Counterfeit sales at Amazon have increased so much that it stated it is much more damaging to a brand owner than to Amazon when a consumer receives a counterfeit product.
In February 2019, Amazon.com filed a Form 10-K annual Report with the U.S. Securities and Exchange Commission officially acknowledging to shareholders that the company’s online sales platforms risked being found liable for fraudulent or unlawful activities of sellers on those platforms. Amazon admitted they may not be able to prevent sellers trafficking counterfeit and pirated goods.
Amazon’s Form 10-K filing stated that the law relating to the liability of online service providers is currently unsettled. They stated their seller programs may render the company unable to stop sellers from collecting payments when buyers never receive products they ordered or when products buyers receive are materially different than described by sellers. It was noted this is the first time Amazon used the word “counterfeit” in an annual report. Although this may be their first acknowledgement of counterfeiting activities affecting their online retailers, it is old news for both small and large brand owners, i.e., Apple, Williams-Sonoma, Elevation Lab and Daimler AG. Apple claimed that 90% of Apple-branded products sold on Amazon are counterfeits. The Counterfeit Report noted that CEO Jeff Bezos himself is complicit in the sale of counterfeit items on Amazon’s e-commerce platform.
Amazon’s susceptibility to the counterfeit problem is affected by how the company’s e-commerce services are structured. Amazon is structured into three different e-commerce tiers: (1) The Amazon Retailer, where buyers employed by them negotiate wholesale prices for items, which are then sold by Amazon.com LLC; (2) Fulfilled by Amazon, where the sellers are third parties. The goods are stored in Amazon warehouses and shipped by Amazon employees; and (3) Amazon Marketplace, which is more like eBay, where Amazon is the platform, and storage and shipping is handled solely by the seller. Consumer trust is developed from the idea that when you buy from Amazon, you are receiving what you believe is a genuine product. Recent lawsuits from Daimler and Williams-Sonoma show that it is more damaging to a brand owner than to Amazon when a counterfeit product is received. Many people don’t even know they received a counterfeit.
China is the main culprit of counterfeit goods. In 2017, nearly 90% of all global counterfeit products seized by U.S. customs agents came from China and Hong Kong. If online retailers are going to continue to make their platforms available to China-based sellers, there should be some burden on them to show that the products are legitimate. In addition, trademark owners dealing with counterfeits should be filing lawsuits and forcing Internet stores to pay damages for counterfeits.
Unauthorized distribution is a problem for trademark owners. Numerous brand owners who sell luxury products have had to deal with unauthorized sales of their genuine products on Amazon. These products are only supposed to be sold through a network of authorized dealers; however, brand owners find it difficult to control downstream access due to the first sale doctrine, which allows for resale of genuine products in an unchanged state. If the products get out of their normal distribution channel and end up on Amazon, it can be problematic where a brand owner wants to protect pricing and provide consumers with a specialized sales force and warranties, which is not available online. Unauthorized sales could hurt a brand owner’s reputation with consumers if Amazon’s price is much lower, and it can hurt relationships with dealers who feel the price difference is unfair. It’s a little easier to combat unauthorized sales on Amazon when it’s not a manufacturer selling the products on Amazon because Amazon collects material from the seller. When the manufacturer provides the materials, Amazon receives a sublicense to them and makes it more difficult for brand owners from a copyright standpoint through takedown notices. Brand owners concerned about counterfeits or unauthorized sales could use watermarking techniques or covert markings which are difficult for counterfeiters to replicate. It is very important to keep records of copyrightable materials, i.e., product images or advertising materials that can be registered with the U.S. Copyright Office. A copyright action is much more straightforward when a second or third party has appropriated copyrighted material, but not easy to enforce without accurate records. Brand owners could file for copyright registration in the event a manufacturer or someone else embarks on unauthorized sales on Amazon.
To reassure the public that expects to purchase authentic products, an Amazon spokesperson stated they strictly prohibit the sale of counterfeit products and invest heavily through funds and company energy to ensure their policy against the sale of counterfeit products is followed. They are available 24/7 to act on reported violations. They have dedicated teams of software engineers, research scientists, program managers, and investigators to continuously operate and refine their anti-counterfeiting program. Over 99% of all Amazon page views by customers landed on pages that did not receive a notice of potential infringement. Additionally, customers are protected by their guarantee, whether purchased from Amazon or a third-party seller. If the product is not as advertised, customers receive a full refund of their order.
There still may be reason to question Amazon’s ability to effectively eliminate counterfeits. Amazon’s service representatives who handle the requests to take down counterfeit items usually are not legal professionals and follow a script on handling the claims. Noted are instances of identical takedown warnings sent to Amazon whereby one is accepted and one is denied when they were analyzed by different service team members. While Amazon’s statistic on the 99% of customer page views seems great, considering how large Amazon is with billions of page views yearly, that percentage could include a large number of infringing items not yet sent a notice. Regarding Amazon’s statement that customers can get a full refund on counterfeit purchases through its A-to-Z Guarantee program, in it’s 10-K filing, Amazon said that it “reimburse[s] buyers for payments up to certain limits.” That phrase doesn’t guarantee a full refund in all cases.