Retail Arbitrage

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.