Transcripts For CSPAN2 Advocates 20240703

Democracy. Next, on capitol hill policy advocates testify on ways to protect consumers from unsafe online counterfeit goods. The Senate Judiciary subcommittee hearing focused on the rapid growth of counterfeiting on ecommerce platform. This is about an hour and a half. [background noises] this will come to order like to thank our witnesses for participating today. I would also like to thank a Ranking Member tillis and his staff for working in a collaborative way to put this hearing together. I would like to welcome senator geraldo. This is our fifth hearing of the subcommittee this year. Center tillis you and your team continue to be great partners in moving forward. Just to set the stage more broadly on the focus of this hearing, Online Shopping has expanded your dramatic has exploded in recent years. Last year, sales exceeded 1 trillion for the first time as millions and millions of americans turn to Online Platforms for ebay to amazon to find the brands they trust at the prices they can afford but counterfeiters unfortunately have moved online alongside American Consumers. Their tools are becoming far more sophisticated. Counterfeiters are no longer selling fake handbags or watches on a Street Corner or a fleamarket. New modern online counterfeiting delivers products that look real with listings featuring images that show the real product and fake reviews that make the knockoff seem authentic. Online counterfeiting efforts are so successful according to one recent report two thirds of American Consumers surveyed had unknowingly bought a counterfeit product online last year. This is not just a matter tricking consumers into spending their money on harmon sleep Fake Products. The customs and Border Patrol earned fake goods can post real dangers with the health and safety of all americans at risk. Fake lithium batteries for example batteries that power laptops can explode or catch fire. They cause 70 deaths three and 50000 series injuries and one recent year alone but counterfeiters are also targeting and trying to sell fake while parts that have been demonstrated to increase the chances of a crash. Counterfeit prescription drugs sold to consumers online are best ineffective and at worse in some cases deadly to those who purchase them. If i unknowingly bought a fake laptop at my local best buy and have been caught fire in my home, best buy would be liable for the harm to me and for the brand owner for can ship it into braid mark infringement. This framework incentivizes brickandmortar stores to thoroughly and proactively that their supply chains to keep counterfeit products out of consumer hands. That same counterfeit battery bought online is both a different liability framework. Platforms dont have the same proactive obligations in fact they need not remove a listing until he brand owner tells the platform specifically the listing is counterfeit. The weight to the onus for placing online counterfeits is principally on brand not platforms. Under this structure brand owners have a Never Ending Game of a whack a mole as they monitor a multiplying number of Online Marketplaces for counterfeit listings. Platforms dont have a that hava counterfeit problem many have undertaken laudable anticounterfeiting efforts. Current efforts are neither effective nor sufficient because the problem is not gonna wait. In fact it dramatically increasing. I was proud to reintroduce the shop safety act last week with senator tillis. A bill that worked to try and balance the brand owners of Online Platform to intercept and stop the sale of the harmful counterfeit goods. The act opens platforms to liability of counterfeit goods affecting health and safety are sold on the platform the same liability brickandmortar retailers have been subject to for decades. It requires brand owners to provide platforms with notice of their trademark at a critical point of contact so platforms can proactively implement an articulated list of best practices to keep unsafe counterfeits off shopping carts. Better vetting before goods are listed quickly removing counterfeit listings, terminate repeat counterfeiters and requiring accurate images of the products sold. Platforms that follow best practices will have a safe harbor from liability platforms taking genuine good faith efforts to clean up their site should enjoy liability shield. A fair amount of work in our last Congress Hearings in both 2019 and 2021 have highlighted the rising anticounterfeiting. It is not my anticipation the bill introduced is perfect or final. Part of this hearing those who support and oppose this bill is to welcome and putt both critiques and complements and an effort to try to sharpen and shape the bill into Something Worthy of enactments. Senator tillis and i first introduced shop safely purred from stakeholders who would be impacted by the bill. I appreciate their efforts in the work weve done to make changes to the bill based on the feedback we have received so far. I look forward to continuing to work the broad range of stakeholders as we try to move the bill for this year. With might Ranking Members cooperation weve assembled a panel today with a diverse range of views i will introduce them in a moment but first let me turn to Ranking Member tillis by. Thank you for the series of great hearings on strengthening intellectual Property Rights and addressing the challenges we have a good with our intellectual property system. We have a lot of opportunities to make it even better. The best of both worlds number one some is ripping off intellectual property. Number two theyre doing in a way that could be very dangerous. Which is why im glad we are having this hearing and taking concrete steps to address the problem. I cannot get out of my mind i have mentioned the story before im an avid mountain biker. Its the reason i got into politics accidentally i wanted to be outed by chilled the next thing i dont want to state house. Just a few years ago i have specialized products people are dependent upon your background is, like chevy or ford. I may specialize consumer i saw a specialized helmet clearly counterfeit break under the weight of about 180footpounds person jumping a foot off the ground. But someone who has had two serious accidents specialized element that cracked but did not prevent me from getting a concussion having serious injuries we hear about them in automobile parts and airplane parts that they the official version may be safe the counter version very dangerous for theres no question with got to fix this problem. And i think the bill we are going to have the hearing on today is a good first step. Its never going to end. We have a lot of the same problems with general and in intellectual property theft. It is falling on the back of the holder to fido who is ripping off their intellectual property pretty what platform are they selling it on and if you tell us to take it down that model does not work. I wish that it could. But it simply does not work. Today i hope this hearing gives Additional Information stakeholders together. We can come up with a reasonable compromise. There are some consequences we want to avoid this over going to the thoughtful process i would not think the witnesses michael told them where the reasons we saw the subcommittee so much as we dont really expect the witnesses to go after each other because they are so far parts. The nature of our hearings are more about how you weave together a reasonable legislative fix that addresses some of the concerns that may exist on either side. In this hearing today we get that productive feedback. I hope those who are out there to kill this bill need to understand i want you out the table to make it better. If there is anyone out there who thanks theyre going to slow this down then they need to think again all youre doing that may put you on it. Lets Work Together recognize the Public Safety the intellectual property. Infringement challenges that we have to deal with and come together and work with us. I especially appreciate how frequently it senator hirono shows up for the subcommittee hearings. No matter what day it is on. Are both doing a great job think of a much bigger et cetera think if youre persistent interest and engagement on the topics of this hearing. I keep member tillis thank you. I appreciate the introduction on how briefly introduce our witness paddle we talk about strategies for protecting American Families for unsafe counterfeit products shop safety act we just introduced. Our first witness Adjunct Professor Center for anti counterfeiting on legal issues pertaining to counterfeit or ecommerce platforms we have Daniel Shapiro senior vp brand relationships that read point the Service Business that helps brand Police Counterfeit goods on Online Platforms and who i think had a memorable weekend, congratulations. Next we have steve at presidency of the American Apparel and footwear association. Also from delaware. Trade association of the aa fa representing more than 1000 brands of the footwear and apparel industries, industries the top of the cbp counterfeit seizure list. And last will hear from matt shares a present of the Computer Communications industry association. Trade association representing Online Platforms including a wellknown frequently my home use platforms like amazon and ebay. Welcome. After i swear in these witnesses each of you will have five minutes will take to it may be three rounds given lots of things we need to talk about. If you would please stand you up swear and affirm the chesaning about to give before this can be whole truth, nothing but the truth so help you god . Parts of the is been sworn and professor you may proceed with opening statement. Ask Ranking Member tillis thank you for inviting me too testify this afternoon on the shop safety act protecting families im representing myself at todays hearing the views expressed are my own put my remarks drawn the work ive heard organizations and professionals on trademark counterfeiting as well as leading Disciplinary Research teams, education and outreach to examine the issue from an academic at practical perspective. X National Economies companies of all sizes and vertically more than other company or brand owner trademark usually substandard or dangerous good. They rely on the goodwill reputation of that brand in order to make an illicit profit. Often counterfeiters are tied to other criminal activities such as online fraud and organized crime. Many trademark owners struggle to get from platforms to respond to knows takedown request or if they do it many find a walkable effect occurred with more postings taking their place. Particularly impact businesses with their own products who do not have dedicated Brand Protection Team or department have limited resources to commit to protecting the trademarks online. Greater multiDisciplinary Research in order for counterfeit to be sold to a consumer on an ecommerce platform there must be at meeting in time and space of the consumer current to the counterfeiter posting and through the ecommerce platform. The most effective way to disrupt this is to remove where the factors from the situation proactively before they ever reach that meeting in time and place in the platform. Although the legal liability in the brickandmortar space provides contributory liability for trademark counterfeiting of consumers in their space. We dont find the same parallel in the ecommerce space. The current state of lot rest primarily on the Second Circuit case. Ecommerce platform of the posting from a bradford not constructed knowledge. Monitoring of their own platform for counterfeit but they have created. Thus an imbalance involves the brand owners they cannot get at the root of the issued and are costly chasing, for postings online in the online transaction. Or as needed. Results of the sentencing country Consumer Survey we completed last month note that in our studies nearly 66 of u. S. Consumer surveyed but counterfeit unintentionally. 13. 4 x ranks negative Health Effects after using a counterfeit product. 15. 6 expense personal injury. 68 of those surveyed said they bought counterfeits on either ecommerce or social media platforms consumers do not see a clear mechanism what to do and they discover counterfeit. These findings reflect we know from our engagement the product line number one challenge root, fit online. Even my time is impacted by counterfeit goods. Just a few weeks ago in september my mother was a 72yearold retired Public School teacher third party thiry sellers with counterfeit taken for several months experiencing negative Health Effects. We are told conflicting messages she could dispose of it or even give it away or donated. My mother expresses reflective of what i have heard in regards to their consumers. And others. My recommendations but counterfeit goods by thirdparty sellers and Online Market markee of the shop safe act to support continued collaborations between academia and other stakeholders thanks and look forward to your question. Thank you mr. Shapiro projects thank you german codes and Ranking Member tillis. And esteemed members of the committee for inviting me too be here today. A quick overview, we are a Technology Company is helping make the internet safe for both brands and consumers. We as a i technology to detect and remove hundreds if not thousands of marketplaces around the world. I began working in this space 13 years ago some of the largest brands to combat this problem which is obviously significant. In recent years we have witnessed on precedent rise in ecommerce. Offering consumers convenience and variety like never before. This like everything into life and opportunities and challenges for this boom has attracted counterfeiters who exploit the platforms endangering consumer safety, tarnishing Brand Reputation and causing considerable economic loss. Contrary to popular belief online counterfeit is not restricted to luxury goods. Does not discriminate or get any brand regardless of their size we are talking about baby products, cosmetics, automotive, Industrial Equipment like Wind Turbines it counterfeit. In the context of backtoschool shopping students and parents are vulnerable these are essential for the upcoming academic year. They may not be harmful but rather extremely poor quality which takes hard earned money out of families because they have to re buy these products before the end of the academic year. As a testament to this, we witnessed over 1000 increase in the detected counterfeit incidents for the branson which we represent over the year 2022 versus 2021. Fortyeight reference read point today serves over 1002 at a herbranson who rely on our platm to combat online fraud. Which provide us with a vast amount of valuable information. Last year alone we processed over 35 million links per day and safeguard over twopoint to billion dollars in potential revenue loss the online scans continue to evolve with fraudsters harnessing technologies, creating websites, mastering social engineering of theever adapting threats resembs the well known game of whack a mole. As we delve into the complexities of counterfeiting the digital age its crucial to consider the existing response of Online Platforms, marketplaces, brands, legislative actions and even thirdparty providers like read point. Or all of us aligned . Are we collaborating well enough to combat this greater evil . After all the target here are exploiting both the market was in the consumers many ecommerce platforms have been ramping up the initiatives in recent years. In efforts to rid their sites of knockoffs. However it scammers are continually looking for bigger audiences to sell too. The rapid yearoveryear growth of ecommerce users has offered a unique opportunity for bad actors to expand their operations and further challenge of combating counterfeits as they persist to do to the adaptability and persistence of criminal organizations. Brands, regardless of their size, find it challenging to address all the infringing images of their intellectual property. Too effectively and implement a clear online brown protection strategy. Not having an online brand protection strategy today has grave consequences for both its brand itself and its consumers. Particularly in the area of detection enforcement this can be made more challenging based on the distribution decisions made by business. However when it comes the fight against counterfeits in our opinion the path forward is collaboration. Who cannot be so but one stakeholder its a shared responsibility needs a united front of industries marketplace thirdparty provider and the legislative action to ensure a secure ecommerce environment collaboration amplifies the resources and expertise for the counterfeit sale brickandmortar retailers. We welcome ongoing dialogue in the Protection Community and legislation defined counterfeiting problem. Cracks thank you mr. Sapir and cute chairman karen, nobody wants by its close shoes or accessories made by force labor duped into buying counterfeit fashion. Consider and pass. Members of afa invest millions to supply chains and bought American Families this is an area of Continuous Improvement as each day we are looking through the supply chain in implementing increasingly traceability and product safety requirements accessories used by everybody in this room and everybody in this country are responsibly made. On top of a considerable investment compliance u. S. Brands and retailers of all sizes spent consumable resources to police Third Party Marketplaces Ilia Calderon to remove shady websites takedown fraudulent ads admission to address the counterfeit problem and protect consumers. Counterfeit products only harmed harmmembers reputations and hurt their sales they also put our members customers in harms way with the Fake Products i could sicken them or create other risks. We are part of a broad Industry Coalition support in the shop safe act and raising alarms of the growing danger posed by counterfeits that are too easily allowed into our front steps and into our living rooms counterfeit air brakes batteries and prescriptions the dangers posed by counterfeits are everywhere. Including apparel, footwear, toys, personal Care Products and more. In 2022 if a commission a commission of 47 counterfeit clothes, shoes, other accessories these are everyday items we would wear and use daily found seven to these products just over 36 had dangerously high levels of poisonous materials like lead, arsenic, not only did these items fail u. S. Safety rules they also could have made consumers seriously ill if they had bought or use them. To state the counterfeits kill is not an exaggeration. Counterfeiters have an different view of the world. Their entire Business Models based on stealing someone elses innovation and identity so its with little remorse exploit workers, engage in wage theft shoddy factories dump Hazardous Waste into rivers and waste is dangerous chemicals they lure to buy their Fake Products exposing consumers to financial scams the fact Authentic Brands invest so much in social and ethical effort only widens the profit margin of counterfeiters they are often able to score sale without paying for any of the compliance they are duping customers into believing has occurred. What happens to the profit of these illgotten Gains Customer they become the seed capitol for organized crime, terrorist activities, and more counterfeit activity. Protecting consumers, businesses and american jobs from encounteredhas been and should a bipartisan issue. Like many with a break the growth of the ecommerce environment and cherish the opportunities the internet has created to enable to interact with her industry and thrive especially during the pandemic with great opportunity comes great responsibility that aside the accountability proactive measures required are vital. U. S. Law contains many guardrails to make sure brickandmortar retailers of all sizes do not sell counterfeit items Authentic Brands do not have to visit every store across the country to make sure the brickandmortar locations are only selling legitimate goods they didnt have to go through a lengthy takedown fights with these physical stores only to find fake goods a pop up against shielded by a new name. In the online world things are different. Must monitor every platform out there with new platforms popping up every day im counterfeit, fake websites fraudulent ads promoting these websites they must beg and fight the platforms to get those products and websites are of the platform of summit all it can be weeks or months allowing the counterfeiters to profit and often times the pop up within days. We cannot think a simple case that brands and retailers shoulder the burden and monitor the websites and efficient at best this is like into a game of walkable because counterfeiters are a wily bunch they are pioneered in latest technology are costly develop creative approaches to evade detection, knowing also the Legal Framework that is deployed to stop them has been rapidly outpaced by the nine itself but they also note many Third Party Marketplaces can hide within the framework, holding responsibility for the fake goods they allowed to be sold. Interestingly some the same platforms and opposing counterfeiters are themselves pioneering amazing Technological Advancements but they can put it more effective roadblocks against illicit actors many talk about zerotolerance for counterfeit value that is commended but weve been hearing that for years with counterfeit epidemic has been allowed to flourish. These actions now are insufficient its now time to update create stronger federal incentives appropriate for the ecommerce ecosystems and consistent with what we have in the physical world. Shop safe will do just that. Holding thirdparty Online Platforms accountable will be incentivized to make the necessary changes. These platforms to commonsense easily achievable steps like asking sellers for key pieces of needed information and measures for screening listings for display in the goods while july the platform for inventors that clean up their own sites and achieve a safe harbor from the legislation top leadbelly provisions not provide safe harbor for dangerous fake goods. Thank you for inviting us to testify today pilot forger questions. Thank you, mr. Scheers regrets chairman kuntz, Ranking Member, members of the subcommittee thank you for your time today. My name is met and present of the computer communication industry association. Cci im pleased to be here today to talk about protecting consumers online. Keeping consumers and Community Safe including cci members invest significant resources in protecting users from illegal and unsafe goods. While engaging extensively with brand owners to identify and report to Law Enforcement counterfeit products. This is why ccia comment many Online Marketplaces and retailers jointly endorse and support the informed consumers act that was passed last year. This law has been in effect for less than 100 days. We should give time for informed to work, before judging whether or not additional legislative interventions are required. Ccia has concerns about s2930 for the recently rented a shop safe acts. This concept was previously opposed by dozens of Civil Society groups, businesses, associations and legal scholars for good cause. Fighting counterfeits require substantial cooperation between brand owners and retailers. Existing law recognizes the trademark owners are in the best position to accurately and efficiently identify counterfeit goods from authentic goods. But shop safe places new burdens in mock liabilities of sellers of all sizes while requiring no significant new contributions from brand owners. In fact, the new version of shop safe deletes essentially from the previous version that would have cracked down on a bogus trademark challenges sprayed the legislation Public Notice requirements actually burden smaller retailers more than large ones. Shifting these legal responsibilities through new liability rules is not going to prevent counterfeiting does stifle commerce and reduce ongoing cross sector confirmation. Marketplaces the vast majority of and we should not place unreasonable compliance versions particularly not small and mediumsize businesses they lack the bandwidth and resources to spend multiple days investigating concerns from brands when the trademark owner is in possession of the information that will help identify counterfeits. That turns on nonPublic Information about whether or not it is manufactured under license. The burdens of shop safe fall broadly. The scope of the statute definition is incredibly expansive. Every online form where people could connect. The bill presumes any such site is liable for infringement and requires it to prove his innocence by mandating compliance with prescriptive requirements to escape whats effectively strict liability. Shop safe also employs an expansive definition of good that implicates health and safety. That definition would encompass virtually every product in todays consumer household. And finally while the bill isnt framed as a safe harbor is an unsafe harbor it slips on its head standard notions of liability in favor of a novel strict contributory liability scheme to buy at the service does not adhere to its set of obligations are not accurately characterize as best practice then they will be held liable. So in summary we recommend the senate seek updated data on the efficacy of informed before moving for an unbalanced proposal that is not going to solve the problem that it purports to address but would play substantial regulatory burdens on Small Businesses, at ecommerce providers and on retailers. Ultimately we recommend congress approach retail regulation in its totality. Brickandmortar, ecommerce, bigbox, momandpop stores all the same should be regulated under a coherent model that applies to businesses equally. This we believe will provide a better path forward. I thank you for the invitation today but thank you for your time and look forger questions. Thank you. Thank you and thank you to all the witnesses. You testified there is a different liability standard a different approach for brickandmortar stores versus Online Platforms. One common approach how they regulate commerce online, large, small palm brickandmortar. Online as art exists in brickandmortar or misunderstand . That does similar contributory liability the brick and mortar space we have seen that there are several cases starting back in 1992 with hard rock versus Concession Services before the seventh circuit that people were running flea markets or landlords were considered service providers. They were responsible for all reasonably looking around their property to determine if counterfeiting was taking place or other activities. So what happened with tiffany versus ebay case and a few other cases to as the court decided at that time which is again is about 13 years ago it was unreasonable for ecommerce platform to be able to look through their own platform to find these postings. Think we have seen through the changes in technology, particular eai and Machine Learning that has shifted. Its no longer unreasonable for a platform to be able to see whats on its own platform but also to vet proactively the postings and the images that are going up to make sure want something is posted that say for the consumer to purchase. Mr. Lamarr, one of the things that shop safe would do, where the attempts that definition for best practices to define a safe harbor would be to have a standardized set of if you do these things you would avoid any contributory liability. Your members sell their products on all different platforms, all different sizes of small, medium, very Large Company selling on platforms of all different sizes. Each of these platforms have different roles, different programs, different approaches to addressing counterfeiting. Some laudable very sophisticated in some virtually not at all. But it benefit brand owners to have a standardized menu that says this is the kind of cooperation you need to provide . Yes i think you hit the nail on the head senator. There is a lack of consistency about what exists but we have created tools to tell people, our member so when you go to this platform hear the things you experience you go should this platform heres the thing she will expansive a much better if there was a clear, simple, federal guidelines if you want to do business in this country here is the weight you need to approach the u. S. Consumer. To create that very commonsense set of proactive. Right now it is reactive. It is after the fact. And it is inconsistent. Some think that creates a very common central approach is exactly what we need. Have a schism no new obligations on brand. What would you suggest in your view is one of the most important things we could do to achieve a better balance of responsibility and liability online . Thanks for that. The bill as it stands indicates information sharing should occur but states its not necessary effectively if information about trademarks is publicly Available Online which is effectively every trademark by virtue of the fact all this information is available through the patent and Trademark Office website. The statute as it presently stands creates an old set it regulates zero companies. What we would want to see is an obligation on brand owners to share more granular information about products. And provide information about for example new products being introduced, imagery that they have that is legitimate and whether or not but has been licensed. It is important to step back and recognize the trademark act currently defines counterfeit as desmet requires the definition without the product has been manufactured under license that is information that only the brand owner has. And so having availability to that information might go a long way toward allowing ecommerce platforms to implement detect and request they are getting for. Thank you, mr. Shapiro you uniquely said in the middle all this mediating oceans of data going back and forth between brands and platforms i think you said 35 million incidents a year. dapo. A day. So it is only today with the moderntechnology with ar, with incredibly Capable Technology that we can begin to examine and process things like whether this image is a trademark protected image of the actual product or at something fake. How would you strike the balance here between putting more obligations on trademark holders, license holders and putting more obligations on platforms . I think it is a common combination, thank you chairman. It is a combination of a lot of challenges coming together today today in marketplaces around the world, my former company i worked with somewhere i read online recently there is 1. 7 billion listings currently available. Amazon charlie double or triple that. Probably adding close to a billion items a data conference is that not too long ago in terms of suggestive how many listings i certainly cannot verify that is just what i heard. But at that volume the ability for brands to monitor that on their own, impossible bit today unless you deploy some level of technology you cant get there. And with platforms today with that many listings on their sites and with the brands having two and 3 million sk use there are some very big brands with skus theres probably not one person the company that has every product in which they make. Unsettled when we with Brand Protection Teams at a particular brand theres off and Legal Counsel very sophisticated in the world of ip. But they work for company with the million skus they do not know which items are authentic and which are counterfeit if theyve only been there a year they might not even know of a product previously. What suggestions might you have for us how to better balance . Think to answer your question there has to be an investment from the brands to help. There is the unwillingness today to share too much information with platforms theres a lack of trust with the platforms at these told in their intellectual property somehow that we get to a counterfeiter. So today if we could get another progressive brands were departed well into the granularity of how to make their product not just how it register remaking it under license customer but exactly the schematics in the details. Action to get some platforms for manufacturing. That is how we work for surey share this ip will use the ip to crawl and find that product. We dont share that with the platform but we have that. That is the first step of trying to solve this is a bit more comfortable level of sharing that ip and sort of trusting one another that we can do this together if we think about a good commonplace on how to do it. Thank you net yields my Ranking Member. Thank you mr. Chair. Mr. Chair i hope you do not take her did not take my comments earlier about people who were opposed. But we are talking today being bad people. I just see a bad pattern of behavior we need to fix. And i hear your comments about the inform act. Lets assume it performs at one 100 of its wildest expectations is the Problem Solved . I think this problem will never be solved. It is an ongoing process. To me it seems like its indisputable that it is growing and bad actors but shipley china should have mentioned that in my opening comments. There is a variety of strategic Economic Health and safety reasons i would need to be attacking this. China it being first among them. I have seen far too many instances of north China Based Companies where they have been victims of counterfeit goods but not here to attack you. But i am here because were going to go to a second round im going to yield to senator blackburn here fairly quickly. So that she can ask and then i will come back around. I want to find out more about the 35 million links a day the methodology being used for that with the trending is. I also went to understand a little bit more about the 17 Country Survey i think professor you have may have mentioned that. I will get back to specific suggestions but right now going to defer to senator blackburn if i may. Header blackburn kuester. Thank you, mr. Chairman. I think senator tellis. Welcome. We are delighted you all are here. I represent tennessee. And in tennessee we have looked at this issue of copyright and Patent Infringement for years. And it does not matter if it is auto parts or aftermarket auto parts it does not matter if it is guitars or clothing or shoes. Baseballs, inc. Pins, those are all items that have come to us and they have been a knocked off by a factory over in china and then that brand name is grabbed and that brand disk counterfeit merchandise is sold under that brand name. Mr. Shapiro you mentioned how difficult it is to track. And how difficult it is to find these and that Due Diligence is needing to be done as you crawl the web and try to search out these items. Mr. Shirt let me come to you. Senator tellis was talking about the impact of the inform act. So answer that in a more fulsome way. If we look at shop safe should we wait for the inform act and see how far we are going to get there . Because this issue has been around for a long time. It started out and was knocking off designer clothing. And handbags, and music, and videos, and movies and then you suck creep into other areas. So lets talk about what you think the merits and the impact of the inform act could be or should be. Thank you for that. We have had informed in force for barely three months. We have yet to see its full effect retail is seasonal and cyclical and we would like to spend time collecting data before we see its full impact and assess whether or not its doing what we needed to do. But we know a lot of counterfeiters and bad actors online operate by obscuring information and inform creates greater transparency, encourages compels platforms to collect and verify and disclose information from highvolume sellers but also creates report suspicious transactions. These mechanisms what is best practice is evolving standard from which we should determine by talking to the practitioners. We can see that technology is a regular being deployed in this place where it can. But at the end of the date when he cooperation between brand owners and platforms working hand in glove. And i think we need platforms to be more diligent and polling things they suspect are counterfeit. I think we should acknowledge legitimate transactions online every day. The vast vast majority of platforms of ecommerce providers and small sellers arent legitimate actors engaged in lawful commerce. That being said there is a very small sliver of bad actors out there who we need to take action against. Online platforms dont want to be associated with these transactions anymore than brand owners want them to have them. These are bad experiences for consumers and nobody wants to be associated with selling a dangerous good. How do we get there through cooperation has the least information in this transaction we needed fix that problem osaka summit in tennessee there talk about using at sea something they create on at sea they were trying to get a patent my concern is im going to put it up is going to be knocked off before i have the ability to actually commercialize on this. So how do we use the inform act . How do we fight this proliferation of counterfeit goods and not harm these small manufacturers, these small entities that have a great idea or a great product they are trying to move it into commercialization but they are afraid of what will happen if they go online. I think that is a great question. And obviously different platforms provide Different Services i cannot speak to any one specific platform. It bears noting these platforms are often the first vehicle by which small sellers and entrepreneurs but for access to a platform and across the country and around the world they simply would not have the ability to scale beyond their community. And so we dont want to impose obligations on either the platform where these individuals that cannot be sustained. And that might have the effect of driving someone like the small entrepreneur out of the marketplace. Correct thank you fix that and i see my time is expired thank you. And consider blackburn. Nexium just returned from important. Im happy to ask a question you like a moment. It is okay, thank you very much. So this might pronouncing your name correctly . This has to do with some definitions. Your Research Center has a helpful glossary on its website that defines the action of counterfeiting generally as and i quote to forge, copy or initiate some think that a right to do so with the purpose of deceiving or defrauding. The federal definition is different but starts with meaning one that is not genuine or authentic. As we deal with this issue of counterfeiting, do we need to have a better definition of what constitutes counterfeiting . We are not talking about those instances where someone goes and buys something at a discount a Genuine Article at a discount and then proceeds to sell that item for a lesser price it. That is not counterfeiting is it . That is correct they do not believe it is think of your question. While that definition under the glossary is meant to be descriptive i would refer back to the definition or any trademark counterfeiting act. We believe that is what legally defines what a counterfeit marcus. The focus of this bill i think has to do with the items that can be deemed that can compromise the health and safety of the user i think that definition of the bill is very broad isnt it . Have you had a chance to review the bill . I have it yes. Are you referring to health and safety provision . Yes. Talk doesnt the bill pretty much refer to those kinds of items that compromise or endanger health and safety thats what we are getting up at the bills definition is quite broad it could be anything. Pretty much from what i read so do we need to better define what we mean by compromising or whatever the health and safety progress thank you from that question my understanding is that imp locates counterfeit good which in its self would Impact Health and safety. And as we know in several of my colleagues here have testified, we note goods if they are legitimate may not implicate health and safety but if they are counterfeit they can pay a lot of people are often surprised by that. We get asked the question what is the harm in purchasing this counterfeit . Theres something wrong with it. We know from a lot of testing for example there can be led, or poisonous materials that were made in these products. So, from my perspective the fact that it is a good that implicates health and safety would encompass a counterfeit that could endanger a Persons Health and safety. And we see that across Industries Come across product lines per. A definition is really broad. That is why i have some concerns about anything that can compromise or endanger someones health and safety. For mr. Lamarr you testified over one third of the clothes you tested in a case study contained dangerous substances did you get into what kind of substances these are . Yes. Thank you for the question. They contained high levels of dangerous chemicals like lead and they also had other product safety failures that have been associated with injuries. Buttons coming off, other kinds of things. Drawstrings that the industry thats pushing for compliance go to Great Lengths to make sure they meet those requirements. On soap counterfeiters that are not going through in addition to creating products that do have a health and safety issue even though you might not think of it with an article of clothing, they had to have a very obvious one. The counterfeiters get a benefit because they are selling something at roughly the same price even though they dont have to go to the expenditure of the expensive compliance and testing for. Which leads me too a question where these counterfeit parts are coming from, they associated with certain countries that do not have to abide by health and safety considerations . Many of them come from china and interestingly in china all the same health and safety considerations exist as well. We have compliance programs in china to educate factors on that as well. Whats happening is the counterfeiters are ignoring everyones health and safety for not putting anyones first so they are ignoring that u. S. Laws they are ignoring chinese laws they are ignoring laws in other countries as well per. So does the build the chair and Ranking Member file will they help to get at these counterfeit products that are made in Foreign Countries such as china . Absolutely yes. We definitely think it will put any counterfeiter on notice. It will also create a set of very proactive steps that would be taken to make sure the goods do not even get offered to u. S. Consumers in the first place so we denied the market to the counterfeiters so the financial incentive for the counterfeiters to even start on the path immediately dries up. Just one more question mr. Chairman. How do we get at these counterfeiters that they are not even in our country . I assume the goods are being sold by entities that are in china for example how do we even get. One of the pro active measures and shop save talks about establishing jurisdiction through the companies the platforms. Thats it measure we dont have right now. With a huge improvement. Does the country of origin have to accept our jurisdiction over their people . Snow but the entities doing business with these platforms would. Okay, thank you. Thank you, senator. Let me come if i could professor could shoot just briefly and concisely summarize the difference between an format and shop save and why both might be necessary and what impact it would have on the contours of shop safe if we let in form go for a couple of years and sort of see with the impact is . Quick sure, thank you for the question senator. From my perspective they are complementary. But they are not the same the inform act briefly requires ecommerce platforms to get seller information and to verify that in advance and to share some of that information with the consumer at the latest time at the point of receipt of purchase so they can get that information for thats very helpful because currently some platforms do not even share it seller information at all. That is kept behind the wall the ecommerce platform can see both the consumers cannot be. The case of your mother who purchased counterfeit or faulty vitamins online that actually harmed her she now has some information on record on the Online Platform about where it came from . What she has a name and address correct. That is it . That is it. What is the difference . With shop safe we are talking about reasonable measures that platforms can take that my colleagues here have already been discussing. Particularly proactively pretzel from our perspective at least with our research this is one of the important things to really disrupt the sale of goods online is the proactive measures need to take place those are listed throughout the shop safe a bill that if those proactive measures take place and that is reasonable depending on the size of the ecommerce platform and the resource and technology than they have a safe harbor if they are not willing to that proactively they can be liable for a secondary liability for trademark counterfeiting in a similar way brickandmortar store such as a Shopping Mall or a flea market which we have talked about. One issue all of you have rays of the on Small Businesses. There is a threshold below which potential companies not covered a platform for. Yes at 52000 for my understanding. And i think it is important to point out to we are talking in some ways about Small Businesses but from two different perspectives i believe. There is the Small Business who wasselling others products and there is the Small Business with the intellectual Property Rights holder which i believe setter blackburn was referring to they work really hard for they get this great idea to go to register their ip and ecommerce is a great place for them to start a business and sell particularly if they are in a small town or somewhere where they might have access to a lot of consumers. Many of them find very quickly their product is being counterfeited because they are Small Company maybe one two people they do have brand protection resources to do massive amounts of searching the web. Looking for the counterfeiters. One last question to you than i will yield to my Ranking Member. As a difference about how big the issue is. Took a survey of thousands of consumers and came up with the conclusion two thirds of all american customers had unwittingly purchased a counterfeit item online. Given the volume of Online Transactions he goes a trillion dollars last year, that is an enormous dollar value and numbers cbp reports roughly 3 billion in interdicted counterfeits. Thats a relatively small number compared to the volume part help me understand how big of an issue do you think this is . Mr. Scheer says a very small sliver in the sea of otherwise legitimate transaction the truth i suspect is somewhere in between. And i do not mean to mischaracterize i will also give you a chance for it how big a problem is this . Why is it deserving of legislative attention . Great question is challenging to get an exact number for you point out a lot of the sources for data that we know that we can get a hole of from customs. Counterfeit goods financially surpassed that of the trade and Human Trafficking so we know its a major problem. More money according to this source is generated in the sale of counterfeit goods them in drugs or selling and moving people. That is what the study says, yes. Interesting. Thank you for the opportunity. Let me start by saying theres no dispute that this is a problem that needs attention. We are talking about the scale of the problem. I would note all these statistics are by their own terms wildly inflated relative to the problem we are talking about so first of all many of them are the upper range, so we have the x and y and its the top figure then why because the figures so we need to realize the outer boundaries not immediate. They include Patent Infringement and i would be the first to acknowledge infringement in the markets that have a weak rule of law is a serious policy problem. That is not the problem we are talking about here. Its not going to do anything about pirated software or prevent the Patent Infringement or the sale of a bootleg hand bag this is about regulating Online Platforms. Two thirds of American Consumers may have purchased a counterfeit. To speak about the methodology of the study i think what i would say is we know the vast majority are legitimate by the businesses who just want to make consumers happy with their products so the question is how do we do that, how do we facilitate these transactions dealing with the small bad actors . We bring into the platform on behalf of the brands we represent 35 million of listings that need to be reviewed for being suspicious of counterfeits. And what do you conclude have the basis to be deemed counterfeit . Its the small purveyors. Today we send out three to 400,000 per month so we represent 1200 customers and to send 400,000 notices every single month on behalf of those. 1200 customers. How many members . About 350 representing. And the segment of every industry. If you can make it, you can counterfeit and it represents all sectors of the economy. Any general observation about whether the scale is increasing stable or decreasing to the point of my colleagues made how do we bend the curve without killing the most popular and efficient may be one for amazon. The truck pulls up every day. I mentioned in my testimony that yearoveryear the counterfeits increased on behalf of the customers the 103 . About 103 growth over one year. Its growing at a substantial rate without question. Let me conclude by saying i hear across all four review cooperation and collaboration between the platforms and brands is critical and shift the incentives in a way that tries to come up with a liability framework across the brick and mortar platforms. Whether it underperforms or over performs i look forward to active engagement as we move forward. I was going to follow up along the same lines. I think its amazing it looked like something that was going to suit the tab that i had for the weekend. She bought a pair of nikes and it took her forever to get a refund. Because of the volume of transactions it looks pretty small but its touched more than half of probably the consumers in the United States today so its a problem that touches all of us. Its bad enough when youre ripping off intellectual property but worth when you get to the health and safety factors. Weve got to do something to fix it so im going to move into a debate around which i do from time to time and another reason i love the committee. Number one is there any jurisdiction, should we be filling in the blanks and do what fillin the blank country has done . Are there any emerging best practices we should follow the converse, is there an overreach thats been disruptive to your members . Who is getting it right and whos gotten it wrong and what do we need to learn from it . Thanks for the question. From my perspective no one has it exactly right. A lot of areas are grappling. I think what i would say, the approach that we have thus far is close to getting things right as we can see and of the fact of the matter is the thriving ecommerce sector is located in the United States thats not an accident and its quite possible they yielded the decision that could dry up that marketplace and that means impacting not only the u. S. Businesses but the Small Business nobody wants to see that. Of the business that you are engaged in, you made an important point that part of the way that youre able to identify the potential infringement is because proprietary data is shared with you all that you use in order to call the potential suspicious offerings. How long has it been in business . Weve been operating since 2014. With the fundamental technology, the data the customers were willing to share with you is that the only difference between the analytics you could do and most of the platforms should be doing anyway . I came from a platform so i know the technology i know they are doing things every single day. I am assuming its a lot better than when i left six years ago. Ours is better than it was. The technology is allowing us to find things. Heres the challenge. Ive been at this for 13 years and sometimes when we have a new customers lineup and we are going to protect, i look at it and go are you kidding me. Most people that work for platforms dont have a very big brand breath of knowledge. If youve never seen this before you may not know that its actually a brand. Its a challenge for platforms to think about how to protect that. You might argue somebody in the Company Might argue its a brand but nobody knows. So for us when brand is higher and share that intimate intellectual property knowledge we can deploy all sorts of technology from the recognition, image fingerprinting, Machine Learning and we take those tools now that we have that knowledge and we are able to scale up ahead at a high speed finding and removing and with our partnership with platforms like amazon, facebook, instagram, twitter, thats how we help brands. Why wouldnt amazon just own this space by saying dont believe the upstarts because we spend billions a year identifying the counterfeit transactions with a seal of approval why isnt the industry doing that or are they . They havent caught up yet. They are doing it for the brand they know and do some of the things they dont know, they cant do. We are talking about technology and people whove been proud to identify through analytics anticipating the purchase before you even make the decision to do it. So seriously we can figure out a way to take the edge off the problem. For the Data Analytics where, let me back up, i came from the hightech sector. I worked in Artificial Intelligence in the late 80s. It was still Artificial Intelligence. Its just remarkable to me when i get into the discussion noticing the takedown of the content, creators content. This has to be part of your business model. Amazon didnt exist until it became an online book retailer and now its just an enormously important consequential american business. But youve got to take care of the ill effect of those that made you a billionaire. Part of what i would like to see some industry led to solutions. I dont like doing heavy regulation. I dont even like regulations. Ive been responsible for repealing more regulations than i ever voted for in my 16, 17 years in public office. But the Industry Needs to find a role to play and it cant be lets wait for the inform act and then maybe we will come back with feedback on the next if its not to savor. We need industry led to solutions and collaboration because i do believe all the people represented at the table are good people, but weve got a bad people particularly the communist party of china that is taking advantage of our lack of progress in this space and its costing us economically and i think it is costing us in terms of health and safety. But you have my commitment. My door is wide open. Lets come up with of the most effective approach to protect consumers and hold what i think the historic counterfeiter is, china, accountable. Thank you mr. Chairman. This is yet again a very interesting situation. So i am trying to grasp the need for regulation and what that would look like versus how we are going to enforce such legislation. I know you oppose this legislation. With previous versions of the belt theres a mechanism to hold accountable the brands that abused the process by filing multiple falls infringement claims. Can you speak a little bit about those provisions and whether you would support Something Like that . Thank you for that. The previous version of the bill in previous years did acknowledge the fact weve seen in other contact us that when you create a mechanism to suppress Information Online no there is no accountability for misuse of that mechanism it gets abused. Right now there is no accountability mechanism for the misuse of its notice provision and that is a recipe for disaster weve seen in other contexts and these mechanisms get misused both by nominally good actors who dont know what they are doing and bad actors who want to suppress the information they are complaining about. Here you could imagine competitors filing notices in the hope to knock them off line and we dont want to see that happening. We want to have an accountability mechanism in any kind of system like this. What kind of accountability system would you suggest . For starters i want to ensure the brand sand platforms are cooperating hand in glove and sharing the information thats needed to eliminate problematic transactions and thats everything from who is the licensed manufacturer to what are the common product configurations described. So often nonPublic Information and knowing we dont put the stripes on the product in this fashion its valuable information platforms often simply cant get. The bill affirmatively discourages inter platform brand collaboration by saying you cannot have a mechanism that requires brands to participate and obviously how we structure that can vary about what we dont want to do is undermine existing brand platform collaborations going on today. Is the rest to talk about the concern of the collaborating among brands so that we can get to one of the concerns . I think if shop safe were to become law you would still have very robust brand platform collaboration and cooperation thats been going on for a number of years and will continue to go on regardless of the shift and liability because this is the interest to continue to make sure that the Platform Partners are educated. At the same time the platforms need to avail themselves of the Public Information thats out there. The trademarks are fought with the office which is what the legislation talks about, so relying on a u. S. Government body that is the central repository of trademarks in the United States i dont think is a difficult task and certainly something that platforms with their incredible technological powerless would be able to do. But the key thing and we keep talking about should we allow more time to work. I think mr. Schapiro gave some numbers that already suggested thats not the case and we need to ask ourselves the question what is an acceptable level of counterfeits and how many more people do we want to see injured before we are able to take action . The answer all of us would say is none. We have an opportunity to change the dynamic. Right now we are waiting for bad stuff to happen and hoping the brands discover the bad things but for the consumers get their hands on them. That is the mechanism we have today. Thats not working. Hasnt worked for 20 years and its not going to work over the next 20 years. We look forward to seeing it modified if necessary. The way they change the dynamic is by placing some level of burden on these platforms. Correct to make sure the products dont get on and marketed. Let me just make a brief comment and return to my Ranking Member for concluding comments. In the partnership between the uspto and National Crime Prevention Council which is trying to protect trademarks and recognize the scale, the comment and launching the next phase of the campaign is the sale of counterfeit products is a 2 trilliondollar criminal enterprise that affects every industry, causes fire, skin rashes and organized criminals use counterfeits to fund illegal activities like Gang Violence and Human Trafficking. We can debate whether the scope and scale land number is accurate but one of the things laid out is that many of the products coming from a wide range of countries in particular. They dont perform the way the Branded Products world but that actually take advantage of the forced labor sweatshops laced with harmful content are getting into american households through an intersection between brands and Online Platforms that is not as interwoven as we would like it to be. Its exceptionally rare to go to the mall, walk into a Sporting Goods and by a bicycle helmet that is fake and doesnt actually protect you. I almost never happens. We want to figure out a way that doesnt crush innovation, that doesnt shut down the american role in the Online Innovation but that also realigns the incentives in a way that is clear, balanced and fair and provides defensible articulated safe harbor standards that are infected safe harbors that are not unreasonable, but i was grateful for the articulation of the posture by my colleague senator tillis. We are fans of regulation in this space i want to make sure that we are not over regulating, but that we are protecting consumers. Both of our households experienced counterfeit goods through Online Platforms. If we surveyed every senator, we would probably find a significant majority of senators, their own families purchased defective goods. As you put it, how much of this is acceptable, an acceptable tradeoff for the convenience and affordability of the Product Offerings Online Platforms provide . With that, we conducted at this with a genuine interest in your input both credible and supportive and i will read before we conclude a list of organizations that also offer input in writing but before i do so i want to be invited to my Ranking Member to make any comments. I dont think we are as far apart based on the face of the discussion here. Its all in the details and any time you get into Something Like this you could overreach. We dont want to overreach but for anybody to want to take the position and they broke or fix it in the face of the growing numbers of threats it doesnt seem rational to me. So the reason that i continue to get to the table in a so many of these intellectualproperty discussions is that i think the sweet spot is usually somewhere in the middle. You dont want to slow down and you dont want to hamper our countries dominance with innovation. We are the innovators of Online Retailing back in the day. We want to stay ahead of it and the way we do is to stay ahead of these threats and the only way we are going to make progress is to have everybody at the table to inform us into some of the unintended consequences if we go too far. And maybe in from the industry of the consequences if we dont go far enough. So this is an iterative process we will continue to get people to Work Together and in hearings and work groups and we hope that everyone participating and watching but i invite everybody on either side of the equation to come work with an honest commitment to improve the situation. The status quo is going to get worse we have to sit here and do something about it. I would welcome more input specific concrete about how to improve the decision before we conclude i will submit for the record without objection seven letters we received from the stakeholders both in opposition to the legislation and the support of it for the past coalition for the sound of tristate i think that is a delaware concern. The alliance for safe online pharmacies, the vehicle association, the council and the National Association of manufacturers. Like to thank my colleagues and once again thank the Ranking Member and his staff this is the fifth subcommittee hearing of this year this is one of the most active subcommittees in the entire senate. I think weve reviewed the fact the counterfeiting on the ecommerce platforms that matches the rapid growth in online commerce raises the challenge of harm of counterfeiting to the brand and to consumers and then that precipitated the discussion about liability framework. I think it is moving us in a good direction and i look forward to more specific concrete input. If any member wants to submit a question for the witnesses they must do so by a week from today, october 10, 5 p. M. Let me thank the witnesses for participating and everyone who watched here and online. With that the hearing is adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] the resolution is adopted without objection the motion to reconsider is laid upon the tableland of the office of speaker of the house of the United States house of representatives is hereby declared vacant. The battle over house speakership continues. Follow every moment as this unfolds. Watch on cspan, cspan now come our free mobile app or online on cspan. Org. Your unfiltered view of