American Entrepreneurs Trampled by Politics in Antitrust Hearings

In a post published in August 2019, I discussed the fact that online IP enforcement is not just about the people we think of as traditional artists. Many small businesses—from garage start-ups to a few million in sales with employees to support—sell unique merchandise based on original designs protected by copyright and under trade names protected by trademark. And it seems that just about every week, I encounter an entrepreneur describing the volume and rate at which they find counterfeiters selling knock-off versions of their products on Amazon, eBay, Etsy, Alibaba, and some of the smaller retail platforms as well. The costly, often futile, game of whack-a-mole via DMCA takedown is not just for musicians and photographers; it’s being played by hundreds of American businesses.

As discussed in that previous post, the low cost of entry into the market offered by internet platforms comes at the often-hidden expense of making the enterprise vulnerable to counterfeiters, who are most often based in China. Copyrights and/or trademarks are infringed; prices are undercut by up to 80%; and the knock-offs are usually inferior quality. Then, to add insult to injury, consumers do not always know they’ve bought a counterfeit, and they blame the real manufacturer for the lousy product they received.

Congress has an obligation to help defend American entrepreneurs (and consumers for that matter) against the growing surge of online counterfeiters, and it has more than potential DMCA reform in its legislative arsenal to address the issue. For instance, part of the House Judiciary Committee’s ongoing antitrust inquiry entitled Online Platforms and Market Power includes investigation into how, or whether, platforms vet third-party sellers and remove those who violate Terms of Service or the intellectual property of legitimate sellers.

Sadly, the sixth hearing on July 29th—a headliner because the CEOs of Apple, Google, Facebook, and Amazon were called to testify—was sidetracked by partisan rhetoric that had little to do with antitrust concerns. And, yes, it was one party doing all the sidetracking.

Setting the stage, Chairman Nadler’s opening statement compared the contemporary market power of the major online platforms to the railroad monopolies of the early twentieth century, “New digital intermediaries have the ability to control access to critical markets. If you are an independent merchant, developer, or content producer, you are increasingly reliant on these powerful intermediaries to access markets and consumers…. Across the economy, many businesses fear exclusion from these platforms.” That describes many an entrepreneur’s problem in a nutshell.

But right out of the gate, the ever-bloviating Rep. Jordan’s opening statement begins, “I’ll just cut to the chase: Big Tech’s out to get conservatives.” He then he proceeds to cite, for example, Google allegedly muting Breitbart, The Daily Caller, etc. Watching the discussion proceed from there, I wondered if Jordan, the smug Matt Gaetz, and several other Republicans (though not all) had wandered into the wrong hearing. After all, two of the four witnesses before the committee—Cook for Apple and Bezos for Amazon—do not even operate social media sites. What have they got to do with political bias?

Even if there were merit to the allegations of partisan bias in platform moderation, it is a complaint that presently begs absurd questions like whether Jordan et al are determined to embrace all supporters, no matter how dangerously crazy they might be, as “conservative”? If the same hearing were held today, would Facebook’s dropping QAnon pages count as anti-conservative in Jordan’s mind? Probably. And this warped definition of “conservative” is so profound that the GOP has currently shed lifelong, prominent conservatives, including many members of the national defense apparatus.

The irony of this fiasco could not be more typical of our contemporary politics. Far too many Republicans in that hearing showed up to grandstand on the wrong issue while shirking a core conservative principle to support American business—especially when those businesses are being harmed by foreign-based counterfeiters. American jobs remain in the crosshairs, while Jordan et al chose to complain about Facebook or Google to demoting, removing, or flagging disinformation and conspiracy theories. Although one could loosely subject the issue of media bias to an antitrust analysis, the Republicans’ derailing that particular hearing to stand on that particular soapbox was an act of legislative malfeasance by the party that presumes to call itself pro-business.

Amazon is one of the most problematic retailers for small producers who sell online, and it is rare to see Jeff Bezos testifying before Congress. But rather than seize the moment, what the most vocal GOP Members managed to achieve, by wagging their fingers at Mark Zuckerberg on the wrong topic, was to let Bezos know that Amazon probably doesn’t have to change a damn thing. At least for now, there appears to be no bipartisan interest in legislative help for small businesses getting clobbered on the major retail platforms.

The cost of counterfeiting is no mere inconvenience that can be factored in, like anticipated shoplifting. Depending on the volume and scope of infringement, the costs may be anything from lower profits, to reducing the resources to hire or retain employees, to shuttering a whole business. Without a legislative response that envisions an intersection between antitrust and intellectual property enforcement, these entrepreneurs have little hope of addressing the growing problem.

I recently read a discussion about the prospect of filing a class-action suit against an online retailer, but that seems like a journey filled with tears and pain that will lead nowhere. Even if a class could be formed to, for instance, sue Amazon for the next decade or so, the Supreme Court in 2019 did not resolve the flaw in cy pres awards that diverts class-action damage awards away from the plaintiff class and, bizarrely enough, often finances the interests of the “losing” defendant. (See post here.)

Protecting American entrepreneurs from predatory, mostly foreign, operators, facilitated by American internet platforms, is absolutely the job of Congress. And Chairman Nadler is right to compare this moment to the railroad monopolies of more than a century ago. The mission to support independent businesses should be bipartisan and, as stated, should be a classic objective for anyone calling himself a Republican. Sadly, the counterfeiting problem does not appear to have the House Judiciary Committee’s undivided attention at this time.

© 2020, David Newhoff. All rights reserved.

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