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“Ain’t nothing like the real thing…”  The problem of inauthentic goods is always an issue with online marketplaces. Etsy’s IPO showed that potential infringement and questions of authenticity are issues even in the handcrafted realm.

    In case you’re not familiar with Etsy, it describes itself as “a marketplace where people around the world connect, both online and offline, to make, sell and buy unique goods.”  Launched in 2005, Etsy became very popular with  crafters/artisans looking for an e-marketing platform to sell their  products, as well as with customers looking to buy quality handmade goods. Etsy’s success stemmed from many factors, including the quality of the user-interface, good product photographs and the sense of community that Etsy fostered.

    Also, artisans (at least in the past…) favored Etsy because only handmade goods were permitted and the Etsy interface seemed to avoid the “e-bay look” by including elegant pages, good photography and some degree of uniformity in its shop interfaces (although e-bay is looking more spiffy itself these days, too).

    In April 2015, Etsy launched its initial public offering. As often happens with IPO’s, Etsy’s share price dropped  after the IPO launched. For example, Etsy’s shares were offered at about $30 on April 16, 2015, but closed at $25.78 on May 12 and then at $17.20 on May 20, 2015.

     No one likes to lose money. So it wasn’t surprising that a group of investors filed a complaint against Etsy alleging that they were misled about Etsy’s financial situation. More specifically, the investors alleged that Etsy had misled them concerning the risk that it could face problems stemming from the intellectual property claims of other companies. Readers should note that the case is currently pending and that the investors’ claims are only allegations at this point.  Also, there was no claim that Etsy itself was responsible for any alleged infringement.

     On May 29, 2015, Bloomberg issued a Shareholder Alert noting that the class-action lawsuit had been officially filed against Etsy in a New York District Court. According to the Alert, the complaint alleges that:

[m]ore than 5% of all merchandise for sale on Etsys [sic] website were either counterfeit or constituted trademark or copyright infringement;

Brands are increasingly pursuing sellers on Etsys [sic] platform for trademark or copyright infringement, jepordizing the Companys [sic] listing fees…

     Much of the hullaballoo over Etsy’s IPO stemmed  from a study done by Wedbush Securities equities analysts, Gil Luria & Aaron Turner. ValueWalk contributor Mani did a good job of exploring the more juicy points of the Wedbush report.  Mani’s article addresses the concerns of investors, but crafters, Etsy sellers and other artisans can learn much from the article as well. Let’s explore some of the analysts’ and Mani’s findings and thoughts:

1.”Etsy has limited addressable market.”  

     The analysts noted that not just Etsy sales, but handmade and artisanal items in general, are a small fraction of total e-commerce- about 13% of 2014’s total e-commerce sales. From the Wedbush report, it appears that most  e-commerce sales are travel-related and computer/electronics-related sales. The “apparel & accessories” category doesn’t fare too poorly, though. The Wedbush report shows that the apparel/accessories category made up about 1/10th of e-commerce sales in 2014. But categories that included “greetings”, “misch. gifts”, “home and garden”, “jewelry & watches” and “toys and hobbies,” added together, amounted to less than 5% of total e-commerce sales in 2014.

    So, while some crafters and artisans do well selling solely via e-commerce, it seems that most people shopping online aren’t looking for handmade goods.  Artisans who combine e-commerce with in-person and other marketing methods may increase their chance of success. And as the report notes, artisans who include apparel/accessories in their product lines might have a better chance online since that category constitutes about a tenth of total online sales, as compared to less than 5% combined for the other related categories.

2. “[B]ased on their [WedBush’s] Research, as many as two million items on Etsy (representing over 5% of all merchandise) may be either counterfeit or constitute trademark or copyright infringement.”

     It’s not clear how throughly the analysts researched the claim concerning counterfeit goods on Etsy. They claim that about 5% of all Etsy merchandise may be counterfeit or constitute trademark/copyright infringement. The analysts did provide some alleged examples (e.g. see below) of potentially infringing merchandise. But their list of “Branded Item Categories Found on Etsy” (see Figure 7 in the article) left us with many questions. For example,  we wondered what percentage of those items were simply made with “licensed fabric” that the Etsy seller had lawfully obtained (a very ‘gray’ area of the law). The analysts, however, did find items such as the one below:

Figure 14 from the ValueWalk article, which in turn was derived from an Etsy page pulled by the Wedbush Securities, Inc. report.

Figure 14 from the ValueWalk article, which in turn was derived from an Etsy page pulled by the Wedbush Securities, Inc. report.

The analysts claimed that they had reviewed hundreds of the allegedly infringing items and hadn’t found “indications that any of these sellers are official licensed retailers of those brands.”

  The take-home message for crafters and artisans is a cautionary one. Incorporating another company’s logos, characters, designs or trademarks in a crafter’s own products brings up all sorts of potentially problematic issues. For example, a while back, we wrote about a rift between Taylor Swift and some Etsy crafters who were selling products incorporating Swift’s trademarks.

    According to Jacquilynne Schlesier’s article and Business Insider, Swift wasn’t pleased that Etsy hosted shops selling the allegedly infringing products. Although it appears that Swift didn’t sue Etsy or any shop owners yet, she did send out some cease and desist letters. As often happens in these cases, no one left happy. Taylor Swift likely felt that the unauthorized products were making a buck at her expense, or worse yet, damaging her trademarks. The crafters/fans on the other hand, likely felt perplexed and upset that their ‘fan wear’ was being targeted (Jacquilynne Schlesier article re is hereBusiness Insider article re is here).

    Consulting with an attorney before proceeding is always best. Also, sellers should be careful that their listings and products do not suggest an affiliation or sponsorship with another company or that company’s brand (unless of course the company has in fact authorized the affiliation and associated listing/product).

    Further, now that Etsy is a publicly traded company and the potential issue of infringing products has made the news, Etsy is likely to step up its enforcement efforts.

3.   “They [Luria and Turner, the Wedbush analysts] caution that  if Etsy chooses to continue to ignore these potential violations, it could tarnish its brand with both buyers and sellers.”

    This last point made by the analysts brings up the flip-side of the allegations regarding infringing items on Etsy: sellers may find Etsy less appealing because they will have to compete against the allegedly infringing items. Also, while specifically not mentioned by the analysts, there is much talk in the indie community about the unabashed copying and selling of other people’s successful creations (see e.g. Amada Kingloff’s article, “Craft Copycats: The Line Between Inspiration and Stealing,” and our prior post, here).

As we’ve noted, infringing products pose no less of a problem for  smaller businesses. And how a small business should deal with a potential infringement issue is a difficult question. For example, Jennifer Priest (as quoted in Amanda Kingloff’s article) states that:

I have found copies of my work actually submitted by other designers for publication in a national magazine,” Priest told us. “You have to have your own threshold for when you will take action otherwise you will get so wrapped up in policing your images that it can take time away from running your business.

    Jennifer’s statement underscores that, no matter how small you believe your business to be, it’s not too small to be  potential victim of an infringer. Fortunately, there is much a small business can do to help protect itself.

     In addition to registering intellectual property (e.g. trademarks and copyrights), small business can formulate an action plan before any potential infringement happens. For example, businesses can follow the on-line places to which their creations go (e.g. by using an image search engine, such as Google Images, which is free), they can consult with an attorney to explore and decide upon a ‘threshold’ that another party’s activities must meet before they’ll take action, and to formulate an initial response to a potential infringement problem. Also, businesses can familiarize themselves with the policies of their respective online marketplaces (e.g. Etsy), including the policies and proper procedures for submitting a “take-down” notice.

Overall, Etsy’s IPO shows just how important ‘authentic’ sill is- even to shareholders and investors. So, while it surely isn’t easy for most crafters and indie artists to make a living from their creations, ‘authentic’ still rules the day.

P.S. Interested in how Google Images works? Our prior posts here and here will show you how to put this amazing tool to work. Although the articles mention photographs, Google Images can work with other types of visual works as well.

This post is intended to convey general information only and should not be construed as a legal opinion or legal advice.  Any opinions expressed are our own. Readers should not take any action, or refrain from taking any action, based upon the information contained in our site and posts, but should consult with their own attorney concerning their own situation and  their specific legal questions. Visiting our website, reading posts and/or posting comments does not establish any form of attorney-client relationship with us.