E-commerce has fundamentally transformed the retail marketplace and has changed the way consumers shop. Fast and inexpensive shipping, the convenience of being able to shop at any time of day from anywhere, and the ability to quickly compare prices online— added to the convenience of avoiding long lines and traffic— makes e-commerce appealing to virtually every shopper. Unsurprisingly, e-commerce sales account for a significant and continuously growing percentage of total retail sales in the U.S.
Among the various e-commerce platforms available, Amazon leads all others in sales by a comfortable margin and is the highest-grossing online retailer in the nation. On the Amazon website, customers can purchase products sold directly by Amazon and those available on Amazon’s marketplace sold by a third-party seller. Amazon’s e-commerce platform has allowed third-party sellers to reach a far wider consumer audience— estimated at over 300 million active customers— than was ever possible before. Hundreds of thousands of small and medium-sized businesses sell on Amazon and the number of sellers in the United States and around the world continues to grow every day. In fact, Amazon has emerged as one of the most powerful distribution channels in the world.
Given the ease of selling on Amazon’s e-commerce platform, the relative anonymity sellers have, and its massive global audience, there is little wonder why the shadowy business of counterfeit goods has found its way to Amazon. After all, the world of counterfeits is a massive, sprawling industry. According to a 2019 Organization for Economic Co-operation and Development report, international trade for counterfeit goods reached $509 billion in 2016. In the U.S., counterfeits are estimated to cost the economy $30 billion to $40 billion annually by diverting sales away from purchases of legitimate products. The top industries affected by counterfeits include footwear, luxury handbags, electrical machinery and equipment, and watches. Given the significant amount of lost revenue counterfeit goods siphon from their authentic counter-parts, it is little wonder why counterfeits are considered a serious threat to companies and their brand.
As recent court decisions indicate, Amazon and other similar third-party marketplaces are not liable for selling counterfeit products on their sites largely because they are a platform for sellers rather than sellers themselves. In Milo & Gabby LLC v. Amazon.com, Inc., for example, the Federal Circuit held that Amazon’s activities, which included providing an online marketplace and shipping services to third-party vendors selling products that allegedly infringed the plaintiff’s copyrighted products, did not create seller liability for the purposes of copyright infringement. See Milo & Gabby LLC v. Amazon.com, Inc., 693 F. App'x 879 (Fed. Cir. 2017).
While Amazon and other third-party marketplaces have no legal duty to police counterfeit listings and they are not legally obligated to proactively remove suspected counterfeits from their platform, they will apply a take down procedure and quickly remove the product listing from their website when a complaint is properly filed. Consequently, right holders must take responsibility for their own intellectual property enforcement.
Unfortunately, at times, right holders improperly abuse Amazon’s take down procedure by wrongfully filing complaints— including trademark and patent infringement claims— against legitimate sellers. For example, right holders often misunderstand their rights under U.S. intellectual property law and attempt to overreach by filing illegitimate complaints against resellers of their brand. Once a complaint is filed— whether or not the complainant is on the right side of the law— Amazon will deactivate or suspend the seller’s account until an investigation is completed. Investigations are protracted events that are seldomly resolved quickly, much to a seller’s disadvantage since a suspended account for a seller means lost revenue every moment of the suspension.
Sellers are frequently eager to reinstate their account quickly but often find difficulty navigating Amazon’s complex rules for reinstatement. Faced with complaints from a powerful brand holder, sellers often give up the fight, unaware that the brand holder is on the wrong side of the law. When this occurs, a formal demand for the brand holder to cease and desist is in order. The demand letter should cite pertinent U.S. intellectual property statutes and caselaw to support the seller's position and should instruct the brand owner to retract all complaints immediately. A working knowledge of basic U.S. intellectual property law and practical negotiation skills are usually all that are needed for relatively quick closure to these disputes.
The world of e-commerce is constantly evolving and it has become increasingly more complex and sophisticated. In order to stay in business and remain competitive, sellers can no longer remain ignorant of U.S. intellectual property law. Savvy sellers can protect their brand and/or fend off unwarranted take downs by becoming informed and utilizing the law to their advantage.