Academics, Civil Society, Internet Companies All Explain Just How Ridiculously Dangerous SHOP SAFE Is

Policy

from the this-won't-make-anyone-safe dept

Last fall we had a whole series of blog posts explaining just how dangerous Rep. Jerry Nadler’s SHOP SAFE bill would be. It’s one of those bills that if you just hear what it’s about — stopping the sale of counterfeit goods online — sounds good. But only if you don’t understand how basically anything actually works in the real world, including the laws around liability and counterfeiting. SHOP SAFE would upend concepts related to intermediary liability and basically lock in Amazon as one of the only companies that could probably handle the massive compliance costs associated with SHOP SAFE.

And, so, of course, Rep. Nancy Pelosi was happy to include SHOP SAFE in the otherwise useful omnibus COMPETES Act. The Senate companion to COMPETE, known as USICA, didn’t include SHOP SAFE and the two houses of Congress have been trying to sort out the differences.

Recently, two letters were sent to congressional leaders to explain just how incredibly dangerous it would be for the internet if SHOP SAFE became law. The first letter was from over two dozen academic experts in trademark/counterfeit law, explaining the serious deficiencies in the bill:

Rather than protecting consumers, the SHOP SAFE Act would curtail many existing online marketplace offerings that currently give consumers greater choices and spur price competition that reduces consumer costs. In a pandemic era with rising inflation, taking away options for consumers to shop at home and increasing consumer prices is the opposite of what constituents want Congress to do. The bill also puts many small online entrepreneurs, and the jobs they provide for Americans, at risk.

The SHOP SAFE Act would do this by fundamentally changing trademark law. For over a decade, trademark law has been clear that online marketplaces must honor takedown notices that trademark owners submit about specific listings. This well-settled rule balances the interests of trademark owners, online marketplace operators, online marketplace vendors, and consumers. The SHOP SAFE Act would overturn the existing rule in two critical ways. First, it would empower trademark owners to send broad takedown notices that aren’t listing-specific, putting online marketplaces in an untenable position of trying to determine the legitimacy of individual listings without the benefit of the trademark owner’s unique expertise. Second, it would create a brand-new statutory cause of action against online marketplaces that would hold them liable even in circumstances where trademark owners didn’t send any takedown notices at all.

As we have seen repeatedly over the past two decades, in both the trademark and copyright contexts, rightsowners routinely send illegitimate takedown notices and overclaim their rights. But current law allows services and other recipients of such demands to push back. SHOP SAFE removes the balancing approach of existing law. The SHOP SAFE Act will accelerate misbehavior—with the help of the act’s imprecise definitions for key terms such as “counterfeit,” “electronic commerce platform,” and “goods that implicate health and safety.” Trademark owners will misuse their new and extraordinary powers to broadly restrict legitimate competitive offerings on online marketplaces, such as non-infringing imitators and resellers of used goods. Furthermore, in the face of essentially unmanageable legal liability, online marketplaces would proactively restrict many legitimate marketplace activities. This will especially impact online merchants and the jobs they create.

Ironically, the changes by online marketplaces in response to the SHOP SAFE Act are likely to hurt trademark owners. First, the compliance and risk management costs imposed by the act will eliminate existing online marketplaces from the industry, consolidating e-commerce into a smaller number of marketplaces/retailers and enhancing their ability to dictate price and other terms to trademark owners. Second, the reduced activity in online marketplaces will eliminate distribution opportunities for trademark owners, decreasing their sales volume.

The SHOP SAFE Act represents a negative-sum policy, where it likely hurts every stakeholder and benefits none of them. Given that risk, this is not the kind of bill that should bypass Congress’ normal review procedures. The SHOP SAFE Act deserves thorough vetting by Congress so that the pitfalls can be fully understood and perhaps policy solutions that better balance the needs of all constituencies can emerge. Bundling the SHOP SAFE Act into an omnibus bill like USICA or America COMPETES prevents those dialogues from taking place, to the detriment of all of us.

Then, another letter was sent by a diverse group of civil society organizations, think tanks, and internet companies as well.

SHOP SAFE represents a seismic shift in law and policy around contributory trademark infringement. Yet, it has not received anything close to sufficient attention and vetting. Among other things, SHOP SAFE would effectively require digital services to monitor their users’ posts for potential trademark infringement—creating barriers to entry for smaller services, making it harder for American small businesses to reach their customers, and limiting creative expression by encouraging the over-removal of non-infringing posts. Due to the overbreadth of the bill, consumers could be negatively impacted because smaller services and smaller sellers may cautiously err on the side of removing legitimate listings or even shut down due to compliance burdens. This runs counter to the bill’s stated goals of enhancing American competitiveness by severely limiting the opportunities for American small businesses to offer their goods and services to consumers.

The Senate has not had an opportunity to properly consider this bill and discuss how best to balance major policy changes to protect consumers while avoiding harming legitimate American small businesses. Additionally, the House Judiciary Committee failed to fully consider the concerns stakeholders raised with the Committee. At the bill’s markup, numerous House Judiciary members voiced bipartisan concerns about the bill’s broad reach and negative impacts on consumers and small businesses. Unfortunately, while Committee leadership publicly agreed to continue work to address the concerns of the diverse stakeholders affected by this legislation, instead, as Rep. Lofgren notes, “we now find SHOP SAFE has been inserted without improvements[.]”

Congress should not shoehorn this kind of dramatic policy change into the final compromise between USICA and America COMPETES or other “must-pass legislation.” This type of proposal should be carefully considered in the Senate with a transparent legislative process that accounts for full stakeholder participation. Since the bill’s pervasive flaws remain, they are not the sort of problems that can be resolved in conference and SHOP SAFE should be altogether excluded from the final package. Allowing SHOP SAFE to proceed, as-is and tacked-on to unrelated legislation, would set a dangerous precedent for policymaking that is fundamentally connected to our economy, innovation, competition, and free speech.

Hopefully Congress recognizes the significant and serious problems and dangers associated with SHOP SAFE, and removes it from consideration of any kind of larger omnibus bill regarding US innovation.

Filed Under: competes act, competition, counterfeits, innovation, intermediary liability, marketplaces, trademark, usica