Last week, the U.S. House of Representatives passed the “America COMPETES Act of 2022,” a bill containing spending provisions aimed at improving America’s competitiveness in the science and technology sectors. Unfortunately, Congress included a version of the “SHOP SAFE Act of 2021” within the bill, potentially enshrining into law a requirement that could spell disaster for consumers and all but the largest online retailers. Congress should drop the SHOP SAFE Act from America COMPETES to avoid reducing competition, harming consumers, and risking the internet as we know it.
SHOP SAFE is ostensibly targeted at protecting consumers from unsafe products—a laudable goal to be sure—but it takes a strange and problematic approach. The law conflates unsafe products with counterfeit products and creates a new way to sue for trademark infringement that enables brands to file suit against broadly defined “electronic commerce platforms” that fail to comply with a bevy of new regulations.
SHOP SAFE Will Entrench the Dominant Platforms It Claims to Target
The host of new regulations and increased liability created by SHOP SAFE would be catastrophic for competition in e-commerce. This regime would devastate smaller online platforms like Etsy, OfferUp, and other small platforms that allow third-party sellers because it applies to any platform with just $500,000 in sales in the past year—for comparison, Amazon had $364.38 billion in sales in the U.S. last year. So, while this bill seems to target tech giants like Amazon, their ample resources for regulatory compliance and deep pockets to fight lawsuits, really makes SHOP SAFE an opportunity to eliminate many of their smaller competitors through legislative games instead of offering better products or services.
Any site with “features that allow for arranging the sale or purchase of goods” qualifies as an “electronic commerce platform” and this could include messaging apps, forums, and any small-scale online seller. Even the $500,000 threshold is entirely undermined by a provision that applies the requirements in the bill to platforms of any size if they are served with 10 notices of trademark infringement—with no time frame limitation specified. Anyone familiar with the rampant copyright takedown notice abuse enabled by the Digital Millennium Copyright Act will recognize that aggressive rightsholders will easily be able to extend SHOP SAFE to any platform under this law.
The law includes an onerous suite of regulations that sites must comply with, making its broad applicability particularly concerning. Many of the requirements will be difficult and expensive to implement for most smaller platforms, and perhaps impossible for others. For example, one requirement is that platforms implement “reasonable proactive measures for screening goods before displaying the goods to the public.” To operate at any scale, such measures would require automated content filtering systems that are both expensive and difficult to design and implement. Similarly, the bill also requires platforms to ensure that third-party sellers “use images that accurately depict the goods sold, offered for sale, distributed, or advertised on the platform.” Again, analysis and approval of images, and verification that said images are accurately linked to the third-party seller’s wares, pose significant technical and content moderation challenges for smaller platforms.
These kinds of regulations, combined with the broad definition of applicable platforms, conspire to make many online platforms—even those not specifically designed for e-commerce—responsible for undertaking costly and complex new systems to remain compliant with SHOP SAFE’s requirements. And even with total compliance, platforms still remain open to litigation—the statutory obligations, if followed, merely create an affirmative defense from the contributory liability claims. This expensive and extensive set of requirements will functionally doom smaller competitor platforms and further cement the dominance of large firms like Amazon and Facebook.
SHOP SAFE Does Not Protect Consumers and Will Reduce Consumer Choice
Even assuming SHOP SAFE could be reformed to more narrowly target e-commerce giants like Amazon alone, this proposal remains fundamentally flawed. From a consumer protection perspective, trademark law is simply the wrong tool for protecting people from unsafe products. Most counterfeit products aren’t dangerous just by virtue of being counterfeit, and many of the dangerous or unsafe products that people can buy online are off-brand, inexpensive products that come from countries that may have lower standards of consumer product safety. Consumers are not drawn to these potentially unsafe products because they are confused by infringed trademarks, but because these products are inexpensive alternatives. There are even instances where the officially branded products wind up being the unsafe product—such as with official Thomas the Tank Engine toys that were manufactured in China using lead paint.
Only a real consumer protection bill will help Congress address the risks of unsafe and dangerous products. If that is what Congress is after, there are better approaches for addressing unsafe and counterfeit products online. For example, the House has already passed the “INFORM Consumers Act,” which would require platforms that host third-party sellers to verify the identity of high-volume sellers and provide consumers increased transparency as they shop online. Enacting legislation that only targets high-volume sellers; provides clear and simple requirements for e-commerce platforms; and empowers consumers to make more informed decisions about who they are buying from will be much more effective at curbing the spread of unsafe and dangerous products while minimizing collateral damage to platform competition.
The real beneficiaries of the SHOP SAFE Act are not consumers but big brands that want to aggressively pursue knockoffs, cheap competition products, and the secondary resale market. Trademarks can be extraordinarily broad, encompassing certain colors or even common words or phrases. Creating such an expansive regime of trademark liability online will inevitably lead to brands pursuing aggressive protection of anything they deem remotely infringing with little regard for SHOP SAFE’s intended purpose of protecting consumers. For example, the infamously litigious Monster Cable Products, Inc. has more than 70 trademarks on the word “monster” and has gone after auto transmissions, carpet-cleaning machines, mini-golf, people selling t-shirts, the job-hunting site monster.com, Monster energy drink, and even Disney over “Monsters Inc.” merchandise. It is easy to imagine how aggressive rightsholders will abuse SHOP SAFE by bullying platforms into settlements over meritless claims of infringement.
Consumers will also be harmed by this expansive take on trademark protection. Back in 2020, U.S. Customs and Border Protection seized 2,000 units of what it claimed to be “counterfeit” Apple AirPods. In reality, the clearly-labeled OnePlus brand wireless earbuds—while reminiscent of Apple’s own wireless headphone offering—did not use any Apple branding or create any consumer confusion. Rather, CBP argued that the earbuds violated what is called a “configuration trademark,” meaning that they thought the OnePlus earbuds simply looked too much like AirPods. Expansive interpretations of trademarks like this will result in dominant brands using their deep pockets and entrenched positions to force out cheaper competitor products, reducing choice and competition for American consumers.
SHOP SAFE Threatens Free Expression and Internet Innovation
The negative effects of SHOP SAFE will extend beyond the realm of commerce. Even as its expansive new take on trademark infringement suppresses platform competition and chips away at consumer choice, it is also likely to harm free expression and destroy innovative platforms. The internet has flourished thanks to legal protections that enable websites and platforms to moderate their content without taking on legal liability as publishers of user-generated content. While this legal scheme is imperfect—especially as some platforms become increasingly dominant over others—it has created room for the explosion of the internet as we know it today. SHOP SAFE will lead to two big problems for free expression: aggressive content moderation and barriers to entry for new platforms.
Due to SHOP SAFE’s structure, platforms will need to adopt very aggressive moderation over anything that can potentially be construed as trademark infringement—and as discussed above, trademark infringement can be very broadly construed, indeed. Given the wide-reaching definitions in the bill, this aggressive new moderation will stretch beyond online stores and touch social media, chat applications, and internet forums. Automated content moderation, even when it is not spurred by the threat of liability, can already be heavy-handed and over-inclusive so it is troubling to consider the kinds of censorship SHOP SAFE could bring about.
The kind of moderation and technical measures required to implement SHOP SAFE’s regulations also means that many new innovative social media or communications platforms will never even be able to get off the ground. The default has been to protect websites from liability unless they prove to be bad actors in order to foster innovation and the development of new and competing ideas, but SHOP SAFE will require any new platform to have the ability to set up compliance and defend itself from aggressive trademark rightsholders from day one. These barriers to entry will destroy many projects before they are even able to get off the ground, and fewer platforms for speech, free expression, and human connection makes the internet a poorer place for everyone.
Overall, SHOP SAFE’s aggressive take on trademark enforcement could be a disaster for free expression and innovation on the internet. These harms are far too high a cost to pay for ineffective consumer protection that can be achieved through other, more direct or more comprehensive consumer safety legislation.
Public Knowledge is not alone in this assessment. Academics and public interest groups from across the political spectrum—including the Cato Institute and Electronic Frontier Foundation—have voiced concerns about the SHOP SAFE Act. Even industry groups like CCIA—that stand to benefit tremendously from the America COMPETES package—have found the provision troubling enough to speak up about it. Simply put, experts agree: the SHOP SAFE Act is bad for competition, bad for consumers, and bad for the internet. As the America COMPETES Act moves into reconciliation with the Senate, Congress should eliminate the SHOP SAFE Act from the final bill to preserve and promote competition, commerce, and free expression on the internet. Congress should instead consider including the INFORM Consumers Act, legislation that would actually address the risks of unsafe and dangerous products as well as counterfeit products online in a more reasonable manner.