How to Stop the Sale of Counterfeit Products by Online Marketplaces

By Paul Ausick Published Jan 30, 8:25AM EST

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How to Stop the Sale of Counterfeit Products by Online Marketplaces — © airdone / Getty Images

A new, authentic Louis Vuitton rolling carry-on bag will set a buyer back about $3,000. An admitted look-alike (i.e., a fake) could likely be purchased for around $500. A fake that the seller is trying to pass off as authentic might be available for even less.

Not so long ago, cheap imitations of high-end, branded goods were usually available only on street corners and buying the knock-off at a price that was too good to be true only violated the cardinal rule for consumers: Caveat emptor. The ease of setting up an e-commerce business selling fakes directly or through a vendor marketplace on a much larger website (say, Amazon or Walmart) has raised the problem of counterfeit goods to a whole new level.

In a report from the U.S. Department of Homeland Security (DHS) published last Friday, the agency said that between 2000 and 2018 the number of seizures of infringing goods at U.S. borders increased by an order of magnitude, from 3,244 to 33,810 annually. Industry studies cited by a U.S. Senate Finance Committee report published last April estimated that the global economic value of fake and pirated goods could reach $2.3 trillion by the end of this year.

The DHS report listed 11 “immediate actions” and recommendations for the agency and the federal government. First on the list is, “Ensure Entities With Financial Interests in Imports Bear Responsibility.”

In the six bullet points listed under this action item, four identify the Customs and Border Patrol (CBP) as the agency that will bear much of the burden for stopping counterfeit goods from entering the United States. The CBP will ensure that all “appropriate parties to import transactions are held responsible for exercising a duty of reasonable care.” The remaining bullet points are similarly vague and address only imported goods.

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Action item number 4 gets down to the nitty-gritty: “Apply Civil Fines, Penalties, and Injunctive Actions for Violative Imported Products.” Among the bullet points related to this action is this one: “CBP and ICE [Immigration and Customs Enforcement] will immediately begin to identify cases in which third-party intermediaries have demonstrably directed, assisted financially, or aided and abetted the importation of counterfeit merchandise.”

So now DHS has found the bad guys, what can they do with them? Until there is a “statutory change to explicitly permit the government to seek injunctive relief against third-party marketplaces and other intermediaries,” DHS will notify brand owners that may choose to seek injunctive relief “against persons dealing in counterfeit merchandise, whether through direct sales or facilitation of sales, following seizures of goods that are imported contrary to law.”

That sounds tough, but marketplaces like Amazon, eBay, and Alibaba have a built-in shield against charges of facilitating the sale of fake goods. That would be Section 230 of the Communications Decency Act of 1996, which exempts a website operator from accountability for the information posted on that website. Facebook, Amazon, eBay and a host of other marketplace-type sites use this shield to justify publishing fake news or listings of counterfeit products.

A marketplace’s ability to hide behind the law renders almost toothless another DHS action item: “Enhanced Post-Discovery Actions.” DHS recommends that the “platforms” take several steps following the discovery of the sale of fake goods, including “notification to any buyer(s) likely to have purchased the goods in question with the offer of a full refund.” That would be a sea change in the way third-party marketplaces operate currently. Hiding behind the 1996 act, full refunds are not offered because the marketplace is not accountable for how its sellers behave.

Rather than burden DHS with administrative and enforcement, Congress could simply repeal section 230 of the 1996 act. Without that to hide behind, third-party marketplaces would have to clean up their acts, at least to the degree of offering refunds to customers who demand it.

The marketplace sellers will get the message. There’s nothing like a threat of profit destruction to focus the mind.

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About the Author Paul Ausick →

Paul Ausick has been writing for a673b.bigscoots-temp.com for more than a decade. He has written extensively on investing in the energy, defense, and technology sectors. In a previous life, he wrote technical documentation and managed a marketing communications group in Silicon Valley.

He has a bachelor's degree in English from the University of Chicago and now lives in Montana, where he fishes for trout in the summer and stays inside during the winter.