laptop and shopping bags, online shopping concept.

By:  Atty. Mikko Axalan-Posio, Senior Associate

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 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.

[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:

x x x
“(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;
x x x

[3]       600 F.3d 93 (2d Cir. 2010).