In the wild west that is today’s e-commerce landscape, there is only one way to describe the current patent enforcement system: a disaster that is slowly but surely crushing the American Dream. Major online retailers such as Chinese titans TEMU and Shein have established business models that significantly profit from the stolen intellectual property of entrepreneurs and small businesses. Even beloved retailers, including Shopify, Etsy, and eBay, have benefited from a glaring lack of patent enforcement. Because the little guy has no reasonable remedy, small businesses that pursue true innovation are exploited, manipulated, and left out in the cold. Although all these companies say they are doing their best to prevent knock-offs, our experience proves otherwise.
My sister and I developed NightCap when she was only 16. She came up with the idea in a dream and built the first prototype of our product using a scrunchie and our mother’s pantyhose. We filed (and were granted) a patent on her innovative solution to the scourge that is booze booze — and headed to Shark Tank, where we landed one of the fastest deals in the show’s history with Shark and business icon Lori Grenier . In just two years since the company’s inception, NightCap had reached nearly half a million social media followers and generated sales of more than $2 million in 40 countries. Three years later, however, we find ourselves in shark-infested waters again, but this time they are out for blood.
I first saw a counterfeit of our product on Shein in May 2023. Shocked by the blatant disregard for our patent and, frankly, concerned about how the $1.99 price would affect sales of our $11 NightCap package, 99, I immediately got to work, but soon I reached a dead end.
Undermining the American Dream
These e-commerce sites have deliberately created so-called ‘passive’ platforms that will only remove patent infringement if you have a court order. If you’ve never tried to apply for a court order before (I haven’t), it will cost tens of thousands or possibly hundreds of thousands of dollars to obtain one – an expense that is often infeasible or simply suicidal for most small businesses. .
Even worse, sellers of infringing products will go so far as to post these listings on multiple platforms, knowing that each will require a separate court order to have them removed. While this may be a plausible one-time fee for a small business, there is no practical way to spend $50,000 over and over to obtain repeated court orders. Even then, these sellers are free to continually post new offers – an incredibly expensive game of Whack-A-Mole.
Many of these e-commerce websites can price your product so low because they have no fees. They let entrepreneurs like us invest all our time and money in marketing and building our products and brands. All they have to do is bid on the keywords our product uses, and they will send half of the traffic you send straight to their cheaper alternative. The third party platforms don’t care because a sale on their platform is profit in their pocket. They make money anyway – 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 infinite, and companies like mine face major problems with knock-offs and drop-shippers offering our products on every platform imaginable. By stealing patented products and concepts and bringing them to market at a fraction of the price, these platforms earn revenue that should go to the creators and entrepreneurs who did the work. These listings based on stolen intellectual property are causing price wars and shrinking the profit margins of the brands we know and love.
Ask any entrepreneur and you will soon find yourself in a passionate but hopelessly fatalistic conversation. “With TEMU advertising similar products at a small 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 also featured on Shark Tank used to be. Benike says “it’s heartbreaking and frightening” and expresses concern about the safety standards of the counterfeit products.
As if child safety isn’t a big enough concern for the U.S. government to take action, current patent enforcement completely discourages innovation and entrepreneurship—the foundation of the American Dream.
“You can’t get those years of sacrifice back,” says Lerin Lockwood, the founder of Lion Latch, another smart product featured on Shark Tank. “What’s the point of being an inventor if TEMU strikes as soon as you go on national television, go viral on social media or get your big break?”
Who wins in this current system? The factory, the dropshipper who does nothing but bid on the entrepreneur’s keywords, and the e-commerce platform executive who simply doesn’t care because they make a profit anyway. Who loses? The entrepreneur who has put his or her life’s work into his or her brand – and ultimately into the consumer.
How do we solve this?
There is already an existing model that can solve this problem, and it works very well. Amazon, a platform on which we sell NightCap, has introduced a Neutral Patent Evaluation Platform. It is a great option to ensure patent enforcement. This process must be replicated at the government level to secure the future of small businesses in this country.
Here’s how it would work:
- Establish an e-commerce patent enforcement division within the USPTO.
- Enact a law requiring all e-commerce platforms operating in the United States to generate more than a certain amount of revenue per year to join this section.
- All patent disputes escalated on the platforms are sent to this department.
- The department hires outside attorneys or judges to monitor, review, and determine the outcome of the disputes.
- 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 any pushback unless appealed by the accused seller.
Such a system would remove the burden and liability of patent enforcement from the e-commerce platforms that want nothing to do with it. All they have to do is remove or keep the listing based on the third party’s decision.
It makes it significantly cheaper for small businesses to enforce their intellectual property. In the Amazon program, each party bets $4,000 and the winner gets their money back. For small businesses, this is significantly more sustainable to participate in than filing lawsuits and obtaining court orders. The infringing party also has the option of not participating at all and may have its listing removed free of charge.
While I can’t speak for Amazon, they would probably like to have the government take over this because they don’t make any money from this program and would be better off letting the USPTO handle this.
A single decision should allow IP owners to remove infringing entries on any major platform and, assuming their removals are not appealed, they would only have to bear the costs of a patent review once.
It’s time to take a stand. Let’s apply these ethical practices to every platform and bring back an incentive to innovate again instead of perpetuating the current system that allows entrepreneurs and small businesses to be repeatedly and brazenly robbed. Let us not stand idly by as the American Dream falters.
Michael Benarde is co-founder and chairman of Nightcap. The opinions expressed in this article represent his personal position only.
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