Home PublicationsCommentary The SHOP SAFE Act Would Undermine E-Commerce Without Protecting Consumers

The SHOP SAFE Act Would Undermine E-Commerce Without Protecting Consumers

by Becca Trate

Congress is considering legislation that would impact every online shopper. The Stopping Harmful Offers on Platforms by Screening Against Fakes in E-Commerce Act (SHOP SAFE Act of 2021) has passed the House as a part of the America COMPETES Act, legislation that was supposed to be narrowly focused on enabling the United States to compete with China.

SHOP SAFE is touted as a series of common-sense changes to protect consumers against counterfeit products that pose a risk to health and safety. However, the act’s broad language would place an undue burden on online marketplaces to police third-party sellers and their listings while exposing these platforms to additional liabilities and raising the barrier for businesses to sell online, ultimately hurting consumers by reducing their options.

There are multiple problems with the act. First, the country-of-origin requirement would leave an online marketplace liable for third parties selling counterfeit products unless the platform “displayed conspicuously in each listing the country of origin and manufacture of the goods.” However, online marketplaces are not always in a position to determine the country of origin of products sold by third parties—in many cases, the seller sends the product directly to the buyer. Third-party sellers engaging in counterfeit may also intentionally provide false information about the country of origin of their products. Therefore, requiring online marketplaces to provide this information will do little to prevent counterfeit products from reaching the market. Instead, it only opens online marketplaces to potential liability for counterfeit items and may lead them to limit third-party sellers.

Second, the legislation would require platforms to create “proactive measures for screening goods” before sellers can list them for sale and “a program to expeditiously disable or remove” potential counterfeit goods. Requiring the platforms to preemptively and exhaustively review all potential products listings creates an expensive and challenging undertaking for platforms to effectively comply and could ultimately discourage new platforms from creating marketplaces. It may also lead to platforms removing legitimate listings or removing third-party sellers in an abundance of caution, ultimately reducing consumer options when shopping online.

The SHOP SAFE Act also fails to address the need for consistency in counterfeiting prevention practices internationally. The European Union has implemented helpful policies to regulate online marketplaces and will likely soon adopt new proposals to address the problem of counterfeit goods. However, despite their shared goals, the provisions put forward in the SHOP SAFE Act needlessly create different rules for online marketplaces. This burdens companies to police the growing number of globally operating third-party sellers with an inconsistent rulebook. The confusion this may cause, combined with the potential liability opened by SHOP SAFE, may lead marketplaces to limit the reach of third-party sellers or to exclude them altogether. Instead of creating additional layers of rules, U.S. legislators should recognize these common goals and work to create regulatory measures consistent with European practices.

Finally, the scope of the SHOP SAFE Act broadly defines e-commerce platforms in a way that captures nearly every consumer-connected platform online. The act loosely defines “electronic commerce platforms” as any platform that features publicly interactive features that allow for “arranging the sale or purchase of goods, or that enables a person other than an operator of the platform to sell or offer to sell physical goods to consumers located in the United States” with sales of more than $500,000 in a single year. The scope expands further to include any platform served with 10 notices of trademark infringement in the platform’s lifetime. Notably, the threshold to count towards the 10-notice aggregate is if “a listing on [a] platform… reasonably could be determined to have used a counterfeit mark,” but does not require it to be a confirmed instance of trademark infringement. This provision means essentially any online platform, including those that are not exclusively e-commerce sites but maintain a marketplace, such as Facebook, could be subject to SHOP SAFE’s regulations and face heightened liability.

Online marketplaces benefit both businesses and consumers. For example, Amazon’s platform hosted 500,000 U.S.-based third-party sellers and added 200,000 small and medium-sized enterprises businesses that serve the U.S. marketplace in 2020 alone. Similarly, Etsy hosted 2.7 million active U.S. sellers in the United States and contributed $13 billion to the U.S. economy in the same year. These platforms provide sellers with a needed venue to conduct business and give consumers access to a wide range of products and sellers.

Though the goal of SHOP SAFE is important, this is not the right solution to address the problem of counterfeits. It would negatively impact online marketplaces by introducing heightened liability, compliance expenses, and inconsistent guidelines and could ultimately result in platforms limiting consumer choice by removing third-party sellers. Congress should not include the SHOP SAFE Act in the final compromise text of America COMPETES or the U.S. Innovation and Competition Act (USICA). Instead, it should work alongside stakeholders to create targeted legislation to protect consumers from counterfeit goods without undermining the benefits of online marketplaces.

Image credit: Max Pixel

You may also like

Show Buttons
Hide Buttons