The Voice of the eCommerce Industry

Should Online Marketplaces be the Trademark Police?

The Tiffany & Co v. eBay trial began yesterday, and as this news article noted, the case is about who is responsible for the policing of counterfeit products on eBay.

It's an important case, and implicates all e-commerce marketplaces, so it's impact extends beyond just eBay. And its resolution may come down to whether you believe sites like eBay are akin to a traditional retail store or more like a facilitator between buyers and sellers, much like a flea market. Tiffany claims that eBay participates in and facilitates the counterfeiting and trademark infringement of its jewelry and other items in violation of the Lanham Act.

But here's the kicker:  Tiffany wants to enjoin eBay from selling any item on its site has hasn't been made, sponsored, or approved by Tiffany. This goes too far, way beyond the policing of trademarks.

Instead, it appears that Tiffany would like to control the distribution channel, and use trademark law to do so. Retailers and distributors often hate that their products can be sold outside of their control. We've seen this attempt to control distribution when venues complain about the sale of event tickets on secondary market sites like StubHub, RazorGator and eBay.

eBay has an extensive program for dealing with intellectual property rights violations. Trademark owners should be vigilant when protecting their brands, not vindictive towards marketplaces that are themselves not the bad actors.

-Braden

The wrong solution to retail theft

The American Legislative Exchange Council (ALEC) is meeting this week in Philadelphia, and among the proposals ALEC delegates will be discussing is one being promoted by the National Retail Federation (NRF) that they claim will address the problem of retail theft. Unfortunately, the model legislation NRF is proposing is the wrong solution to the wrong problem and targets the wrong culprit.

In fact, the NRF proposal has a lot less to do with theft than it does with good old fashioned competition. NRF would like to use any excuse available to get the government to put pressure on their new online competitors. Instead of taking effective measures to deal with rampant employee theft in their own stores, NRF has chosen instead to blame the problem on e-commerce. Without offering any logical justification, NRF's proposed legislation would impose an impossible "should have known" standard on online marketplaces that, despite their best efforts, unwittingly handle stolen merchandise.

In fact, a study by the University of Florida, commissioned by the NRF, found that in 2005 employees were responsible for almost half of all thefts from retail stores. That's $17 billion worth of merchandise taken out the back door by employees in a single year. Meanwhile, retailers spend less than one-half cent of every dollar in sales on security and loss prevention.

Fortunately, ALEC and many individual states have already begun to address the real problem of retail theft. Delaware, Nevada, Texas, Utah and Washington State have enacted legislation that adds retail theft to the list of offenses qualifying for increased criminal penalties and tougher sentencing. That's a better way to deal with organized retail theft that pointing the finger at innocent third parties.

Online marketplaces are anxious to work with retailers and law enforcement to fight retail theft. They already spend millions on fraud prevention because it is in their own best interest to do so. NRF would have you believe that online marketplaces are the root cause of organized retail theft when, in fact, retailers themselves, through inaction, inattention, and indifference, are a major part of the problem.

Latest look at online privacy and the IRS

The Center For Democracy and Technology is out with a new policy post that takes a close look at the IRS proposal to require businesses that facilitate the buying and selling of goods online to collect the Social Security numbers and sales activity of their customers and report to the IRS. The IRS would have you believe that this is a legitimate attempt to close the so-called "tax gap," but I've been warning that it is really just an excuse for further government intrusion into online privacy, and the Technology Liberation Front agrees.

Don't Make the Tax Gap into a Privacy Protection Gap

The notion that the IRS could soon have too much information on consumer transactions is gaining traction. An article by Declan McCullagh and Anne Broache (Selling stuff online? Here comes the IRS) includes some good points about why we don't want the IRS to morph into an Information Reporting System.

In their article, McCullagh and Broache describe how Nina Olson, the National Taxpayer Advocate, told Congress that:

[Congress] should require information reporting on gross proceeds from sales conducted on Internet auction sites. "One recent study found that 700,000 Americans reported that eBay sales constitute their primary or secondary source of income. The IRS must have the tools needed to address underreporting of this income," she said.

In the case of e-commerce, the tools that Olson refers to is information. And the burden of collecting and reporting such information falls onto e-commerce marketplace websites and their users. But the real burden is harder to quantify, and is even more important.

The mass collection of information by private companies for governments is an unwieldy and heavy burden on privacy.

Readers of Matt Stinchcomb's statement in the article may miss this broader privacy implication when he says "Our goal as a company is to allow people to make a living making things, and this is just another impediment to that."

Not entirely. Those making a living selling stuff on the 'Net are already paying their taxes (or better be!). As a practical matter, this is a hardship to those that don't make a living selling items on e-commerce marketplaces, and will now be forced to compute their profits and losses each year using IRS Schedule C.

Scott Weber's quote drives home the privacy concern of entrusting companies with personal information when he says that

"I'm pretty much a one-horse operation here," Weber said. "I do everything myself. I'd have to hire a whole bunch of people. I'd have to hire someone full-time to do this. You'd need to track people all over the country, and you'd have to get their SSNs."

Again, this is a hardship on companies. But it will also force sellers to provide more information to companies. That's where the real hardship lies, because it is the information of users of e-commerce marketplaces that the IRS wants.

Boston Globe Officiates Patriots vs. StubHub, Misses Encroachment Penalty

The legal battle between the New England Patriots and the online ticket broker StubHub  spilled onto the editorial page of the Boston Globe last week. In their December 27 editorial, the Globe rightfully called for repeal of a Massachusetts law regulating ticket resale prices. Unfortunately, the Editors missed a penalty call on the Pats for forcing fans to resell tickets only through the team’s exchange.

The legislature should allow the free exchange of tickets, but it must also stop the Pats from unduly restricting the property rights of a ticket owner. Consumers should be able to resell their tickets anywhere, whether by posting a note at the office or online with StubHub. The Patriots deserve a penalty for blatant "encroachment" on basic consumer rights.

One if By Land, Two if By Sea, and Zero if By Competing Ticket Exchanges

The Patriots are coming, the Patriots are coming! The New England Patriots professional football team recently sued StubHub, an online company that facilitates the resale of event tickets. The Pats are even mounting a Tom Brady-like offensive against some of its biggest fans - season ticket holders.

But who are the true "Patriots" here? Aren't they the fans that just want the freedom to buy game tickets for their favorite team (or sell them if they can't attend)? E-commerce websites like StubHub help these buyers and sellers.

Gone are the days of having to go to the event and purchase a ticket from some gruff, shady character. StubHub and eBay offer a safe (and often guaranteed) experience for buying and selling tickets. But in case you haven't noticed, venues and teams will often prevent these resales - just look at the small–print restrictions on the back of the next game ticket you see.

Most consumers don't know that teams won’t let them sell their tickets to others - even to friends and family. Some states have laws that regulate scalping, but even these are mostly ignored by law enforcement officials that have greater priorities.

I testified on New York's ticket scalping law at a hearing before the state's Consumer Protection Board. In New York, the market for event tickets is a morass of complexity and corruption, and cries out for the kind of competition and transparency that e-commerce can provide. In 1999, state Attorney General Elliott Spitzer shined a bright light on the shady underground market in New York City, where most high-demand theater and concert tickets are diverted by industry insiders using “corrupt” and “unfair” methods. Based on the Attorney General report, New York's legislature liberalized the ticket scalping laws last year, making it legal (at last) for you to sell your ticket at up to 45% over face value.

E-commerce makes the secondary market for tickets more transparent. And that's likely one reason why teams themselves have created a website for reselling tickets. The Patriots have a ticket exchange site here.

Creating an online ticket exchange for the resale of your own tickets is also good for business. The team forces its fans to use only its exchange, and allows for only one price - face value. A rule setting face value may seem egalitarian until you read - again in fine print - that the Patriots take ten percent of the ticket price as its cut for requiring fans to use its site to resell tickets. As a result, fans can't even recoup all of their costs.

It's time to embrace an open market for ticket reselling. At the hearing in New York, I recall Jeff Fluhr, StubHub's CEO, citing stats showing that an open market is the true egalitarian force for consumers of sporting events, theater and concerts. On the StubHub website, tickets for some events sell for more than face value, while others sell for less. Overall, most ticket prices sell below the total purchase cost, which includes the price of the ticket plus those "convenience" fees we all hate to pay.

It's easy to see then why the Patriots are against open-market exchanges like StubHub. If the Patriots were to have a really bad season, they wouldn't be able to command $500 for a family of four that sits in the lower level. But if the Patriots are sacking fans with high face value prices, the team shouldn't simultaneously be preventing them from using competing ticket exchanges. This practice should draw flag for a blatant “holding” penalty. And it's not StubHub that should be penalized - it's the Patriots.