[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
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HEARING
BEFORE THE
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
NOVEMBER 2, 2021
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Serial No. J-117-44
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Printed for the use of the Committee on the Judiciary
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
www.judiciary.senate.gov
www.govinfo.gov
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U.S. GOVERNMENT PUBLISHING OFFICE
55-481 WASHINGTON : 2024
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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
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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.]
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