NPR Covers the Fake Review Problem

NPR.org has published an article and an audio segment that’s been making the rounds about the fake review problem on Amazon.com. Amazon has been making a number of changes to the ways in which reviews appear, whether or not customers are permitted to leave unverified reviews on products, and more.

There have been broad discussions of the article on social media and on popular tech news aggregators like Hacker News.

Sellers are under pressure to push the limits on product reviews

Sellers, brands, and sellers who own their own brands are caught in a difficult position as it relates to this review issue. Amazon has wavered repeatedly on the issue of incentivized reviews and how it goes about enforcing its rules against people who abuse the system. The company has also filed multiple lawsuits against defendants who have operated businesses advertising reviews for sale.

Amazon has also shuttered hundreds of private Facebook review groups. However, a cursory search of Facebook groups finds many such groups with massive discussion volume. Here’s an anonymized example of how highly trafficked some of these groups can be:

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Given that so many shoppers put so much weight on a 4.5 star review average on Amazon, sellers in competitive niches find themselves pressured to push the limits. They often notice that competitors who may or may not be offering a better product wind up beating them in the sales rankings because of the use of illicit techniques such as hiring reviewers, providing top reviewers with discount codes in return for a positive review, and bombing competitor listings with negative reviews containing language that can trigger product and account suspensions.

Review schemes can create serious risks

Participating in these kinds of review schemes can pose serious risks beyond the danger of account suspension. It can also be a risk to the reputation of the brands involved and can put your business in danger of being sued. Further, when Amazon sues these kinds of review businesses, during the discovery phase of the lawsuit, the fake review purveyor is generally required to hand over their book of business to Amazon. Amazon can then decide to use that book to take action against the brands in question.

Amazon can also subpoena individual reviewers in the course of their lawsuits against them to get the seller information. Many of the expectations you might have of confidentiality from payment processors and other similar intermediaries can go up in smoke as Amazon traces the links between individual review writers, fake review business intermediaries, and the brands or agents of those brands who are commissioning those reviews.

Another point to keep in mind is that any legal action that Amazon takes against fake reviews will be viewed by the general public as a good thing regardless of the details of the case involved and the difficult position that ecommerce sellers find themselves in when all of their competitors are using illicit review building strategies. The typical goodwill a small business would have by virtue of defending against one of the biggest companies in the world evaporates when shoppers feel that they have been deceived.

This is a much larger issue that we will continue to write about in the future.

Legal Issues in Retail Arbitrage

What is retail arbitrage?

Retail arbitrage is a popular and common practice on online marketplaces like Amazon, eBay, and Walmart.com. The term describes how sellers go to brick and mortar stores looking for opportunities to resell products online at a profit. Armed with barcode scanner apps that provide real time pricing information, they look for discrepancies between the sticker prices and online prices on marketplaces like Amazon.

The marketplaces tend to tacitly approve of these practices because it allows them to offer a better selection and lower prices than would be possible otherwise. There are almost always local price discrepancies in stores that eCommerce sellers can take advantage of. Amazon includes a bar code scanner in the Amazon Seller app for a reason.

However, the quick profits available through retail arbitrage often get sellers into trouble with brands, through customer feedback, and the marketplace in question. The main problem stems from the fact that sourcing products through retail channels doesn’t give you clear supply chain documentation that proves that the product is authentic. Retail receipts are not always sufficient to resolve a product authenticity dispute whether the complaints come from brands or from customers.

Retail arbitrage and the first-sale doctrine

In the United States, a concept known as the first-sale doctrine gives legitimate purchasers broad legal authority to use a manufacturer’s registered trademark to resell authentic products produced by that manufacturer. In trademark law, the first-sale doctrine gives anyone who purchases an authentic product immunity from trademark infringement claims for reselling that authentic product. Resellers can lose that immunity if the product itself has been materially altered from the original state after manufacture.

For example, if you purchase a widget directly from Acme in its original packaging, then you can resell that product as an Acme widget using Acme’s registered trademark. You are using the Acme trademark to identify the source of the goods you are reselling. The first-sale doctrine provides a strong defense in a lawsuit by Acme for trademark infringement for reselling an authentic product in its original packaging. However, if you opened the box and put it in your own package with creative illustrations on it in permanent marker, you could be liable for trademark infringement were you to attempt to sell that product as new.

The legal right to sell a product is not the same as the privilege to sell on an online marketplace

While you may have legal protections, this does not give you the absolute right to sell those products on online marketplaces. While it may be legal to resell merchandise that you own, it doesn’t give you an absolute right to keep your seller account in good standing. Marketplaces can and do institute rules that may be stricter or more conservative than the law.

Further, if disputes arise regarding any material differences between the products you are selling online and the authentic version sold by the trademark owner, it may be challenging for you to prove authenticity as a seller if all of your sources come from retail.

As a practical matter, a retail arbitrage source should be considered a temporary opportunity for your business that may be cut off at any time. Whether or not the brand can make a successful ‘material difference’ argument against your practices, they can make it challenging for you to sell their products. You should be prepared to agree to stop selling a given brand if you do not have express permission through either the brand itself or an authorized distributor.

Trademark Basics for Private Label Amazon Sellers

Private label entrepreneurs drive much of the growth in eCommerce. Whether they’re bringing already developed products to market online or selling their own inventions, more people every year join the ranks of private label sellers.

‘Private label’ just means that the product has been labeled using the retailer’s chosen name instead of the manufacturer’s. Given that it’s become common for companies in the Fortune 50 to contract out manufacturing, this practice is more common even among established companies than it may seem to be.

Getting your trademarks ready for a private label product launch

The best practice  for launching a product is to do so under your registered trademark. While it may not always be feasible to register a unique trademark for every brand and sub-brand of products that you sell, what established companies tend to do is to launch products under what’s colloquially called a ‘house mark.’ House marks can be the name of your company, the name of your most successful brand, or something similar.

If a product takes off using your house mark, you can change the brand name that the product is registered under later. In the interim, you will still have trademark rights for the product that you can enforce.

At the minimum, it’s good to spend at least 5-30 minutes searching the US Patent and Trademark Office trademark search engine to look for similar trademark filings to the brand you intend to use. A few minutes looking for registered trademarks using the words you plan on using can save you massive problems later on. You can also use domain search engines to ensure that you can get a domain using that mark going forward. If you are unsure about what name to consider using, you should consult with a trademark attorney for specific advice. There are many complex aspects to choosing a name because not all the marks that you can think of can be registered.

Trademarks exist to prevent customer confusion and to allow certain products to become distinguished in the marketplace. When you sell products without a registered trademark, you make it easy for opportunistic sellers to borrow the goodwill and search ranking you might have built up on a product listing. Amazon only confers direct control over product listing content when someone has enrolled in brand registry. Under certain conditions, participants in the Amazon Vendor program can also exercise control over listing content.

Why hijackers target listings without Brand Registry

Success in a private label business on Amazon often inspires imitators — and some of those imitators are willing to use aggressive techniques that infringe on intellectual property rights. Aggressive sellers on Amazon have been known to list generic versions of a private label product on the wrong listing. Some sellers search for popular listings with large numbers of reviews that are not attached to trademarked brands. The reason why they do this is because it can result in quick profits without the immediate risk of legal consequences. Amazon also gives brand owners who have enrolled in its Brand Registry program additional tools to track use of their trademarks in Amazon listings and sellers who are selling on their branded products. Amazon only permits sellers with standard character trademarks to enroll in Brand Registry.

Investing the time and energy into legal and compliance concerns up front is never an entrepreneur's favorite subject, but it can prevent major problems and expenses later on. You don't want to spend your startup capital on inventory, marketing, and advertising only to have your listings taken over by unscrupulous sellers or to receive a trademark infringement lawsuit from a major brand.