RIP Vendor Central Listing Hijacking

Recently, Amazon vendors have reported that they are receiving notifications that they must have Amazon Brand Registry associated with their account to continue receiving purchase orders from Amazon. This comes hot of the heels of similar reports from numerous Amazon vendors that they were not receiving purchase orders anymore with no additional information from Amazon as to the reason why.

From our skewed perspective as people who are more privy than most to conflicts on the Amazon marketplace, rogue vendor accounts were behind a higher than average proportion of bad behavior on the Amazon marketplace like listing hijackings, sale of generic products on Amazon listings, and various unorthodox methods used to kick competing sellers off of listings or to get an unearned buy box share advantage.

From a broader perspective, it looks like Amazon is continuing to pare back its commitment to the Vendor Central platform. In 2018, Amazon cancelled the Vendor Express program, which had often been used by both legitimate sellers as a backdoor to access special business programs that were supposed to be exclusive to Amazon Vendors such as Amazon Marketing Services, which has long since been merged into the general Amazon advertising platform. Third party sellers would pick a throwaway product that they didn’t care much about, enroll it in Vendor Express, and then gain access to various advertising features that were only available to vendors at the time.

There are a several reasons why Amazon may continue to cut back on its vendor program as it is currently constituted:

  • Buying and owning inventory places more legal risk on Amazon when it sells counterfeit products or lists used products as new

  • Refusing to abide by MAP policies could pose risks to Amazon when they are the seller of record

  • The hands-off, highly-automated approach that the Amazon Vendor program has mostly had as it relates to inventory decisions was never as nimble and sophisticated as third-party sellers could be

  • Amazon earns more profit from fees charged to sellers than it earns as a retailer of goods

  • Storing inventory that it owns is a much less profitable use of warehouse space than renting out that warehouse space to other people who are happy to bear the costs and risks of owning and selling that inventory

This recent change points towards a recognition on Amazon’s end that rogue Vendor Central users have used enhanced editing privileges to alter listings on the catalog to their advantage in various ways. Vendor Central, while geared towards brands, has also long been accessible by people who are able to convince Amazon that they are authorized distributors for the brands that they carry and/or have other kinds of brand authorization. In some situations, that has not been true, but those rogue vendors were still able to abuse their catalog editing privileges to vandalize competitor listings, perform unauthorized listing merges, and perform other attacks.

For example, if you have ever seen a successful product on the Amazon catalog vandalized to have its main image changed to that of a character from a Wachowski brothers movie from the mid-2000s, it was probably done through a rogue Vendor Central account. Another example of these types of cases are those in which a rogue vendor has sold a bunch of counterfeit inventory to Amazon, has it shipped and sold by Amazon to customers getting superior buy box share by doing so, and then running off into the sunset with the money before the reports start coming in.

Forcing vendors to also have Brand Registry authorization puts a stop to a lot of that behavior even if it does restrict some of the legitimate business models that were previously possible using the Vendor Central system. With this change, at least in theory, all vendors will need to have their account explicitly authorized by the brands that they sell. Without that authorization, Amazon won’t make purchase orders.

This is ultimately a positive move for the integrity of the Amazon marketplace.

While public perception of the Amazon marketplace tends to place greater trust in the “shipped and sold by Amazon.com'“ label, people with more experience as buyers, sellers, and vendors on the marketplace know otherwise. As Amazon continues to try to head off negative public opinion about the sale of counterfeit products and other issues on the marketplace, we expect more changes coming down the line particularly in how all the systems governing how sellers, vendors, and brands interact much like this change.

Project Zero: Bye Bye Blackbox

Amazon contends that Project Zero will allow brands to immediately remove counterfeit items from Amazon without Amazon acting as a middleman to presumably “review” the claim and send the traditional policy warning with an opportunity to appeal to sellers on the reported ASIN. From everything we’ve read, this only applies to counterfeit goods. I underline counterfeit for a reason: counterfeit is a defined term under the law. A counterfeit mark is an illegal replica of a registered trademark affixed to a product that is not manufactured by the trademark owner. It is a replica, a copy. It was never sold or given away by the manufacturer and brand owner. Trafficking in counterfeit goods is a crime with penalties of up to $2 million and 10 years in prison for a first offense and greater penalties for additional offenses. See 18 U.S.C. § 2320.

We have seen unscrupulous brands and dishonest lawyers file “counterfeit” claims with Amazon against third party sellers who are reselling authentic goods purchased from authorized distributors. An authentic product is not a counterfeit good by definition. When confronted with proof of the authenticity of the products being sold, these brands almost always claim that they didn’t mean counterfeit, they just meant “unauthorized” and Amazon must be confused. Okay, sure. Words have meanings and “counterfeit” means counterfeit as defined in the law. Both brands and brand protection firms seem to rely heavily on being able to blame Amazon’s “black box” IP Reporting system when caught with their hands in the false counterfeit cookie jar.

Knowingly filing a false counterfeit claim is a serious matter that can constitute defamation under the law in many states. Recently independent merchants have been fighting back against these false and defamatory complaints, filing lawsuits against both the brand protection firms that sell this counterfeit fantasy to brands and the brands who are ultimately responsible for the acts of their agents. See Johnson v. Ashly E. Sands, WowWee USA Inc., and Incopro, Inc., 1:18-cv-689 (W.D. Va 2018) (“WowWee”). According to documents filed in federal court, in WowWee, a reseller received counterfeit complaints from a brand protection firm, Incopro, purportedly on behalf of the toy company, WowWee, through Amazon’s Report Infringement tool. Plaintiff reseller responded to the e-mail address provided by Amazon with proof that the items she was offering for sale were authentic but Incopro bizarrely refused to retract the complaint. Shortly thereafter, the reseller plaintiff attempted to apply for a loan through Amazon. Amazon denied plaintiff’s loan request, citing the false counterfeit complaint filed by Incopro. Plaintiff filed suit against the brand protection firm, Incopro, the toy company, WowWee, and Incopro’s attorney, Ms. Sands.

WowWee’s motion to dismiss relied almost entirely on the fact that WowWee did not file the complaint, Incopro did. WowWee continually stated that WowWee itself never “made any statement” to Amazon. Essentially WowWee argued that if anyone defamed Ms. Johnson’s business, it was Incopro or Amazon. WowWee even attached the complaint that was made to Amazon, noting that it was made by a specific (and named!) employee of Incopro. What kind of prison lawyering is that? If I hire my cleaning lady to kill my neighbor, I’m still responsible for the murder. Incopro does not file complaints for free out of the blackness of their hearts but rather they are hired as an agent acting at the direction of the company that hired them. I’m sure Incopro has a contract that makes it crystal clear that they are acting at the direction and in the interests of the company that hires them. (Incopro, if you don’t, give us a call.) Either way, the defense in this lawsuit seemed to be that no one really filed this complaint and no one really meant to allege that Ms. Johnson was trafficking in counterfeit goods. It all was some “misunderstanding” that manifested itself in Amazon’s black box complaint reporting system. (Note: this case settled shortly after oral argument on the defendants’ motion to dismiss.)

Here’s where Project Zero comes in. There’s no more black box. There’s no confusion over who reported what product as what violation. Brands are reporting independent merchants for selling counterfeit goods. There’s no more “Oops I meant to report this as a MAP violation, where’s the button for that?” No more “We require a $300 payment to remove this complaint.” No more “But but but it doesn’t have a warranty!!!!” It will be very clear that a brand filed a counterfeit complaint against a seller and Amazon acted on that statement from the brand by removing the offer from the platform. It will be clear, in writing, that a brand accused a seller of criminally trafficking in counterfeit goods.

You may be thinking: why does Amazon get involved at all? Well, Amazon must provide some way for actual intellectual property owners to take down content that infringes on their verified intellectual property. Cases like Tiffany v. eBay Inc., 600 F.3d 93 (2nd Cir. 2010), established a sort of “safe harbor” where marketplaces are not liable for trademark infringement that may occur on their platforms if they provide a robust mechanism through which IP holders can report suspected infringement and have infringing materials removed in a reasonably quick way. The Digital Millennium Copyright Act (“DMCA”) provided a statutory process for this type of reporting and removal through the DMCA Notice and Counter-Notice process. Unfortunately Congress has not established a similar system for Trademark or other IP rights so marketplaces and content hosts are left to their own devices. Amazon, for its part, has to weigh its duty (and desire to steer clear of any liability) to prevent IP infringement with its mission to bring the widest variety of products to customers at the lowest prices. I don’t think Amazon wants counterfeit goods sold on Amazon any more than brands or customers do. But Amazon definitely welcomes third-party arbitrage sellers who take advantage of pricing asymmetry across the country to bring low-cost name-brand goods to Amazon’s customers.

Just to be clear: I know that counterfeiting is a real problem. Years ago I worked at a luxury fashion brand where we spent a great deal of time finding and reporting sellers of counterfeit goods to the FBI. The brand I worked for was frequently bringing lawsuits against counterfeiters, seizing websites, freezing bank accounts, taking real legal action to stop criminal enterprises. But there is a difference between counterfeit goods and authentic goods that are resold outside of an authorized chain of distribution.

Real brands spend a great deal of time and money ensuring their distribution chain is tight and leak-free. Luxury brands buy back products, limit where products can be sold in the first place, destroy unsold products at the end of the season, serialize every product that leaves the manufacturer, bring lawsuits against distributors who divert, etc. You can have wide distribution or restrictive distribution but you can’t have both. All of these expensive measures that major brands around the world implement would be unnecessary if you could just falsely accuse someone of committing a crime to solve your distribution problems. Think about it.

There are many ways brands can restrict distribution but filing false and defamatory counterfeit claims is not one of them.

What Amazon Project Zero Could Mean for Brands and Sellers

Today, Amazon announced its newest anti-counterfeiting program to “help drive counterfeits to zero.” This looks to be a lighter weight version of the Amazon Transparency program launched in 2017.

For product lines that are enrolled in the Transparency program, products must be labeled with a Transparency code in order for them to be listed on Amazon. Project Zero does not seem to prevent sellers from listing products for sale but rather makes it easier for brands to remove already existing offers from the platform.Transparency received criticism from some brands because of the per-unit cost and the visibility that it gave Amazon into brand supply chains. Project Zero is only open to brands that have a US trademark registered with Amazon’s Brand Registry program. 

Key takeaways:

  • Amazon has promised that brands that make even a small number of false counterfeit reports will be kicked out of the program

  • This program will enable faster and more proactive removals of offers

  • Project Zero will involve less human judgment and will rely more on machine learning and other automation technologies to remove offers

  • A low-cost (between $0.01-$0.05 per unit) product serialization service will be offered by Amazon in conjunction with the launch of this program

While the prospect of immediate removals of offers suspected of being counterfeit might be concerning to long-term sellers who have been hit by false and defamatory counterfeit complaints against them, the fine print on the Project Zero website has good news for both brands, sellers, and sellers who own brands.

How the counterfeit reporting system will change

Unlike the way the counterfeit reporting system on Amazon has worked historically, the Project Zero FAQ page promises that:

“Brands must maintain a high bar for accuracy in order to maintain their Project Zero privileges. We have a number of processes in place to promote accuracy, including required training as part of Project Zero enrollment and ongoing monitoring to prevent misuse of our tools.”

While we can’t predict the future, we suspect that this means that the legacy counterfeit reporting system will eventually be phased out as it has been widely abused for the purpose of making fraudulent claims against sellers with the intent of restricting competition while making it possible to charge higher prices to customers.

What this might mean is that Amazon will expect brands to clean up their acts while also making it more challenging for sellers of counterfeit products to sneak in under the radar.

Project Zero vs. Amazon Transparency

Transparency requires that sellers apply Amazon’s proprietary Transparency QR codes to products that could also be scanned by customers using the Transparency smartphone app. Project Zero looks to be taking a different tack by merely having product serialization as an option. The FAQ page implies that brands that have existing product serialization will be able to opt-in to the program without having Amazon serialize the products. It would probably be a hard sell to companies who already have a serialization scheme to also use Amazon’s redundant serialization in order to be able to access a more effective counterfeit reporting system.

The FAQ states that brands will not need to serialize products to access Project Zero, but that “the brands that serialize their products are seeing the best results. Product serialization is a powerful tool for detecting and stopping counterfeits from reaching customers.”

Will this change anything?

We would speculate that the lukewarm reception from some brands to the Transparency program informed this refined and more broadly accessible approach which is intended to address the concerns of both sellers and brands alike about how Amazon handles counterfeit policing. This also places more of an onus on Amazon’s systems to be effective, to avoid false-positives, and to reduce abuse of the counterfeit reporting system which has long been rife on the marketplace.

This is also a positive step in terms of giving brands a reputation system within Amazon itself. Brands that abuse the system will hopefully be kicked out of it quickly. Brands that make accurate reports will gain a trusted status that enables them to get faster service on the reports.

One slightly disingenuous part of the announcement states that brands will instead use a “self-service tool” to flag counterfeits instead of needing to contact Amazon. Brands currently need to use a self-service mechanism to contact Amazon to take down counterfeits. The new system will be another self-service tool that contacts Amazon for you.

Despite this, it looks like this program is more than just a fresh coat of paint over the existing system. Amazon is attempting to address the problems that all sides of the marketplace have had with the counterfeit policing system. We’ll see if it makes a difference in the coming years.

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.