In the wild west of today’s e-commerce landscape, there is only one way to describe the current patent enforcement system: a catastrophe that is slowly but surely destroying the American dream. Major online retailers like Chinese titans TEMU and Shein have established business models that profit significantly from stolen intellectual property from entrepreneurs and small businesses. Even popular retailers including Shopify, EtsyAnd Ebay have benefited from a glaring lack of patent enforcement. With no reasonable legal recourse for the little guy, small businesses that strive for true innovation are exploited, manipulated and left out in the cold. Although all of these companies say they are doing their best to counteract counterfeits, our experience proves otherwise.
My sister and I created NightCap when she was only 16 years old. She had the idea in a dream and built the first prototype of our product using a hair tie and our mother’s tights. We applied for (and were awarded) a patent for their innovative solution to the problem of fortifying drinks – and headed to Shark Tank, where we teamed up with Shark and business icon Lori Grenier for one of the fastest deals in history the show concluded. In just two years since the company’s founding, NightCap had reached nearly half a million followers on social media and generated over $2 million in sales in 40 countries. But after three years we find ourselves once again in shark-infested waters, but this time they’re out for blood.
In May 2023, I saw an imitation of our product at Shein for the first time. Horrified by the blatant disregard for our patent and frankly concerned about how the $1.99 price would affect sales of our $11.99 NightCap package, I immediately got to work, but I quickly found myself at a dead end.
Undermining the American Dream
These e-commerce sites have deliberately created so-called “passive” platforms that only resolve patent infringements if you have a court order. If you’ve never tried to apply for a court order before (I haven’t), it costs tens or possibly hundreds of thousands of dollars to obtain one – an expense that is often prohibitive or simply suicidal for most small businesses.
Worse, sellers of infringing products even go so far as to create these listings on multiple platforms, knowing full well that each requires a separate court order to be removed. While this is a plausible one-time fee for a small business, there is no practical way to keep spending $50,000 to repeatedly seek court orders. Even then, these sellers are free to continually place new offers – an incredibly expensive game of Whack-A-Mole.
Many of these e-commerce websites can price your product so low because there are no costs involved. They enable entrepreneurs like us to invest all of our time and money into marketing and building our products and brands. All you have to do is bid on the keywords our product uses and they’ll send half of the traffic you drive straight to their cheaper alternative. The third-party platforms don’t care at all because a sale on their platform means a profit in their pocket. Either way, you make money – and it doesn’t matter where it comes from.
These sites stole my little sister’s idea and our hard work, not to mention the last five years of our lives, and there was nothing I could do about it. I knew that if I couldn’t change our circumstances, I had to change the system.
The Internet is almost limitless and companies like mine face major problems with counterfeits and dropshippers offering our products on every platform imaginable. By stealing patented products and concepts and offering them at a fraction of the price, these platforms are pocketing revenue that should go to the developers and entrepreneurs who did the work. These deals based on stolen intellectual property create price wars and reduce the profit margins of the brands we know and love.
Ask any business owner about this topic and you’ll quickly find yourself in a passionate but hopelessly fatalistic conversation. “Because TEMU promotes similar products at a tiny fraction of the price, our potential customers are discouraged from even considering our products,” said Beth Benike, the founder of Busy Baby, a silicone placemat that also appeared on Shark Tank was see. Benike says: “It’s heartbreaking and scary” and raises concerns about the safety standards of the imitations.
As if the safety of children were not a significant enough concern for the U.S. government to act, current patent enforcement completely disincentivizes innovation and entrepreneurship—the very foundation of the American dream.
“You can’t get those years of sacrifice back,” said Lerin Lockwood, the founder of Lion Latch, another clever product featured on Shark Tank. “What’s the point of being an inventor if TEMU hits as soon as you’re on national television or go viral on social media or have your big breakthrough?”
Who wins in this current system? The factory, the drop shipper who does nothing but bid on the entrepreneur’s keywords, and the ecommerce platform manager who just doesn’t care because they profit either way. Who loses? The entrepreneur who has put his life’s work into his brand – and ultimately into consumers.
How can we fix this?
There is already a model that can solve this problem and it works very well. Amazon, a platform where we sell NightCap, has launched a neutral patent review platform. This is a great option to ensure patent enforcement. This process should be repeated at government level to ensure a future for small businesses in this country.
This is how it would work:
- Establish an e-commerce patent enforcement division within the USPTO.
- Introduce legislation requiring all e-commerce platforms operating in the United States that generate annual revenue above a certain amount to join this department.
- Any patent disputes escalated on the Platforms will be referred to this department.
- The department hires outside lawyers or judges to monitor and review the disputes and determine the outcome.
- The decision is sent to the platform and must be enforced by the platform.
- The IP owner receives a code that allows them to remove future problematic listings without retaliation unless the accused seller appeals.
Such a system would remove the responsibility and liability for enforcing patents from e-commerce platforms that want nothing to do with it. All they have to do is either remove or maintain the listing based on the third party’s decision.
This makes it much cheaper for small companies to enforce their intellectual property. In the Amazon program, each party donates $4,000 and the winner gets their money back. It is much more sustainable for small businesses to participate than to file lawsuits and obtain court orders. The violator also has the option not to participate at all and to have their entry removed at no cost to them.
While I can’t speak for Amazon, they would probably like to leave this to the government since they don’t make any money from this program and it would be better if they let the USPTO handle it.
A single decision should allow IP owners to remove infringing listings on any major platform, and unless their removal is appealed, they would only have to cover the cost of a patent assessment once.
It’s time to take a stand. Let’s apply these ethical practices to every platform and re-incentivize innovation, rather than maintaining the current system that allows entrepreneurs and small businesses to be robbed repeatedly and unapologetically. Let us not stand idly by and watch the American dream falter.
Michael Benarde is co-founder and president of Nightcap. The opinions in this article reflect his personal viewpoint only.
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