The Big Story: Lawmakers consider SHOP SAFE Act despite outsized impact on e-commerce startups.
This week, lawmakers examined the recently reintroduced SHOP SAFE Act, which would place high compliance burdens on e-commerce startups with the goal of deterring trademark infringement. The bill was the subject of yesterday’s hearing held by the House Judiciary’s Subcommittee on Courts, Intellectual Property, and the Internet.
The bill proposes amending trademark law to create liability for e-commerce platforms when their users—third-party sellers—are accused of trademark infringement. The law would apply to any e-commerce platform that has annual sales of $500,000 and would apply to even smaller platforms if they have received just ten notices of alleged infringement. Under the SHOP SAFE Act, platforms are expected to, among other things, implement upload filters and review all third-party posts to determine whether they potentially contain use of a counterfeit mark. The bill would also open startups and smaller e-commerce platforms to more litigation over whether they are acting reasonably when it comes to proactively monitoring, identifying, and removing potential infringement—lawsuits that could easily cost upwards of $500,000.
While focused on the alleged use of counterfeit marks, the SHOP SAFE Act would mark a dramatic shift in the way online platforms operate. As we have noted elsewhere, proposals like SHOP SAFE would mean startup e-commerce platforms must learn many million trademarks and assess potential infringement without the benefit of input from mark owners who are best suited to know what is (and is not) counterfeit. Likewise, mandatory use of filters has many inherent limitations and is incapable of fully addressing complaints about counterfeits. It is also very expensive and out of reach for most startups.
In a letter Engine submitted to the record after yesterday’s hearing, we explained that changes to how alleged trademark infringement is handled online—including those proposed in the SHOP SAFE Act—could have an outsized impact on e-commerce startups. Most platforms experience little, if any, alleged trademark infringement, and changing the law in this way would catch little, if any, additional infringement. Yet, by creating substantial costs and risks, such proposals would raise new barriers to entry. Indeed, larger e-commerce platforms already spend millions and deploy the most sophisticated technology to try and catch potential infringement; efforts which are already seen to confer a competitive advantage over smaller entrants. Changing the law to impose liability on platforms that cannot afford the same costs and risks would entrench incumbents and harm the ability of nascent platforms to compete.
Policy Roundup
Tech groups challenge Florida social media law. NetChoice and the Computer and Communications Industry Association (CCIA) challenged Florida’s recently signed into law S.B. 7072. The social media law goes into effect on July 1 and would set restrictions and requirements around how Internet companies—except those owned by companies that run Florida theme parks—moderate user-generated content and would open the companies up to lawsuits from users over content moderation decisions. According to the complaint from NetChoice and CCIA, the law violates constitutional protections and Section 230, and it would force companies to host harmful, offensive, and illegal content.
Top Senate Finance Republican warns against discriminatory taxes. Senator Crapo (R-ID), the top Republican on the Senate Finance Committee, warned in a letter to Treasury Secretary Janet Yellen this week against international tax agreements that discriminatorily target U.S. companies. While the Organization for Economic Co-operation and Development (OECD) is currently in the midst of negotiations on a digital tax framework, several other nations have unilaterally pursued digital taxes that target mostly American, large digital firms. Sen. Crapo indicated the U.S. shouldn’t accept any agreement on where companies’ profits are taxed unless the unilateral measures are repealed.
India intermediary rules enter full force. India’s new rules for intermediaries and digital media, which, have been in effect since their publication in February, fully entered force on Tuesday. The rules—which, among other things, impose near-impossible mandatory content-takedown timelines, critically weaken end-to-end encryption, and take significant steps towards automated filtering and user verification requirements—will harm the ability of U.S. startups to expand into India. While the rules have a threshold to separate startups from the most onerous regulations, they leave the door open for the government to impose the full burdens on any company that poses a “material risk of harm,” according to the government.
Amendments stall Senate innovation bill ahead of final passage. Though a bipartisan deal on the China competitiveness bill—the U.S. Innovation and Competition Act, which includes the Endless Frontier Act—had been poised to make it to the Senate floor for final passage this week, the package was delayed late Thursday as Republicans threatened to oppose the bill and offered up eleventh-hour amendments. The legislation, spearheaded by Majority Leader Schumer (D-NY), includes funding for the National Science Foundation and domestic semiconductor manufacturing, was amended several times in committee as the Endless Frontier Act, and is now on the Senate floor. The Senate is slated to resume consideration of the bill after Memorial Day.
Startup Roundup:
#StartupsEverywhere: Medford, Massachusetts. OPT Industries is an additive manufacturing and 3D printing company that is working to take innovative technologies to scale for mass production of an array of products. We spoke with Jifei Ou—Founder and CEO of OPT Industries—to learn about the technology OPT has developed, his experiences navigating the immigration system as a startup founder, and how the U.S. can better incentivize entrepreneurship in innovative manufacturing.
Startup Policy Seminar Series: Access to Talent & Your Startup. Join Engine on June 9 at 4 p.m. ET where, together with an expert panel, we will explore the current landscape of workforce mobility & immigration public policy, particularly focusing on how these issues impact startups and how startups can get involved in these policy debates. The event will feature a discussion moderated by Engine’s Policy Manager, Jennifer Weinhart, and several expert panelists. You can RSVP here.
