this was standard operating 
procedure. Amazon denied that. They said they had procedures in 
place banning the practice. Has that been your experience, Mr. 
Muderick?
    Mr. Muderick. I do not have any insight into how Amazon 
makes their decisions, but I was aware that the four-pack that 
they created, or six-pack that they created bore a striking 
resemblance to another unique item that we had on Amazon.
    Senator Hawley. It doesn't seem that you're the only one. 
Employees in the same report said that the procedures that 
Amazon referenced weren't enforced, and in fact, Amazon 
encouraged employees to break those procedures. Then last 
month, Reuter's reported that Amazon's own internal documents 
reveal it's still doing the same thing. The Markup has reported 
evidence that Amazon is systematically rigging its search 
engine to return results for its copycat products over 
producers like you, Mr. Muderick.
    I just want to drive home the point that we can talk all 
day about the problems of counterfeit goods, and those are 
significant, but that's not going to make a huge dent, I don't 
think, unless we do something about the self-preferencing on 
these platforms.
    I've introduced legislation that would prohibit this self-
preferencing. I've joined legislation by Senator Klobuchar and 
Senator Grassley that heads in the same direction, and I just 
want to underline that I think that is absolutely vital that we 
tackle this issue.
    Last thing, Mr. Muderick, in my few remaining seconds here. 
As Senator Blackburn was asking about some of the country of 
origin issues, and I want to just highlight this. Your product, 
tell us about the problem of counterfeiters using high-strength 
magnets in some of the knockoffs of your product. I think that 
these were not goods that were not made in the United States of 
America, is that right?
    Mr. Muderick. That's right. These samples I have here, 
which I ordered last week, were not made in the United States. 
Some of them do have producer markings. This one says made in 
China. This one says nothing at all. They do contain these 
high-strength magnets which cause significant hazard to 
children when they're playing with this product.
    Senator Hawley. Absolutely. I just want to underline that 
we're talking a lot right now about supply chain and 
manufacturing issues, which is absolutely important given our 
supply chain crisis. I think what we're also seeing in this 
context is that when giant companies like Amazon help hock 
foreign counterfeits, these are counterfeits. They're made 
abroad. Parents don't usually have any way of knowing this. 
It's very difficult to find out. They're not only endangering 
children. They're also taking jobs away from people like you 
and your company that are made here in this country and putting 
American kids at risk, as well as our own economy.
    We need to find ways to push back against this simultaneous 
problem of counterfeiting, of misrepresentation of goods, and 
also frankly offshoring. Thank you for bringing that to our 
attention, and thank you, Mr. Chairman.
    Chairm Durbin [presiding]. Thanks, Senator Hawley. Senator 
Hirono.
    Senator Hirono. Thank you, Mr. Chairman. I thank the 
panelists. Mr. Dugan, you mentioned that you think that the 
Inform Act should be passed as quickly as possible. My 
understanding is that the House version of this act changed the 
date when the consumer receives information about the product 
to after the point of sale. Do you support that change?
    Mr. Dugan. I support both the House legislation and the 
companion here in the Senate. I'm not an expert or legislator, 
so I'm going to kind of leave that to the legislators, if I 
could, Senator. I do support----
    Senator Hirono. Doesn't it make more sense to get the 
information to the consumer before the consumer purchases the 
item?
    Mr. Dugan. Yes. Yes. I prefer--I support that, yes.
    Senator Hirono. Since Mr. Dugan supports the passage of the 
Inform Act, do the other panelists also support the passage of 
this act? Please.
    Mr. Snowden. Senator, we have not weighed in with official 
support. Right now, we still want to work with the Committee to 
fine-tune some things in the bill, particularly the 
verification timelines and thresholds which are very important.
    Senator Hirono. It sounds as though you support the concept 
of disclosure information.
    Mr. Snowden. Correct, in any form.
    Senator Hirono. Yes.
    Professor Kammel. Yes, I do.
    Mr. Muderick. Yes, I do.
    Senator Hirono. Thank you. Mr. Muderick, you have brought 
to the attention of these online sellers, maybe Amazon that 
they have online unsafe products, and they don't take it down. 
You've been asked a number of questions relating to Section 
230. I'm wondering where the online platform receives money for 
advertising the product, whether they should be exposed to a 
liability? What do you think? Any of you.
    Mr. Snowden. I'm not sure if I fully understand your 
question, Senator. Can you----
    Senator Hirono. Right now, Section 230 pretty much protects 
the online marketplace of Google and, you know, Amazon. Let's 
just use Amazon--that whatever is the content, they have no 
responsibility for monitoring or doing anything, disclosing 
anything. I am cosponsor of, what is it, the Safe Tech Act, 
which requires that in certain instances, these platforms will 
not have the benefit of liability protection. One of the 
instances would be if they actually receive money for that item 
to be advertised on their platforms.
    Mr. Snowden. Section 230 allows us to actually take down 
the content. That's why it's so vital that we have that 
liability protection. Anything that would harm or dilute that 
protection would be a concern of ours.
    Senator Hirono. Except that if the platform does not take 
down this product as was the case with Mr. Muderick, then 
shouldn't there be some liability attaching? Because right now, 
there's nothing that really requires these platforms to take 
those kinds of precautions. If they want to, they can. If they 
don't, they still get the liability protection.
    Mr. Snowden. No. Actually, ma'am, there is law now that 
says if we are notified of something we have to take it down, 
and that is required. We do that.
    Mr. Muderick, I don't know all of his examples and I'm not 
familiar with everything. This is the first time I'm hearing 
about it, so I can't comment on exactly what he's saying. I can 
tell you that there is existing law that says if we're notified 
about something, we must take it down.
    Senator Hirono. That is surprising, because this Committee 
has had other hearings where certain video, for example, is 
very harmful, very--the platform is asked to take down a video. 
For example, a father whose daughter was shot and killed 
online, that video. He kept asking the platform to take down 
the video, and they never took it down. I don't understand your 
comment, that if you are requested, you have to take something 
down.
    Mr. Snowden. An example Mr. Muderick said was there were 
products that were infringing on his trademarks. In those 
cases, that information, once we're notified of that, there's 
precedence there. There's law there that says we have to take 
it down. That's notice and comment.
    Mr. Muderick. If I may.
    Senator Hirono. Yes.
    Mr. Muderick. On a monthly basis, we would send in lists of 
product which did not infringe our marks but were obviously in 
violation of Federal safety standards. On a monthly basis, we 
would follow-up with the same list of not only the same 
products, but even many cases, the same exact listing that had 
not been taken down.
    Senator Hirono. I am among the many Members of this 
Committee who are looking at the Section 230 immunity 
provisions to make some changes. I realize that every time we 
do that, I think there might be unintended consequences. The 
bill that I mentioned, Safe Tech Act, seeks to really define 
those instances when that immunity is not available. I'm going 
to continue to pursue that. I would ask the panelists to take a 
look at the Safe Tech Act. Thank you, Mr. Chairman.
    Chair Durbin. Thank you, Senator Hirono. Senator Cruz.
    Senator Cruz. Thank you, Mr. Chairman. Mr. Dugan, over the 
last several years, we've seen repeated efforts in Democrat-
controlled cities and states to effectively decriminalize 
theft. California, for example, said that any theft under $950 
is no longer a felony. We won't arrest you if you're under that 
dollar figure.
    A recent NBC News article stated that both CVS and 
Walgreens say shoplifting in San Francisco outpaces thefts at 
their stores across the country. Pretty common sense. If you 
remove or greatly reduce the penalty for stealing things, theft 
gets worse.
    What exactly are the figures for nonemployee theft in CVS 
stores around the country. In particular, how do the rates of 
theft differ in jurisdictions with so-called progressive 
prosecutors who decline to prosecute shoplifting versus 
jurisdictions where law enforcement is enforcing laws against 
theft?
    Mr. Dugan. Thank you for that question, Senator. 
Unfortunately, I'm not going to be able to disclose CVS 
financial information about loss. If you'll allow me to 
comment. This is not a big-city problem, right? 
Decriminalization is contributing to the problem. You're right, 
sir.
    Senator Cruz. Is there more theft in San Francisco than 
elsewhere?
    Mr. Dugan. No, sir.
    Senator Cruz. There's not?
    Mr. Dugan. Relative to the amount of stores and market 
share that we have, it's higher, but----
    Senator Cruz. NBC News was wrong when they said that.
    Mr. Dugan. I can only speak to what I see every day in the 
ground center, and I follow these criminals day to day from 
State to State and city to city.
    Senator Cruz. CVS would support other jurisdictions 
legalizing shoplifting up to $950?
    Mr. Dugan. CVS does not support legalizing shoplifting, 
Senator.
    Senator Cruz. Why not? Why not?
    Mr. Dugan. We're not going to endorse criminal activity.
    Senator Cruz. You're saying it has no effect.
    Mr. Dugan. I never said it had no effect.
    Senator Cruz. You said there's not worse shoplifting in San 
Francisco. I find that highly----
    Mr. Dugan. That doesn't mean no effect, Senator.
    Senator Cruz. Does it have an effect or not?
    Mr. Dugan. Yes, of course it does.
    Senator Cruz. What's the effect?
    Mr. Dugan. The effect is shoplifting is completely 
different than organized retail crime. If you're talking about 
shoplifting, that's a whole different dynamic than organized 
retail crime, or less retail crime----
    Senator Cruz. My question is what's the effect? You guys 
have the data.
    Mr. Dugan. I'm not sure I understand your question, 
Senator. Is there effect--do we take losses to shoplifting? 
Yes, like every other retailer, we take a loss.
    Senator Cruz. Are they greater in jurisdictions that 
effectively legalize it?
    Mr. Dugan. No, they're not.
    Senator Cruz. Then why would you oppose every jurisdiction 
legalizing shoplifting? Your answer's not making any sense, 
sir.
    Mr. Dugan. I respectfully disagree. I think I'm making 
perfect sense. What I'm saying, Senator, is this crime goes to 
all 50 States. It's not a big-city problem. Absolutely not.
    Senator Cruz. Why would you oppose every jurisdiction 
legalizing shoplifting? Sir, why would you oppose every 
jurisdiction legalizing shoplifting?
    Mr. Dugan. Why are we not going to oppose legalizing 
shoplifting?
    Senator Cruz. Why--yes.
    Mr. Dugan. No, we're not going to do that, Senator. We're 
not going to endorse criminal activity. Shoplifting is a 
different dynamic than organized retail crime, and what I'm 
here to testify about today is that organized retail crime 
effects every city including the major cities in Texas.
    Senator Cruz. All right. That's really quite remarkable. 
That's really quite remarkable. Let me ask a different 
question, which is you go into great detail about organized 
criminal organizations. I want to point to something in Ms. 
Kammel's testimony where she sites the work of J.P. Kennedy. 
He's written a lot on the subject of theft.
    One scholarly article that Mr. Kennedy wrote, ``Functional 
redundancy and response to employee theft within small 
businesses'', has an interesting paragraph on the second page 
which is relevant to this discussion.
    It says, quote, ``It has been estimated that employee theft 
within the United States is ten times more costly than all 
forms of traditional street crime, and that it cost victimized 
businesses in the U.S. economy as much as $400 billion a year. 
Furthermore, employee theft is estimated to cost victimized 
businesses significantly more than nonemployee theft within the 
same businesses.''
    In your experience, what is the relative magnitude of 
employee theft versus nonemployee theft for retailers?
    Mr. Dugan. My scope at CVS, Senator, is to investigate the 
external part of the theft. I don't have the internal figures 
necessarily at CVS.
    I will say overall as a president of the Coalition of Law 
Enforcement in Retail that internal theft is down. I could 
certainly provide you a report with those figures attached to 
it, Senator, if you'd like me to.
    Senator Cruz. Do you have any judgment as to which is 
bigger, employee theft or nonemployee theft?
    Mr. Dugan. I might be a biased opinion there, Senator, 
because I'm on the street every day working out organized 
retail crime. I see the harm that it does every day, why we 
need this Federal legislation. So I see it. I see it----
    Senator Cruz. Sir, with all respect, I'd like you to answer 
my question. Do you have any judgment as to which is bigger, 
employee theft or nonemployee theft? In particular, Mr. Kennedy 
says employee theft is ten times larger.
    Mr. Dugan. No, I would disagree with that assessment.
    Senator Cruz. Okay. Do you have any judgment as to which is 
bigger, employee theft or nonemployee theft?
    Mr. Dugan. Most recently over the last spread of this 
epidemic, I would say nonemployee theft.
    Senator Cruz. Okay. Thank you.
    Mr. Dugan. You're welcome.
    Chair Durbin. I want to thank the witnesses for coming in 
today and testifying. It was an interesting panel and drew a 
large part of our Membership here on the Senate Judiciary 
Committee. We have Committee jurisdiction issues which suggest 
that the Senate Commerce Committee has jurisdiction over this 
issue. We have jurisdiction over Senator Coons' aspects of it. 
That's ours to worry about.
    The problem is real, and we now have all the major players 
on board apparently toward doing something about it. I'm going 
to do my best, though not--it won't go through this Committee, 
to encourage the Commerce Committee to join with us in this 
effort.
    I thank you for lending your voices to it. It's been 13 
years for me since I first saw those Home Depot drills and 
realized what was going on out there. That's a long time to 
wait for an answer, maybe not by Senate standards, but by 
normal human standards.
    Thank you for joining us today, and with that, the Senate 
Judiciary Committee stands adjourned.
    [Whereupon, at 11:38 a.m., the Committee was adjourned.]
    [Additional material submitted for the record follows.]
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