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Lawsuit Alleges Etsy Hid Counterfeiting Problems From Investors

Launched in2005, Etsy, the wildly successful peer-to-peer (P2P) e-commerce website, boasts upward of 54 million registered members including 1.4 million active sellers with 19.8 million active buyers and last year racked up gross merchandise sales of $1.93 billion. So, it seemed a great deal for prospective investors when the company filed for its initial public offering (IPO) in March and went public in April. Now, investors are calling foul.

In a proposed class action filed earlier this month, Brooklyn-based Etsy is accused of misleading investors by failing to disclose in its IPO documents that as many as 2 million items listed for sale on the site were counterfeit or potentially infringing trademarks and copyrights. According to one analyst, upward of five percent of the site's 40 million listings may be counterfeit or infringing against multiple well-known brands.

After its IPO, Etsy's value rapidly climbed to more than $3 billion. But news of the potentially bogus merchandise and expectations that multiple legitimate brands will crack down on violations has driven Etsy's share price down, putting the company's listing fees and commissions at significant risk.

Investors acquired Etsy securities "in ignorance of the adverse facts concerning Etsy’s business and financial condition which were concealed by defendants," shareholders said in the complaint filed in Brooklyn federal court. The complaint names the company, Chief Executive Officer Chad Dickerson and Chief Financial Officer Kristina Salen as defendants.

The complaint further alleges that Etsy executives were motivated to make false statements or omissions "in order to personally benefit from the sale of Etsy securities from their personal portfolios."

Among the brands that Etsy merchandise may infringe against are Louis Vuitton, Chanel, Michael Kors, Disney and NFL. A recent news article by TMZ reported that entertainer Beyoncé threatened legal action against Etsy earlier this year over merchandise emblazoned with the word "Feyoncé," a play on her name and the word "fiancé," evoking the pop star's hit "Single Ladies."

If you believe that your brand is being infringed upon, or if you're a seller on Etsy or any other online marketplace and are unsure if your product is a potential infringement, consult an experienced trademark and copyright attorney with Daniel Law Offices at 866-37PATENT.

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