The Liability of Online Marketplaces

for Sale of Counterfeit Goods

Millions of Filipinos are now hooked on online shopping. They do it at home, in the
office, during class, while waiting for the MRT – basically, anywhere and anytime they
have access to the internet through their mobile devices or computers. How could they
not get hooked, when online shopping allows them to score amazing deals and shop to
their heart’s content without having to deal with horrible traffic and overcrowded malls?

The Filipinos’ obsession with online shopping has driven the e-commerce market forward
by leaps and bounds. Independent online sellers have proliferated in social media
platforms like Facebook and Instagram. The go-to sites, however, prove to be the online
marketplaces that aggregate and offer a vast assortment of products from multiple third
party merchants. These online marketplaces, which include the likes of Lazada, Zalora,
Shoppee and eBay, have quickly grown into mainstream shopping venues, reshaping
consumer buying and selling behavior.

Despite the massive success of online marketplaces, they have received much criticism
because of their lack of consumer protection. The very nature of these platforms easily
makes them havens for substandard or counterfeit products. Fraudulent traders are able
to sell their illicit goods and pass them off as originals online while remaining completely
anonymous to consumers. While online marketplaces generally attempt to prohibit the
sale of infringing products in their terms and conditions or vendor agreements, they
rarely scrutinize each item, given the sheer number of goods that they carry, and their
lack of knowledge as to the nuances that identify each brand from counterfeits. These
regulatory problems have consequently raised questions regarding the liability of online
marketplaces for the sale of counterfeit products through their platforms.

For consumers and brand owners, it is easy to hold online marketplaces liable. After all,
they make the counterfeit sales possible by providing the platform for, and facilitating,
such sales. This was precisely the reason why a famous Korean cosmetic brand sued a
popular online marketplace in the Philippines back in 2015.

The criminal case filed by the Korean cosmetic brand charged the online marketplace for
violations of the Intellectual Property Code, allegedly due to selling and/or facilitating the
sale of fake cosmetic products bearing its name and mark. The Korean cosmetic brand
specifically cited Section 155, which prohibits the use in commerce of any counterfeit
mark, container or dominant feature thereof in connection with the sale, offering for sale,
distribution, or advertising of any goods; Section 168, which prohibits unfair competition,
or the sale of goods that are made to appear as authentic; and Section 169, which
prohibits the use in commerce, on or in connection with goods or containers for goods, of
false designations of origin, and false or misleading descriptions or representations of
facts.1

The Korean cosmetic brand obviously seeks to hold the online marketplace directly liable
for infringement. This can be quite tricky, however, given that online marketplaces are
mere platforms that bring together merchants and consumers. They are not actually the
seller of the items posted on their sites. Neither are they the manufacturers of the
counterfeit products being sold. It is unclear whether the Korean cosmetic brand also
sought to enforce the online marketplace’s liability for contributory infringement, but
that would have been a more plausible strategy.

The concept of contributory infringement originates from tort law and suggests that a
party, who directly contributes to another’s infringement, should also be held liable. In
the Philippines, said concept was introduced by Republic Act No. 10372 (“R.A. 10372”),
which amended the Intellectual Property Code. Under Section 22 of R.A. 10372,2 to be
liable for contributory infringement, one must: (1) benefit from the infringing activity; (2)
have been given notice of the infringing activity and a grace period to act on the same;
and (3) have the right and ability to control the activities of the person committing the
infringement.

While Section 22 of R.A. 10372 pertains to copyright infringement, it may be argued that it
also applies to trademark infringement in the e-commerce context by analogy. Hence, to
find an online marketplace liable for contributory infringement, one must prove that the
online marketplace received fees or gained profits for each sale of fake goods; was notified
of the infringement and failed to promptly take down the counterfeit products; and had
direct control over the sales of illicit goods on its platform. The failure to show any one of
these elements absolves the online marketplace from liability.

As of this writing, there has yet to be any jurisprudence on the liability of online
marketplaces for counterfeit products in the country. We thus turn to American
jurisprudence for guidance.

The landmark case on contributory infringement in the realm of e-commerce in the

United States is Tiffany (NJ) Inc. v. eBay, Inc.3 The iconic jewelry brand, Tiffany, filed a

1
Republic Act No. 8293.
2
Section 22. Section 216 of Republic Act No. 8293 is hereby amended to read as follows:
"SEC. 216. Infringement. – A person infringes a right protected under this Act when one:
xxx
"(b) Benefits from the infringing activity of another person who commits an infringement if
the person benefiting has been given notice of the infringing activity and has the right and
ability to control the activities of the other person;
xxx
3
600 F.3d 93 (2d Cir. 2010).
case for direct and contributory infringement against the world’s largest online
marketplace, eBay, based on the sale of counterfeit Tiffany products on the said platform.

In absolving eBay from liability for direct infringement, the court ruled that eBay did not
directly sell the counterfeit items, nor did it suggest endorsement or sponsorship by
Tiffany. Anent the charge for contributory infringement, the court found no liability on
the part of eBay. The court opined that while eBay had control over the sales of
counterfeit goods, it did not know or have reason to know which products were fake.
Moreover, eBay’s prompt action in taking down the counterfeit products from its site
upon notice shows lack of intent to create a forum for counterfeiters. A focus on the
elements of knowledge and control is thus apparent.

It would be interesting to see how Section 22 of R.A. 10372 and the Tiffany case would
figure out in future rulings of the Supreme Court regarding the liability of online
marketplaces for the sale of counterfeit products. Given that the law on trademark
infringement has not yet fully caught up with the advances in technology, thereby
resulting in regulatory gaps and discrepancies, online marketplaces and brand owners
should, in the meantime, work together to address the rampant trade of infringing goods.
Online marketplaces should adopt a robust and defensible set of policies to prevent the
commission of fraudulent transactions on their platforms. Brand owners, on the other
hand, need to realize that instead of simply suing the online marketplace, they should
take advantage of the preventive measures provided by the latter.