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PTO Asks Whether Legislative Action for Experimental Use Exception Is Warranted

by Peter Brunovskis, PhD | Jul 18, 2024 | Patents

The US Patent & Trademark Office (PTO) issued a request for comments concerning the public’s views on the common law experimental use exception and whether Congress should enact a statutory experimental use exception. 89 Fed. Reg. 53963 (June 28, 2024).

The experimental use defense for alleged patent infringement has been part of US jurisprudence for more than 200 years. The current state of experimental use exception jurisprudence in the United States is set forth in Madey v. Duke University, 307 F.3d 1351 (Fed. Cir. 2002). In that case, the Federal Circuit proffered a “very narrow and strictly limited experimental use defense” prohibiting an alleged infringer from invoking such a defense for “use that is in any way commercial in nature” or “any conduct that is in keeping with the alleged infringer’s legitimate business, regardless of commercial implications.”

The Madey decision has been met with a mix of opinions, some arguing that the Federal Circuit’s construction encourages innovation and others arguing that it impedes innovation. Limited exemptions have been carved out in the US. For example, 35 U.S.C. § 271(e)(1) established a safe harbor (the Bolar exemption) allowing for the experimental use of a patented invention by parties to collect regulatory approval data for medical devices or drugs. The Plant Variety Protection Act also provides for exemptions allowing the use of protected plant varieties for research and breeding of new varieties.

While many European and Asian nations have statutory experimental use exceptions in place, legislative efforts for codifying a statutory experimental use exception in the US have thus far failed. With the intent to promote fair competition and innovation, the PTO seeks to revisit this issue by collecting the public’s views on the impact of the experimental use exception in all technology areas. Of particular interest, the PTO seeks comments on one or more topics, including:

How current US experimental use exception jurisprudence impacts investment and/or research and development in any field of technology.
Whether certain technologies are negatively affected by the current experimental use exception jurisprudence.
The impact that a statutory experimental use exception would have on the innovation and commercialization of new technologies with respect to research and development, ability to obtain funding, investment strategy, licensing of patents and patent applications, product development, sales (including downstream and upstream sales), competition, and patent enforcement and litigation.
The impact of current experimental use exception jurisprudence on decisions made with respect to filing, purchasing, licensing, selling or maintaining patent applications and patents in the US.
Reasons for adopting a statutory experimental use exception or maintaining the status quo.
How a statutory experimental use exception should be defined to ensure that patent rights are preserved.
Recommendations for enhancing and facilitating experimental research on patent inventions in the US.

When responding to the questions, commenters are further asked to identify whether they represent, for example:

An inventor, patent owner or investor.
A licensee or user of patented technology.
An entity representing inventors or patent owners (g., law firms).
A recipient of [...]

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European UPC Issues Its First Decisions on the Merits

by Dr. Laura Katharina Woll, LL.M. | Jul 18, 2024 | EU Update, Patents

Franz Kaldewei GmbH & Co. KG v. Bette GmbH & Co. KG

The Unified Patent Court (UPC) issued its first decision on the merits, granting the first-ever permanent injunction covering seven UPC member states. Franz Kaldewei GmbH & Co. KG v. Bette GmbH & Co. KG (Düsseldorf Local Division, July 3, 2024).

The UPC found that the asserted patent was invalid in its granted form due to obviousness but upheld as valid an auxiliary request on which the injunction is based. Among other things, the Düsseldorf Local Division discussed procedural lapses around a missed deadline (denying the defendant a submission of certain documents one day prior to the oral hearing), jointly hearing the infringement case, and a counterclaim for revocation and inventive step. In this regard, the Court proceeded pragmatically and flexibly, as the UPC Court of Appeal (CoA) did in 10x Genomics, but unlike the European Patent Office (EPO) with its focus on the closest prior art and building a problem-solution approach thereon.

The decision further dealt with claims for information on the scope of infringement, claims for recall or removal from the channels of commerce, and considerations against requiring security for enforcement of a judgment on the merits in the given case.

Regarding so-called contributory infringement (i.e., indirect use of the invention), the UPC held that there is a double territorial requirement: the offer and/or delivery of the essential element must take place within UPC territory, and the invention must also be used within UPC territory. The Court left open the question of whether it is sufficient that the offering/delivery exists in a member state and the invention is intended for direct use in another, different member state. Further case law will have to clarify this point. Regarding the prior use defense, it follows from the decision that there is no “UPC/European” prior use. The existence of a right of prior use must be asserted for each member state according to its national law, and the respective defendant must provide the relevant information for each country individually.

Practice Notes:

The UPC has shown that it is capable of dealing efficiently with both infringement and invalidity questions within the short timeframe it has set itself. The UPC delivered on its promise to issue a decision on the merits in just over a year and only a few weeks after the oral hearing.
Regarding claim interpretation, the Düsseldorf Local Division referred to the CoA’s decisions on February 26, 2024, and May 13, 2024, stating that the principles of Article 69 EPC apply to both validity and infringement proceedings.

DexCom, Inc. v. Abbott et al.

The day after the UPC’s decision on the merits in Franz Kaldewei granting a permanent injunction, the Paris Local Division delivered its first decision on the merits and declared the patent in suit invalid in 17 UPC member states. DexCom, Inc. v. Abbott et al. (Paris Local Division, July 4, 2024).

The Paris Local Division also ruled on both infringement and validity questions and [...]

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Golden State of Mind: Anti-SLAPP Defense Versus Privacy Rights

by Anisa Noorassa | Jul 18, 2024 | Uncategorized

The US Court of Appeals for the Ninth Circuit affirmed a district court’s denial of a motion to strike a putative class action suit brought under Section 425.16 of California’s anti-SLAPP statute, finding that the case fell under an exemption because it sought to enforce an important right under California law. Odette R. Batis v. Dun & Bradstreet Holdings, Inc., Case No. 23-15260 (9th Cir. July 8, 2024) (Clifton, Siler, Smith, JJ.)

Odette Batis filed a lawsuit against Dun & Bradstreet (D&B) arguing that their commercial use of her name and contact information in their searchable business-to-business database was a violation of her right of publicity and unfair competition laws and constituted tortious misappropriation of her name and likeness. Batis sought a declaration of infringement, injunctive relief, restitution and damages.

D&B moved to dismiss the lawsuit under California’s anti-SLAPP statute, which is intended to provide protection against “strategic lawsuits against public participation” and “lawsuits brought primarily to chill” the exercise of speech. The statute was enacted to protect nonprofit corporations and citizens from larger entities. D&B argued that Batis’s lawsuit arose from actions D&B took in furtherance of its right to free speech and thus should be struck. The district court concluded that Batis had a right to sue, and that D&B failed to establish that Batis’s lawsuit targeted protected speech. D&B appealed.

The Ninth Circuit upheld the district court’s decision, finding that the anti-SLAPP statute did not authorize a motion to strike the lawsuit. The Court found that Batis’s lawsuit fell under the public interest exemption contained in Section 425.17(b) of the California Code of Civil Procedure. The public interest exemption protects suits where:

The plaintiff does not seek relief different from the rest of any class of which they are a member;
The action would enforce an “important right affecting the public interest”;
And “private enforcement is necessary and places a disproportionate financial burden on the plaintiff.”

The Ninth Circuit found that Batis’s lawsuit met these criteria. First, Batis did not seek any remedy on the face of the complaint that all members of the putative class would not have been entitled to as well. Second, Batis’s lawsuit implicated her privacy rights and rights concerning her name and likeness, both of which are considered important to the public interest, especially in California. Third, Batis’s financial burden in bringing the suit could outweigh the damages she might be able to collect, and no public entity had brought an action against D&B enforcing her rights.

Finally, the Ninth Circuit affirmed that the public interest exemption applied against D&B’s database because the database was not a protected work of expression under Section 425.17(d) of the Anti-SLAPP Act, which protects “a newspaper, magazine, or other periodical publication.” The Court explained that this protection was intended to apply to those engaged in the “dissemination of ideas or expression” rather than a directory. Therefore, Batis’s suit was protected under the public interest exception and immune to D&B’s anti-SLAPP motion.

Smart Choice: Survey Design Didn’t Render Survey Unreliable

by Karen Gover | Jul 18, 2024 | Trademarks

Underscoring its faith in a jury’s competency to use its “common sense and experience” in evaluating evidence, the US Court of Appeals for the Ninth Circuit affirmed a district court’s judgment in favor of the defendants in a trademark infringement action following a trial, as well as its order partially denying the defendants’ motion for attorneys’ fees. BillFloat, Inc. v. Collins Cash, Inc., Case Nos. 23-15405; -15470 (9th Cir. July 1, 2024) (Thomas, McKeown, Christen, JJ.)

BillFloat and Collins Cash both provide financing to small businesses. In 2013, BillFloat began using SMARTBIZ as a trademark and registered the mark in 2014. That same year (2014), Collins Cash began using the mark SMART BUSINESS FUNDING, although it did not file an application to register the mark until 2020. Meanwhile, in 2018, BillFloat and Collins Cash entered into a partnership agreement under which Collins Cash would refer current and prospective customers to BillFloat in exchange for a referral fee. The parties’ agreement stated that “[i]f either Party employs attorneys to enforce any right arising out of or relating to this Agreement, the prevailing Party shall be entitled to recover reasonable attorneys’ fees.”

In 2020, upon learning of Collins Cash’s use of the SMART BUSINESS FUNDING mark, BillFloat brought claims for federal and state trademark infringement, breach of contract, unfair competition and unlawful business practices. The district court granted summary judgment to Collins Cash on the breach of contract claim and proceeded to trial on the trademark infringement claim.

Collins Cash engaged an expert to conduct a likelihood of confusion survey using the so-called “Squirt” methodology, which is used for lesser-known marks. BillFloat filed a motion to exclude the expert and his survey from trial, arguing that various errors made the survey unreliable and therefore inadmissible. The district court denied the motion and admitted the expert’s testimony and his survey. The district court also admitted testimony from BillFloat’s expert that challenged the survey. Both experts were cross-examined on their qualifications and on the merits of the survey.

The jury found that BillFloat had not established trademark infringement by a preponderance of the evidence. Post-trial, BillFloat moved for judgment as a matter of law and for a new trial, and Collins Cash moved for attorneys’ fees and non-taxable costs. The district court denied BillFloat’s motion and awarded Collins Cash attorneys’ fees under the partnership agreement for the breach of contract claim but declined to award Collins Cash attorneys’ fees for the trademark infringement claim or non-taxable costs for either claim. Both parties appealed.

BillFloat argued that the district court abused its discretion in admitting Collins Cash’s expert testimony and survey evidence. It also argued that the district court erred in declining to give BillFloat’s proposed jury instruction not to draw any inferences about the fact that BillFloat did not offer its own survey evidence.

The Ninth Circuit found no abuse of discretion on these issues. The Court pointed to the distinction between the admissibility of survey evidence as opposed to the relative weight a [...]

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Shell Shocked: Judge’s Travel Plans Turn the Tide in Shrimp Dispute

by Kyle Sorenson, PhD | Jul 11, 2024 | Trade Secrets

Addressing the scope of a magistrate judge’s Article III authority, the US Court of Appeals for the Eleventh Circuit vacated a judgment and remanded the case for a new trial because the magistrate judge performed non-ministerial acts without obtaining proper consent. PB Legacy, Inc v. Am. Mariculture, Inc., Case No. 22-12936 (11th Cir. June 18, 2024) (Pryor, C.J.; Brasher, J.) (Jordan, J., concurring).

PB Legacy sued American Mariculture for trade secret misappropriation and other claims after PB Legacy failed to timely remove its shrimp from Mariculture’s facility, which Mariculture then used to start a competing company. During the trial, the district judge instructed that all arguments had to conclude by a certain date because of a scheduled flight. Although arguments ended on time, the jury engaged in extensive deliberations. On the day of the district judge’s flight, he proposed that the magistrate judge receive the jury verdict in his absence. The parties agreed to this arrangement without objection. The jury deliberations continued for three more days. During that time, the magistrate judge not only received the verdict and polled the jury, but also responded to several jury questions and denied Mariculture’s request for verdict clarification. The jury found in favor of PB Legacy. Mariculture appealed, contesting the magistrate judge’s exercise of Article III authority.

The Eleventh Circuit found that the magistrate judge improperly exercised Article III authority without proper consent. The Court clarified when a magistrate judge may exercise Article III authority, noting that while a magistrate judge’s performance of ministerial acts (such as receiving a jury verdict and polling a jury) do not require party consent, non-ministerial acts (such as responding to jury questions) do.

The Court also described how party consent is properly obtained. To avoid potential prejudice, consent for a magistrate judge to exercise Article III authority should be sought outside the presence of both the district judge and magistrate judge. Parties usually provide consent through a joint or separately filed statement, and district and magistrate judges are informed of a party’s consent only once all parties have agreed. In limited circumstances, consent may be implied when the parties are given advanced notice of the magistrate judge’s proposed Article III authority, are made aware of the need to consent, and voluntarily appear to try the case before the magistrate judge.

Against that background, the Eleventh Circuit addressed whether the parties consented to the magistrate judge’s acts in the current case. The Court found that although the district judge had notified the parties that the magistrate judge would receive the verdict in his absence, this act was a ministerial act that the magistrate judge could already perform without consent. However, the district court neither sought nor obtained the parties’ express consent for the magistrate judge to also perform the non-ministerial acts of responding to jury questions and ruling on a party’s request to have the jury clarify the verdict. Implied consent was also lacking because the parties were not given notice of need for consent or their right [...]

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Robbing Peter to Pay Paul? Supreme Court to Consider Scope of Lanham Act “Defendant’s Profit” Award

by Kathleen Lynch | Jul 11, 2024 | Cert Alert, Trademarks

The Supreme Court has agreed to consider the breadth of a damages award in a long-running trademark dispute between two real estate companies. Dewberry Group, Inc. v. Dewberry Engineers, Inc., Docket No. 23-900 (Supr. Ct. June 24, 2024).

Dewberry Group and Dewberry Engineers both offer commercial real estate services in the same geographic area. The two companies dispute the use of the name “Dewberry” for use in real estate: Dewberry Group has acquired common law rights, and Dewberry Engineers owns registered trademarks. Dewberry Engineers sued Dewberry Group, but the initial litigation ended in settlement in 2007. As part of the settlement, Dewberry Group agreed to various terms, including that it would use a specific logo and an abbreviated name in certain overlapping markets.

Ten years later, Dewberry Group rebranded and attempted to register new marks containing the word “Dewberry” and abandoned the logo and name specified by the settlement agreement. In 2020, Dewberry Engineers again sued Dewberry Group, this time for violating the terms of the confidential settlement agreement and for infringing Dewberry Engineers’ trademarks. The lower court granted Dewberry Engineers summary judgment, a permanent injunction and monetary damages. The damages award included profit disgorgement pursuant to the Lanham Act, 15 U.S.C. § 1117(a), under which the US Court of Appeals for the Fourth Circuit ordered Dewberry Group’s affiliates to disgorge almost $43 million in profits. Dewberry Group appealed, and the Fourth Circuit affirmed in a 2 – 1 decision.

Dewberry Group petitioned for certiorari on the issue of damages, arguing that the Fourth Circuit’s decision to allow Dewberry Engineers to collect damages based on Dewberry Group’s affiliates’ profits “silently invites courts to ignore corporate separateness in trademark disputes without regard to veil-piercing principles.” Dewberry Group argued that the Fourth Circuit decision was substantively incorrect and contradictory to Ninth and Eleventh Circuit decisions as well as the Lanham Act. According to Dewberry Group, the $43 million “never passed through [Dewberry Group’s] hands,” and in fact the company “had zero net profits.” Because the Lanham Act allows only for disgorgement of a defendant’s profits – not defendant’s affiliates’ profits or a penalty against the defendant – Dewberry Group contended that the damages award was improper.

The issue presented is: Whether an award of the “defendant’s profits” under the Lanham Act, 15 U.S.C. § 1117(a), can include an order for the defendant to disgorge the distinct profits of legally separate non-party corporate affiliates.

Is Pleading “Generic” Enough to Plead Inducement?

by Christopher M. Bruno | Jul 11, 2024 | Patents

The US Court of Appeals for the Federal Circuit held that a branded pharmaceutical manufacturer properly pled a theory of inducement by alleging that the generic competitor promoted its product as “generic” to the branded product and referred to the branded product’s sales for patented uses. Amarin Pharma Inc. v. Hikma Pharmaceuticals USA Inc., Case No. 23-1169 (Fed. Cir. June 25, 2024) (Moore, Lourie, Albright, JJ.)

Amarin Pharmaceuticals sells the drug Vascepa, which the US Food and Drug Administration (FDA) approved for two uses:

To treat severe hypertriglyceridemia.
As an adjunct therapy to reduce certain cardiovascular risks.

In 2016, Hikma submitted an abbreviated new drug application (ANDA) to market a generic version of Vascepa, which at the time was only approved for treatment of severe hypertriglyceridemia. Hikma and Amarin then litigated patents covering Vascepa under the Hatch-Waxman Act, with Hikma invalidating the patent claims covering the severe hypertriglyceridemia indication. After Amarin obtained approval for its second indication, Hikma submitted to the FDA a “section viii carve out” (i.e., prescribing information that purposedly did not include the second indication). The FDA approved Hikma’s product, which was sold with a “skinny label.” After Hikma’s ANDA was approved, Hikma issued a series of press releases that referred to its product as a “generic” version of Vascepa, even though the product was not approved for the cardiovascular risk indication. The press releases also referred to Vascepa’s annual sales as approximately $1.1 billion – the amount of Vascepa scales for all uses – as well as its usage information.

Amarin sued Hikma again for patent infringement, this time claiming that Hikma induced infringement of patents covering the cardiovascular risk indication. The district court overruled the magistrate judge’s recommendation and concluded that Amarin’s complaint did not plead a plausible case of induced infringement. Amarin appealed.

The Federal Circuit reversed. First, it explained its view that the case was a “run-of-the-mill” inducement infringement case, rather than one governed by the Hatch-Waxman Act framework. Emphasizing the deferential plausibility standard applicable at the pleadings stage, the Court held that, combined with allegations that Hikma’s label included warnings that would promote infringement, Amarin’s averments about Hikma’s press releases were sufficient at this stage to plausibly claim that Hikma induced infringement of the cardiovascular risk limitation by its references to the branded product.

The Federal Circuit also rejected Hikma’s claim that a ruling in Amarin’s favor would “effectively eviscerate section viii carve-outs.” The Court explained that its ruling was an ordinary application of induced infringement that promotes scrutiny of generic companies’ communications for clarity and consistency.

Practice Note: This case continues the trend of inducement cases that has received renewed interest after GlaxoSmithKline v. Teva Pharmaceuticals. Branded pharmaceutical manufacturers may be emboldened to sue after launch based on theories of inducement where section viii carveouts were employed.

What Makes a Trademark Case “Exceptional” in the Fifth Circuit?

by Benjamin Ediger, Ph.D. | Jul 11, 2024 | Trademarks

The US Court of Appeals for the Fifth Circuit affirmed a senior party mark but found that the district court committed clear error in finding that a similar junior party mark was valid. The Fifth Circuit also found that the district court abused its discretion in awarding attorneys’ fees to the senior user. Appliance Liquidation Outlet, L.L.C. v. Axis Supply Corp., Case No. 23-50413 (5th Cir. June 21, 2024) (Smith, Haynes, Douglas, JJ.)

Appliance Liquidation Outlet (ALO), a decades-old appliance store in San Antonio, Texas, brought a trademark action under the Lanham Act and Texas law (which in all relevant aspects tracks the Lanham Act) against Axis Supply Corporation, another San Antonio appliance store that opened in 2021. Axis’s store and social media prominently featured the phrase “Appliance Liquidation”:

ALO noted that Axis’s opening happened to coincide with an influx of customers conflating ALO with Axis. ALO’s storefront had prominently displayed a banner reciting “Appliance Liquidation Outlet” for years:

Although ALO had never registered its mark, ALO had long engaged in a variety of promotional activities to raise brand recognition, including partnering with local sports teams and holding antique exhibitions and car shows.

Soon after Axis opened its store, ALO experienced a rush of customers who failed to differentiate between the stores and believed that ALO operated both. ALO requested that Axis stop using “Appliance Liquidation” and sued Axis in state court when Axis refused. Axis removed the dispute to the federal district court. After a bench trial, the district court held for ALO, enjoining Axis from using “Appliance Liquidation” and “Appliance Liquidation Outlet” and causing confusion between the two businesses. The district court also awarded attorneys’ fees under 15 U.S.C. § 1117(a) to ALO, finding that Axis’s decision to change its name only a week before trial (about 1.5 years into the dispute) amounted to litigating in an unreasonable manner. Axis appealed.

The Fifth Circuit affirmed the district court’s holding that Axis had infringed ALO’s “Appliance Liquidation Outlet” mark but assigned clear error to the district court’s finding that “Appliance Liquidation” was valid mark. The Fifth Circuit also found that the district court had abused its discretion in awarding attorneys’ fees to ALO.

With respect to the marks’ validity, the Fifth Circuit noted that both marks were unregistered and thus were not presumptively valid. The Court found that the record did not support the conclusion that “Appliance Liquidation” was a source identifier and thus found that it was not a valid mark. However, the Fifth Circuit was satisfied that “Appliance Liquidation Outlet” served as a source identifier. The Court found that although “Appliance Liquidation Outlet” was descriptive, the evidence established that San Antonian consumers perceived the mark as conveying information about ALO, not merely reflecting a class of services or businesses, and [...]

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Family Feud: Counterclaims Too Little, Too Late

by Kathleen Lynch | Jun 27, 2024 | Copyrights

The US Court of Appeals for the Seventh Circuit affirmed a district court’s ruling that aggrieved family members’ counterclaims for various intellectual property matters were long overdue and subject to a laches defense. Sumrall v. LeSEA, Inc., Case No. 23-2833 (7th Cir. June 12, 2024) (Scudder, Pryor, St. Eve, JJ.)

During Lester Frank Sumrall’s life, he created a legacy that began as a church, later blossoming into the Lester Sumrall Evangelical Association (LeSEA). Through LeSEA, Sumrall delivered his ministry from Indiana to the rest of the world via television, travel, writings and media productions. These works, including books and films (many of which Sumrall registered for copyrights in his or LeSEA’s name) are the subject of dispute. Particularly in dispute was the ownership of the “Traveler Photo,” a picture that Sumrall’s grandson Lester took during a ministry trip to China while Lester worked for LeSEA.

Sumrall’s death raised issues regarding succession. After his death, Sumrall’s sons, Peter, Stephen and Frank, took over LeSEA. Peter and Stephen relayed to Frank and others that Sumrall left all his assets to the ministry. Eight years later, Lester researched Indiana’s intestate succession law. Believing that Sumrall died without a will, Lester thought Frank should have inherited one-third of Sumrall’s estate. Under this belief, Frank granted Lester power of attorney to legally pursue his interest in the estate. For 12 years, Lester took no further legal action.

After learning that Sumrall did indeed have a will, Lester petitioned an Indiana probate court to open an estate for Sumrall in 2017. One of Lester’s cousins produced the will that granted some personal items to Sumrall’s grandchildren, with the remainder of his estate divided among his sons equally. The probate court denied the petition, reasoning that the estate was devoid of assets.

This case began with LeSEA’s trademark infringement claims against Lester and a competitor Lester created, the LeSEA Broadcasting Corporation. Those claims were resolved after Lester stopped using LeSEA’s name and therefore were not on appeal.

At issue in the appeal were counterclaims brought by the Lester Sumrall Family Trust against LeSEA, LeSEA’s affiliate corporations, and Lester’s uncles and cousins who are currently involved in the ministry (collectively, LeSEA). Lester and the trust asserted that:

LeSEA unrightfully took ownership of Sumrall’s copyrights.
LeSEA unlawfully used the Traveler Photo in its materials.
The trust was entitled to damages for its state law claims.
LeSEA unlawfully continued to use Sumrall’s right of publicity.

The Seventh Circuit rejected the appellants’ assertion that they owned Sumrall’s copyrighted works. The Court ruled that the appellants’ copyright claim arose under the Copyright Act, which bars suits three years after they accrue. The Court explained that an ownership claim accrues “when plain and express repudiation of co-ownership is communicated to the claimant.” Here, repudiation occurred when Sumrall died 28 years prior to the counterclaim and Stephen and Peter declared in “plain and express” terms that LeSEA owned the copyrights and the remainder of the estate.

As for the Traveler Photo, the [...]

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SHOP SAFE Act: E-Commerce Trademark Enforcement Legislation Reintroduced in the House

by Christopher M. Bruno | Jun 27, 2024 | Trademarks

On June 11, 2024, Representatives Jerry Nadler (D-NY) and Darrell Issa (R-CA) of the US House of Representatives Judiciary Subcommittee on Courts, Intellectual Property, and the Internet reintroduced the Stopping Harmful Offers on Platforms by Screening Against Fakes in E-Commerce (SHOP SAFE) Act of 2024. The proposed legislation seeks to protect US consumers from unknowingly purchasing counterfeit goods by incentivizing e-commerce platforms to implement certain guidelines. If platforms fail to comply with the act, they could be subject to liability for the actions of third-party sellers.

The SHOP SAFE Act purports to address the growing threat of the online counterfeit marketplace. Consumers are increasingly shopping online, with estimated sales of more than $280 billion in US retail e-commerce for the first quarter of 2024. Counterfeiters have continued to target online consumers, yet under the current trademark regime, third-party counterfeit sellers are seldom held accountable for their role in the online marketplace. The legislation seeks to deter that threat by encouraging e-commerce practices that aim to better inform consumers and screen third-party sellers.

Under the SHOP SAFE Act as proposed, an e-commerce platform may be subject to a lawsuit when a third-party seller uses a counterfeit mark in commerce during a sale, offer, advertisement or distribution of a good that implicates health and safety on the platform. To reduce counterfeit offerings, the legislation purports to enlist platforms to actively monitor for trademark infringement.

The SHOP SAFE Act also would provide e-commerce platforms with a mechanism to protect themselves from contributory liability stemming from counterfeit offerings: a safe harbor if the e-commerce platform takes reasonable prophylactic measures to prevent infringing use of trademarks by a third-party seller. Best practices include imposing certain contractual limitations on third-party sellers, such as those related to:

Posting requirements and service of process in the United States.
Setting up proactive screening measures and processes to report and quickly disable and remove offerings of counterfeit goods.
Implementing written policies to terminate third-party accounts that repeatedly use counterfeit marks and to block those who attempt to rejoin.

Whether enactment of the SHOP SAFE Act would benefit the e-commence ecosystem is a matter of debate. Some contend that the measures are necessary to deputize platforms to better police the goods sold through their websites. Others claim that the legislation might be used to shut down, under the auspices of trademark enforcement, small businesses offering legitimate goods, especially because these businesses likely have fewer resources to challenge the platform’s determinations. As the SHOP SAFE Act has been previously introduced without movement, and given that this year is not primed for bipartisan action, it remains to be seen whether the act – which has companion US Senate legislation – moves forward toward passage.

Lauren Hong, a summer associate in the San Francisco office, also contributed to this article.