By Armin Ghiam and Casie Hahn

The continued expansion of e-commerce has driven a number of recent trends in intellectual property (“IP”) enforcement that require businesses to reexamine their IP assets’ form and protection. These include a shift in enforcement from traditional, registered IP to unregistered IP; an increase in IP enforcement against gray market goods; and an increase in infringement claims against online marketplaces. Policy changes such as new and increased tariffs may also affect IP enforcement. The effect of each trend will differ depending on the nature of a business, but business counsel should prioritize addressing them, as IP assets increasingly impact a business’s competitive edge and inform its future partnerships.

A Shift Toward Enforcement of Unregistered IP

Alice Corporation v. CLS Bank International, a landmark 2014 Supreme Court decision, generally weakened patent rights by invalidating a patent whose central concept was an abstract idea that merely required generic computer implementation and failed to sufficiently transform the abstract idea. Since then, many more patents, particularly in the software industry, have been challenged. In addition, the patent application process may take several years, and protection from a granted patent lasts only twenty years. This can lock businesses into IP that may or may not be valuable in the next decade, depending on e-commerce fads and new technologies. Because virality is often the source of a product’s success, flexibility in the ability to enforce different types of IP may be the most valuable commodity.

Accordingly, in addition to maintaining registered IP assets (like patents), businesses may benefit from developing a robust trade secret program and investing in unregistered trade dress and trademark protection. Counsel should help businesses increase their portfolio of unregistered IP, which offer flexibility to pursue infringement claims on an ad hoc basis. Unlike a patent or a registered trade dress or trademark, unregistered IP is amorphous—allowing the IP owner the flexibility to define its assets at the time the need to litigate against a competitor arises. For example, rather than have potential infringement allegations constrained by the four corners of a design patent, a business can define its trade dress as the exact elements of its own product packaging that are similar to its competitor’s packaging.

Strategies Against Gray Market Goods

There has been an increase in IP enforcement against resellers (often independent sellers) of gray market goods on e-commerce platforms because of the threat gray market goods pose to businesses’ revenue and brand integrity. Gray market goods are genuine goods originating from a brand owner but distributed outside of authorized channels. Some argue that distribution of gray market goods undercuts a brand’s control over its products. They further argue that these goods confuse customers, as listings of the same item on different platforms may offer different prices, with the cheaper gray market good lacking other official features like warranty policies or packaging. Accordingly, some believe this discrepancy hurts the brand’s reputation for consistency, reliable quality inspection, and transparent pricing, all of which ultimately devalues the brand’s IP.

For brand owners, trademark infringement claims are available to prevent sales of gray market goods. Brand owners typically bring a trademark infringement claim under Section 32 of the Lanham Act for registered marks and Section 43(a) for unregistered marks. An initial defense to these claims is the first sale doctrine, which protects subsequent lawful resellers of a product from trademark infringement claims because trademark owners no longer have the right to control distribution after the first sale—as long as the product is not materially altered and the source of the product is clear. To defeat this defense, brand owners should add intangibles to their products sold on authorized channels. Classic examples include warranty and satisfaction guarantee programs, but newer ideas could include access to online apps and profiles, exclusively for those who purchase the product through authorized channels.

Counsel for resellers should take note that brand owners have started pursuing false advertising claims under Section 43(a) of the Lanham Act. These claims are typically based on a reseller’s improper description of the product—for example, selling a used product as new. Claims for inadequate packaging or delay in delivery are also possible. The evidence for these claims is often gathered from feedback provided on the reseller’s account. To avoid false advertising claims, businesses (especially smaller shops) should clearly and unambiguously describe their product.

Policing Online Platforms

Policing IP infringement on e-commerce platforms is relatively simple for trademarks but becomes more complicated when the IP asset at issue is trade dress or a patented design. Keyword searches, which can be useful for identifying trademark infringement, are usually inadequate to hunt for and locate products that infringe these other IP rights.

In response to such difficulties, some brand owners bring infringement claims against the platform that hosts the infringing products rather than against the sellers (often foreign counterfeiters). To avoid liability and comply with the Digital Millennium Copyright Act, however, online marketplaces need only have a robust program where they take down infringing products upon notice and remove repeat infringers—and they typically do.

Though take-down programs are largely sufficient to meet their legal obligations, online marketplaces may find a proactive monitoring system a worthwhile strategy to consider and implement. With the sheer number of products listed on online marketplaces, traditional forms of monitoring are no longer capable of efficiently identifying infringing postings. As such, marketplaces should consider using artificial intelligence tools to monitor their websites for counterfeiting. These tools can identify patterns of counterfeiting within large numbers of listings and proactively take down infringing products even before receiving a notice.

The Impact of Tariffs—Counterfeit Goods and Licensing Agreement Disruption

At a surface level, tariffs are taxes imposed on foreign suppliers that subsequently impact business operations and supply chains in the U.S. and decrease the profits of those who export to the U.S. However, tariffs also have far-reaching ramifications for intellectual property that businesses should be aware of to stay ahead of the curve.

Businesses that source materials from foreign outlets face increased costs of operation and strained relationships with long-term suppliers because of tariffs. Two results tend to follow: (1) an influx of counterfeit goods trying to capitalize on the market’s dissatisfaction with the inflated price of legitimate goods and (2) a disruption in licensing as tariffs affect pricing and royalty structures and consequently cross-border licensing agreements.

Counsel and businesses should consider the following actions in light of these developments. First, if production is moved to a different jurisdiction in response to a shift in trade agreements, counsel should conduct an IP audit in the new jurisdiction to examine risks and ensure the enforceability of any IP assets. Second, to combat counterfeit products, tools like unique serial numbers, digital watermarking, and blockchain-based product tracking should be considered to bolster protection. Third, clauses in agreements including royalty adjustments, exclusivity terms, and termination triggers should be revisited in light of the tariffs.

Because the creation, acquisition and protection of IP is an investment and discretionary spend, tariffs may disincentivize the procurement of U.S. IP by foreign suppliers. However, because tariffs can make U.S. companies more profitable, it is possible that with increased tariffs, U.S. companies will enhance their investment in IP assets. In a tense competitive environment, foreign suppliers may resort to litigation to regain their declined competitive standing, while U.S. companies may be feeling less litigious. Counsel for U.S. businesses should be aware of this litigation potential and proactively analyze what IP protection the business has in its arsenal should the need to bring a claim against a competitor arise.

In light of the risks posed by the digital marketplace and the ever-evolving economic landscape, it is imperative that businesses and their legal advisors remain up to date with IP developments and consider incorporating flexible unregistered IP, product-associated intangibles, and artificial intelligence monitoring systems to strengthen their IP protection while reevaluating their supply chains and operations.

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Casie Hahn is a Summer Associate in the New York office. 

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