Faced with the continually expanding sale of counterfeit products online, more than ever, brand owners need to adapt and explore new and different ways to disrupt counterfeiters and make it harder and more expensive for them to succeed.
Brand owners typically rely on automated monitoring software and takedown notices, domain name dispute procedures and civil and criminal actions to combat the online sale of counterfeits. However, the problem has become worse as new generic top-level domains (gTLDs) proliferate. When brand owners succeed in taking down product listings and websites for counterfeit goods, counterfeiters can quickly, easily and inexpensively relist the products, register new domain names and launch new websites. Faced with the continually expanding sale of counterfeit products online, more than ever, brand owners need to adapt and explore new and different ways to disrupt counterfeiters and make it harder and more expensive for them to succeed. This chapter explores some alternative strategies for fighting counterfeiting online.
Using copyright law to remove images of counterfeit products
Copyright law can provide a cost-effective tool to combat counterfeiting in products that are not themselves protected by copyright, trade dress or design patents, by focusing on the use of photographs of counterfeit products.
Under-inclusiveness of monitoring brands only
Online monitoring tools that search well-known e-commerce websites (eg, Alibaba, Taobao and eBay) for counterfeits have historically looked for the use of brands. However, such searches fail to locate product listings that use only photos of the products. Indeed, counterfeiters appear increasingly to use images of products and, in many cases, use the brand owners’ own photos of genuine products to sell knockoffs, some of which are unbranded. Alibaba founder and chairman Jack Ma was quoted as saying that: “fake products today are better quality and at a better price than the real names. They are the exact factories, the exact raw materials, but they don’t use the brand names” (The Wall Street Journal, June 15 2016). Since many consumers are interested in products that look genuine but are cheaper, counterfeiters’ use of photographs of genuine products without the brand names can be an effective sales tool.
Now new tools enable brand owners to search e-commerce websites for photos that are identical or similar to brand owners’ product photos. These tools enable brand owners to locate product listings of counterfeit products that are not returned by trademark monitoring tools.
Copyright protection for product photos is low cost
Since brand owners’ photographs are protected by copyright law, brand owners can rely on this, rather than trademark law, to take down listings and websites that sell infringing products such as athletic shoes, furniture and lighting. Copyright law provides certain advantages.
Copyright protection is automatic and does not require registration. This is the legal standard not only in the United States, but in all 172 countries that are members of the Berne Convention (see www.wipo.int/treaties/en/ShowResults.jsp?lang=en&treaty_id=15 ). Thus, unlike trademarks, which must be registered in most jurisdictions in order to establish rights, in convention member countries copyright protection is not conditioned on registration. In addition, the convention provides for certain minimum standards of protection which are comparable to protection under US copyright law. Thus, brand owners can rely on copyright protection to accomplish takedowns of the photos used to sell infringing products not only in the United States, but in many countries around the world.
Takedown procedures apply only to copyrighted works
While many e-commerce sites, including Amazon, eBay, Alibaba and TaoBao, have implemented takedown procedures for product listings that infringe trademarks, the takedown procedures mandated by US law apply only to copyright claims (the Online Copyright Infringement Liability Limitation Act, 17 USC §512 (passed in 1998 as part of the Digital Millennium Copyright Act). This law provides a conditional safe harbour for internet service providers (ISPs) – called ‘online service providers’ by the act – for certain acts of infringement, such as transmitting, caching, storing or linking to infringing material. If the brand owner sends a Digital Millennium Copyright Act notice to the ISP to take down the brand owner’s photographs of alleged counterfeit products on a website hosted by it, the ISP is immune from liability for damages if it promptly disables access to the infringing photographs and complies with certain other statutory requirements. The accused infringer has the opportunity to provide a counter-notice contesting the takedown notice. If the accused infringer fails to do so, the ISP will continue to disable access. Thus – unlike trademark laws, which have no safe harbour provision – the copyright laws provide a significant incentive for ISPs to comply with takedown notices.
New ways to obtain help from service providers
Brand owners have also turned to service providers such as domain name registrars, search engines, payment providers and others for help in their anti-counterfeiting efforts (and in some cases, have sued service providers for contributory infringement, with mixed results). However, over the past few years, new ways to streamline assistance from service providers have been introduced, including the Internet Corporation for Assigned Names and Numbers’ (ICANN) Uniform Rapid Suspension (URS) system for domain names, Google’s Trusted Copyright Removal Programme and the International Anti-counterfeiting Coalition’s RogueBlock programme to facilitate termination of merchant accounts of counterfeiters.
Google’s Trusted Copyright Removal Programme
Search engines such as Google will take no action against the sale of counterfeit goods on websites that appear in organic search results (eg, de-indexing the websites) without a court order. However, search engines will process Digital Millennium Copyright Act notices for copyrighted works. Google has implemented the Trusted Copyright Removal Programme to streamline the process for submitting multiple Digital Millennium Copyright Act claims, thereby reducing the time, effort and burden of submitting individual notices. According to the Google Transparency Report, which provides statistics on all Digital Millennium Copyright Act notices submitted to Google, Google has removed 1.75 billion URLs from search results in response to Digital Millennium Copyright Act notices affecting 887,000 websites. While most Digital Millennium Copyright Act notices are submitted by owners of copyrights for films and music against URLs that contain infringing content, the same procedure can be followed for brand owners whose product images are used to sell counterfeits or knock-offs.
Domain name registrars
The Uniform Domain Name Dispute Resolution Policy (UDRP) has been in place since 1999 to enable trademark owners to recover domain names that are identical or confusingly similar to brand owners’ marks and are used in bad faith. The process has resulted in transfer to the brand owner in 86% of 23,000 cases. While UDRP proceedings are an effective way for brand owners to recover infringing domain names and thereby shut down websites selling counterfeit products, in 2013 ICANN added the URS system, which is faster and more cost effective than a UDRP proceeding. However, the trade-off is that there is a higher standard of proof. The URS system requires clear and convincing evidence and a finding that there are no disputed questions of material fact. Default judgment is not available as in a UDRP proceeding. In addition, a successful URS proceeding does not result in transfer of the domain name at issue, but only the freezing of the domain name for the remainder of the registration period. To date, more than 90% of URS proceedings have resulted in a freeze.
Payment providers can provide effective assistance in addressing the online sale of counterfeit goods. Indeed, counterfeiters cannot effectively conduct business online unless they have the ability to collect payment. In 2012 the IACC implemented the RogueBlock programme, a secure online portal that facilitates the secure flow of information from rights holders to designated enforcement agencies and credit card and financial services companies. The IACC reports that, since its launch in 2012, the programme has resulted in the termination of 5,000 merchant accounts, which has affected over 200,000 websites. Payment providers such as PayPal, MasterCard, Visa, American Express, Discover and MoneyGram participate in the programme. Since a single merchant account may be used to accept payment on numerous websites, sometimes in the thousands, shutting down the merchant accounts can prevent the websites from accepting payment for at least some time. While sellers which have had their merchant accounts terminated can open new merchant accounts, either with the same or numerous other banks or third parties that provide merchant account services, the process is not quick or easy.
Using trade show seizures to deter online counterfeiting
One way in which manufacturers and distributors of counterfeit goods expand their distribution and maximise the sale of their products is by attending trade shows. There are tens of thousands of trade shows in the United States each year, including:
- the Consumer Electronics Show, with more than 3,000 exhibitors;
- MAGIC, with more than 5,000 exhibitors selling apparel and footwear; and
- ASD, with more than 2,000 exhibitors selling a variety of gifts and consumer products.
While it seems counterintuitive to take action offline to try to combat the sale of counterfeits online, when counterfeiters which sell online expose themselves at trade shows, it provides a unique opportunity to obtain evidence and jurisdiction over them.
Grounds for ex parte seizures
US trade shows provide an opportunity to seek ex parte seizure of goods sold, offered for sale or distributed using counterfeit marks. The purpose of the ex parte seizure order is to protect trademark owners from counterfeiters that would destroy or move counterfeit goods if they were given prior notice of court action. Ex parte seizures are available only when it clearly appears from the facts that the accused counterfeiter, or a party acting in concert with it, would destroy, move, hide or otherwise make evidence inaccessible to the court if it received prior notice of the court action. As a result, an ex parte seizure is particularly useful when the accused counterfeiter is a foreign entity attending a US trade show and no regular presence in the United States.
Conduct of seizure
An ex parte seizure order enables the trademark owner to secure samples of the counterfeit goods and evidence from the counterfeiter. In some circumstances, the court may allow a search of everything in the counterfeiter’s booth at the trade show. In several cases, courts have permitted the imaging of laptops and smartphones, which can provide access to evidence that the brand owner would otherwise be unable to obtain. The other benefit of trade show seizures is that they may have a deterrent effect. Trade show seizures in the United States generally involve US marshals shutting down the exhibitor’s booth while a search for counterfeit products and other evidence is conducted. Attendees typically gather to watch the action and word quickly spreads.
Obtaining personal jurisdiction
The counterfeiter’s display and offering for sale of counterfeit products at a US trade show may be sufficient to establish personal jurisdiction over foreign defendants. For example, in Millennium, LP v Dakota Imaging, Inc (2003 US Dist LEXIS 22373, at *12 (SDNY Dec 15 2003)) the court held that the foreign defendant’s display of goods in order to achieve sales and engage in discussions leading to the formation of business contracts with prospective customers was sufficient to establish personal jurisdiction over the foreign defendant. In contrast, in Black & Decker, Inc v Shanghai Xing Te Hao Industrial Co Ltd (2003 WL 21383325 (ND Ill 2003)), the court declined to exercise personal jurisdiction over a Chinese company based on mere attendance at a trade show in the forum, even when the company displayed an infringing product at the show. Even if the court finds that a particular foreign defendant’s contacts with the forum state are insufficient to support personal jurisdiction in a trade show case, it may still exercise personal jurisdiction over the foreign defendant based on the foreign defendant’s aggregate contacts with the United States as a whole (Fed R Civ Proc 4(k)(2)). In addition, when the foreign defendant is a natural person and is personally served in the jurisdiction, such as during a trade show, this alone may establish personal jurisdiction over the defendant based on ‘transient’ or ‘tag’ jurisdiction (see Martinez v Aero Caribbean 764 F 3d 1062 (9th Cir 2014), limiting tag jurisdiction to natural persons).
If the brand owner can obtain personal jurisdiction against the counterfeiter in the United States and prevails in obtaining judgment (either through default or otherwise), the brand owner will hold a judgment that could potentially be used to seize any assets of the counterfeiter in the United States, as well as domain names.
As online counterfeiting increases with the proliferation of new gTLDs, brand owners must continue to use new and innovative methods to combat counterfeiters to ensure that they obtain optimal results.
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