Counterfeits or Control: What is the Real Issue Between Brands and Amazon?

Image: Amazon


Counterfeits or Control: What is the Real Issue Between Brands and Amazon?

Many brands have sworn off Amazon for the same glaring reason: fakes. The Jeff Bezos-launched e-commerce giant was publicly taken to task in 2016 and again in 2017, for instance, when Birkenstock revealed that it would cut all ties with the company on the basis of “a series of ...

January 15, 2020 - By TFL

Counterfeits or Control: What is the Real Issue Between Brands and Amazon?

Image : Amazon

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Counterfeits or Control: What is the Real Issue Between Brands and Amazon?

Many brands have sworn off Amazon for the same glaring reason: fakes. The Jeff Bezos-launched e-commerce giant was publicly taken to task in 2016 and again in 2017, for instance, when Birkenstock revealed that it would cut all ties with the company on the basis of “a series of violations of the law on the [Amazon] Marketplace platform.” According to Birkenstock, those legal violations stemmed largely from Amazon’s alleged failure to prevent the offering of counterfeit goods on its sweeping marketplace site.

That was not the first – or last time – that Amazon would be accused for trading in counterfeits. Around the same time as the Birkenstock snafu, Swatch’s Chief Executive Nick Hayek spoke out against Amazon, claiming that the companies’ partnership negotiations fell through at least in part because of Amazon’s so-called failure to commit to “proactively policing its site for counterfeits and unauthorized retailers.” In discussing the deal gone awry, Hayek argued that Chinese e-commerce conglomerate Alibaba is “fighting actively” against fakes, something “Amazon is not doing.”

More recently, the American Apparel and Footwear Association (“AAFA”), a prominent Washington, D.C.-based trade group whose members range from Marc Jacobs and Jimmy Choo to the Gap and Target, formally urged the Office of the U.S. Trade Representative to include certain international arms of Amazon’s empire on the U.S. government’s notorious “black list” of bad actors on the basis that products being sold by the likes of third-parties on Amazon are fakes.

While brands and trade groups, alike, seem willing to rally around the assertion that Amazon’s sites are rife with counterfeit or otherwise infringing products, there may be more to the oft-chilly dynamic between the $1 trillion e-commerce empire and third-party brands than that. That is what Amazon’s Vice President of Public Policy Brian Huseman asserted in the 4-page letter he wrote to Acting Assistant U.S. Trade Representative for Innovation and Intellectual Property Daniel Lee this fall in response to the AAFA’s quest to get Amazon on the government’s “Notorious Markets” list.

In his October 2019 letter, Huseman stated that while brands may be calling foul – or better yet, calling “fake!” – in connection with products that are actually fake (and there are plenty of those on Amazon’s crowded marketplace), they are also putting that very same label on authentic goods being sold on Amazon’s marketplace without their explicit authorization.

In a single line in his letter, Huseman speaks to this point, writing: “When brands … conflate concerns about counterfeits with … the ‘unauthorized’ distribution of authentic products, the shared goal of combatting counterfeiting is undermined rather than enhanced.”

The concept of brands conflating infringing and authentic-but-unauthorized goods is one that Amazon has referenced in the past. For instance, in response to Birkenstock’s public-facing claims about Amazon’s alleged unwillingness to adequately police its platform for fakes, a rep for Amazon told TFL that the company “strictly prohibits the sale of counterfeit products and invest heavily – both funds and company energy – to ensure our policy against the sale of such products is followed.” The rep made a similar point to the one that Huseman cites in his recent letter, stating, “Unauthorized products are not the same as counterfeits,” thereby suggesting that Birkenstock may have been likening the sale of counterfeit goods with genuine ones sourced from legitimate distributors.

Still yet, in defense of its sale of potentially unauthorized products on its platform (by way of third-party sellers, of course), an Amazon spokesman told TFL last year that “Amazon’s customers deserve access to authentic goods at competitive prices, and we welcome the opportunity to provide those products.”

Interestingly, neither Birkenstock nor Swatch ever initiated federal trademark infringement or counterfeiting-centric litigation against Amazon or any of its third-party marketplace sellers in the U.S. in connection with their claims of legal wrongdoing by the Seattle-based e-commerce titan, which could suggest that they had little basis for pursuing Amazon on infringement or counterfeiting charges, and instead, the claims of “fakes” were a public-facing play to get Amazon to remove the sellers of and listing for authentic but unauthorized products.

To a large extent, the potential that brands are conflating the sale of unauthorized goods with counterfeits (either intentionally or mistakenly) just might make sense. In fact, such an alleged pattern sheds a lot of light on the changing distribution landscape that brands are currently faced with, one that looks markedly different than it did just a decade ago.

With the rise of marketplace giants like eBay and Amazon, and the more recent growth of resale sites, such as The RealReal, Vestiaire Collective, and StockX, the ability of brands to exclusively control the distribution of their products has eroded substantially. Brand new Gucci eyewear, for instance, can be found on the Italian fashion brand’s e-commerce site and those of its authorized retailers, while also being offered up on Amazon – en masse – by third-party sellers. Goyard tote bags – once known for only being available in the brand’s owned-and-operated outposts – can also be purchased in “new” or “like new” condition on The RealReal, and there are lots to choose from. “New with tags” Louis Vuitton bags simultaneously populate StockX’s website and the Paris-based brand’s stores.

This new reality is a reflection of how significantly digitally-native companies and third-party marketplaces have disrupted the ability that brands once had to control almost exactly how and where their products were sold, and at what prices.

Faced with the disruptions that come with the influx of new competitors, luxury consultant Robert Burke told the AP that brands are working hard “to control their future as they watch their products get discounted on resale sites” and/or more widely distributed alongside non-luxury goods by way of sites like Amazon. This has come in the form of brands widening their own distribution channels, according to Burke. It has also seen at least some brands respond to such unauthorized sales of their products – often at lower prices and in a manner that it they cannot control (in terms of merchandising, etc.) – by calling foul.

Chanel, for one, has filed lawsuits against luxury resale sites, citing counterfeit concerns but also taking issue more generally with the company’s use of its intellectual property – from its ad campaign images to its trademark-protected name and logo.

In one such case, defendant The RealReal has responded by claiming protection from the first sale doctrine, a trademark tenet that enables purchasers of authentic goods to resell those goods without facing claims of infringement by the manufacturing brand. (This is because it is well understood that once a manufacturing brand releases its products into the market, its ability to control how/where those products are sold is significantly diminished). Walmart made the same argument in the case that haircare company Olaplex filed against it over the sale of allegedly infringing products on its own third-party marketplace. Both of those cases are still underway.

Others, such as Birkenstock and Swatch, have taken to calling out Amazon on the basis of “counterfeits.” Amazon, of course, contests this and claims, the products are “real but unauthorized,” another instance in which the first sale doctrine could be particularly relevant.

On a broader scale, the aforementioned U.S.-specific endeavors come as fights by brands to carefully control how and where their products are sold are finding backing in the European Union, where courts have proven willing to side with luxury-level brands in their quests to restrict distribution.

For instance, in a December 2017 decision in the case that U.S. cosmetics company Coty Inc. filed against fragrance distributor Parfümerie Akzente GmbH, the European Court of Justice determined that “a supplier of luxury goods can prohibit its authorized distributors from selling those goods on a third-party internet platform such as Amazon,” stating that “such a prohibition is appropriate and does not, in principle, go beyond what is necessary to preserve the luxury image of the goods.”

That decision was followed by one from the Düsseldorf Higher Regional Court, which held that Japanese luxury cosmetics company Kanebo may limit where its beauty products are sold. Specifically, the court held that Kanebo may prevent real, the European equivalent of Walmart or Target, from offering authentic versions of both Kanebo’s namesake products and those from sister brand Sensai, for sale in its brick-and-mortar locations, as well as on its website.

In that case, the Kanebo products that were being offered for sale by real had not physically altered in any way (which is an important factor to consider from a first sale standpoint), and yet, the court was willing to determine that real was in the wrong, nonetheless, because its stores were not “comparable to the luxurious environment where the [Kanebo] goods are usually offered for sale.”

According to a statement from Noerr LLP, the law firm that represented Kanebo, “With this landmark decision, a higher German court has for the first time recognized that manufacturers of luxury goods can put a halt to the sale of grey market goods” – i.e., authentic goods that are sold outside the authorized distribution channels – “if their products are sold in an environment damaging to their reputation and image.”

Should such restrictions eventually come to play in the U.S., that could prove damning for Amazon, which derives “a majority of sales on its marketplace [from third-party sellers],” according to Motley Fool, thereby helping it to generate $42.75 billion in revenue (from third-party marketplace sales, alone) in 2018. That is, of course, assuming that the products are not actually fake in the first place, as many parties allege and as Amazon appears very willing to deny.

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