The e-commerce industry thrived in 2020 and continues to grow. eMarketer reports that Amazon will generate $367.2B in sales this year. As a result, Amazon’s e-commerce market share increased to 40.4% of all sales! In addition, a rise in consumers choosing Amazon as a preferred platform increases new third-party sellers. However, unauthorized sellers continue to pose a problem for many brands on Amazon.
Envision Horizons CEO, Laura Meyer, sat down with top NYC lawyer Mark Rosenberg for his opinions and advice on preventing distribution leakage and unauthorized sellers on Amazon. Watch the interview here, and read his article on online distribution leakage here. We gathered some of the most critical insights from this interview and expanded on the covered topics. We will review:
- Unauthorized sellers and how to stop them
- The prevalence of retail arbitrage
- Authorized sellers, how to stop violators, and effective contract creation
- Brand registry protection
- Amazon restricted and gated brands
Unauthorized Sellers on Amazon
Third-party sellers on Amazon have an extensive presence in online marketplaces. According to Statista, the third-party sellers disposed of 55% of paid units on Amazon last quarter of 2020. Additionally, in 2020 Amazon generated 80.46B U.S. dollars in third-party seller revenues, up from 53.76B U.S. dollars vs. the previous year.
Many consider third-party sellers “unauthorized” because they buy and resell a brand’s product without permission. Unauthorized sellers have not established official relationships with the company whose products they are reselling. Though many views unauthorized sellers as “harmless”, often they pose a problem for brands. Most obviously, they cut into a brand’s sales. Secondly, their motive is to move products, not create a positive user experience and brand image. Because of these conflicting motives, unauthorized sellers can damage a brand’s reputation. Finally, brands can get caught in a price war against resellers and take back the buy box.
Three Common Types of Unauthorized Sellers and How to Stop Them
Known Distributors
One can solve the issue by putting a wholesale dealer agreement in place. Including explicit language in the contract about your Amazon resell, and pricing procedures is essential. It is also important to continually monitor and enforce the policy with your distributors.
Reseller Purchasing from a Distributor
To stop resellers from purchasing from a distributor, trace back the seller and find the distributor. Then issue an explicit distributor agreement.
Reseller Selling Expired or Counterfeit Products
If you suspect counterfeit or expired products are being sold as your brand on Amazon, you can place some test buys. If the products are non-genuine (which could mean they are counterfeit, expired, have severely outdated packaging, etc), you can file a claim with Amazon. In these cases, Amazon will take action to resolve the issue. Hear lawyer Mark Rosenberg go into more detail on what can be considered a non-genuine product here.
Retail Arbitrage
Retail arbitrage occurs when a seller purchases products from a retail outlet at a discount and sells these discounted products for a profit. An example of this would be finding a product at TJ Maxx for $10 and reselling it on Amazon for $25. This practice has grown in popularity due to its low cost of entry and short-term earnings.
Entrepreneurs who are not careful can get into legal trouble using this method by, for example, labelling a product as “new” when it is not, changing a product’s packaging, or selling an expired or counterfeit good. However, the practice itself is not illegal. According to the first-sale doctrine, purchasers can legally sell another brand’s products as long as the merchandise has been lawfully acquired. However, it is crucial to note that the legal right to sell a product is not the same as the absolute right to sell on an online marketplace such as Amazon. Marketplaces institute stricter rules than the law, and these regulations are constantly changing.
Therefore, retail arbitrage should be viewed as a temporary opportunity with the understanding that the privilege may be disputed or revoked.
Stopping Authorized Sellers
Any seller who receives official permission to sell products from a manufacturer can become an authorized seller on Amazon. Without an effective contract and contract enforcement, even authorized sellers can pose problems for brands. To stop authorized sellers who are violating policies, brands can issue a cease and desist, restrict or terminate the agreement with the channel, or pursue other legal options.
Contracts
A good contract can prevent authorized sellers from causing problems for a brand. Explicit contracts will prevent third-party sellers on Amazon from 1. Selling wherever they want to whomever they want, and 2. Listing at whatever price they want.
MAP
A MAP policy is a policy that establishes the absolute cheapest price a distributor or retailer can advertise a product for. A MAP policy also defines the consequences for violating the minimum advertised price and the process a brand will follow in order to enforce it.
Brand Registry Protection
Amazon designed Brand Registry to legitimize brands on its platform. After enrolling in the program, automated protections use information about a brand to proactively remove suspected infringing or inaccurate content. Search tools give the ability to find and report suspected violations through a guided process. Amazon has over 350,000 registered brands. According to Amazon, “2.5 million bad actor accounts were stopped before they published a single listing for sale and over 6 billion suspected bad listings were blocked before they were published to our store”. Additionally, in 2019 Amazon Brand Registry launched IP Accelerator to help emerging brands obtain trademarks and IP protection from the earliest stages of their product life cycles.
Amazon Restricted and Gated Brands
Amazon began restricting or “gating” brands on a large scale in 2016. If sellers want to list products from gated brands such as Adidas, Levi’s, or MAC, they have to go through an approval process. Gated brands on Amazon usually see a large volume of counterfeit versions of their product. The most accurate way to tell if a brand is gated is to use Amazon’s “add a product” tool in Seller Central. This will tell you if there are listing limitations on that particular ASIN.
For more information on protecting your brand from the consequences of distribution leakage and unauthorized sellers, be sure to watch our CEO’s interview with top NYC lawyer, Mark Rosenberg.
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