The Department of Homeland Security (DHS) is scheduled to release a report today concerning counterfeit products sold through US ecommerce retailers today. The Wall Street Journal received an early copy of the report and has quoted from it extensively in its article published today on the topic. This could signal a major change in the legal environment for both ecommerce sellers and the ecommerce platforms as well.

The report will recommend that new legislation be created that will “explicitly permit the government to seek injunctive relief against third-party marketplaces and other intermediaries dealing in counterfeit merchandise.” As of now, it does not appear that the government has standing to bring these types of actions against marketplaces. Such a change in the law would change the landscape significantly, as the marketplaces would begin carrying more significant risks from the actions of sellers.

According to the article, DHS is also signaling some new changes to the way that it handles investigations in ecommerce counterfeiting cases:

“As part of the enforcement effort, the report says customs agents will treat domestic U.S. warehouses and fulfillment centers, such as those operated by Amazon and others, as the "ultimate consignee" for goods that haven't been sold to consumers, giving officials power to scrutinize shipments even after they have cleared the border and moved to a regional warehouse.”

This could open up the FBA warehouse network to closer scrutiny from law enforcement. The report also states that US law enforcement might share information and issue requests to destroy counterfeit merchandise held at the warehouse network.

We are interested to see if the administration’s proposed enforcement regime will include greater cooperation with foreign countries, such as the proposals outlined in the Phase 1 US-China trade agreement which was signed on January 15, 2020. Among other things, that agreement created a framework for permitting rights owners to submit ‘expeditious takedowns’ against alleged infringers of intellectual property rights in the online environment in China.  A Chinese DMCA, if implemented, would strengthen the intellectual property rights of US companies in China. 

The key takeaway for this is that the Department of Homeland Security has pledged to take a significantly more active role in policing online marketplaces.  Compared to regulated markets like the securities markets or over-the-counter derivative markets, the e-commerce marketplace is largely unregulated with relevant potential regulators like the FTC and DHS taking a largely hands-off approach so far.  We are hopeful this new regime will lead to a more fair and open playing field for American small businesses operating in the e-commerce space.