What is the SHOP SAFE Act?

It’s not something we want to consider all too often, but fraud and counterfeiting happen on online marketplaces like Shopify, Etsy, and Amazon. While your company may be authentic in its item delivery, the presence of fraudulent sellers impacts the e-commerce community as a whole.

Some reports estimate that about one-quarter of U.S. consumers have unknowingly purchased a counterfeit good online. Current laws hold direct sellers, such as brick-and-mortar retailers, accountable for the sale of counterfeit products.

The platforms that facilitate third-party sales of harmful counterfeit goods are often not held liable for these sales, even when the third-party seller cannot address the damage caused to the brand owner. That's why SHOP SAFE Act was introduced in 2020.

What Is the SHOP SAFE Act?

The SHOP SAFE Act is an American set of laws, where SHOP SAFE is actually an acronym: Stopping Harmful Offers on Platforms by Screening Against Fakes in E-Commerce that was proposed in 2020 and was aimed at addressing the sale of counterfeit goods on online marketplaces.

SHOP SAFE Act Objectives

SHOP SAFE was established with the goal of policing and halting counterfeit sales. Counterfeit sales generally cover two categories of products: those sold under a brand name though they have no connection to it, or purchases made and authorised with no follow-through on product fulfillment. Both of these situations can be extremely frustrating for consumers, and may add to a distrust in e-commerce. Because e-commerce has a growing presence and online shopping is a booming industry, customers’ faith in e-commerce — especially with respect to deliverables and follow-through — is essential.

However, fighting counterfeit sales isn’t always the easiest process. For smaller merchants and platforms, the resources to ensure fair and legitimate products aren’t always available.

The main objectives and provisions of the SHOP SAFE Act include:

• Liability for Online Platforms: The act seeks to hold online platforms liable for the sale of counterfeit goods by third-party sellers on their sites. This liability would apply if the platforms do not take specific steps to prevent the sale of such goods.

• Enhanced Vetting Requirements: Online marketplaces would be required to implement more stringent vetting processes for third-party sellers. This might include verifying the seller’s identity and ensuring that the products being sold are legitimate.

• Screening for Counterfeits: Platforms would need to actively screen for counterfeit goods and take down listings that are suspected of being counterfeit.

• Reporting and Transparency: The act could require platforms to provide more transparency regarding the sellers on their sites and the products they sell. This may involve reporting mechanisms for counterfeit goods and informing consumers about the risks of buying from certain sellers.

• Enforcement and Penalties: There would likely be enforcement mechanisms and penalties for non-compliance, aimed at ensuring that platforms adhere to the requirements outlined in the act.

• Establish Trademark Liability: The SHOP SAFE Act works to enforce liability for when third parties sell counterfeit products. This is especially important when the products pose a risk to a consumer’s health or well-being. To exemplify the importance of this point, think of e-commerce goods like electronics or safety devices. One analysis found that an e-commerce counterfeit children’s car seat failed to provide any protection during a 30-mph crash test and did not meet any federal regulatory requirements.

The intent behind the SHOP SAFE Act is to protect consumers from the dangers and economic impacts of counterfeit goods, safeguard intellectual property rights, and encourage online marketplaces to take a more proactive role in policing their platforms for counterfeit products.

While laws are to apply only to the United States, the SHOP SAFE Act affects more sellers on Shopify than you’d imagine. As of May of 2020, Shopify had just over 1.2 million merchants across the world. Of that 1.2 million, around 950,000 are American — nearly 80%.

What does the SHOP SAFE Act apply to?

The SHOP SAFE Act is supposed to be limited to consumer products that affect health and safety, and can cause injuries, allergic reactions and death. However, the broad definitions mean marketplaces might need to treat all products as covered.

Almost any consumer good could pose a risk if not safely produced, such as counterfeit LEGOs being a choking hazard or counterfeit perfumes causing allergic reactions. While the act addresses the dangers of counterfeit products, its broad and vague definitions leave marketplaces uncertain about what is covered.

SHOP SAFE Act 2023

The SHOP SAFE Act was reintroduced in September 2023 after failing to get a floor vote in prior Congresses. The act mandates a written policy requiring the termination of third-party sellers who are repeatedly flagged for counterfeit sales.

The SHOP SAFE Act would apply to any electronic platform ("e-commerce platform") directed at consumers that allows, enables, or facilitates third-party sellers to sell products. Though the act is limited to platforms with over $500,000 in sales in a calendar year, this low threshold captures virtually all online marketplaces. Additionally, platforms with fewer sales will be covered six months after receiving a total of 10 notices of counterfeit listings.

SHOP SAFE Act Controversy

The SHOP SAFE Act has sparked both support and criticism. Here are some key points against the act:

Impact on Small Businesses and Online Marketplaces

Increased Burden: The act's stringent requirements could be especially tough for smaller online marketplaces that might lack the resources for extensive vetting and monitoring.

Cost of Compliance: Complying with the act could be costly, increasing operational expenses for e-commerce platforms and small businesses relying on them.

Potential for Overreach

Termination of Sellers: The act's mandate to terminate repeatedly flagged sellers raises fairness concerns. Legitimate sellers might be unjustly penalized due to errors or malicious reports. Ensuring fair verification processes on large platforms like Facebook Marketplace is nearly impossible.

Liability Issues: Holding platforms liable for counterfeit sales shifts responsibility and legal risks onto marketplaces, which may lack full control over third-party actions.

Impact on Innovation and Competition

Barriers to Entry: Stringent compliance requirements could hinder new and smaller e-commerce platforms, reducing competition and innovation.

Effect on Consumers: Increased operational costs and reduced competition might lead to higher prices and fewer choices for consumers.

Effectiveness in Combating Counterfeits

Practical Challenges: Critics doubt the act's effectiveness in significantly reducing counterfeit sales due to the complexity and global nature of the trade.

Focus on E-commerce: The act targets e-commerce platforms but may overlook other counterfeit distribution channels. Small and medium businesses support the act but worry about its implementation by marketplaces like eBay, Amazon, and Etsy. Genuine items might be flagged as counterfeit, leading to unjust bans of honest sellers.

SHOP SAFE Act’s International Implications

The issue with counterfeit products is that their supply chains can become muddied, and determining the source of a counterfeit is difficult as products cross international borders. Additionally, counterfeiters may have multiple merchant accounts without adequate personal identifiable information.

The SHOP SAFE Act of 2020 ultimately affects sellers in every country, whether directly or indirectly. It incentivises platforms — especially larger conglomerates like Shopify — to set best practices, and penalises repeat offenders in order to protect consumers. By following SHOP SAFE’s best practices, stores add to the legitimacy of not only their own products but to the e-commerce community as a whole. It also protects brands who are often counterfeited, as the SHOP SAFE Act is working on a more ideal avenue for brand owners to take action against third-party e-commerce market platforms.

Enhance Your Customer’s Shopify Experience

While counterfeit and fraud are simply an unfortunate part of commerce, we’re proud to say that our agency works alongside some of the best sellers on Shopify, improving their sites to best represent their expertise and legitimacy. One way of fighting customers’ fears of fraud is by ensuring your site looks and functions flawlessly, which Radiant can help with. To help your store stand out among the rest, get in touch with us today! Radiant has rebuilt and rebranded Shopify storefronts for the better, and our decades of combined experience can help guide you through e-commerce via our consultancy and optimisation services. Fill out our contact form now, or explore our portfolio to see how we’ve improved e-commerce for businesses just like yours.