Amazon is one of the top retailers in the world, second only to Walmart. It generates billions of dollars in revenue each year, but only about half of that revenue comes from Amazon itself selling products.
The other half of the company’s revenue is generated by Amazon Marketplace sales. Marketplace operates like eBay in that it provides a platform on which buyers and sellers may meet and conduct transactions. Amazon isn’t involved in the process, but they do collect a fee from each sale as their due for hosting the transaction.
It’s a smart business model, but it doesn’t come without risk. In its annual 10-K filing with the Securities and Exchange Commission, the retail giant mentioned for the first time the risks that come with enabling the sale of potentially counterfeit products.
What Are Counterfeit Products?
Counterfeit consumer goods, which also may be referred to as knock-offs, are products that are sold under the brand name of a person or entity that did not actually authorize or manufacture the product. Counterfeiters hope to make easy money by selling merchandise that they purport to come from a reputable company. Unfortunately, what they are selling typically is of inferior quality.
This is a major financial and reputational problem for the maker of the authentic goods. Too frequently, consumers don’t realize that what they are buying isn’t the genuine article. When they receive an item that quickly falls apart or doesn’t function as advertised, they blame the maker of the brand-name item, which didn’t have anything to do with the counterfeit.
This is a headache for big-name companies, but it can be absolutely disastrous for start-ups and other small companies. Large organizations more frequently have the deep pockets that may be necessary to combat counterfeit goods. However, small businesses don’t have those resources. The reputational damage that they suffer as a result of counterfeiting may destroy them.
Counterfeits on Amazon
Amazon’s main business model is to buy products from manufacturers wholesale so that these items can be sold to customers at a discount. Accordingly, they have measures in place to ensure that they aren’t contracting to buy knock-offs. When consumers purchase an item that comes from the Amazon Retailer tier of the business, they can rest assured that they probably are getting the real thing.
That changes when consumers are dealing with Amazon Marketplace. Although Amazon says that they try to take steps to ensure the authenticity of the goods on the Marketplace, it is ultimately only the seller’s word that backs up the items they sell. When consumers receive products that clearly are inferior, both Amazon and the purported manufacturer get the blame.
Amazon’s Form 10-K Annual Report
Each year, Amazon files a Form 10-K with the Securities and Exchange Commission, reporting their year-end earnings for the prior year. In the report covering 2018, Amazon added a notation to shareholders that acknowledges that the sale of counterfeit items on the platform is a risk.
Amazon further acknowledged that they may not be able to prevent nefarious sellers from receiving money for transactions in which buyers never receive a product or when the consumer receives a product that is demonstrably different from the advertised product.
This is the first official acknowledgment from Amazon that counterfeit consumer goods are a growing problem. However, manufacturers like Williams-Sonoma, Daimler AG and Elevation Lab have long been complaining that the retailer isn’t doing enough to curb the sale of counterfeit items on its website.
In addition, Williams-Sonoma and Daimler have filed trademark infringement lawsuits against Amazon based on the appearance of their registered marks on advertisements for counterfeit products.
Another startling claim has emerged from Apple, which says that it believes that fully 90 percent of the items sold on Amazon that purportedly come from Apple are actually fakes.
Amazon finally is acknowledging that it has a counterfeit problem, but it doesn’t yet have an effective means for eliminating it. This means that it is up to the manufacturers of legitimate goods to protect their reputation and revenue by seeking intellectual property protection. Obtaining and enforcing official patent, trademark and copyright coverage are among the most effective tools that organizations can use to protect their interests.
Author: Jeff Williams
Jeff Williams is an experienced mechanical engineer and lawyer that consults closely with clients in a strait forward and clear manner. He brings a particular set of strengths and unique perspectives to the firm.
Jeff received a B.S. in Mechanical Engineering from Arizona State University in 2005. He was an engineer for a number of years at a number of large corporations before pursuing his law degree. He graduated from Texas A&M University School of Law (formerly Texas Wesleyan University School of Law) with a J.D. in 2010. By combining his education and prior work experience into the field of intellectual property law, Jeff has developed key skills to fully assist clients.