A Comprehensive Review of Amazon Project Zero ( Anti- Counterfeiting Initiative) , Analysis in detail of the Policy, Issues, Takedown Mechanism and its Applicability in India

6th March, 2019 - 5:40 am Categories: Counterfeiting 0 Comments

Introduction
India is one of the world’s fastest growing online commerce markets with multi-national giants like Amazon and Walmart’s Flipkart fighting for dominance. Recently, the Indian Government came up with new regulations on e-commerce  which require these e-commerce websites to treat all vendors equally, owning inventory, effectively barring foreign companies from featuring exclusive products on their platforms and thus being able to influence pricing by offering huge discounts. All of which threatens the interests of these corporations in Indian market. One of the issues not covered by these regulations was the widespread presence of counterfeit products on these websites. Amazon which is the largest e-commerce marketplace and cloud computing platform in the world as measured by revenue and market capitalization has come up with innovative measures anyway.[1] These innovative measures under the program named ‘Project Zero’ are currently an invite-only experience available in the U.S, but most likely will be introduced in India as a report from Citi Research reveals that after disappointing results from China Amazon founder and CEO Jeff Bezos is determined to win in India.[2]

Background
Worldwide counterfeit products are an increasing menace for the consumers. In India, a survey by Local Circles conducted among 6923 consumers revealed that 38 percent of these consumers had received counterfeited product from an e-commerce site in last one year, while survey by Velocity MR conducted among 3000 consumers revealed that one out of three online shoppers has received fake products from e-commerce websites in last 6 months.[3] According to RedSeer e-commerce industry suffered $3.4 billion loss due to product returned in 2017. In 2013 an OECD analysis revealed that global trade in counterfeit and pirated goods was valued at $461 billion.[4] So it is a problem that cannot be ignored.

This isn’t the first step of Amazon towards battling counterfeit products on its website, Amazon already has Anti-Counterfeiting Policy in US which states “Products offered for sale on Amazon must be authentic. The sale of counterfeit products is strictly prohibited. Failure to abide by this policy may result in loss of selling privileges, funds being withheld, and destruction of inventory in our possession”[5]. In India under the ‘Prohibited Content’ section of policies applicable to Indian sellers it is stated that two kinds of products are prohibited from sale; first, the prohibited content meaning items not intended for distribution within India, Illegal and potentially illegal products, offensive material, nudity, items that infringe upon an individual’s privacy etc., and secondly, Intellectual property violations which includes counterfeit merchandise, unauthorized and unlicensed merchandise, recopied media etc. The Counterfeit merchandise policy states “Products offered for sale on Amazon.in must be authentic. Any product that has been illegally replicated, reproduced or manufactured is prohibited”. [6]

Under the current infringement reporting mechanism the owner of the Intellectual property or his agent who had seen fake versions of their products would have to submit a request to Amazon, which would evaluate the claim and remove it, something similar to YouTube’s copyright takedown process.

But, this report and take-down mechanism has some issues:

It is quite a prominent practice by rival sellers to get innocent legitimate sellers suspended just before the busiest shopping events in the year such as Black Friday sale.  In the past Amazon has been tricked by a fake law firm to remove/suspend a seller from its website just before the Amazon Prime Day (the busiest shopping event of the year) claiming the seller was involved in intellectual property violation. The seller had to take multiple steps to get reinstated, but by the time Amazon did it the seller had incurred loss of $200,000.[7] The fraud could have been discovered easily within few minutes by analysing the facts of the complaint, but such analysis wasn’t conducted by Amazon. The reason being that the Amazon’s internal teams are overwhelmed with these complaints and are very slow to react to fake submissions. Another reason could be that Amazon profits from these counterfeit products.[8]

Amazon’s growing dominance in commerce brings with it plenty of collateral damage, the counterfeit problem in particular. News reports reveal that despite there being anti-counterfeiting policy, Amazon in order to attract customers via discount offers /flash sales and making the products available at lowest price in the market allowed sellers from across the globe who have little respect for or compliance with the IP rights of IP holders to sell on its platform.[9] Floodgates of such cases have opened due to Chinese manufacturers selling fake products to unsuspected consumers because some of these appear legitimate as they are Amazon fulfilled. The presence of counterfeit products forces the brands to lower their prices in order to compete with the counterfeit versions of their products. If the legitimate sellers cannot offer the product at a price counterfeited products are being offered it brings small businesses and IP holders to their knees. Internet is awash with narratives by these legitimate businesses describing their plights[10] but the story of Forearm Forklift a small business involving product that reduces potential injuries due to heavy and repetitive lifting. Plight of Forearm Forklift is that Amazon is flooded with counterfeit Forearm Forklift products due to which it is struggling financially. It has been forced to self-police the site and take action to get unauthorized listings removed. They need to constantly look for infringers then send a cease-and-desist letter.  If a product appears to be a counterfeit they have to buy it, examine it, and then prove to Amazon through a formal complaint that the listing should be taken down, and just keep doing this again and again. Then, these businesses suffer loss of goodwill as well when the buyers who buy counterfeit products thinking them to be legitimate give the product poor review. So, despite anti-counterfeiting policy of Amazon it keeps diverting business of legitimate business owners to the counterfeiters.

So what is Project Zero?
With Project Zero Amazon intends to take zero tolerance to counterfeiting. It has three different tools to facilitate businesses fight counterfeiting:

• Self-service counterfeit removal

Under this facility brands no longer need to contact Amazon to remove counterfeit listings from our stores. Instead, they have the unprecedented ability to do so themselves by using Amazon’s new self-service tool. Amazon will then use this data generated by Self-Service counterfeit removal to strengthen its second facility i.e., the automated protections.

• Automated protections

Under this facility Amazon uses AI powered by Amazon’s machine learning to continuously scan Amazon stores and proactively remove suspected counterfeits. Here the companies provide Amazon with their logos, trademarks, and other information about their brand, which Amazon then uses to scan its listings and remove fake products.  Amazon says it scans over 5 billion daily listing update attempts, looking for suspected counterfeits.  According to Dharmesh Mehta Amazon’s vice president of Consumer and Brand Protection,  “We(Amazon) have been testing these automated protections with a number of brands, and on average, our automated protections proactively stop 100 times more suspected counterfeit products as compared to what we reactively remove based on reports from brands”[11]

• Product serialization service

This is an optional facility under which products are given a unique identifier that’s scanned upon each purchase. If the number doesn’t match up with the listing, Amazon may be able to prevent someone from buying a counterfeit product. Unlike the automated copy protection system and the self-serve option to delete listings, which are free for brands that are accepted to Project Zero, the serialization service will cost between $0.01 and $0.05 per unit, depending on volume.

These steps by Amazon have been welcomed by both consumers and brands as Amazon in the past has been criticized for treating counterfeit products on its website as blind spot.[12] The technology being in its nascent stage is likely to take some time before becoming widespread. Especially, the automated removal using an AI would require adjustments for instance feeding of data for different brands and their trademarks which is likely to take time. So, in the meantime what are the existing legal remedies available to the brands and companies to tackle counterfeiting?

Legal liability of e-commerce websites in sale of counterfeit products on their platform
As the e-commerce websites are intermediaries their liability for the hosted content will be determined by Section 79 of The Information Technology Act, 2000.

Possible legal actions against counterfeiters In essence, Section 79 acts as a ‘safe harbor provision’ for intermediaries and protects intermediaries against third party information, data or communication link since they do not have any control over the information stored or transmitted. Under the Section (i) An intermediary must warn sellers against violation of others’ IPR or proprietary rights, (ii) It must not knowingly allow any such violation to take place, (iii)And if such a violation comes to light the intermediary is legally obliged to take down the information or product within 36 hours. The Delhi High Court in Christian Louboutin SAS v. Nakul Bajaj & Ors[13] hasheld that e-commerce websites, actively participating in the sale of goods/ services, are not intermediaries and can be held liable for misuse of trade marks on counterfeit products. So, the Act extends “safe harbor protection” only to those instances where the intermediary merely acts a facilitator and does not play any part in creation or modification of the data or information, provided the intermediary removes any unlawful content on its computer resource on being notified by the appropriate Government or its agency or upon receiving actual knowledge. In U.S too in the case of Milo & Gabby, LLC v. Amazon.com[14] the court adopted the jury’s finding that Amazon.com was not liable for “offering to sell” the alleged infringing products at issue.

Trademark infringement suit
 At the international level, the ‘Paris Convention for the Protection of Industrial Property’ that came up in 1883 was the foundation of the modern IP law laying down minimum global standard for protection of IP rights. Article 6bis of this convention provided protection to trademarks even in countries other than their countries of registration. World Trade Organization would then go on to adopt Trade-related Aspects of Intellectual Property Rights (TRIPs) which has further enhanced uniform IP protection, but a need for uniform legal framework against counterfeiting beyond the traditional IP law is still being felt. Anti-counterfeiting Trade Agreement (ACTA) is a multinational treaty which sought establishment of uniform international standards for enforcement of intellectual property rights and combating counterfeit goods which under the elaborate Article 27 provides ways and measures for enforcement of IP rights in the digital environment. But, ACTA is regarded by many NGOs and consumers as a threat to individual privacy and democracy. Even the negotiations for the agreement were undertaken with a lack of decisional transparency. In 2012 the European Parliament invoked the Lisbon Treaty to reject ACTA. However, other countries such as the United States and Japan ratified it in the same year and seem to have a continued interest in implementing it. International development of trademark law resulted in the possibility of brands or companies to take recourse of courts for the enforcement of their trademark against the counterfeiter.

Under Section 28 of the Trademark Act, 1999 once a person registers a trademark for particular goods or services he gets exclusive right to use that trademark with respect to such goods or services and to obtain relief in respect of infringement of the trademark in the manner provided by the Trademark Act, 1999. Such a suit for infringement by a registered trade mark owner/proprietor is maintainable even against another registered trade mark owner/proprietor.[15] Although under Section 27(1) No person is entitled to institute any proceeding to prevent, or to recover damages for the infringement of an unregistered trade mark. Section 29 of the Trademarks Act, 1999 lays down what constitutes infringing acts.

Under the concept of well known trademarks given in Section 29 (4) of the Trademark Act, 1999 infringement suit can be filed even when the goods/services with respect to which identical/similar trademarks are used are entirely different, if the trade mark for which the suit is filed has acquired reputation and goodwill in India.[16]

Passing off

An unregistered trademark of a business or goodwill of a business can be protected by the law of passing off which is a tort actionable under common law. Sections 27(2), Section 134(1) (c), and Section 135 of The Trademark Act, 1999 govern the passing off actions.

The Hon’ble Supreme Court of India in the case of N.R. Dongre and Ors. Vs.Whirlpool Corporation and Anr[17] observed that “The concept and principle on which passing off action is grounded is that a man is not to sell his own goods under the pretence that they are the goods of another man. A trader needs protection of his right of prior user of a trade mark as the benefit of the name and reputation earned by him cannot be taken advantage of by another trader by copying the mark and getting it registered before he could get the same registered in his favour. We see no reason why a registered owner of a trade mark should be allowed to deceive purchasers into the belief that they are getting the goods of another while they would be buying the goods of the former which they never intended to do. In an action for passing off if should not matter whether misrepresentation or deception has proceeded from a registered or an unregistered user of a trade mark. He cannot represent his own goods as the goods of some body else.”

The essential elements to establish Passing off Action are

(i) Goodwill: the plaintiff has to establish goodwill of his business, or goods, or services with which the trade or public will associate the defendant’s activities. Goodwill need not be established in the mind of every member of the relevant public, but in a significant section of it;

(ii) Deceptive Similarity: This element has to be approached from the point of view of a man of average intelligence and of imperfect recollection. In the case of Cadila Health Care Ltd. vs Cadila Pharmaceuticals[18] the apex court observed, in an action for passing off on the basis of unregistered trade mark generally for deciding the question of deceptive similarity the following factors to be considered:

1. The nature of the marks i.e whether the marks are word marks or label marks or composite marks i.e. both words and label marks.
2. The degree of resemblances between the marks, phonetically similar and hence similar in idea.
3. The nature of goods in respect of which they are used as trade mark.
4. The similarity in the nature, character and performance of the goods of rival traders.
5. The class of the purchasers, who are likely to buy the goods bearing the marks they require, or their education or intelligence and a degree of care they are likely to exercise in purchasing goods.

(iii) Loss due to passing off

Finally, it is very important that the party claiming benefit under passing off might incur loss due to other party’s action of passing off their goods / services as of the goods / services of the first party.

As per Section 27(2) of the Act, an action for passing off by an anterior user of a trade mark against a registered user of the same is maintainable. Priority in adoption and use of a trade mark is superior to priority in registration[19].

According to Section 134 of the Trademarks Act, 1999 no suit (a) for the infringement of a registered trade mark; or (b) relating to any right in a registered trade mark; or (c) for passing off arising out of the use by the defendant of any trade mark which is identical with or deceptively similar to the plaintiffs trade mark, whether registered or unregistered, shall be instituted in any court inferior to a District Court having jurisdiction to try the suit.

A brand or company cannot approach court every time an infringement takes place. It will have to do cost-benefit analysis as approaching court involves heavy financial implications. Due to this an out of court counterfeit prevention tool like ‘Project Zero’ will be invaluable for brands and companies. Since the counterfeiters won’t be able to sell their stocks online they will have to establish physical stores which will make them more vulnerable to the search and seize ‘Anton piller’ orders.

The issues to consider
There are things to be considered with ‘Project Zero’ as well because it’s likely to affect trademark law too. How accurate the AI will be in determining the similarity of trademarks? What’s the guarantee that genuine products are not being flagged as counterfeits? Is there a mechanism for sellers whose products will be marked as counterfeit or infringing to raise objection against this? Since the project so far has been tested for limited brands how would it cope up with complex trademarks or trademarks which have similar designs?  There are much serious complexities involved as far as Artificial Intelligence and Trademarks Law is concerned. We are working on an article elaborately dealing with the  Issues of AI in respect to Trademarks Law and will upload the same soon

Should ‘Project Zero’ be brought to India?
As pointed out in previous paragraphs, the surveys conducted in India reveal one of every three products bought from an online retailer is a counterfeit. So, Indian market is desperately in need of such innovative solutions to fight counterfeits.

Conclusion
With the current AI revolution taking place, the trademarks law isn’t going to stay untouched. Nobody knows how solutions to these issues are likely to unfold. All we can hope is that all this result in elimination of counterfeiting, quality products for consumer, reduce monopoly, and increase competition. ‘Project Zero’ is the first step towards such a future and it is here to stay. Being an AI powered project backed by machine learning it’s performance is only going to improve and defects likely to be suppressed with time. Hence, it’s a welcome step and brands should jump on this opportunity to be part of ‘Project Zero’ as soon as possible to fight counterfeiting.

Author: Mr. Shubham Borkar, Senior Associate – Litigation and Business Development  and Nitish Daniel – Intern, at Khurana & Khurana, Advocates and IP Attorneys. In case of any queries please contact/write back to us at shubham@khuranaandkhurana.com or at www.linkedin.com/in/shubhamborkar.

References:

[1] Barney Jopson, ‘Amazon urges California referendum on online tax’, Financial Times,  July 12 2011.

[2] Lauren Feiner, ‘Amazon is tackling its counterfeit problem by letting brands delete knockoffs themselves’, CNBC, Feb 28 2019.

[3] Mugdha Variyar, ‘A third of ecommerce buyers get counterfeit products’, ET Bureau, 2018.

[4] OECD & EUIPO, Trade in Counterfeit and Pirated Goods: Mapping the Economic Impact 11 (2016).

[5] https://sellercentral.amazon.com/gp/help/external/201165970?language=en-US&ref=mpbc_201166010_cont_201165970

[6] https://sellercentral.amazon.in/gp/help/external/help-page.html?itemID=521&language=en_IN&ref=efph_521_bred_U5SQCEKADDAQRLZ

[7] Eugene Kim, ‘Amazon was tricked by a fake law firm into removing a hot product, costing this seller $200,000’, CNBC, Sept 7 2017.

[8] Ari Levy, ‘Amazon’s Chinese counterfeit is getting worse’, CNBC, July 8 2016.

[9]  Ari Levy, ‘How Amazon counterfeits put this business on brink of collapse’, CNBC, Oct 24 2016.

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[10] Ari Levy, ‘Amazon’s Chinese counterfeit is getting worse’, CNBC, July 8 2016.

[11] Dharmesh  M Mehta, ‘Amazon project Zero empowering brands to drive counterfeits to zero’, The Amazon Blog Day one, Feb 28 2019.

[12] Erica Pandey, ‘Amazon’s problem with fake goods’, Axios,  Aug 30 2018.

[13] CS (COMM) 344/2018

[14] 2015 U.S. Dist. LEXIS 149939 (W.D. Wash. Nov. 3, 2015)

[15] Clinique Laboratories LLC and Anr vs Gufic Limited and Anr 2009(41)PTC41(Del)

[16] Ceat Tyres of India Ltd. vs. Jai Industrial Services and Anr

[17] (1996) 5 SCC 714 

[18] (2001) 5 SCC 73

[19] Consolidated Foods Corporation v. Brandon and Co., Private Ltd AIR 1965 Bom 35