Project Zero: Bye Bye Blackbox

Amazon contends that Project Zero will allow brands to immediately remove counterfeit items from Amazon without Amazon acting as a middleman to presumably “review” the claim and send the traditional policy warning with an opportunity to appeal to sellers on the reported ASIN. From everything we’ve read, this only applies to counterfeit goods. I underline counterfeit for a reason: counterfeit is a defined term under the law. A counterfeit mark is an illegal replica of a registered trademark affixed to a product that is not manufactured by the trademark owner. It is a replica, a copy. It was never sold or given away by the manufacturer and brand owner. Trafficking in counterfeit goods is a crime with penalties of up to $2 million and 10 years in prison for a first offense and greater penalties for additional offenses. See 18 U.S.C. § 2320.

We have seen unscrupulous brands and dishonest lawyers file “counterfeit” claims with Amazon against third party sellers who are reselling authentic goods purchased from authorized distributors. An authentic product is not a counterfeit good by definition. When confronted with proof of the authenticity of the products being sold, these brands almost always claim that they didn’t mean counterfeit, they just meant “unauthorized” and Amazon must be confused. Okay, sure. Words have meanings and “counterfeit” means counterfeit as defined in the law. Both brands and brand protection firms seem to rely heavily on being able to blame Amazon’s “black box” IP Reporting system when caught with their hands in the false counterfeit cookie jar.

Knowingly filing a false counterfeit claim is a serious matter that can constitute defamation under the law in many states. Recently independent merchants have been fighting back against these false and defamatory complaints, filing lawsuits against both the brand protection firms that sell this counterfeit fantasy to brands and the brands who are ultimately responsible for the acts of their agents. See Johnson v. Ashly E. Sands, WowWee USA Inc., and Incopro, Inc., 1:18-cv-689 (W.D. Va 2018) (“WowWee”). According to documents filed in federal court, in WowWee, a reseller received counterfeit complaints from a brand protection firm, Incopro, purportedly on behalf of the toy company, WowWee, through Amazon’s Report Infringement tool. Plaintiff reseller responded to the e-mail address provided by Amazon with proof that the items she was offering for sale were authentic but Incopro bizarrely refused to retract the complaint. Shortly thereafter, the reseller plaintiff attempted to apply for a loan through Amazon. Amazon denied plaintiff’s loan request, citing the false counterfeit complaint filed by Incopro. Plaintiff filed suit against the brand protection firm, Incopro, the toy company, WowWee, and Incopro’s attorney, Ms. Sands.

WowWee’s motion to dismiss relied almost entirely on the fact that WowWee did not file the complaint, Incopro did. WowWee continually stated that WowWee itself never “made any statement” to Amazon. Essentially WowWee argued that if anyone defamed Ms. Johnson’s business, it was Incopro or Amazon. WowWee even attached the complaint that was made to Amazon, noting that it was made by a specific (and named!) employee of Incopro. What kind of prison lawyering is that? If I hire my cleaning lady to kill my neighbor, I’m still responsible for the murder. Incopro does not file complaints for free out of the blackness of their hearts but rather they are hired as an agent acting at the direction of the company that hired them. I’m sure Incopro has a contract that makes it crystal clear that they are acting at the direction and in the interests of the company that hires them. (Incopro, if you don’t, give us a call.) Either way, the defense in this lawsuit seemed to be that no one really filed this complaint and no one really meant to allege that Ms. Johnson was trafficking in counterfeit goods. It all was some “misunderstanding” that manifested itself in Amazon’s black box complaint reporting system. (Note: this case settled shortly after oral argument on the defendants’ motion to dismiss.)

Here’s where Project Zero comes in. There’s no more black box. There’s no confusion over who reported what product as what violation. Brands are reporting independent merchants for selling counterfeit goods. There’s no more “Oops I meant to report this as a MAP violation, where’s the button for that?” No more “We require a $300 payment to remove this complaint.” No more “But but but it doesn’t have a warranty!!!!” It will be very clear that a brand filed a counterfeit complaint against a seller and Amazon acted on that statement from the brand by removing the offer from the platform. It will be clear, in writing, that a brand accused a seller of criminally trafficking in counterfeit goods.

You may be thinking: why does Amazon get involved at all? Well, Amazon must provide some way for actual intellectual property owners to take down content that infringes on their verified intellectual property. Cases like Tiffany v. eBay Inc., 600 F.3d 93 (2nd Cir. 2010), established a sort of “safe harbor” where marketplaces are not liable for trademark infringement that may occur on their platforms if they provide a robust mechanism through which IP holders can report suspected infringement and have infringing materials removed in a reasonably quick way. The Digital Millennium Copyright Act (“DMCA”) provided a statutory process for this type of reporting and removal through the DMCA Notice and Counter-Notice process. Unfortunately Congress has not established a similar system for Trademark or other IP rights so marketplaces and content hosts are left to their own devices. Amazon, for its part, has to weigh its duty (and desire to steer clear of any liability) to prevent IP infringement with its mission to bring the widest variety of products to customers at the lowest prices. I don’t think Amazon wants counterfeit goods sold on Amazon any more than brands or customers do. But Amazon definitely welcomes third-party arbitrage sellers who take advantage of pricing asymmetry across the country to bring low-cost name-brand goods to Amazon’s customers.

Just to be clear: I know that counterfeiting is a real problem. Years ago I worked at a luxury fashion brand where we spent a great deal of time finding and reporting sellers of counterfeit goods to the FBI. The brand I worked for was frequently bringing lawsuits against counterfeiters, seizing websites, freezing bank accounts, taking real legal action to stop criminal enterprises. But there is a difference between counterfeit goods and authentic goods that are resold outside of an authorized chain of distribution.

Real brands spend a great deal of time and money ensuring their distribution chain is tight and leak-free. Luxury brands buy back products, limit where products can be sold in the first place, destroy unsold products at the end of the season, serialize every product that leaves the manufacturer, bring lawsuits against distributors who divert, etc. You can have wide distribution or restrictive distribution but you can’t have both. All of these expensive measures that major brands around the world implement would be unnecessary if you could just falsely accuse someone of committing a crime to solve your distribution problems. Think about it.

There are many ways brands can restrict distribution but filing false and defamatory counterfeit claims is not one of them.