eCommerce

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:

fbgroupcount.png

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.