Advertising Counterfeit Goods: Who is Liable?

By Jenton Lee, Christina Pham, Raymon Sutedjo-The, Vaidy Venkitasubramanian, Andrew Win

What is this article about?

Selling sports apparel can be a lucrative business, as sports fans are typically quite loyal and willing to spend money to showcase their allegiance. Businesses can advertise quite effectively using social media channels, such as Facebook. These platforms, however, open the gate for everyone and make it possible for dubious companies to advertise counterfeit goods to potential customers.

Krystal’s NFL Shoppe sells official National Football League apparel and advertises on Facebook. The company is suing Facebook for failing “… to take any measures to curb or stop the placement of fraudulent and illegal ads on its website” and it’s planning to bring a class-action lawsuit on behalf of retailers and wholesalers of official NFL clothing. Krystal’s also named adSage and, an ad shop and e-commerce company, respectively, as defendants in the lawsuit.

This example relates to the issue of liability for content created and/or posted by others discussed in this week’s reading. We will examine the lawsuit and try to determine its validity by applying Section 230 of the Communications Decency Act (CDA) as well as comparing it to past cases such as Fair Housing Council (FHC) vs., Batzel v. Smith, and Carafano v.

Why is it relevant and important?

A big controversy that often comes up with cases involving the CDA is the possible harm that could come to users. This is due to the fact that providers are immune from liability for third party content they provide. In this case between Krystal’s and Facebook, not only are the users harmed from having purchased fraudulent products but Krystal’s also suffers from lost profits from advertising their wares at full price. This raises concerns about who is ultimately liable for the harm that comes from third party content providers through uninvolved service providers.

But is Facebook truly uninvolved? According to the CDA, service providers will be immune from the liability of the content provided by third party sources. In this case, to answer this question one needs to examine whether or not Facebook is an active participant in publishing and distributing content. Krystal’s accusation against Facebook is that they are more than just a passive party in this case due to their sophisticated data mining technology that can route targeted ads to a certain user-base. They believe that the ability to target the ads to certain users labels Facebook as an active publisher of content, since their “Create an Ad” feature offers pre-set options to target groups of users.

This is akin to the Fair Housing Council (FHC) vs. case in that Roommates enforced implied content through their form, where subscribers filled out contents based on the structure of what the forms was asking for. This went against the Fair Housing Act, where landlords and sellers of housing properties weren’t allowed to discriminate against renters and buyers. However, unlike the FHC vs. case, Facebook doesn’t force the advertisers to fill out the very specific elements of the ad. Facebook themselves have no control over whether or not the information that third parties provide are fraudulent or not.

What questions does it raise about the law and what problems arise from this law’s interaction with technology and society?

Looking at previous cases, we have seen that immunity was often granted to big companies like eBay and Google, which raises the question of whether or not the law unfairly protects big companies from being liable for such activities. Even if Facebook can’t be held liable for publishing fraudulent advertisements on its page, the question of who will protect the user from harm remains.

Facebook does not make a choice of displaying or promoting a particular advertisement and this might be enough to grant them immunity. If they get two ad requests for fraudulent jerseys and authentic jerseys, Facebook doesn’t make an editorial decision to promote one over the other and it is the user who makes the choice of clicking on the ad. But one must think of the role that Facebook has in influencing the user. The mere association with Facebook might give some credibility to the ad posted and the user might choose to go with a counterfeit product.

Section 230C of the CDA says that the provider of the interactive service (Facebook) shall not be treated as the publisher of any information provided by another content provider

Treatment of publisher or speaker–No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.

In this case, AdSage is the company that managed the ads, and DHGate is the distributor. One or both of them may be liable for creating the fraudulent content, but we don’t have enough information to determine who’s liable. Ultimately, the harm is done to the user and the law doesn’t do enough to protect the user from it.

How might the problem be decided if the law was interpreted in the same way as it was in the legal opinion/materials covered that week?

Perhaps the most important test that pertains to this case is the three-pronged test which determines whether or not the defendant is granted immunity from liability under section 230 of the CDA. In order to gain immunity, the defendant must satisfy each of the three prongs.

The first requirement of the three-prong test is that the defendant must be a “provider or user” of an “interactive computer service”. Facebook fulfills this first part because, as an “interactive computer service”, it provides a platform for users to interact and connect with each other and for advertisers to reach out to a large user base.

The second part of this three-prong test requires that the plaintiff perceive the defendant as the publisher or speaker of the harmful information at hand. In this case, the plaintiff, Krystal, argues that Facebook, the defendant, is “more than a ‘passive party’ to the ads because the company allegedly makes use of sophisticated data mining technology to assist the counterfeiters” (MediaPost Article). Therefore, Krystal’s is claiming that Facebook is a publisher because Facebook is using the data to specifically target the counterfeit ads to users who would normally be buying official jerseys.

The final component of the immunity test requires that “the defendant must not be the information content provider of the harmful information at issue” (Wikipedia – Section 230 – CDA) and that the offending information must come from a third party. Here, as Facebook did not provide the information regarding the counterfeit jerseys, it is not reasonable for them to be labeled as the information provider. Rather, it was AdSage and that acted as information content providers, with Facebook acting as the platform on which the two companies can advertise their information.

As a result of fulfilling each of the three prongs as required by the courts, Facebook should be provided immunity from liability as stated by Section 230 of the CDA.

Legal Precedence

Additionally, we can draw guidance from the legal precedents set in earlier cases that dealt with section 230 issues. There were three key points made in Batzel vs. Smith, that relate to the issue at hand:

  • …if the tipster tendered the material for posting online, then the editor’s job was, essentially, to determine whether or not to prevent its posting—precisely the kind of activity for which section 230 was meant to provide immunity.
  • …any activity that can be boiled down to deciding whether to exclude material that third parties seek to post online is perforce immune under section 230.
  • If the editor publishes material that he does not believe was tendered to him for posting online, then he is the one making the affirmative decision to publish, and so he contributes materially to its allegedly unlawful dissemination. He is thus properly deemed a developer and not entitled to CDA immunity.

Facebook’s entire advertising platform is built on the intention of having third parties post their ads online. If Facebook starts making decisions as to which ads should be posted and which should not, Facebook runs the risk of “making affirmative decisions to publish”, which would make them a developer. In the Betzel case, the Courts made it clear that if the defendant is seen as being a developer, then that would be grounds for the revoking any immunity from liability. But since Facebook isn’t making any editorial decisions in determining which ads to post, they remain neutral and maintain their status as an interactive computer service, not an information content provider. As a hypothetical scenario, if Facebook were to actively promote the counterfeit NFL jerseys over the real jerseys, then it could be argued that Facebook is indeed acting as a “developer”, and should not be granted immunity under Section 230.

To further drive the point home, we reference Carafano v. In the case, the Courts noted that the dating website (Metrosplash) was “merely a passive conduit” and “did absolutely nothing to encourage the posting of defamatory content”. Furthermore, the courts deemed that Metrosplash was not a content provider, but just an interactive computer service. With this distinction, Metrosplash was granted immunity under Section 230 of the CDA.

With respect to the counterfeit NFL jerseys, we argue that Facebook had done nothing to encourage the posting of fraudulent content. In fact, nowhere in the ad-creation form does Facebook ask whether or not the advertised item is fraudulent. As there is no way of distinguishing counterfeit items from authentic items on the form, we conclude that Facebook is taking a neutral stance, thereby strengthening the claim that Facebook is just a “passive conduit” in allowing advertisers to create an ad on Facebook.


On one hand, Krystal’s NFL Shoppe has a legitimate concern in trying to prevent other companies who are selling counterfeit goods. But using the framework of Section 230 of the Communications Decency Act and the legal precedent of prior cases, we think that the courts that will be deciding this case will most likely rule in favor of the defendants.