Counterfeiting: Amazon Anticipates Increased Judicial Risk
On January 31, 2019, Amazon delivered its annual report to the Securities and Exchange Commission (SEC). After referring to a possible amendment of the US law on the liability of Internet intermediaries, Amazon acknowledged that it could be held liable for the activity of its users, particularly for counterfeiting:
“The law relating to the liability of online service providers is currently unsettled. In addition, governmental agencies could require changes in the way this business is conducted. Under our seller programs, we may be unable to prevent sellers from collecting payments, fraudulently or otherwise, when buyers never receive the products they ordered or when the products received are materially different from the sellers’ descriptions. We also may be unable to prevent sellers in our stores or through other stores from selling unlawful, counterfeit, pirated, or stolen goods, selling goods in an unlawful or unethical manner, violating the proprietary rights of others, or otherwise violating our policies. Under our A2Z Guarantee, we reimburse buyers for payments up to certain limits in these situations, and as our third-party seller sales grow, the cost of this program will increase and could negatively affect our operating results. In addition, to the extent any of this occurs, it could harm our business or damage our reputation and we could face civil or criminal liability for unlawful activities by our sellers. “
Certainly, the main objective is to anticipate the evolution of the results so that investors “swallow the pill” more easily. Contrary to what is often stated in the press since the publication of this annual report, this is not the first time that Amazon acknowledges the problems related to counterfeit goods on its various local and regional platforms. Amazon, by far the most used platform in the world, has always been confronted with the phenomenon of counterfeiting; Amazon is widely aware that the displaying of counterfeit goods is inevitable. Like many other platforms, Amazon has established an anti-counterfeit system. The latter aims to reassure users and to maintain good relations with the owners of intellectual property rights. It is crucial for any platform to provide prompt and effective responses to every stakeholder’s concerns and expectations. These anti-counterfeiting measures are, at least, highly recommended. In some legal systems, it is even made compulsory. This is what we learned from Harley Davidson c. SunFrog (iptwins.com, June 27, 2018), after which SunFrog was sentenced to $ 20 million. But the interest of this decision lies not exclusively in the astronomical amount of damages. Indeed, e-commerce platforms have an obligation to invest in systems and policies designed to protect intellectual property rights.
It should also be remembered that Amazon itself sues counterfeiters. In early 2018, Amazon teamed with intellectual property owners of Vera Bradley and Otterbox brands to sue counterfeit sellers before Washington State courts (No. 2: 18-cv-00353; No. 2: 18-cv-00356 and No. 2: 18-cv-00350).
The truth is that the organization and the means of production of the counterfeiters easily make it possible to feed a large majority of the online marketplaces. The anti-counterfeiting policies and systems put in place by online marketplaces are powerless, on their own, to contain the flow of counterfeits. The dam erected to limit the consequences of a wave of a few meters is not enough to stem a tsunami. IP Twins monitors hundreds of e-commerce platforms; counterfeiting is everywhere. The question of whether Amazon has the necessary financial, technical and human resources does not arise. This may explain that several intellectual property rights owners (including Chanel (iptwins.com, Nov. 16, 2018) and Maus Frères (iptwins.com, Nov. 15, 2018)), association of intellectual property rights owners (Unifab (iptwins.com, Nov. 22, 2018) and the American Apparel & Footwear Association, AAFA (iptwins.com, Oct. 18, 2018), as well as the European Commission (iptwins.com, Dec. 16, 2018) have recently designated Amazon in lists of counterfeit sites.
Online marketplaces are already (and perhaps more in the future) involved in judicial procedures, for example in order to disclose the data needed to identify the counterfeiters (eg in India: Lifestyle Equities CV and Ors v. Amazon Sellers Private Service Ltd., CS (COMM) 1015/2018). However, given the systemic infringement of intellectual property rights, the risks faced by consumers and the success of online market platforms, it would not be surprising if legislations move towards greater accountability of the online marketplaces. What Amazon is anticipating seems to be an increased judicial risk.