[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]




 
   THE SHOP SAFE ACT: STEMMING THE RISING TIDE OF UNSAFE COUNTERFEIT 
                            PRODUCTS ONLINE

=======================================================================

                                HEARING

                               BEFORE THE

    SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND THE INTERNET

                                 OF THE

                       COMMITTEE ON THE JUDICIARY

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEETH CONGRESS

                             FIRST SESSION

                               __________

                         THURSDAY, MAY 27, 2021

                               __________

                           Serial No. 117-25

                               __________

         Printed for the use of the Committee on the Judiciary
         
         
         
         
 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]        
 


               Available via: http://judiciary.house.gov
               
               
               
               
                            ______

              U.S. GOVERNMENT PUBLISHING OFFICE 
45-396                 WASHINGTON : 2021               
               
               
               
                       COMMITTEE ON THE JUDICIARY

                    JERROLD NADLER, New York, Chair
                MADELEINE DEAN, Pennsylvania, Vice-Chair

ZOE LOFGREN, California              JIM JORDAN, Ohio, Ranking Member 
SHEILA JACKSON LEE, Texas            STEVE CHABOT, Ohio
STEVE COHEN, Tennessee               LOUIE GOHMERT, Texas
HENRY C. ``HANK'' JOHNSON, Jr.,      DARRELL ISSA, California
    Georgia                          KEN BUCK, Colorado
THEODORE E. DEUTCH, Florida          MATT GAETZ, Florida
KAREN BASS, California               MIKE JOHNSON, Louisiana
HAKEEM S. JEFFRIES, New York         ANDY BIGGS, Arizona
DAVID N. CICILLINE, Rhode Island     TOM McCLINTOCK, California
ERIC SWALWELL, California            W. GREG STEUBE, Florida
TED LIEU, California                 TOM TIFFANY, Wisconsin
JAMIE RASKIN, Maryland               THOMAS MASSIE, Kentucky
PRAMILA JAYAPAL, Washington          CHIP ROY, Texas
VAL BUTLER DEMINGS, Florida          DAN BISHOP, North Carolina
J. LUIS CORREA, California           MICHELLE FISCHBACH, Minnesota
MARY GAY SCANLON, Pennsylvania       VICTORIA SPARTZ, Indiana
SYLVIA R. GARCIA, Texas              SCOTT FITZGERALD, Wisconsin
JOE NEGUSE, Colorado                 CLIFF BENTZ, Oregon
LUCY MCBATH, Georgia                 BURGESS OWENS, Utah
GREG STANTON, Arizona
VERONICA ESCOBAR, Texas
MONDAIRE JONES, New York
DEBORAH ROSS, North Carolina
CORI BUSH, Missouri

                PERRY APELBAUM, Majority Staff Director
                 CHRIS HIXON, Minority Staff Director 
                                 ------                                

           SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND
                              THE INTERNET

             HENRY C. ``HANK'' JOHNSON, Jr., Georgia, Chair
                  MONDAIRE JONES, New York, Vice-Chair

THEODORE E. DEUTCH, Florida          DARRELL ISSA, Ranking Member
HAKEEM JEFFRIES, New York            STEVE CHABOT, Ohio
TED LIEU, California                 LOUIS GOHMERT,
GREG STANTON, Arizona                MATT GAETZ, Florida
ZOE LOFGREN, California              MIKE JOHNSON, Louisiana
STEVE COHEN, Tennessee               TOM TIFFANY, Wisconsin
KAREN BASS, California               THOMAS MASSIE, Kentucky
ERIC SWALWELL, California            DAN BISHOP, North Carolina
MONDAIRE JONES, New York             MICHELLE FISCHBACH, Michigan
DEBORAH ROSS, North Carolina         SCOTT FITZGERALD, Wisconsin
JOE NEGUSE, Colorado                 CLIFF BENTZ, Oregon

                      JAMIE SIMPSON, Chief Counsel
                 BETSY FERGUSON, Minority Chief Counsel
                 
                            C O N T E N T S

                              ----------                              

                         Thursday, May 27, 2021

                                                                   Page

                           OPENING STATEMENTS

The Honorable Henry C. ``Hank'' Johnson, Jr. a Representative in 
  the Congress from the State of Georgia, Chairman, Subcommittee 
  on Courts, Intellectual Property, and the Internet.............     1
The Honorable Darrell Issa, a Representative in the Congress from 
  the State of California, and Ranking Member, Subcommittee on 
  Courts, Intellectual Property, and the Internet................     3
  Prepared Statement.............................................     6
The Honorable Jerrold Nadler, a Representative in the Congress 
  from the State of New York, Chairman, Committee on the 
  Judiciary......................................................     9

                               WITNESSES

Ms. Kari Kammel, Assistant Director of Education and Outreach, 
  Center for Anti-Counterfeiting and Product Protections, 
  Michigan State University
  Oral Testimony.................................................    12
  Prepared Statement.............................................    14
Ms. Meredith Simpson, Vice President, Federal Government 
  Relations and External Relations, Personal Care Products 
  Council
  Oral Testimony.................................................    29
  Prepared Statement.............................................    31
Mr. Jonathan Berroya, Senior Vice President and General Counsel, 
  Internet Association
  Oral Testimony.................................................    37
  Prepared Statement.............................................    40
Ms. Natasha Reed, Partner, Co-Chair, Trademark, Copyright & 
  Unfair Competition Practice, Foley Hoag, LLP
  Oral Testimony.................................................    49
  Prepared Statement.............................................    51

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

A letter from Engine to Members of the Subcommittee on Courts, 
  Intellectual Property, and the Internet for the record 
  submitted by the Honorable Henry C. ``Hank'' Johnson, Jr., a 
  Representative in the Congress from the State of Georgia, 
  Chairman, Subcommittee on Courts, Intellectual Property, and 
  the Internet...................................................    82
A letter from Matt Schruers, President, Computer & Communications 
  Industry Association for the record submitted by the Honorable 
  Henry C. ``Hank'' Johnson, Jr., a Representative in the 
  Congress from the State of Georgia, Chairman, Subcommittee on 
  Courts, Intellectual Property, and the Internet................    85
A statement from American Apparel & Footwear Association for the 
  record submitted by the Honorable Henry C. ``Hank'' Johnson, 
  Jr., a Representative in the Congress from the State of George, 
  Chairman, Subcommittee on Courts, Intellectual Property, and 
  the Internet...................................................    89
A letter from Alliance for Safe Online Pharmacies, ASOP Global 
  for the record submitted by the Honorable Henry C. ``Hank'' 
  Johnson Jr., a Representative in the Congress from the State of 
  Georgia, Chairman, Subcommittee on Courts, Intellectual 
  Property, and the Internet.....................................    92
A letter from undersigned organizations representing U.S. 
  property Intellectual Property rights holders for the record 
  submitted by the Honorable Henry C. ``Hank'' Johnson, Jr., a 
  Representative in the Congress from the State of Georgia, 
  Chairman, Subcommittee on Courts, Intellectual Property, and 
  the Internet...................................................    94
A letter from Chris Netram, Vice President, Tax and Domestic 
  Economic Policy, National Association of Manufacturers for the 
  record submitted by the Honorable Henry C. ``Hank'' Johnson, 
  Jr., a Representative in the Congress from the State of 
  Georgia, Chairman, Subcommittee on Courts, Intellectual 
  Property, and the Internet.....................................    96
A statement from the National Fire Protection Association for the 
  record submitted by the Honorable Henry C. ``Hank'' Johnson, 
  Jr., a Representative in the Congress from the State of 
  Georgia, Chairman, Subcommittee on Courts, Intellectual 
  Property, and the Internet.....................................    98
A letter from Christine Burdick-Bell, Executive Vice President, 
  General Counsel & Corporate Secretary, Pharmavite LLC, for the 
  record submitted by the Honorable Henry C. ``Hank'' Johnson, 
  Jr., a Representative in the Congress from the State of 
  Georgia, Chairman, Subcommittee on Courts, Intellectual 
  Property, and the Internet.....................................    99
A statement from Lezlee Westine, President and Chief Operating 
  Officer, Personal Care Product Council, for the record 
  submitted by the Honorable Henry C. ``Hank'' Johnson, Jr., a 
  Representative in the Congress from the State of Georgia, 
  Chairman, Subcommittee on Courts, Intellectual Property, and 
  the Internet...................................................   101
A statement from Steve Pasierb, President & Chief Operating 
  Officer, The Toy Association for the record submitted by the 
  Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in 
  the Congress from the State of Georgia, Chairman, Subcommittee 
  on Courts, Intellectual Property, and the Internet.............   102
A statement from Jeffrey P. Hardy, Director-General, 
  Transnational Alliance to Combat Illicit Trade for the record 
  submitted by the Honorable Henry C. ``Hank'' Johnson, Jr., a 
  Representative in the Congress from the State of Georgia, 
  Chairman, Subcommittee on Courts, Intellectual Property, and 
  the Internet...................................................   106

                                APPENDIX

Questions for the record to Ms. Kari Kammel Assistant Director of 
  Education and Outreach, Center for Anti-Counterfeiting and 
  Product Protections, Michigan State University, submitted by 
  the Honorable Steve Chabot, a Representative in the Congress 
  from the state of Ohio, Member, Subcommittee on Courts, 
  Intellectual Property, and the Internet........................   108
A response to questions for the record from Ms. Kari Kammel 
  Assistant Director of Education and Outreach, Center for Anti-
  Counterfeiting and Product Protections, Michigan State 
  University.....................................................   109


   THE SHOP SAFE ACT: STEMMING THE RISING TIDE OF UNSAFE COUNTERFEIT 
                            PRODUCTS ONLINE

                              ----------                              


                         Thursday, May 27, 2021

                     U.S. House of Representatives

    Subcommittee on Courts, Intellectual Property, and the Internet

                       Committee on the Judiciary

                             Washington, DC

    The Committee met, pursuant to call, at 2:04 p.m., in Room 
2141, Rayburn House Office Building, Hon. Hank Johnson 
[chairman of the subcommittee] presiding.
    Members present: Representatives Nadler, Johnson of 
Georgia, Jones, Deutch, Lieu, Stanton, Bass, Ross, Issa, 
Chabot, Gohmert, Massie, Bishop, Fischbach, and Bentz.
    Staff present: John Doty, Senior Advisor; Moh Sharma, 
Director of Member Services and Outreach & Policy Advisor; 
Cierra Fontenot, Chief Clerk; John Williams, Parliamentarian; 
Merrick Nelson, Digital Director; Jamie Simpson, Chief Counsel 
for Courts & IP; Mary Beth Walker, Detailee for Courts & IP; 
Rosalind Jackson, Professional Staff Member for Courts & IP; 
John Lee, Minority USPTO Detailee; Andrea Woodard, Minority 
Professional Staff Member; and Kiley Bidelman, Minority Clerk.
    Mr. Johnson of Georgia. I now call to order the 
Subcommittee. Without objection, the chair is authorized to 
declare recesses of the Subcommittee at any time.
    Welcome to this afternoon's hearing on the SHOP SAFE Act, 
stemming the rising tide of unsafe counterfeit products online.
    Before we begin, I'd like to remind Members that we have 
established an email address and distribution list dedicated to 
circulating exhibits, motions, or other materials that Members 
might want to offer as part of our hearing today, and if you'd 
like to submit materials, please send them to the email address 
that has been previously distributed to your offices and we 
will circulate the materials to Members and staff as quickly as 
we can.
    I'd also ask all Members to mute your microphones when you 
are not speaking. This will help prevent feedback and other 
technical issues. You may unmute yourself anytime you seek 
recognition.
    I will now recognize myself for an opening statement. I'm 
pleased to convene today's hearing on the Stopping Harmful 
Offers on Platforms by Screening Against Fakes in E-Commerce 
Act of 2021, also known as the SHOP SAFE Act.
    It has been a pleasure to work with the full Committee 
Chairman Nadler, Subcommittee Ranking Member Issa, and 
Representative Cline in reintroducing this important 
legislation.
    Brand owners have been sounding the alarm about dangerous 
counterfeit products plaguing the internet for years and we are 
no longer in the era of fake watches and handbags being sold 
out of car trucks.
    As consumers have moved online, counterfeit--counterfeiters 
have embraced the internet also. Their tools are becoming more 
sophisticated and their targeted products becoming more wide 
ranging as they dupe unwitting consumers into purchasing fakes.
    Last Congress, this Subcommittee examined the issue of 
unsafe counterfeits closely, and in July of 2019 we held a 
hearing during which we heard about the dangers that 
counterfeits can and have caused.
    In that hearing, we were able to see, among other things, 
the devastating consequences that can result when counterfeit 
car products do not meet the safety standards of authentic 
products.
    We also heard how frustrated brand owners are with the 
challenges in enforcing their trademarks online. Endless 
counterfeit storefronts have turned brand protection into a 
game of whack-a-mole and repeat counterfeiters seem to 
continually reappear.
    Insufficient vetting of these third party sellers leaves 
brand owners with false or incomplete seller information, which 
means they have no avenue for recourse against the counterfeit 
sellers that hide behind this false information.
    Platforms' reactive measures are inefficient and their 
voluntary efforts are inconsistent and insufficient to address 
this growing consumer safety and brand protection problem.
    The SHOP SAFE Act is a legislative solution that builds on 
our July 2019 hearing and on the outreach we have continued 
since that time. In 2019, the need for congressional action was 
clear. This past year has further highlighted the importance of 
addressing this issue head on.
    Throughout the COVID-19 pandemic consumers turned to online 
shopping in increasing numbers and counterfeiters took full 
advantage.
    During the height of the pandemic, reports found online 
counterfeiters hawking knock off respiratory masks, gloves, and 
sanitizer. One report estimated that listings of illegitimate 
hygiene-related projects on online platforms had increased by 
more than 270 percent over the previous year. The platforms 
promote their voluntary efforts to combat counterfeiting.
    The purported goal of these programs is commendable, but I 
have concerns about the lack of transparency in these efforts. 
We do not know how universally they are applied. Because they 
are voluntary, there is no requirement that the programs apply 
evenly across all listings or to all brands, and many of the 
brand protection programs offered by the platforms come with 
terms of service a brand owner must accept before receiving the 
benefits of those programs.
    As the adage goes, the best defense is a good offense. It 
is clear that the fight against dangerous fakes in e-commerce 
requires proactive measures by the platforms. SHOP SAFE takes 
an important step in ensuring that what consumers see online is 
what they will get.
    The bill would create a universal standard for proactive 
screening measures to be undertaken by platforms to keep 
dangerous counterfeits off the platforms from the start, 
guaranteeing that they will never reach consumers.
    The legal framework in the SHOP SAFE Act is a balanced one. 
In exchange for undertaking the best practices set forth in the 
bill, platforms are immunized from liability for counterfeit 
products sold by third party sellers.
    The bill is expressly directed at those products that 
affect the health and safety of the consumers who buy them. 
Brand owners would continue to play a role in the process as 
well.
    I want to thank the witnesses for their participation today 
and I look forward to hearing their perspectives on the SHOP 
SAFE Act.
    Now it's my pleasure to recognize the Ranking Member of the 
Subcommittee, the gentleman from California, Mr. Issa, for his 
opening statement.
    Mr. Issa. Thank you, Mr. Chairman. You said it all and you 
said it extremely well. This hearing and this legislation is 
balanced. It's narrow. It's been an outreach for now several 
years, and I'm delighted to join in the effort to finalize it, 
get it to the Senate, and make it law.
    Today we'll hear from witnesses. Virtually anyone who's 
bought online becomes a witness. My own legislative staff 
includes people who have used makeup that made them break out 
only to find out it wasn't real.
    I have two Advils here. One is real. One is not. Which one 
do you take for a headache? Here is, and very expensive, it's 
called SK-II face treatment. This one is real.
    This one comes in the perfect box, looks identical, except 
this one is from Japan, made in Japan, and shipped from Japan. 
This one, perfectly knocked off or nearly perfectly, is shipped 
directly from China for a few dollars less on one of the major 
platforms.
    These are not the most dangerous. As Chairman said, over 
the last several years we have had to deal--or year--we have 
had to deal with fake N-95 masks, some of them bearing the 3M 
brand name, that came by the millions from plants mostly in 
China, but some from other parts of the world.
    A mass that does not work, in fact, very well could have 
taken lives from those 600,000 who died of COVID. The list goes 
on. This bill is narrow because it is only dealing with health 
and safety.
    In a perfect world, we would deal with every counterfeit, 
including, quite frankly, those Gucci handbags. But we're not. 
We're dealing with the ones for today where we want to see the 
industry rise to the standard that they should have.
    If I were to go to Walmart, walk in, and purchase a good 
from the shelf and it turned out to be counterfeit, there would 
be no question at all but that under the intellectual property 
that the rights holder has, they would be able to sue, plus, of 
course, the injured party who got the fraud.
    As soon as it's online, many companies say, we don't know 
and we can't. Many of these companies take into their vast 
warehouses the products, see the country of origin on it, in 
many cases even participate in the logistics of bringing it 
from a country that, in fact, may not even be the country of 
origin of the authentic good.
    So, today what we're going to do is we're going to hear 
from witnesses a little further on the current State of damage 
that these fakes can cause. We're going to hear from the rights 
holders whose names and brands are diminished every day by 
counterfeits that, of course, do not perform and hurt the 
reputation even if they do not hurt the health or safety of the 
individual.
    Mr. Chairman, probably the one that is most egregious might 
not even be one that I've brought today. Every day, there are 
real toys and fake toys. The real toys pass rigorous tests to 
make sure they won't burn or be swallowed by an infant.
    The fakes, of course, do not. Every day in America, some 
child playing with a fake toy does not get the protection and 
might very well lose an eye or their--or their life as a result 
of it.
    We, in Congress, need to do just what you're doing with 
your leadership and that is take steps to encourage and require 
that we all work together to narrow this kind of fake activity. 
It will not eliminate it, but it certainly will give the rights 
holders and the public an opportunity for the first time in 
years to at least curtail the massive growth.
    Mr. Chairman, I look forward to our witnesses, I look 
forward to moving the legislation, and I want to be maybe the 
second to say here today there's no more bipartisan piece of 
legislation, no more cooperative between our staffs and our 
Members legislation than this one, and I'm proud to be a co-
sponsor, and candidly, just great that you've allowed me to 
participate.
    So, Mr. Chairman, with that, I ask that my entire statement 
be placed in the record, and I yield back.
    [The statement of Mr. Issa follows:]

      

                    MR. ISSA FOR THE OFFICIAL RECORD

=======================================================================

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Mr. Johnson of Georgia. I thank the gentleman from 
California and his modesty must be recognized. He has been a 
long-time proponent of protection for intellectual property 
owners, and we appreciate his contribution to what we're doing 
today.
    Now, I'm pleased to recognize Chairman of the full 
Committee and the author of this legislation, the prime 
sponsor, the gentleman from New York, Mr. Nadler, for his 
opening statement.
    Mr. Nadler, you may begin.
    Chairman Nadler. Well, thank you, Mr. Chairman, and thank 
you for holding the 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'm 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 airbags 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 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, consumers can see firsthand 
what they're 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 that 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 
website.
    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 counterfeiters 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 combating counterfeits in 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 marketplace 
dates back more than a decade. 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's 
informed by a brand owner of that specific listing's 
infringement. The platform is not legally obligated to take 
corrective action, even when there's 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 platform, 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 when 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.
    [Pause.]
    Mr. Bishop. You're muted, Mr. Chairman.
    Chairman Nadler. Hank, you're muted.
    Mr. Johnson of Georgia. I'm sorry. I thank the gentleman 
from New York for his opening statement and I'll now introduce 
the witnesses.
    Ms. Kari Kammel is the Assistant Director for Education and 
Outreach at Michigan State University's Center for Anti-
Counterfeiting and Product Protection, where she runs the 
Center's Executive Education Program and the United States' 
first professional certification program for anti-
counterfeiting and brand protection.
    Ms. Kammel is also an Adjunct Professor at Michigan State 
University's College of Law, teaching courses on trademark 
counterfeiting, food counterfeits, and international 
intellectual property.
    Ms. Kammel received her BA from the University of Chicago, 
her MA from the American University in Cairo, and her JD from 
DePaul University College of Law.
    Welcome, Ms. Kammel.
    Meredith Simpson is Vice President of Federal Government 
affairs and external relations for the Personal Care Products 
Council, the PCPC.
    In her role, she leads PCPC's Federal Government relations 
effort and stakeholder outreach, and helps lead the cosmetic 
industry's public policy development. She joined PCPC in 2009 
from TechNet, where she served as director of political 
outreach and previously served on the--on then Representative 
Marsha Blackburn's professional staff.
    Ms. Simpson graduated from the University of Mississippi 
with a degree in political science and minors in business and 
journalism. Welcome, Ms. Simpson.
    Jonathan Berroya is the Senior Vice President and General 
Counsel for the Internet Association. There, he leads the 
Internet Association's legal, policy, and regulatory 
initiatives, including its anti-counterfeiting policies.
    Prior to joining the Internet Association, Mr. Berroya 
worked as legal director for Yahoo, senior director of global 
internet enforcement for BSA, the Software Alliance and, most 
recently, vice President of legal affairs for the Entertainment 
Software Association.
    Mr. Berroya holds a Bachelor of Arts in American government 
from Georgetown University and a JD from Boston College Law 
School. Welcome, Mr. Berroya.
    Natasha Reed is a Partner at Foley Hoag LLP and serves as 
the Co-Chair of the firm's trademark, copyright, and unfair 
competition practice. At the firm, Ms. Reed's practice covers 
all aspects of trademark and copyright law with a focus on 
global brand protection.
    Ms. Reed specializes in intellectual property enforcement 
and anti-counterfeiting and anti-piracy litigation, and is the 
Co-Editor of Foley Hoag's trademark and copyright law blog. She 
earned her BA from Amherst College and her JD from Pepperdine 
University.
    Welcome, Ms. Reed.
    Before we proceed with testimony, I hereby remind the 
witnesses that all of your written and oral statements made to 
the Subcommittee in connection with this hearing are subject to 
penalties of perjury pursuant to 18 USC 1001.
    Please note that your written statements will be entered 
into the record in its entirety. Accordingly, I ask that you 
summarize your testimony in five minutes. There is a timer in 
Zoom to help you stay within that time limit.
    Ms. Kammel, you may begin, and I hope I'm pronouncing your 
name correctly. Kammel, is it not?
    Ms. Kammel. It's Kammel, but that's okay. Thank you.
    Mr. Johnson of Georgia. All right. Thank you, and sorry.
    Ms. Kammel. No problem.

                    STATEMENT OF KARI KAMMEL

    Ms. Kammel. Chairman Johnson, Ranking Member Issa, and 
Members of the subcommittee, thank you for inviting me to speak 
on the problem of the sale of counterfeit goods by third party 
sellers on online marketplaces and the SHOP SAFE Act.
    My name is Kari Kammel. I'm the assistant director for 
education and outreach at the Center for Anti-Counterfeiting 
and Product Protection, or the A-CAPP Center at Michigan State 
University, and an adjunct professor of law at MSU College of 
Law.
    My remarks draw on our research on online trademark 
counterfeiting as well as my work with brand protection 
industry professionals. At the A-CAPP Center, I and my 
colleagues focus on research, education, and outreach around 
trademark counterfeiting and brand protection.
    We work both with intellectual property rights owners and 
governments as well as online marketplaces, social media 
platforms, and other industry experts across the field, giving 
us the unique ability to examine this significant problem 
holistically from a neutral academic perspective.
    Today, I'll give an overview of online counterfeit sales by 
third party sellers and the current State of secondary 
liability, and make two recommendations.
    One, I support the SHOP SAFE Act and I have some 
recommendations that could be considered as the bill moves 
forward.
    Two, I recommend continued collaboration, data sharing, and 
the funding and expansion of research on the trade in 
counterfeit goods and anti-counterfeiting responses.
    I would like to start by painting a picture of what is 
occurring in online marketplaces and the legal landscape for 
secondary liability for trademark counterfeiting.
    Counterfeit goods impact national economies as well as 
companies of all sizes. The sale of goods in online 
marketplaces, both authentic and counterfeit, has exploded in 
the past decade. The financial impact is staggering. 
Counterfeit goods have been estimated to have displaced, 
roughly, over $500 billion dollars' worth of global sales in 
2016, and the onset of COVID-19 has led to increased online 
shopping as well as a risk of purchasing counterfeits.
    Counterfeiters' success by using other companies on a 
product or package and rely on their reputation without 
authorization, and sell a fake and usually substandard or even 
dangerous good.
    They also take advantage of the opportunity online 
marketplaces provide and rely on brands' goodwill and products 
to reach often unwitting consumers who cannot examine the goods 
before purchase, which is dealt with by online marketplaces in 
varying ways.
    In order for a counterfeit to be sold to a consumer on an 
e-commerce platform, there must be a meeting in time and space 
between, one, the consumer, two, the counterfeiter's posting, 
and three, the e-commerce platform.
    While reactive removal of the postings after they're listed 
is still necessary, it also means that the posting has already 
reached consumers. The most effective way to disrupt this is to 
remove one of these factors from the situation proactively 
before they ever reach that meeting at the same time and place 
on the platform.
    This can be done through a variety of activities that could 
include the e-commerce platform protecting an e-commerce 
selling space to keep counterfeit postings out, to protecting 
and educating consumers, as well as many more.
    However, the current State of the law rests primarily on 
the 2010 2nd Circuit case of Tiffany v. eBay. This created the 
current legal standard, which is that an e-commerce platform 
only is required to react after a posting is already live, and 
they have specific knowledge from a brand as to which listing 
is infringing or will infringe in the future, known as the 
contemporary knowledge requirements.
    This is problematic because--as there is no legal 
obligation on an e-commerce platform to do anything to prevent 
counterfeits from being listed or to monitor their own 
platforms for counterfeit, even though they are in the best 
position to do so and have the most control over that space and 
time of where the consumer and counterfeiter meet on their 
platform.
    The SHOP SAFE Act helps to protect consumers and brands by 
requiring activities for e-commerce platforms to undertake to 
disrupt the meeting of consumers and counterfeiters on their 
platform and has some strengths and some opportunities to 
improve the language, which I note in my written testimony.
    Two of the top strengths of the Act are, one, requiring e-
commerce platforms to implement at no cost to the registrant 
reasonable proactive technological measures for screening 
goods, and two, requiring the conspicuous display of each 
listing, the country of origin and manufacturer of the goods, 
and identity and location of the seller.
    Three of my suggestions for consideration are, one, to 
remove the limit on protection only to goods that implicate 
health and safety so as to not create a two-class system of 
counterfeit marks, and if it is not removed, to clarify the 
provision to include any good, counterfeit or genuine, that 
would implicate health and safety.
    Two, edit the language to include proactive measures 
including technology but not limited to only technological 
measures.
    Three, add a requirement for e-commerce platforms to have a 
clear easy-access mechanism for consumers to report suspected 
counterfeiting.
    I also recommend continued and expanded collaborations 
regarding data sharing between marketplaces, brands, the IPR 
Center and academia, and to expand research on the trade in 
counterfeit goods and anti-counterfeiting responses.
    Thank you for the opportunity to participate in this 
hearing for property rights holders and U.S. consumers and I 
look forward to answering your questions.
    [The statement of Ms. Kammel follows:]
    
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    Mr. Johnson of Georgia. Thank you, Ms. Kammel.
    Next we will hear from Ms. Simpson for five minutes. The 
floor is yours, Ms. Simpson.

                 STATEMENT OF MEREDITH SIMPSON

    Ms. Simpson. Chairman Nadler, Chairman Johnson, Ranking 
Member Issa, and distinguished Members of the Subcommittee, 
thank you for the opportunity to testify today on behalf of the 
Personal Care Products Council on our support of the SHOP SAFE 
Act and the subcommittee's efforts to address the critical and 
growing risk of online sales of counterfeit products, including 
cosmetics and personal care products.
    My name is Meredith Simpson. I'm Vice President of Federal 
Government affairs for the Personal Care Products Council, the 
leading national trade association representing global 
cosmetics and personal care products companies.
    E-commerce platforms create valuable opportunities for 
legitimate companies to grow, reach new consumers, and provide 
buyers with numerous choices and convenience.
    However, the current structure is vulnerable to 
exploitation and contributes significantly to a rise in illegal 
trade. Global trade in counterfeit and pirated goods is 
expected to reach $991 billion by next year.
    Counterfeit products are fraud. They damage businesses, are 
a drain on the economy and, most importantly, threaten 
consumers' health and safety. Our member companies are 
committed to product safety, quality, and innovation.
    The average consumer uses 12 personal care products each 
day and trusts the makers of those products to supply them and 
their families with safe and high quality products.
    The U.S. cosmetics industry invests nearly $3 billion each 
year in scientific research and development to evaluate and 
ensure the safety of their products before they reach the 
consumer.
    The cosmetics industry loses more money to counterfeit 
products each year than any other industry, with annual losses 
of approximately $5.4 billion to fraudulent sellers. One of our 
member companies reports that all of their 30 brands have been 
counterfeited, everything from nail polish to fragrance to 
shampoo to eye shadow.
    Counterfeit products pose health risks to consumers since 
they're produced illegally without adherence to federal or 
State safety and quality requirements.
    Counterfeit cosmetics can be tampered with, expired, and 
contain materials not of cosmetic grade, meaning consumers may 
be applying adulterated or impure ingredients directly to the 
skin, lips, eyes, and other sensitive areas including products 
indicated for children's use.
    In a January 2020 report, the U.S. Department of Homeland 
Security noted that counterfeit cosmetics can often contain 
elements such as arsenic, mercury, and aluminum, and have been 
found to be contaminated with substances from harmful bacteria 
to human waste.
    Consumers are at a risk of purchasing a dangerous 
counterfeit product because they can't tell the difference 
between an authentic and counterfeit product when shopping 
online, as sellers will often use brand owners' own product 
images and trademarks in online offers.
    The burden of enforcing against counterfeit goods on online 
platforms falls on the makers of the authentic products rather 
than the platforms.
    A single personal care product's company may spend as much 
as $15 million annually to fight counterfeits, including 
monitoring the platforms and social media sites, enforcing 
against counterfeits through notice and takedown processes, 
test buys and lab testing of purchases, and working and sharing 
information with competitors and federal, state, and local law 
enforcement, including training to better detect counterfeits. 
Many smaller companies lack the necessary resources to tackle 
online counterfeit.
    While we applaud some platforms' efforts to address 
counterfeits in recent years, many do not have any proactive 
measures in place, and the ones that do are often not 
transparent about their counterfeit prevention policies and 
processes and there's a lack of standardization.
    Brand owners continue to have significant difficulty 
accessing verified information on sellers that have been known 
counterfeiters from the platforms. For example, one of our 
member companies employs 10 external firms to manage their 
online platform notice and takedown processes.
    Another brand has seen notice and take downs more than 
double over the last year. Despite the personal care products 
industry's aggressive efforts to mitigate the harms of 
counterfeit goods through direct engagement with the platforms, 
too often our Members cannot keep up with the sheer number of 
counterfeit listings or hindered by a lack of cooperation from 
the platforms and by the difficulty in identifying sellers who 
can too easily hide and change their information.
    All the while, consumers are put at risk from these 
potentially dangerous products. PCPC strongly supports the SHOP 
SAFE Act's establishment of a framework to advance best 
practices for online platforms, incentivize platforms to 
address the sale of counterfeits on their channels, and help 
ensure that products sold online are safe, authentic, and 
comply with U.S. laws and regulations and, most importantly, 
protect unsuspecting consumers from unsafe products.
    We look forward to working with this Committee and other 
stakeholders to advance the SHOP SAFE Act. Thank you again for 
the opportunity to testify, and I look forward to your 
questions.
    [The statement of Ms. Simpson follows:]
    
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    Mr. Johnson of Georgia. Thank you, Ms. Simpson.
    And now we will proceed to Mr. Berroya.
    Mr. Berroya, you may begin.

                 STATEMENT OF JONATHAN BERROYA

    Mr. Berroya. Subcommittee Chairman Johnson, Ranking Member 
Issa, and Members of the Subcommittee, thank you for the 
opportunity to appear before you today to discuss the SHOP SAFE 
Act.
    My name is Jonathan Berroya and I'm the Senior Vice 
President and general counsel at Internet Association (IA). IA 
represents over 40 of the world's leading internet companies 
and is the only trade association that exclusively represents 
leading global internet companies on matters of public policy.
    We can all agree that protecting consumers from harmful 
counterfeit products, no matter how they enter the supply 
chain, is an important priority.
    While a small percentage of online sellers are bad actors 
who use the internet to market and sell counterfeit goods, 
internet companies including IA Members have been working with 
trademark owners and law enforcement officials to protect 
consumers from counterfeits for many years.
    Because professional counterfeiters are incredibly 
resourceful and adept at circumventing enforcement activities, 
it is also critical to examine and understand the unintended 
consequences of proposed solutions.
    Ultimately, the experiences of IA's Members demonstrate 
that online marketplaces are adequately incentivized to 
collaborate with brands to fight counterfeiting and that 
existing trademark doctrine strikes the right balance between 
protecting consumers and brand owners from counterfeit goods, 
while also allowing the online economy to thrive.
    While mass scale counterfeiting, obviously, did not begin 
with the internet, the complexity of the modern supply chain 
makes trademark enforcement incredibly challenging, and all 
stakeholders have important and complementary roles to play in 
the fight to protect consumers from harmful counterfeit goods.
    Trademark holders possess unique knowledge that is 
essential to determining whether an item is counterfeit or 
genuine.
    Retailers and online platforms must use that information to 
identify counterfeit goods and prevent them from entering or 
remaining in the stream of commerce, and law enforcement 
officers must have reliable leads from brands, retailers, and 
online platforms in order to investigate counterfeiting 
operations and bring manufacturers of illegal products to 
justice.
    If any of these stakeholders are unable to fulfill their 
roles, the consequences can be dire. Internet companies 
understand this fact and have every incentive to support IP 
enforcement activities because their businesses depend on 
consumer and brand trust in order to succeed.
    The law does not shield online services from liability when 
they know that a particular listing is infringing or a service 
is willfully blind to infringing listings. Trust is an even 
more compelling business reason for online services to 
collaborate with brands and protect their customers from 
counterfeit goods.
    To put it plainly, customers who were duped into purchasing 
fake goods through a particular service will vote with their 
dollars and shop elsewhere, and trademark owners will refrain 
from entering into partnerships with services that fail to take 
counterfeiting seriously.
    IA Members have demonstrated their commitment to protecting 
consumers from counterfeit goods in several ways, including by 
investing millions of dollars each year to stem the flow of 
counterfeits on their platforms and by going far beyond what 
the law requires to collaborate with brand owners and other 
stakeholders.
    IA member companies have taken the lead by implementing 
clear anti-counterfeiting policies and by proactively creating 
transparent and innovative counterfeit reporting prevention 
tools that allow third parties to identify counterfeit items 
listed for sale and remove them in a timely manner.
    IA Members have also developed close relationships with law 
enforcement agencies to combat counterfeit goods, like U.S. 
Customs and Border Protection and the National Intellectual 
Property Rights Center, as well as other federal and State 
enforcement agencies.
    Online services regularly report misconduct to law 
enforcement agencies and several have proactively created 
training programs to ensure that law enforcement officers 
understand how their services work and are aware of evolving 
online infringement and investigative techniques.
    Despite the fact that major online platforms already work 
closely and productively with brand owners and law enforcement 
officials, the SHOP SAFE Act would drastically change the roles 
and responsibilities of stakeholders.
    For example, the bill would replace trademark holders' 
actual expertise and judgment in differentiating between 
legitimate products and fakes with a vague reasonable awareness 
standard that platforms would have to apply in the absence of 
any specific knowledge about the underlying trademark goods.
    Rather than keep these judgment calls in the hands of the 
IP owners who have this expertise, SHOP SAFE would effectively 
push platforms to toss the baby with the bath water by removing 
millions of listings posted by sellers who are making 
permissible use of trademarks in an effort to eradicate a small 
minority of listings posted by bad actors who will not easily 
be deterred in their efforts to circumvent detection.
    The bill would also require platforms to verify the 
identity of every single third party seller, presumably using 
government identification that the platforms are not in a 
position to physically inspect or properly verify.
    They would also be required to investigate and periodically 
confirm the physical address of each seller or their U.S.-based 
registered agent to determine that the address exists and, 
presumably, its nexus to the seller.
    In conclusion, IA and its member companies share the 
subcommittee's goal of promoting consumer health and safety, 
which is why our Members have created a range of tools and 
programs to help brands police the misuse of their marks and 
work productively with law enforcement agency prosecuting 
intellectual property crimes.
    The internet industry understands that counterfeiting is a 
significant global problem, and we will continue to engage with 
this Subcommittee to confront existing and emerging challenges.
    Thank you.
    [The statement of Mr. Berroya follows:]
    
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    Mr. Johnson of Georgia. Thank you, Mr. Berroya.
    Ms. Reed, the time is now yours. You may begin.

                  STATEMENT OF NATASHA N. REED

    Ms. Reed. Thank you, Chairman Johnson, Ranking Member Issa, 
and Members of the Subcommittee. I appreciate the opportunity 
to testify before you today concerning the challenges that 
brand owners currently face under the current legal framework 
when holding third party sellers liable for counterfeiting 
products on e-commerce marketplaces and how the best practices 
set forth in the SHOP SAFE Act will actually help to protect 
against these issues.
    My name is Natasha Reed and I'm a partner at the law firm 
Foley Hoag. I have the privilege of representing both large and 
small businesses in a variety of fields in connection with 
trademark and copyright enforcement, brand protection, and 
anti-counterfeiting litigation.
    These companies invest a substantial amount of time and 
resources into building consumer confidence in the safety and 
quality of their products associated with their brands, but 
they encounter counterfeit versions of their products, 
sometimes on a daily basis, on various e-commerce marketplaces.
    Counterfeits thrive on e-commerce marketplaces in 
particular for a variety of reasons, including the relatively 
low barrier to establish an online storefront and the fact that 
these marketplaces give the sellers an air of legitimacy and 
because sellers can often operate anonymously under aliases, 
fake names, and even stolen identities.
    Brand owners will often utilize the reporting mechanisms 
offered by the marketplaces as an initial enforcement action to 
stop the counterfeiters by filing takedown complaints. It's not 
uncommon for these sellers to be taken down by the 
marketplaces, only to pop up again under a different storefront 
name on the same marketplace or transfer to a different 
marketplace.
    The counterfeiters will also often operate multiple 
storefront accounts at the same time on the same marketplace 
using aliases, different mailing addresses and different 
financial accounts so that one of its storefronts, when it's 
taken down for counterfeiting, it will already have another 
backup storefront ready to continue its counterfeit sales.
    This leads to a never ending game of whack-a-mole for brand 
owners who are forced to file takedown requests day after day, 
often against some of the same sellers. Some brand owners will 
decide to bring a court action against these counterfeit 
sellers, but these cases often present procedural issues.
    First, without an accurate name and address, brand owners 
are often forced to file John Doe actions against these 
sellers, and they will need to seek early and expedited 
discovery by issuing subpoenas to force the online marketplaces 
to produce information about the sellers' identities and their 
financial accounts.
    As noted earlier, counterfeiters often provide these 
marketplaces with false names and false contact information. So 
this leaves the brand owners with the burden of trying to 
verify their identities, and it makes it very difficult to 
freeze these counterfeiters' assets when the names don't match 
the financial accounts.
    The use of false addresses also makes it virtually 
impossible to--particularly for online counterfeiters to serve 
these defendants with process unless the court allows the brand 
owners to serve by email or by some alternative means.
    Establishing personal jurisdiction against the third party 
marketplace sellers can also present challenges. Courts often 
question whether these defendants use the online marketplaces 
to reach the forum in a meaningful way or purposeful way, since 
it is the online marketplaces and not the sellers themselves 
that actually control the interactivity of the websites.
    Even if favorable judgments are obtained in a lawsuit, 
including a permanent injunction and monetary damages, 
counterfeiters, especially those overseas, often ignore them, 
popping up on marketplaces again under different names and 
moving any assets that they may have had in the U.S. overseas, 
and this presents challenges because it's very difficult to 
enforce these judgments overseas, especially if the seller's 
identity has not been verified.
    I believe many of the best practices in the SHOP SAFE Act 
will help to address these challenges. However, the current 
scope of the Act is limited only to goods that would implicate 
health and safety.
    While, arguably, most counterfeit goods would implicate 
health and safety if they're not manufactured based on the 
brand owners' quality controls and policies, I believe 
determining whether certain products qualify may be difficult 
for marketplaces, and there will be gray areas that could 
expose the marketplaces to liability if they make the wrong 
determination.
    Also, having two separate best practice standards in place 
for the marketplaces for certain goods but not others will 
cause confusion, and so for that reason, I would recommend 
broadening the scope of the products covered under the SHOP 
SAFE Act to include all goods.
    Thank you.
    [The statement of Ms. Reed follows:]
    
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    Mr. Johnson of Georgia. Thank you, Ms. Reed, and we will 
now proceed under the five-minute Rule with questions. I will 
begin by recognizing myself for five minutes.
    Ms. Simpson, your written testimony includes some 
staggering figures about the money and resources that your 
member companies expend to combat counterfeits.
    You mentioned, for example, that a single personal care 
products company can spend up to $15 million a year on 
combating counterfeits. You also noted that one of your member 
companies has 10 outside firms managing its notice and takedown 
processes.
    Now, that's remarkable. Your testimony also references the 
critical role that small businesses play in the personal care 
products industry.
    Can you give us any additional details about how these 
smaller businesses manage the online counterfeiting problem and 
what particular hurdles they face?
    Ms. Simpson. Absolutely. I think counterfeit personal care 
products are fraud. They damage businesses, they're a drain on 
the economy and, most importantly, threaten consumers' health 
and safety.
    According to a report from the OECD, the cosmetics industry 
loses more money to counterfeiters than any other industry, 
$5.4 billion annually. Small businesses make up two-thirds of 
the personal care products sector.
    Small personal care companies often don't have the 
resources to employ brand protection efforts. The best 
practices outlined in this legislation would help prevent 
counterfeits from ever being offered for sale, and set in place 
a process for removal of counterfeit listings and infringing 
sellers, therefore, protecting small companies' brands and 
their consumers from potentially harmful counterfeits.
    Mr. Johnson of Georgia. Thank you. In what ways do you see 
the best practices that are outlined in the SHOP SAFE Act 
easing the burden for your Members and other brand owners?
    Ms. Simpson. We think paramount is the verification of 
these third party sellers. Also, the screening efforts in 
place. These proactive measures would go a long way.
    Also, if there are counterfeits listing having clear 
processes in place for take downs for repeat--to address repeat 
infringers and terminations of those accounts, we think would 
go a long way in preventing counterfeits from ever getting into 
the hands of consumers.
    Mr. Johnson of Georgia. Thank you.
    Ms. Reed, you have extensive experience on the front lines 
of brand enforcement and in litigating counterfeiting and 
trademark infringement cases. You've testified about the 
challenges your clients have experienced in trying to identify 
and pursue claims directly against third parties.
    Do you, and if so, how do you see the best practices in the 
SHOP SAFE Act helping to address those challenges?
    Ms. Reed. In a variety of ways. First of all, I think the 
verification requirement will go a long way. One of the issues 
that I addressed in my full testimony is that brand owners 
often have the burden of verifying these sellers after they 
have filed lawsuits--John Doe lawsuits--and then subpoenaed the 
online marketplaces for the actual names and addresses of these 
sellers, only to learn that some of these names are completely 
false and addresses are completely false, which leads to a very 
lengthy process of trying to actually locate these sellers.
    Oftentimes, we never do, and they get away with 
counterfeiting, and they know this. They operate almost as if 
they're untouchable and this is why the counterfeits are able 
to proliferate.
    In addition to verification, also requiring that the 
sellers have an agent for service of process in the United 
States or have a U.S. location or address will also go a long 
way.
    Again, as I mentioned, it's very difficult sometimes to 
serve these individuals with process. Obviously, if we don't 
have a real address we cannot serve them. So that will 
absolutely go a long, long way as well.
    Other provisions in the SHOP SAFE Act that will be helpful 
in litigating these cases include--or not just even litigating, 
just for protection on a daily basis include the proactive 
measures that brand owner of that marketplace will need to take 
to ensure that these counterfeits don't ever make their way on 
the marketplaces.
    The whack-a-mole game is also very expensive. Many small 
businesses cannot afford to have brand protection agents or 
multiple agents monitoring the websites and then filing 
numerous take downs day after day against some of the same 
sellers.
    So, I think that will also go a long way as well.
    Mr. Johnson of Georgia. All right, thank you. I'll yield 
the remainder of my time.
    We'll next call upon the gentleman from California, the 
Ranking Member of the subcommittee, Mr. Issa, for five minutes.
    Mr. Issa. Thank you, Mr. Chairman.
    I'm going to pick up where Chairman left off. Ms. Reed, I'm 
going to take advantage of your legal practice and go through a 
couple of quick questions.
    Earlier, I was showing real and fake medicines. Let me just 
go through a real example that most people haven't seen.
    So, this is a skateboard, and that is a registered 
trademark and actually a facsimile of a piece of artwork. This 
was sold at JC Penney some years ago. Filed a suit against JC 
Penney because, of course, it was trademark infringement and 
copyright.
    They had a choice of paying countless hundreds of thousands 
of dollars or quickly settling. They settled. If today we were 
to have this same product--let's say one is being sold at 
Walmart and the other is being sold at walmart.com, would it be 
fair to say that you could sue Walmart, but you couldn't sue 
walmart.com because they would say it's somebody else's 
product--we're simply passing it through?
    Ms. Reed. It is fair to say that. If you're buying the 
product or if the brand owner, obviously, has confirmed that 
it's counterfeit on a marketplace and the actual seller is not 
considered the marketplace but, instead, a third-party seller, 
it would be very difficult to hold that marketplace liable.
    Mr. Issa. So many of the marketplaces would say that they 
don't know the product. Isn't it true that some of the largest 
warehouses, larger than even Walmart's warehouses, are owned by 
Amazon?
    That, in fact, countless hundreds of millions of products 
go in and out of their warehouses every day for fulfillment, 
including probably more than half of all the beauty and health 
care products actually are fulfilled through Amazon and, 
currently, you would not be able to sue them without this 
legislation?
    Ms. Reed. That is accurate. Yes. Many of these 
marketplaces, Amazon in particular, operate and maintain large 
warehouses where they store these products for third-party 
sellers and move these products and ship them directly to the 
consumers.
    Mr. Issa. Mr. Berroya, you sort of get the less than 
envious opportunity to sort of pick up from there. We have 
worked with all of your Members. Almost all of them have had 
their general counsels on the phone with us and today you, 
basically, said the standard was vague.
    This reasonableness had ambiguity. Many of those changes 
that are in the current law, or the current bill are the result 
of that negotiation.
    So, I'm going to follow back on. If you don't like this 
bill as it is and if Ms. Reed is correct that, in fact, a brick 
and mortar facility that passes through a product is sueable 
while, currently, many of your Members pass through, have in 
their warehouses, logistically assist in the product coming in 
and out, know its country of origin, but currently are allowed 
to take a blind eye to these counterfeits, even if notified, 
what would you have us do?
    If you could be brief and just tell us what it is that 
caused us to negotiate, only to find ourselves with no support 
from the companies in a way in which we could do this without, 
essentially, you're saying, no, we can't do it?
    Mr. Berroya. Thank you for the question, Ranking Member 
Issa. I'll do my best to be brief but forgive me if I stretch 
it a little bit, because I want to be thorough as well.
    Mr. Issa. Well, but I will narrow the question. This 
question of, let's just say, Amazon--a product comes in and out 
of their warehouse and, currently, they get to treat it like 
they've never seen it when, in fact, they logistically manage 
it.
    If we limited the legislation only to a possession passing 
through, would that cure it for you? Or would you still object, 
based on the fact that you don't take ownership, perhaps?
    Mr. Berroya. I would have to refer a specific question 
about how one of my member companies would handle a particular 
scenario to one of my member companies, and I would be happy to 
ask them for--
    Mr. Issa. Okay. Let's do that. I've got one last question, 
which is for Ms. Kammel. For both of the first witnesses. 
Currently, we are limited to health and safety and, currently, 
we don't have an anti-trust exemption for companies working 
together.
    In your suggestions, would you say that those are two 
critical items, potentially lifting the health and safety, 
making it more uniform?
    The second one and probably the bigger one, an anti-trust 
exemption allowing companies to, essentially, share information 
so that they could be more proactive in fighting these 
counterfeits?
    Mr. Johnson of Georgia. The time has expired, so please be 
brief with your answers.
    Ms. Kammel. Thank you for the question. I do believe it is 
essential to harmonize the type of goods to include any good 
under that.
    I think without that it's going to make it more onerous, 
both for the brands and for the e-commerce platforms, but also 
create two goods under the Lanham Act and actually drive 
counterfeiting to different industries if there's more 
attention paid to one or the other.
    I'm not one to speak on issues of anti-trust. Thank you.
    Mr. Issa. Thank you, Mr. Chairman.
    Mr. Johnson of Georgia. Thank you. Next, we will turn to 
the gentleman from New York, Chairman of the full committee, 
Chairman Nadler, for five minutes.
    Chairman Nadler. Thank you, Mr. Chairman.
    Before I begin with my questions, I wanted to thank all the 
witnesses for their testimony today.
    Mr. Berroya, I understand that, generally speaking, many 
marketplace platforms have taken the position that SHOP SAFE is 
unnecessary because, in their view, their voluntary measures 
are sufficient to combat the counterfeiting problem on their 
websites.
    Some have gone even further and suggest that SHOP SAFE will 
undermine voluntary practices because platforms will be 
disincentivized to go beyond the practices set out in the bill.
    I find both positions hard to square with reality, that we 
continue to see and hear reports of dangerous counterfeit 
products being sold by third party sellers on those sites.
    In the current landscape, how can consumers and brand 
owners be assured that the platforms are applying their brand 
protection and counterfeiting policies uniformly?
    Mr. Berroya. Thank you for the question, Chairman Nadler.
    Our member companies are using industry best practices to 
work with brand holders, collaborate with them, and rely on 
those brand holders' expertise in order to identify infringing 
products.
    There are somewhere between 2 and 3 million trademarks 
actively in use in the United States alone, and one of the big 
challenges here is that the onus in this bill would shift from 
trademark owners who have expertise and can identify and 
differentiate between genuine and fake products to online 
platforms that have zero expertise in doing that type of work.
    Nevertheless, our companies are committed to doing work. In 
some cases, our companies have created training programs for 
law enforcement. They've worked to create different programs to 
flag infringing products, and our goal as an industry is to 
remove these products that are dangerous to consumers before 
consumers are harmed.
    We don't want to wait until after somebody is harmed and 
worry about liability. We want to work collaboratively with 
brands to remove these things before they are in the full 
stream of commerce or pull them out of the stream of commerce 
when they are identified as counterfeit.
    Chairman Nadler. Can you explain how setting a level 
playing field that requires minimum best practices would 
discourage platforms from doing more, as they currently claim 
they are?
    Mr. Berroya. I'm sorry, Chairman. Would you mind repeating 
that question? I didn't quite understand that.
    Chairman Nadler. Can you explain how setting a level 
playing field that requires minimum best practices would 
discourage platforms from doing more, as they currently claim 
they are?
    Mr. Berroya. Well, Chairman, the practices that are used 
differ from platform to platform. These platforms aren't sort 
of a single approach to providing services to sellers or 
buyers.
    So they have to be a little bit different in how they 
handle things, and they're working with brand owners. This is 
an evolutionary process. You've got counterfeiters who are 
constantly--it's not just whack-a-mole.
    This is cat and mouse, and I'm somebody who has spent 
nearly a decade enforcing IP online myself. It is incredibly 
challenging, and it requires collaboration and commitment on 
the part of all stakeholders, including law enforcement, to 
work with one another in trying to identify these bad actors 
who are in this space.
    They are a small minority, and while they are a small 
minority they're, nevertheless, very important to identify and 
deal with before consumers are feeling the harm it has cost.
    Chairman Nadler. Thank you. Thank you.
    Ms. Kammel, I have a related question for you. Based on 
your research and experience, do you share the concern that 
enacting the SHOP SAFE Act could be a step backward in 
combating the counterfeit problem in online marketplaces, and 
why or why not?
    Ms. Kammel. Thank you for the question.
    No, I believe that it prevents--presents actually a uniform 
approach to what some platforms may already be doing in various 
capacities. As has been mentioned, it's voluntary. So, it's not 
always transparent and it is not required by the law.
    So at any time, they could discontinue the practice if they 
wanted to. I do think the Act provides a baseline and guidance 
on some of these proactive as well as some reactive measures.
    I also believe the language is open ended to allow for an 
iterative process on behalf of the platforms to continue with 
their ongoing efforts or technological advances in their work.
    Thank you.
    Chairman Nadler. Thank you.
    Ms. Reed, you have testified about your significant 
experience in litigating counterfeiting cases. Can you talk 
about how your practice and your clients' experience with 
online counterfeits has changed over the course of your career?
    In particular, have there been any notable more recent 
changes that you think might be relevant for our consideration 
of the issue of counterfeits sold by third party sellers on 
marketplace platforms?
    Ms. Reed. Thank you for the question.
    So my practice has changed over the 15 years that I've been 
handling these types of cases, for obvious reasons, because 
counterfeits were offline previously and now they're online. 
Then they were on websites; now they're on marketplaces.
    I would say the most challenging part of the change relates 
to personal jurisdiction. When counterfeiters are selling on 
their own websites, it's a lot easier to establish jurisdiction 
because they actually control the websites, whereas on online 
marketplaces, courts will sometimes find that there is no 
personal jurisdiction because the sellers did not necessarily 
ship products to the forum, and it becomes very difficult to 
prove that they did without subpoenaing the marketplaces and it 
becomes a very expensive task to establish personal 
jurisdiction.
    So, I think that's the biggest difference from moving from, 
you know, brick and mortar to websites and now to marketplaces.
    Chairman Nadler. Thank you. My time has expired so I yield 
back.
    Mr. Chabot. Hello, can you hear me?
    Chairman Nadler. I can hear you.
    Mr. Chabot. Okay. Now--okay. Sorry about that. I lost my--
    Mr. Johnson of Georgia. I'm sorry. I was on mute. I do want 
to now extend this to you. The gentleman from Ohio for five 
minutes.
    Mr. Chabot. Thank you, Mr. Chairman. I thought you were 
just messing with me there.
    So, one of our most important responsibilities as elected 
representatives is to enact legislation that protects our 
constituents. As the Ranking Member of the Foreign Affairs 
Subcommittee on Asia and the Pacific, I've studied the immense 
threat that the PRC, China, poses to our country.
    Whether it's opioids, particularly fentanyl, coming in to 
our country and killing just an untold number of Americans 
efforts by the Chinese Communist Party to sabotage our 
democratic elections or steal our intellectual property or 
flood our online marketplaces with illegal and often dangerous 
counterfeit materials, as we're discussing here this afternoon, 
it seems that there's virtually nothing that they'll stop at 
that can harm our citizens and our businesses and our overall 
economy.
    While unscrupulous sellers continue to appear and reappear 
on our online marketplaces with counterfeit products that 
mostly originate in China, sites like Alibaba, one of the 
largest online marketplaces operating in China, seems to be 
able to keep those same counterfeit products off those sites.
    Now, American companies like Procter & Gamble, which 
happens to be headquartered in my district, as well as 
businesses all across the country, collectively, lose huge 
amounts of money, as we have already talked about today, each 
year due to the presence of counterfeited and pirated products.
    This not only has a negative impact on our economy but also 
introduces products into our communities which can often be 
hazardous and sometimes deadly to American consumers.
    Ms. Simpson, let me begin with you, if I can, and thank you 
and thank all of you for being with us today. I think your 
testimonies have been great, really.
    Given that we know that 80 to 90 percent of counterfeit 
products originate in China, could you discuss what we know 
about how closely--how aware the government is? I mean, there's 
no doubt in my mind nothing happens substantially in China 
without the government knowing about it, if not being involved 
in it.
    Could you could you discuss that element? What role do you 
believe the government plays in what we're discussing here on 
the counterfeit products?
    Ms. Simpson. I'm not sure what role, are you talking about 
the Chinese government plays.
    Mr. Chabot. I am, yes.
    Ms. Simpson. We know that according to the OECD report from 
2019 the majority of fake goods picked up in Customs checks 
originate in mainland China and Hong Kong.
    I would say, the SHOP SAFE Act addresses country of origin 
and platforms are required to display information on the 
seller, location of where the product is shipping from and 
manufactured to consumers, and additional the contact 
information.
    So we are pleased to see the legislation address that point 
and think it would be helpful in preventing counterfeit 
products from getting into the hands of consumers.
    Mr. Chabot. Thank you. Would any of the other witnesses 
like to take a shot at that? Just how much do you believe the 
government there is aware of what's going on here?
    [No response.]
    Mr. Chabot. I'll take by the silence that none of the 
witnesses necessarily either wants to comment or can't comment 
on that. So I'll move on.
    Ms. Reed, let me ask you this. What are the main obstacles 
that American businesses face in trying to enforce their 
trademarks and block counterfeits from overseas, particularly 
from China?
    Ms. Reed. Thank you for the question. There are many 
obstacles. I mean, the main obstacle, I would say, is because 
these counterfeits proliferate on online marketplaces and they 
can potentially be purchased by thousands, if not millions, of 
U.S. consumers and global consumers, brand owners really have a 
difficult time in educating the consumers about counterfeits.
    They have a difficult time in actually holding those third 
party sellers liable. If they're in China or other countries 
outside of the U.S., they often have assets that are not in the 
U.S. and it's difficult to actually hold them monetarily 
liable, and often that's really the only way to stop them is to 
take their money away. When you can't do that, it becomes 
extremely difficult to disincentivize them to just stop 
counterfeiting.
    Mr. Chabot. Thank you.
    Mr. Chairman, my time is expired. I'll yield back.
    Mr. Johnson of Georgia. Thank you, sir. I will next turn to 
the gentleman from California, Mr. Ted Lieu, for five minutes. 
You are recognized, Mr. Lieu.
    Mr. Lieu. Thank you, Chairman Johnson and Ranking Member 
Issa, for holding this important hearing.
    A question for Ms. Simpson. I'm curious, for personal care 
products and for your member companies, on average, how long 
does it take you to figure out that a product is being 
counterfeited?
    Ms. Simpson. That's a great question. I think our member 
companies work very closely with the platforms to--and are 
constantly monitoring social media sites, monitoring the 
platforms and working to identify what could be potential 
counterfeits, and work directly with them on the notice and 
takedown process, which I mentioned earlier, which can vary 
from platform to platform.
    So, as soon as they see potential infringing content, they 
will file that notice and takedown with the individual platform 
which the various requirements could vary from platform to 
platform.
    Then it will go get turned over to a brand protection team 
there and then it determines whether or not they remove the 
infringing listing. So that's the general process.
    Mr. Lieu. In your experience, when they do this notice and 
takedown on their online platforms, are they generally 
responsive? Are we talking about a day? Are we talking about 
five weeks? So what are we talking about here?
    Ms. Simpson. That's a great question. Sometimes it's 
immediate, but I've heard from our member companies it could 
even take several months and even involve a back and forth with 
the sellers or with the platforms.
    The number of notice and take downs really only increasing 
from--one of our member companies from 2019 to 2020 saw over a 
211 percent increase in their notice and take downs, over 
110,000 of those in the U.S. alone, and a third of those from 
social media sites.
    Mr. Lieu. Great. Thank you.
    Mr. Berroya, I have a question for you. So, can you tell us 
what is it that your online platforms do to verify a seller 
before they can start selling?
    Mr. Berroya. Thank you for the question, Congressman Lieu.
    It really depends from platform to platform. All platforms 
do some level because otherwise you wouldn't be able to 
register as a seller.
    Mr. Lieu. Tell me about the platform that does the least. 
What do they do?
    Mr. Berroya. I couldn't tell you what platform does the 
least.
    Mr. Lieu. If you could provide that information to the 
committee, that would be great. I'd be interested in knowing 
what is the minimum needed for a seller to just start selling 
stuff to the American people on one of the internet platforms.
    Mr. Berroya. We'll do our best to pull that information 
together for you, Congressman Lieu. I guess on that point, 
though, if you would permit, I think one of the big challenges 
with this bill is the verification aspect of it.
    We're talking about professional counterfeiters, and the 
idea somehow is that online platforms will have an ability to 
verify credentials that they never touch and handle to confirm 
the identities and physical locations of individuals who are 
selling goods virtually.
    These are counterfeiters. They have ability to get access 
to counterfeit identification, and without being able to look 
at a hologram on an ID or even having expertise in the 
verification of an ID, it is difficult for me personally to 
understand how that process is going to result in the value 
proposition of this bill, which is an important one, which is 
protecting consumers before they are harmed by these 
problematic products.
    Mr. Lieu. So let me sort of try--I'm just trying to 
understand the issue. I'd like to follow up on what Ranking 
Member Issa said.
    Let's say Walmart sells a counterfeit item. My 
understanding is that Walmart can get sued. If walmart.com 
sells the exact same counterfeit item, they cannot get sued. Am 
I understanding that correctly?
    Mr. Berroya. That is my understanding as well.
    Mr. Lieu. Okay. Do you see a problem with that?
    Mr. Berroya. That Walmart and walmart.com can be sued? I'm 
sorry, I didn't understand the question.
    Mr. Lieu. Yeah, because isn't really the only difference 
that Walmart--maybe they have an additional store clerk that 
might place the item on the shelf and maybe someone in 
inventory that takes the item out of a box and gives it to that 
store clerk.
    It's not clear to me why Walmart brick and mortar has any 
more knowledge of this counterfeit item than walmart.com would.
    Mr. Berroya. Right. I think as compared to the platforms 
that I represent, the difference could be that the platform 
itself never has physical possession of the product. They can't 
independently verify nor do they have specific knowledge about 
the characteristics of the underlying IP.
    Again, there's 2 to 3 million trademarks in use in the 
United States alone. That's just U.S. trademarks. There is no 
way any single platform would be able to have the requisite 
knowledge.
    In some cases, it comes down to the quality of thread used 
for stitching that is the difference between the types of 
products that Ranking Member Issa was demonstrating at the 
beginning of his opening statement that are legitimate versus 
the ones that are fake, and there is no specialized knowledge 
on the part of these platforms.
    That specialized knowledge resides with the trademark 
holders, which is why it's so important that online platforms 
collaborate with them to understand how to identify these 
products and take them out of the stream of commerce before 
anyone is harmed.
    Mr. Lieu. Thank you. My time is up and I yield back.
    Mr. Johnson of Georgia. Thank you. If the gentleman from 
Texas, Mr. Gohmert, chooses to invoke his video, he will be 
recognized for five minutes.
    The gentleman from Texas, my friend, Judge Gohmert.
    Mr. Gohmert. Okay. Thank you very much, and I appreciate 
everybody's input.
    On a trip some years back that some Members of Congress 
made to China, our group met with a top Chinese government 
bureaucrat that assured us that the Chinese government took 
violations of patent, copyright, and trademark very seriously.
    A couple of us met privately with another bureaucrat, who 
was very nice, and he said, yeah, they could probably do more. 
That's an understatement, of course.
    They had over 500 arrests of violations of patent, 
copyright, and trademark and they had seized so much illegal 
material, and when asked, what did you do with all those 
illegal products, said, well, he believed that it's against 
Chinese law to just dispose of things that had value, so they 
were probably sold.
    We're not getting a lot of help out of the Chinese 
government. They're taking us to the cleaners so many different 
ways.
    To your knowledge, any--and this is to any of our 
witnesses--what is the Biden Administration doing to enforce 
our current patent, trademark, and copyright laws with China?
    [No response.]
    Mr. Gohmert. Wow.
    Mr. Johnson of Georgia. Was that directed at any particular 
witness, Judge Gohmert?
    Mr. Gohmert. No, just anybody that might have had an 
answer. If you know what's being done and, apparently, as we 
used to say picking juries, I take it from your silence you 
don't know of anything.
    So, well, and one of the things that we have dealt with in 
the overall Judiciary Committee and in prior sessions, it's 
been an important bicameral and bipartisan issue trying to 
reform our criminal laws. We, supposedly, have over 5,000, and 
nobody really knows--they hadn't been put together. They're not 
all in 18 USC.
    So, I get a little reluctant to pass laws we may not need 
if we enforced existing law. So, if you're aware of any 
websites that are truly successful in keeping counterfeit 
products off their websites, then is that something that we 
could use existing law to require more thoroughly?
    Are there any solutions besides new legislation? Again, 
that's to anyone on the panel witnesses.
    [No response.]
    Mr. Gohmert. Well--
    Mr. Berroya. Representative Gohmert, this is John Berroya. 
Let me take a stab at that one.
    So, best practices in this space are constantly evolving, 
and I think one of the things that is helpful for the 
Subcommittee to understand is exactly that. My member companies 
are on--day after day, month after month, year after year 
trying to improve the types of solutions and tools that they 
make available to brand owners to remove access to infringing 
products.
    I don't know that anybody's doing it perfectly and I can't 
remember which one of the Members who gave an opening 
statement, but acknowledged that it's impossible to aim for 
perfect, essentially, because that's a boiling the ocean kind 
of approach.
    I think one of the things, to your point about concerns 
with the international source of counterfeiting, however, is 
the Department of Justice has a lot of very strong programs 
that are used to identify infringement, work with foreign 
governments, and then bring the manufacturers of infringing 
products to justice, including the intellectual property law 
enforcement coordinators, the computer crime and intellectual 
property section within the Department of Justice, and within 
U.S. Customs and Border Patrol you've got the national IPR 
Center.
    I think any work that this Subcommittee or Congress 
generally could do to increase resources to those and other 
entities within the Federal Government that are tasked with 
identifying and prosecuting trademark crime and IP crime, 
generally, would be things that every member of this panel 
would support.
    I don't mean to speak for others, but, certainly, our 
industry would 100 percent support that.
    Mr. Gohmert. I see my time is expired.
    Mr. Chairman, thank you very much.
    Mr. Johnson of Georgia. Thank you, Judge Gohmert.
    It's now my pleasure to recognize the distinguished 
gentleman from New York and the Co-Chair of the Subcommittee on 
Courts, Intellectual Property, and the Internet, Mr. Mondaire 
Jones for five minutes.
    Mr. Jones. Thank you so much for your leadership, Mr. 
Chairman, and I'm grateful for the opportunity to participate 
in what is a bipartisan hearing on protecting the health and 
safety of our constituents from counterfeit products sold 
online.
    I thank our witnesses for their testimony today, and I 
especially thank Chairman Nadler and Chairman Johnson, of 
course, for reintroducing the SHOP SAFE Act this Congress.
    As the COVID-19 pandemic has illustrated, millions of us 
turn to online retailers for products that affect our health 
and safety, from masks to medications. When we shop online for 
these necessities, the stakes are as high as it gets.
    The difference between real and counterfeit medicine, for 
example, can be the difference between life and death. Everyone 
should be able to shop online for what they need to stay 
healthy in confidence that they are getting what they have paid 
for.
    So, I'm glad to see this bill make that our top priority. I 
have a question for all of the witnesses. In your written 
testimony, each of you has suggested that the bill's definition 
of goods that implicate health and safety may be too vague.
    If the Committee wants to focus on health and safety, how 
would you suggest defining that phrase? What kinds of goods 
should the bill reach?
    Ms. Simpson, let's start with you.
    Ms. Simpson. Sure. From our perspective, all counterfeits 
are fraud. They all count--cause harm and have potential to be 
dangerous. Efforts to distinguish between those that could 
cause health and safety risks and those that may not could be 
confusing for consumers and cause potential impediments to 
effective implementation.
    So, we want to see legislation here that really does 
address this issue of counterfeits in works and practice, and 
we look forward to continuing to work with the Committee on 
that.
    Mr. Jones. Okay. Mr. Berroya?
    Mr. Berroya. Thank you for the question, Representative 
Jones.
    I'll be honest, I don't envy the committee. This is 
difficult work. It is very difficult to tightly define some 
things that it covers, just the types of products that you want 
to cover for all of the reasons that other panelists 
acknowledged.
    Health and safety can touch almost any product, and where 
the edges of that are very blurry lines. We'd be happy to 
continue our engagement with the Subcommittee and with the 
sponsors of the bill, as discussions move forward, to try and 
hem in or cordon off the specific types of products that you're 
most concerned about.
    Mr. Jones. I'm hoping someone will be more specific.
    Ms. Kammel, would you please give it a try?
    Ms. Kammel. Thanks for the question.
    So, from my perspective, I think it should cover all types 
of counterfeit marks and not be limited to it. If it is limited 
to health and safety that it should be health and safety of any 
good, genuine or counterfeit.
    So, as we know from a lot of industries or even product 
lines that might not on their face look like they implicate 
health and safety, we hear lots of stories from brand owners 
about what happens when they actually purchase a counterfeit of 
a product that, upon first glance, we might think implicates 
health and safety.
    Lots of testing has been done by brand owners, everything 
from toxicity to safety testing on the counterfeits and it 
shows that a lot of these products can actually harm the 
consumer.
    So, to differentiate, it should include--if that language 
is going to stay in, from my perspective, that it would include 
health and safety concerns for either genuine or counterfeit 
products.
    Thank you.
    Mr. Jones. Thank you.
    Ms. Reed?
    Ms. Reed. Yes, I agree with Ms. Kammel. I do see 
improvement as it relates to a limitation on products that 
implicate health and safety, particularly because it forces the 
marketplaces to make that determination, and for all intents 
and purposes, it would hold them liable if they get it wrong.
    I believe virtually all counterfeits implicate health and 
safety because they're not being made under the same quality 
controls as the brand owners' quality controls. Counterfeiters 
are just not going to do that. They're not going to test 
products.
    So, for an example, an apparel company may test its 
garments to ensure that the materials used aren't harmful. 
Counterfeiters won't do that, and a marketplace would have to 
make the determination about whether apparel would be the type 
of product that could be harmful.
    So I see that as a gray area, and I would hope that there 
is a consideration to expanding the meaning to all products.
    Mr. Jones. Thank you very much.
    Mr. Chairman, I yield back.
    Mr. Johnson of Georgia. Thank you.
    We next turn to the gentleman from Kentucky, Mr. Massie, 
and also the winner of today's most scenic backdrop. We 
recognize you for five minutes.
    Mr. Massie. Thank you, Chairman Johnson. That's my farm 
back there.
    There are things to like about this bill that seem kind of 
common sense. Maybe a third party seller should have to list an 
address. I like the fact that the country of origin label for 
things would be listed.
    I think this bill may have problems that the other bills in 
this same category have, which the category is bills that try 
to solve crimes before they happen or bills that assume that 
everybody who's doing business is doing it unscrupulously until 
they can prove that they are scrupulous.
    Mr. Berroya, I want to address you with most of my 
questions but, generally, I want to cover some issues or talk 
about some issues that I'm concerned about in this bill.
    One is will this bill solve the problem that we're trying 
to solve? I mean, any legislation that should be the first 
question, does it solve the problem.
    I would think that providing a fake government ID or a fake 
address would be the easiest thing a counterfeiter has ever 
done. That's probably a warm-up exercise for most 
counterfeiters who are trying to design printed circuit boards 
or fabrics and have them manufactured.
    So, I'm not sure that putting that onus on the platforms is 
going to solve the problem. The other thing is will this cause 
other problems? Is the scope too broad? Do we understand how 
broad the scope is?
    For instance, if somebody's selling a device that has a 
Bluetooth symbol on it and they haven't submitted it to the 
Bluetooth special interest group for certification, are they a 
counterfeiter?
    Because that would probably make, you know, 90 percent of 
Bluetooth products out there counterfeits right now. So that's 
how broad is this? What doesn't touch health or safety?
    Is everything that's got an Underwriters Laboratory symbol 
affixed to it, is that health and safety? Are the tractor parts 
that I'm going to buy online to work on this farm, are those 
covered under it?
    That gets me to another thing. Why is there even a small 
business exemption in here? It's at $500,000. If you were 
making 10 percent profit as a platform, you would make $50,000 
a year. You would have one--you wouldn't even be able to pay 
for one employee and have benefits and make the minimum wage 
for your one single employee.
    Furthermore, the small business exemption has a problem in 
that it says it goes away if you've been served notice 10 
times.
    Well, if you've been served notice 10 times, as I 
understand it, you're already covered under the existing law. 
You could already be liable for selling counterfeit goods.
    So anyways, I just wonder is this bill going to be applied 
equally? Do we understand how broadly it's going to be applied?
    Why don't we have a real small business exemption that 
could cover a small profitable business instead of a small 
hobby exemption, which is what this is, and it's not even 
really an exemption?
    So, I just want to lay those thoughts out there and ask 
you, Mr. Berroya, if you could speak to any of them.
    Mr. Berroya. Sure. So there was a lot there, and I don't 
disagree with any of your assessments, Representative Massie.
    In terms of will this bill solve the problem, the problem 
of counterfeit goods that are injuring and harming consumers, I 
don't believe that it will.
    It is very broad. It is massively broad in a variety of 
different ways, including the definition of electronic commerce 
platforms themselves. That definition is so broad that it can 
include email service providers, and I don't know how email 
service providers would go about doing some of the best 
practices that are identified in the list.
    Furthermore, I can't help but agree with the point that you 
made that the verification process is something that I think 
sophisticated counterfeiters are going to easily overcome and 
that will not stop them from putting harmful products out 
there.
    We'll solve this problem and we'll--it's an iterative 
process. It requires a lot of collaboration is anything that 
puts more resources in the hands of law enforcement, anything 
that encourages further collaboration, and there's a lot of 
collaboration going on already.
    Further collaboration between online platforms, traditional 
retailers, and brands, because it is the brands who understand 
what is and is not infringing. They have specific knowledge.
    They can identify and they can let both retailers and 
online platforms know how to identify these products. They can 
share URLs and say this is infringing.
    They can say, this is the text of a template that it 
appears this individual is using on five different websites--
can we use this to kind of initiate a takedown process or work 
with you to identify these bad actors?
    So, all those things need to happen. They are happening. 
They need to continue to happen.
    Mr. Massie. Thank you. My time has expired. I yield back, 
Mr. Chairman.
    Mr. Johnson of Georgia. Thank you, sir.
    Next, we will turn to be distinguished gentlewoman from the 
great State of North Carolina, Congresswoman Ross, for five 
minutes.
    Ms. Ross. Thank you, Chairman Johnson, and it's great to 
see you twice, virtually, in a day. We have been very active on 
the Judiciary Committee today. Thank you very much to the 
witnesses for testifying.
    Like my colleagues, I'm deeply concerned about the 
proliferation of counterfeit goods.
    The perpetrators of the counterfeiting crime really commit 
two crimes. They steal from innovators and then they endanger 
consumers, and so I see this is a two-pronged problem.
    In my home State of North Carolina, authorities have seized 
counterfeit goods ranging from clothing to medicine and even to 
air bags. Counterfeiting is not a victimless crime.
    Unknowing consumers put themselves and their families at 
significant risk and our economy suffers when intellectual 
property is stolen. Legitimate businesses lose sales and 
governments lose tax revenue.
    I represent the Research Triangle area of North Carolina 
where a number of pharmaceuticals are tested and made and where 
we have personal care products. We're the home to Virtue Labs. 
I don't know if you know about Virtue Labs, but fantastic 
products.
    So, my first question is for Ms. Simpson. Your Members' 
personal care products are sold in brick and mortar stores as 
well as online.
    What types of issues have your Members seen arise in 
counterfeit versions of the products? Can you discuss the 
stringent safety and quality standards your Members' products 
have to meet to be sold in the brick and mortar stores and how 
those differ from what online platforms currently require?
    Ms. Simpson. Absolutely. Cosmetics and personal care 
products are regulated by the Food and Drug Administration. The 
Food, Drug, and Cosmetic Act requires that every product and 
its individual ingredients are safe before they're put on the 
market, and cosmetics companies have a legal responsibility to 
ensure that products are safe and properly labeled and current 
federal law provides for penalties for failure to meet these 
requirements.
    Our member companies take their responsibility to make safe 
products very seriously. Consumer and product safety are top 
priorities for our industry with careful scientific research 
and development serving as the foundation for everything we do.
    The U.S. cosmetics industry invests nearly $3 billion 
annually in scientific research and development. In terms of 
counterfeit products, inherently they pose health risks to 
consumers since they're produced illegally without adherence to 
federal or State safety and quality requirements.
    Counterfeit products could be adulterated. They could be 
tampered with. They could be expired. They could contain 
materials not of cosmetic grade, meaning consumers could be 
applying adulterated or impure products directly to the skin, 
lips, eyes, and other sensitive areas, including products 
indicated for children's use.
    A 2020 Department of Homeland Security report noted that 
counterfeit cosmetics often contain elements such as arsenic, 
mercury, and aluminum, and that counterfeit personal care items 
have been found contaminated with substances from harmful 
bacteria to human waste.
    Ms. Ross. Thank you very much.
    My next question has to do with some of the transparency in 
the SHOP SAFE Act that would ensure consumers and brand owners 
have accurate information available to them, things like 
listing who the seller is, where they're located, where you can 
contact them, where the products are shipped from.
    Ms. Reed, how would having this information aid your 
Members and clients, and are there certain red flags that 
consumer brands would be able to point to if they got this 
information?
    Ms. Reed. Thank you for the question.
    So, this information would aid my clients in a number of 
ways. Usually, when my clients come to me, it's either because 
they've already confirmed counterfeits, they've done their own 
take downs for brand protection agents and the take downs have 
not been successful, meaning they were taken down but they 
popped up again, and my clients want to litigate.
    Having verified names and addresses would help us 
investigate. So, we would likely commence a full-blown 
investigation prior to filing a lawsuit. It would help us in--
and that would and it might include visiting the locations 
where these counterfeiters might be because they might actually 
be the source of the counterfeits, meaning they might be 
manufacturing, which would be highly relevant for my clients.
    Requiring that the sellers have an agent for service of 
process would make the process of serving these individuals a 
lot easier and, ultimately, I believe the transparency and 
being able to verify and then know that the contact names are 
accurate would give clients confidence that they can 
successfully litigate against these individuals without facing 
motions to dismiss for lack of jurisdiction and other 
procedural issues.
    Ms. Ross. Thank you very much, Mr. Chairman. I yield back.
    Mr. Johnson of Georgia. Thank you. Today we are favored to 
have not just one but two distinguished people from North 
Carolina--Congress people. Next, I present to you the 
distinguished Mr. Dan Bishop for five minutes.
    Mr. Bishop. Thank you, Mr. Chairman, and I guess maybe I 
should note that not only did Congresswoman Ross and I graduate 
in the same class at the University of North Carolina Law 
School, we were in the same small section together.
    Who could have known, right, Deborah?
    I'm going to offer to yield my time to the Ranking Member, 
Mr. Issa. Did you have an additional question?
    [Laughter.]
    Mr. Bishop. Darrell's coming alive. Give him a second to 
react. If you'd like to ask additional questions, Mr. Issa.
    Mr. Issa. I'm in shock. I'm in shock. Thank you. I thank 
the gentleman for yielding.
    Let me go through a couple of things because I want to make 
sure we characterize the legislation in an appropriate way, and 
I think I'll actually ask it this way.
    Is there anyone here that thinks that the Digital 
Millennium Copyright Act is a failure, overly burdensome, or in 
some other way has done nothing to deal with counterfeits of 
music and the like on the internet?
    [No response.]
    Mr. Issa. Hearing none, basically, let's use Ms. Simpson. 
Would you contrast this bill with the DMCA--DMCA requiring 
notice and takedown and it's worked for, if you will, 
intangibles versus these tangible items?
    Ms. Simpson. I can't speak to specifics of the DMCA, but 
just aware of the current system that we're working on for 
counterfeits right now and that our Members are facing for 
notice and take downs.
    Just would say that, currently, that system, isn't working. 
They're unable to keep up and get this verified information.
    Mr. Issa. Right. DMCA has worked fairly well for music. Mr. 
Berroya, would you say that your Members, they deal with that 
every day. Amazon is probably one of the largest music 
providers. Have they been able to verify the legitimacy of 
the--what they sell online?
    Mr. Berroya. Thank you for the question, Ranking Member 
Issa. I can't speak to Amazon's specific experience. As 
somebody who's been a practitioner of IP enforcement for almost 
a decade, I can tell you that the DMCA works but there's also 
stark differences between the legislative regime that was 
created by the DMCA and what is here.
    For example, notice and takedown in the DMCA requires the 
rights holder to identify infringement and this SHOP SAFE Act 
it's the opposite. The burden is--
    Mr. Issa. Let's go through that. Under this Act, there is a 
requirement--it's, basically, three strikes and you're out. If 
someone says something's a counterfeit, don't they have to show 
more than one event to even cause the takedown?
    Mr. Berroya. With due respect, Ranking Member Issa, the Act 
also has provisions that require platforms to implement 
automated processes, essentially, notice and stay down, which 
is something that was rejected by the Copyright Office within 
the last year when they were reviewing section 512.
    Mr. Issa. Let's go through that. Notice and stay down, in 
this case, is for a counterfeit tangible good, correct?
    Mr. Berroya. It would be, but it also assumes that the 
online platform is capable of identifying something as 
counterfeit. So, the difference between enforcing for Scott 
paper products and Scott bicycles, the two--
    Mr. Issa. Sure. Let's go through and I'm using the 
gentleman's time. I want to use it wisely.
    You said that it's burdensome to deal with this--the 
origin. In other words, the authenticity of the vendor, and you 
talked about seeing his identification and we wouldn't be able 
to. After all, they're counterfeiters.
    Isn't it almost universally true that your Members, in 
fact, collect the money or participate in the money and ensure 
that they get their share of it, either because they collect it 
and pass the remainder on to the source or they have to 
guarantee that they're going to get what they're entitled to 
from that source?
    So, let me just ask a simple question just as a plain old 
country businessman. If they can verify the source well enough 
to make sure they get paid dollars, millions of dollars, 
whatever amount, why is it that it's so difficult to verify the 
source for purposes of who they are?
    Mr. Berroya. Well, Representative Issa, one doesn't need to 
have the name, the address, to be able to verify that those 
things are exactly true in order to make a one-to-one 
connection between one bank account and another bank account.
    Mr. Issa. Well, let's go to Ms. Reed. When you're trying to 
find an entity and he's already said, basically, he's okay, 
knowing that they have a U.S. bank account.
    Is that a significant step that you would see in this 
legislation that these companies already have, which is they're 
holding money, they're transferring money to an entity, and 
under international law and U.S. law, they have to verify that 
entity for purposes of fraud is a real entity, don't they?
    Mr. Johnson of Georgia. Mr. Bishop, your time has expired.
    Mr. Issa. Thank you, Mr. Bishop.
    Mr. Johnson of Georgia. We won't hold it against you. Will 
the witness please answer the question succinctly?
    Ms. Reed. Yes, sure. Thank you for the question.
    Yes. In terms of the marketplaces having access to receive 
payment and to make payments, my understanding is that--and 
these payments are usually either with payment service 
providers or banks--ultimately, these payments--there's a third 
party involved.
    There is an intermediary. There's a financial institution 
who likely has some information that would verify the identity 
of the sellers.
    In fact, when I litigate these cases and I subpoena the 
marketplaces, they provide the bank financial details. I then 
subpoena the banks and then I get the actual names. That's how 
we sometimes get to the actual identity.
    So, it is possible to know who these people are because 
they want to get paid. The counterfeiters want to get paid, and 
they have to pay also Amazon or eBay or whoever it is that 
they're doing business with.
    Mr. Issa. Thank you, Mr. Chairman.
    Mr. Johnson of Georgia. Thank you.
    We now have the opportunity to view the backdrop of the 
gentleman from Oregon, Mr. Bentz, should he choose to show it. 
He will not be able to compete with Mr. Massie on the backdrop, 
unfortunately.
    You're recognized, sir, for five minutes.
    Mr. Bentz. Thank you so much, Mr. Chair, and having not had 
the opportunity to participate in these discussions over the 
last year, I fear my questions would be an embarrassment, 
particularly to me. That gives me an opportunity to yield to 
Ranking Member Issa yet again, since it seems like he wasn't 
quite yet done.
    Mr. Issa. Well, let's--thank you. I really appreciate that.
    Ms. Reed, let's go through that again. You've got a history 
of litigation. Let's just use, hypothetically, eBay and Amazon 
just as straw companies.
    If they must have the financial information and they have 
it, if they know the banks and if they, quite frankly, these 
intermediaries, they work with them thousands or tens of 
thousands of times, if this legislation were passed, wouldn't 
it be relatively simple for them to ensure that this one more 
step in the law, which is a domestic service point were added, 
would it be burdensome to those companies?
    We'll get to small companies later. To those companies, do 
you see anything burdensome there?
    Ms. Reed. In terms of the--
    Mr. Issa. The process of service.
    Ms. Reed. I don't. I don't see that being burdensome at 
all. I actually see that as being one of the easiest things to 
require the businesses' chief sellers to do and for the sellers 
to actually implement it.
    Mr. Issa. We were--it was suggested to us during the markup 
or pre-markup of this legislation that they could even--
potentially, we could include in the law a recognition that 
they would accept service by email.
    We didn't put it into the law because there were some 
questions about whether or not that would be sufficient in the 
courts, and we're checking it.
    From a standpoint of if a company wants to do business in 
the United States, asking them to have someplace that they 
would accept service would seem to be the source.
    Let me go back. Let's just say we don't have that service 
and the--if you will, these major carriers tell us that they 
can't get it, isn't the real meat of this bill the question of 
whether or not they take down the infringer in a timely 
fashion?
    So, even if that wasn't in the bill, isn't the real meat 
the fact that this, for the first time, says if you don't 
cooperate when you're being informed about counterfeits three 
times or 10 times, depending upon the size of the company, that 
you can take liability? Isn't that really what we're discussing 
here today?
    Ms. Reed. Is that question for me?
    Mr. Issa. Yes, as a litigator.
    Ms. Reed. I think that--yes, I think the contributory 
liability portion is the meat and bones of the legislation. 
Yes, I agree.
    Mr. Issa. So, briefly, on behalf of all of them--anyone 
I'll let take it--if, in fact, what we're doing is trying to 
have this for those who don't and then create a safe harbor, 
any of you want to ask the question of why is it we have had a 
very difficult time with these online platforms defining the 
safe harbor they would like rather than simply telling us that 
they don't like whatever we legislate?
    Ms. Reed, I'm going to go back to you again. You've been a 
very good witness. Would you say that you could write the safe 
harbor as well or better and, simply, these companies are 
choosing to say they don't want a safe harbor--they just don't 
want the legislation?
    Ms. Reed. Well, I don't know if I would characterize it 
that way, and I do believe that marketplaces have similar goals 
that they want to get these counterfeits off of their platforms 
and I know that there are marketplaces that proactively are 
doing things.
    I do think that, ultimately, the issue is whether they want 
it to be voluntary or required, and then that's really the 
issue.
    Mr. Issa. Well, and as a litigator, when we put in this 
bill--this legislation 14 times the word ``reasonable'' I know 
that is considered vague. Isn't every one of those an 
impediment to your litigation in that we have made this a piece 
of legislation that is not easy to overcome? You'll have to 
show repeatedly that people were unreasonable if this 
legislation becomes law.
    Ms. Reed. That's right. I mean, there is a standard and the 
standard has to be argued in a court of law in terms of whether 
the marketplace is acting reasonably or not. So, that is 
accurate.
    Mr. Issa. Thank you. I yield back.
    Mr. Johnson of Georgia. Thank you.
    Ladies and gentlemen, that concludes today's hearing. 
Unless there's someone on the Zoom call that I'm not 
recognizing that needs to be recognized, speak now or forever 
hold your peace.
    [No response.]
    Mr. Johnson of Georgia. So, assuming that there is none, we 
are at the bottom of the hearing. I want to thank the witnesses 
for their testimony today, thank the Members of the 
Subcommittee for their attendance today.
    Without objection, all Members will have five legislative 
days to submit additional written questions for the witnesses 
or additional materials for the record.
    With that, and with no gavel, the hearing is adjourned. 
Thank you.
    [Whereupon, at 3:51 p.m., the Committee was adjourned.]



      

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