July 6, 2018
The Honorable Orrin Hatch
Senate Committee on Finance
219 Dirksen Senate Office Building
Washington, D.C. 20510
The Honorable Ron Wyden
Senate Committee on Finance
219 Dirksen Senate Office Building
Washington, D.C. 20510
Dear Chairman Hatch and Ranking Member Wyden:
Thank you for the opportunity to respond to your inquiry following up on the March hearing, “Protecting E-Commerce Consumers from Counterfeits.” We appreciate the Committee’s interest in this issue and look forward to working with the Committee to raise consumer awareness of the issue of intellectual property (IP) infringement online and identify viable solutions.
Our submission today provides an overview of our concerns. However, we will continue to work with our members to provide more specific information to submit to the Committee to help with the Committee’s report. The Toy Association IP Committee is working on a longer report related to this issue and we will supply it to the Committee once completed.
As background, The Toy Association is the national trade association representing the U.S. toy industry. From inventors and designers to toy manufacturers and importers, retailers and testing labs – The Toy Association represents all involved in creating and bringing toys and games to children. We represent over 950 members who produce and sell approximately 90% of the three billion toys sold in the United States each year. The annual U.S. toy market is $27 billion and the toy industry supports an estimated 691,263 jobs in the United States generating more than $35.1 billion in wages for U.S. workers.
Since the 1930s, The Toy Association has been a leader in the development of toy safety standards, and toy safety has long been the top priority for the association and its members. As your work on IP infringement continues, we encourage that there be a heightened focus on the lack of safety measures associated with counterfeit goods and the risk unsafe products bring to children and other unknowing consumers in this country.
U.S. toymakers have a long history of leadership in global toy safety initiatives. The Toy Association and several U.S. toy company experts created the first comprehensive toy safety standard nearly four decades ago. Congress and the President recognized this industry leadership by adopting the ASTM F963 U.S. toy safety standard as a mandatory consumer product rule under the Consumer Product Safety Improvement Act of 2008. This standard is frequently used as a model – or adopted outright – by other countries that are developing or improving their own safety measures.
A significant and serious issue facing The Toy Association’s members is the growing phenomenon of products offered online that infringe their IP. In the last several years, with the expansion of electronic commerce, and increased consumer comfort with e-commerce, rights holders have seen a steady increase in the quantity of infringing products online. Infringing goods include counterfeit products, trademark infringing products, unlicensed merchandise, and knock-off products. They can be found in all corners of the internet, including popular online marketplaces.
Consumers seek out and purchase toys for many reasons, including entertainment, education, quality, value, and safety. One way that consumers narrow the selection of toys is to purchase from a trusted source based on brand recognition. However, with counterfeits, trademark infringing products, and unlicensed merchandise, the true source of the product is not what the consumer is led to believe. Instead, a consumer buys a toy that likely does not meet their expectations for quality or safety; in essence, consumers are not getting what they pay for. This disappoints consumers who are unaware that the products they purchased are not authentic, which in turn affects future purchasing decisions, and may lead to consumers posting poor reviews of a legitimate product based on their experience with the infringing product.
This growing phenomenon negatively impacts consumers, legitimate companies, and the American economy as a whole. In February 2017, the International Trademark Association and the Business Action to Stop Counterfeiting and Piracy released a report finding that in 2013, the estimated value of international and domestic trade in counterfeit and pirated goods was $1.13 trillion, an amount that was projected to grow. The toy industry has seen significant impact, and while safety is our top concern, IP infringement also causes direct harm to toy companies’ core assets, company reputation, and financial health. The problem is disproportionally felt by small companies that have limited resources to fight what is seemingly becoming a never-ending game of whack-a-mole. For consumers, the proliferation of infringing and unregulated toys raises safety and health hazards impacting our nation’s most vulnerable population – our children.
By law, all toys sold in the U.S. must comply with very strict product safety requirements and must be tested by an accredited, independent testing lab to demonstrate compliance with the toy safety standard. These safety standards include small parts regulations, lead limiting regulations, and chemical component controls. In addition, under the Consumer Product Safety Improvement Act of 2008, toy companies must issue a Children’s Product Certification stating that the toy is compliant with the applicable safety standards based on third party test results. Suffice to say, it is highly unlikely that an infringing seller has undertaken the same efforts to ensure the safety of their knock-off toy. As such, infringing toys, particularly counterfeit toys, may include unexpected small parts, excess lead, and unsafe chemicals in the materials, coatings, and even packaging.
The Toy Association has determined that there are three primary categories of contributing factors to this steady growth of infringing products online, particularly as it relates to online marketplaces: (1) e-commerce creates a low hurdle to sellers; (2) the burden of enforcement, under current law and practice, is disproportionately on the rights holder; and (3) consumers are largely unaware of the scope of infringing product offered on online marketplaces.
We note that many online platforms have put into place brand protection programs in an effort to reduce the number of IP infringing products sold through their platforms. These programs have varied success with different companies reporting different experiences with each program. While these platforms are taking down more listings than before, often proactively, the core problem remains: IP infringing and unsafe toys remain online, and toy companies report significant challenges to removing them despite the developments in these programs.
The Toy Association and its members believe there are numerous potential solutions to combat these contributing factors if stakeholders work collaboratively. To that end, The Toy Association has been actively working with online platforms Alibaba and Amazon and are open to working with others to look for ways to increase communication, collaboration and continue to chip away at the problem. Amazon, having recently joined The Toy Association, has begun participating actively on The Toy Association’s IP Committee and met with our members on June 14th to discuss updates to the platforms brand protection programs, hear about the challenges toy companies face with IP infringement and exchange information about possible solutions. Alibaba has spoken at numerous Toy Association events to inform our members of what they can do to protect their brands on Alibaba’s platforms and has even invited Toy Association members to participate on the Alibaba Anti-Counterfeiting Alliance. These collaborative efforts are just the beginning, and both sides agree more needs to be done, and we look forward to continuing to work with our e-commerce partners to put into place effective solutions.
The Toy Association has also actively engaged with federal agencies such as the Consumer Product Safety Commission (CPSC) and Customs and Border Protection (CBP) as they expand enforcement efforts to adapt to the new flow of e-commerce goods. These agencies are critical to enforcing against counterfeit and unsafe toys imported into the country. However, the sheer volume of small parcel shipments has created unforeseen and massive challenges to effective enforcement at the borders. The significant increase to the de minimis threshold, coupled with online platform as storefronts and efficiencies in logistics, have opened up entirely new business models of direct to consumer sales from factories in China and other countries. That said, we remain supportive of initiatives to improve enforcement and targeting of infringing goods by CBP and CPSC, especially for low-value shipments. The de minimis exemption cannot be an exemption from regulatory compliance and enforcement—intellectual property, safety or otherwise. Importantly, because the average cost of a toy is approximately $10, the de minimis exemption value of $800 is a considerable number of toys, allowing for shipments well beyond personal use.
As for consumer education, The Toy Association does year-round toy safety messaging through local media and our safety website www.playsafe.org. Through our media campaigns, we remind consumers the importance of being aware for knock off toys due to the safety concerns. We recommend consumers shop at retail outlets they know and trust, to read reviews, to inspect packaging and the product when received, and to be on the look out for deals that “seem too good to be true” as they probably are.
Consumers have developed a comfort with and trust in online marketplaces. Unfortunately, it is our experience that consumers are largely unaware of the scope of infringing product available on online marketplaces and thus are unknowingly providing children with unregulated and potentially unsafe toys. Some toy companies also do individual consumer education efforts through social media and on their websites. However, many consumers do not go to the toy company’s website when purchasing toys as most consumers purchase from online retailers that carry a wide range of toys and other products. Therefore, a company’s ability to educate consumers about knockoffs is limited to the point-of-sale information which must also include product marketing information, safety warnings, instructions, etc.
Additionally, a brand owner does not have the ability to control how other similar (or illegitimate) products are displayed to the consumer which can create confusion. Counterfeiters are adept at blending in and hiding on the sites, including by using multiple accounts, piggybacking on legitimate listings, and pricing at same or even higher than legitimate products. The confusion can be exacerbated by the fact that the ultimate user is often not the purchaser so the person buying the toy may not be aware of what a “real” or “fake” toy looks like.
Clearly, more must be done to raise consumer awareness and The Toy Association appreciates the Committee’s ongoing efforts in this area. Additionally, we feel that the burden of brand protection should not be left entirely to the brand owner when the brand owner has limited transparency and ability to control infringing sellers. Finally, while e-commerce has increased opportunities for legitimate sellers from around the world to access U.S. consumers, we believe these sellers must be beholden to the same U.S. laws and regulations that U.S. companies must comply with. On this, more must be done to reduce the number of sellers online that have made a business off of stealing U.S. intellectual property and ignoring safety requirements.
Thank you again for your interest in this matter. If you have any questions, comments or concerns, please contact Rebecca Mond, Senior Director of Federal Government Affairs at [email protected].
President & CEO
The Toy Association