Amazon Acknowledges Counterfeit Problem on Marketplace Platform

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 Reporting 2018

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 Reporting 2023

In 2023, Amazon released its third annual Brand Protection Report, which highlighted how the company’s efforts to protect customers, brands, and selling partners from counterfeit products has resulted in more criminal referrals and industry partnerships than ever before.

However, the report also acknowledged that counterfeit products remain a challenge for Amazon. The report estimated that 0.01% of all products sold on Amazon were counterfeit in 2022. This may seem like a small number, but it represents millions of products.

Amazon is taking a number of steps to combat the sale of counterfeit products on its platform, including:

  • Investing in machine learning and artificial intelligence to identify and remove counterfeit products from its platform.
  • Working with brands and law enforcement to investigate and prosecute counterfeiters.
  • Providing educational resources to help customers and sellers identify counterfeit products.

Despite these efforts, counterfeit products continue to be sold on Amazon. This is partly because Amazon is a massive platform with millions of sellers and products. It is also partly because counterfeiters are becoming increasingly sophisticated in their efforts to evade Amazon’s detection systems.

Amazon 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.

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4 Ways to Prevent Chinese Counterfeiters

The Counterfeit Epidemic

An ever-growing number of U.S. companies are seeing their products being ripped off online or in the various trade channels. One major contributor has been China. The counterfeiting industry there isn’t new. In fact, it’s been rampant there for many years. It’s has been admittedly difficult to police every product that comes out of China, but that doesn’t mean it’s impossible. With good intellectual property protection, and by following a few steps, it’s possible to reduce the flow of counterfeit goods coming out of China.

Steps to Protect Yourself

  • One of the most important steps toward protecting valuable intellectual property is to seek patents and trademark registrations in the U.S. and China. If every right of protection was an arrow, you want a quiver full of potential rights. The idea is to gain as many potential advantages you can. There have been some ingrained skepticism regarding the value of intellectual property protection in China. However, recently there have been some real changes in the way China looks to enforce intellectual property. China has made steady improvement in the enforcement of patent and trademark rights in recent years and in many ways, intellectual property rights in China are one of the strongest chances you may have to curtail counterfeiting.
  • In regards to trademarks specifically, a two-fold approach is recommended. We suggest that after you obtain a federal registration, you look to formally register the trademark with the respective national customs agency (China Customs – General Administration of Customs or GAC for short). The same strategy goes for the United States (US Customs – may register both Trademarks and Copyrights). Statistics show that of all the goods confiscated by Chinese Customs, most all of them involved trademarks registered in China and registered with Chinese Customs. It is important to register your marks with Chinese Customs to prevent the export of counterfeits.
  • Below is a simple timeline to go by for Chinese Customs registration. It can take around 14 months for a Chinese trademark to become registered. You need a registered mark prior to registering with Chinese Customs. Chinese customs may take anywhere from 3-4 months to complete the registration process. This means it can take at least 18 months to get full trademark protection in China. It is best not to wait.
  • Keep in mind that the Chinese trademark system operates on a first-to-file doctrine. This means that registration must occur prior to any enforcement. In the end, the U.S. and China customs will monitor incoming and outgoing shipments for counterfeit goods. The owner of the trademark registration is informed whenever counterfeit goods are found, providing an opportunity for the owner to cease the transportation of any counterfeit goods.
  • It’s also advisable for American companies to be very careful about who they are doing business with in China. Frequently, the perpetrator of counterfeit goods is in some way related to the legitimate product or business you are working with in China. Be it a distributor, manufacturer, retailer or someone who used to be connected to one of those business partners. These are most often the parties behind knock offs. Accordingly, it pays to not only develop a close relationship with these organizations, but also to keep a good handle on some portions of intellectual property. If you don’t provide business partners with all of the secrets to your success, then they will have a much more difficult time duplicating your product.
  • Monitoring the Internet for counterfeits is another essential component. Some companies ask employees to periodically check certain e-commerce websites to see if knock offs are being sold. When the task becomes too onerous to do in house, some organizations turn to an intellectual property attorney who can perform a monitoring service for them. This is frequently a smart move since the attorney probably has access to helpful tools that make monitoring the market much more efficient.
  • Of course, when that monitoring uncovers someone who is actually counterfeiting goods, it’s time to contact them with a cease and desist letter. This is sometimes all that is required to get the counterfeiting to stop. A U.S. intellectual property attorney may work in conjunction with an attorney in China to send the letter, backing it up with proof of patents and trademarks both in the U.S. and in China. Cease and desist letters sometimes result in a genuine apology and a promise to stop. However, the need to threaten legal action, like a lawsuit, may also be necessary if the counterfeiter is resistant.

It may never be possible to completely stem the flow of counterfeit goods coming out of China, but if U.S. owners and manufacturers do their part, it is possible to reduce that flow to a trickle. If you a need intellectual property litigation expert contact the Williams IP Law for a free consultation.