Fake goods are entering the country, and the government is planning harsher methods to deal with the problem, according to CNBC. Referring to a report published by the US Department of Homeland Security (DHS) on Friday, CNBC said it gives officials “greater power to examine shipments in U.S. warehouses and fulfillment centers, including Amazon’s sprawling network of warehouses across the country.”
All ecommerce platforms would be subject to the practices laid out in the report designed to fight counterfeiters, and it appears third-party sellers will also face greater scrutiny – and punishment.
“The government said it intends to collect more data about domestic warehouses and fulfillment centers in certain transactions with third-party sellers, seek financial penalties on third-parties that assist in importing counterfeit goods and create a new consortium of various stakeholders to share information about the trafficking of counterfeit goods,” CNBC wrote.
The Homeland Security report focuses its attention on online marketplaces, but it also sees shipping carriers, search engines, and payment processors as playing a role in how counterfeiters are able to operate.
CNBC noted that the President has “routinely gone after Amazon and CEO Jeff Bezos, who also owns the Washington Post.” On Saturday, a professor and antitrust expert tweeted that “Amazon won’t crack down on fakes unless a brand pays for more “marketing.”” Amazon disputed the claim, tweeting back: “Amazon does not base counterfeit protection on the payment of marketing fees. Not now, not ever.”
The Homeland Security report, available on the DHS.gov website (PDF format), spells out immediate actions by DHS and recommendations for the US government. It also published “Best Practices for E-Commerce Platforms and Third-Party Marketplaces.”
Immediate Actions by DHS and Recommendations for the U.S. Government
- Ensure Entities with Financial Interests in Imports Bear Responsibility
- Increase Scrutiny of Section 321 Environment
- Suspend and Debar Repeat Offenders; Act Against Non-Compliant International Posts
- Apply Civil Fines, Penalties and Injunctive Actions for Violative Imported Products
- Leverage Advance Electronic Data for Mail Mode
- Anti-Counterfeiting Consortium to Identify Online Nefarious Actors (ACTION) Plan
- Analyze Enforcement Resources
- Create Modernized E-Commerce Enforcement Framework
- Assess Contributory Trademark Infringement Liability for Platforms
- Re-Examine the Legal Framework Surrounding Non-Resident Importers
- Establish a National Consumer Awareness Campaign
Best Practices for E-Commerce Platforms and Third-Party Marketplaces
- Comprehensive “Terms of Service” Agreements
- Significantly Enhanced Vetting of Third-Party Sellers
- Limitations on High Risk Products
- Rapid Notice and Takedown Procedures
- Enhanced Post-Discovery Actions
- Indemnity Requirements for Foreign Sellers
- Clear Transactions Through Banks that Comply with U.S. Enforcement Requests for
- Pre-Sale Identification of Third-Party Sellers
- Establish Marketplace Seller ID
- Clearly Identifiable Country of Origin Disclosures
Those best practices should be swiftly adopted by ecommerce platforms that operate third-party marketplaces, and other third-party intermediaries, according to the report, and “Under the authority of the Secretary of the Department of Homeland Security, these best practices shall be recommended and communicated to all relevant private sector stakeholders by the ICE/HSI-led IPR Center.”
The report lays out specifics, and they could have a major impact on sellers. Here are some highlights:
Significantly Enhanced Vetting of Third-Party Sellers
Significantly enhanced vetting of third-party sellers is one of the most effective forms of due diligence platforms can engage in to reduce the risk of counterfeits entering the e-commerce stream. Platforms should have a uniform and articulable vetting regime to determine if a seller will be allowed to list products for sale.
To facilitate enhanced vetting, platforms should, at a minimum, require the following:
(1) sufficient identification of the seller, its accounts and listings, and its business locations prior to allowing the seller to list products on the platform;
(2) certification from the seller as to whether it, or related persons, have been banned or removed from any major e-commerce platforms, or otherwise implicated in selling counterfeit or pirated products online; and
(3) acknowledgment, where applicable, that the seller is offering trademarked products for which the seller does not own the rights (either because they are a reseller or seller of used products).
Information provided by potential sellers should also be vetted for accuracy, including through the following efforts:
(1) use of technological tools, as well as analyses of historical and public data, to assess risk of sellers and products; and
(2) establishment of an audit program for sellers, concentrating on repeat offenders and those sellers exhibiting higher risk characteristics.
Any failure to provide accurate and responsive information should result in a determination to decline the seller account and/or to hold the seller in violation of the platform’s terms of service.
Clear Transactions Through Banks that Comply with U.S. Enforcement Requests
Many foreign sellers on third-party marketplaces do not have a financial nexus to the United States, making it difficult to obtain financial information and to subject all parts of the transaction to U.S. law enforcement efforts.
Platforms should close this loophole by encouraging all sellers to clear transactions only with banks and payment providers that comply with U.S. law enforcement requests for information and laws related to (relevant to) the financing of counterfeit activity.
Another section titled “Pre-Sale Identification of Third-Party Sellers” includes the following best practice: “Platforms should implement additional measures to inform consumers, prior to the completion of a transaction, of the identity of storefront owners and/or those responsible for fulfilling a transaction, as well as any allegations of counterfeits being sold by a particular seller. On the converse, if a particular seller is a licensed reseller of the product, this information should also be provided.”
The DHS also recommends the establishment of “Marketplace Seller IDs,” allowing one business to have many different profiles that can appear unrelated. An excerpt of the recommendation follows:
“Platforms should require sellers to provide the names of their underlying business or businesses (if applicable), as well as any other related seller profiles owned or controlled by that seller or that clear transactions through the same merchant account.”
We’re guessing sellers will be concerned by some of the recommendations, while applauding others – we think it’s fair to say that most sellers are concerned with having to compete with counterfeit goods that harm a marketplace’s reputation and drive down prices. But the old adage, “be careful what you wish for,” may apply.
Let us know what you think and how you expect the crackdown to affect you.