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 killing the American Dream. Large online retailers such as the 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 benefitted from a blatant lack of patent enforcement. With no reasonable legal recourse for the little guy, small businesses pursuing true innovation find themselves exploited, manipulated, and left out in the cold. Although all these companies say they do their best to counter knockoffs, our experience proves the opposite.
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 with a scrunchie and our mom’s pantyhose. We applied (and were awarded) a patent on her innovative solution to the scourge that is drink-spiking—and bootstrapped our way 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 starting the business, NightCap had reached nearly half a million followers on social media and done over $2 million in sales in 40 countries. However, three years in, we find ourselves in shark-infested waters again, but this time, they are out for blood.
I first saw a knockoff of our product on Shein in May of 2023. Appalled at the blatant disregard for our patent and, frankly, worried about how the $1.99 price would impact the sales of our $11.99 NightCap pack, I immediately got to work, but quickly found myself at a dead end.
Undercutting the American Dream
These e-commerce sites have purposefully created what they call “passive” platforms that will only remove patent infringement if you have a court order. In case you’ve never tried to file for a court order before (I hadn’t), it costs tens of thousands or potentially hundreds of thousands of dollars to secure one—an expense that is often unattainable or simply suicidal for most small businesses.
Worse, sellers of infringing products will go as far as to create these listings across multiple platforms, knowing that each will require a separate court order to get them removed. While this may be a plausible fee for a small business to incur once, there is no practical way to spend $50,000 over and over again to obtain court orders repeatedly. Even then, these sellers are free to continuously put up new listings—an unbelievably expensive game of Whack-A-Mole.
Many of these e-commerce websites are able to price your product so low because they have no expenses. They let business owners like us invest all of our time and money into marketing and building our products and brands. All they need to do is bid on the keywords that our product uses—and they will funnel half of the traffic that you drive right over to their cheaper alternative. The third-party platforms couldn’t care less because a sale on their platform is profit in their pocket. They make money either way—and it’s irrelevant where it comes from.
These sites were stealing my little sister’s idea and our hard work, not to mention the last five years of our life, 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 nearly infinite, and businesses like mine are tackling major issues with knockoffs and drop-shippers listing our products on every platform imaginable. By stealing patented products and concepts and listing them for a fraction of the price, these platforms are pocketing earnings that should go to the creators and entrepreneurs who did the work. These listings based on stolen intellectual property incite price wars and reduce the profit margins of the brands we know and love.
Ask any entrepreneur about this issue and you will quickly find yourself in an impassioned yet hopelessly fatalist conversation. “With TEMU advertising 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 was also featured on Shark Tank. Benike says “it’s heartbreaking and scary,” and expresses concerns over the safety standards of the knockoff products.
As if the safety of children wasn’t a big enough concern for the U.S. government to act, the 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 that was seen on Shark Tank. “What’s the point of being an inventor anymore if TEMU strikes as soon as you get on national TV or go viral on social media or get your big break?”
Who wins in this current system? The factory, the drop shipper who does nothing but bid on the entrepreneur’s keywords, and the executive at the e-commerce platform who simply does not care because they are profiting either way. Who loses? The entrepreneur who has put his or her life’s work into their brand—and ultimately, consumers.
How do we fix this?
There is already an existing model that can fix this problem, and it works very well. Amazon, a platform on which we sell NightCap, has introduced a Neutral Patent Evaluation Platform. It’s a great option for ensuring patent enforcement. This process should be replicated at the government level to ensure a future for small businesses in this country.
Here is how it would work:
- Establish an e-commerce patent enforcement department within the USPTO.
- Establish a law that requires all e-commerce platforms operating in the United States doing over a certain amount in revenue per year to onboard with this department.
- All patent disputes that are escalated on the platforms are sent to this department.
- The department hires third-party lawyers or judges to oversee 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 take down future problematic listings without any pushback, unless there is an appeal from the accused seller.
Such a system would take the onus and liability of patent enforcement off the e-commerce platforms that want nothing to do with it. All they must do is either remove or keep the listing up based on the third party’s decision.
It makes it significantly cheaper for small businesses to enforce their intellectual property. In Amazon’s program, each party puts up $4,000 and the winner gets their money back. This is significantly more sustainable for small businesses to participate in than filing lawsuits and obtaining court orders. The infringing party also has the option not to participate at all and can allow their listing to be removed at no cost to them.
While I can’t speak for Amazon, they would likely be happy to let the government take this over as they don’t make money on this program and would be better off allowing the USPTO to deal with it.
A single decision should allow IP owners to remove infringing listings on any large platform and, assuming their takedowns aren’t appealed, they would only have to assume the cost of a patent evaluation 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 maintaining the current system, which allows entrepreneurs and small businesses to be repeatedly and unapologetically robbed. Let’s not stand idly by while the American Dream falters.
Michael Benarde is co-founder and president of NightCap. The opinions in this article only represent his personal point of view.
More must-read commentary published by Fortune:
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
