The e-commerce industry thrived in 2020 and continues to grow, with eMarketer reporting that Amazon will generate $367.2B in sales this year. This will grow Amazon's e-commerce market share to 40.4% of all sales! With a rise in consumers choosing Amazon as a preferred platform for purchases, also comes a rise in new third-party sellers. 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, to get his professional opinions and advice on how to prevent 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 important insights from this interview and expanded on the topics covered. 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 have an extremely large presence in online marketplaces. In the last quarter of 2020, Statista reports that 55% of paid units on Amazon were sold by third-party sellers. Additionally, in 2020 Amazon generated 80.46 billion U.S. dollars in third-party seller service revenues, up from 53.76 billion U.S. dollars in the previous year.
Marketplace Pulse reports that, as of April 1, 2021, 323000 new sellers joined all Amazon marketplaces. This is equivalent to 3598 new sellers every day. At the current rate, 1.3 million new sellers will have joined Amazon by the end of the year.
Many of these third-party sellers are considered “unauthorized” because they are buying and reselling a brand’s product without permission. Unauthorized sellers have not established official relationships with the company whose products they are reselling. Though unauthorized sellers are sometimes viewed 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 to 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 race to the bottom by constantly lowering their product price in order to match these resellers and take back the buy box.
So if unauthorized sellers are operating without permission and are oftentimes negatively impacting a brand, how do they get away with it? The answer is gray areas. With so many Amazon policies and guidelines, finding loopholes is inevitable. This is particularly true when it comes to product listing pages.
Three Common Types of Unauthorized Sellers and How to Stop Them
This issue can be solved by putting a wholesale dealer agreement in place. It is important that this agreement includes explicit language about your Amazon resell and pricing policies. It is also important to continually monitor and enforce the policy with your distributors.
Reseller Purchasing from a Distributor
To stop resellers who are 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 as suspected (which could mean they are counterfeit, expired, have severely outdated packaging, etc) then 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 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 to make a slim profit. This practice has grown in popularity over the past few years 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, labeling a product as “new” when it is not in new condition, 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 legally acquired. It is very important to note, however, 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 rules that are oftentimes stricter than the law, and these regulations are constantly changing. 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.
A good contract can prevent authorized sellers from causing problems for a brand. Explicit contracts will prevent third-party sellers from 1. Selling wherever they want to whomever they want, and 2. Listing at whatever price they want.
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
Brand Registry is a program designed to legitimize a brand on Amazon. 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. Over 350,000 brands have registered, and Amazon states that “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. Brands that are gated on Amazon are usually brands that 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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