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Chairman Nadler Statement for Subcommittee Hearing on "The SHOP SAFE Act: Stemming the Rising Tide of Unsafe Counterfeit Products Online"

Washington, D.C. - Today, House Judiciary Committee Chairman Jerrold Nadler (D-NY) delivered the following opening statement, as prepared, during a Subcommittee on Courts, Intellectual Property, and the Internet hearing on "The SHOP SAFE Act: Stemming the Rising Tide of Unsafe Counterfeit Products Online:"

"Thank you, Chairman Johnson, for holding a hearing on this important bill.  I was proud to reintroduce the bipartisan SHOP SAFE Act last week with you, Ranking Member Issa, and Mr. Cline.  And I am pleased to see that a bipartisan Senate companion was introduced yesterday by Senators Coons and Tillis.

"From toys to contact lenses to cosmetics, no industry is immune from counterfeiting.  While attempting to appear legitimate to unsuspecting consumers, counterfeit products avoid the health and safety standards with which authentic products must comply.

"What results?  Counterfeit air bags that deploy fractions of a second too late; counterfeit bike helmets that break in half upon impact; and counterfeit batteries that explode from poor construction.

"The Internet and e-commerce have revolutionized the way products are marketed and sold.  A decade ago, just over 20 percent of Americans reported making purchases online.  Today, nearly 80 percent of Americans have made purchases online.

"Americans spent more than 790 billion dollars in e-commerce in 2020.  Driven in part by the global COVID-19 pandemic, online sales to U.S. consumers were up more than 30 percent in 2020 over 2019.  At the same time, the products Americans were purchasing online were exactly the type for which compliance with health and safety standards are most critical: masks, gloves, and cleaning supplies, for example.  And counterfeiters were quick to move in too.  Reports of counterfeit personal protective equipment and other COVID-19 essentials sprung up almost immediately. 

"Whether a purchase is made online, or in a brick-and-mortar store, consumers must be able to be confident that what they see is what they will get.  In a brick-and-mortar store, a consumer can see first-hand what they are purchasing.  And the liability structure for brick-and-mortar retailers incentivizes those companies to thoroughly vet their supply chains to ensure that the products they sell are authentic. 

"In the online world, however, without the benefit of the look-and-feel opportunity before purchase, consumers are at the mercy of the accuracy of the online listing information and the scruples of the seller.

"Consumers may never become aware when they have purchased a counterfeit product, particularly if a sales listing included misleading images of the authentic product or fake reviews that made the listing appear more legitimate—unaware, that is, but still susceptible to the worst-case scenario in which a product they believe to be legitimate actually poses a threat to their health or safety.

"Most marketplace platforms know that they have a counterfeiting problem.  They tout anti-counterfeiting measures and profess their commitment to keeping counterfeits off their websites.  But as reports of dangerous fakes become nearly constant, many platforms seem to have settled into a status quo that puts the brunt of the burden on policing counterfeits on brand owners, and that leaves consumers unsafe.

"It is clear, now more than ever, that we cannot be merely reactive when it comes to combatting counterfeits on online marketplaces.  That is especially true when counterfeit products implicate the health and safety of the consumers who buy them.

"The current liability structure for online marketplaces dates back more than a decade, and it has not proven to be up to the task of preventing significant counterfeiting on e-commerce platforms.  Similarly, the anti-counterfeiting measures imposed by the platforms themselves have not sufficiently addressed the problem either.

"In general, a platform must take down a listing once it is informed by a brand owner of that specific listing’s infringement.  But a platform is not legally obligated to take proactive action, even when it has general knowledge that, for example, the majority of a particular brand’s products sold on the platform are counterfeit.  This means that brand owners must consistently play a game of whack-a-mole as they constantly monitor marketplace platforms in search of counterfeit products.

"It is past time to revise this structure to address today’s realities in electronic commerce.  The SHOP SAFE Act takes a balanced approach to solving this problem.  It imposes legal liability on e-commerce companies if counterfeit products affecting health and safety are sold on their platforms, but it holds these companies immune if they adopt proactive best practices to keep dangerous counterfeits out of the hands of consumers.  These best practices include greater vetting, transparency, screening, information-sharing, and standardized enforcement measures.

"Under this framework, platforms would be incentivized to take proactive steps to prevent counterfeit sales and protect consumers, while receiving a safe harbor if they take the steps set forth in the bill.

"We explored the issue of unsafe counterfeit products in a 2019 hearing, and I first introduced the SHOP SAFE Act in the 116th Congress, just over a year ago.  The reintroduction of this legislation last week came after much work, including outreach to stakeholders impacted by the legislation, and I appreciate their valuable input.

"I look forward to hearing from today’s witnesses as we continue to consider this important consumer protection issue.  And I hope that today’s hearing will serve as a stepping stone on the path to moving this critical legislation forward.

"I yield back the balance of my time."
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