Amazon's counterfeit problem snowballs
E-commerce giant Amazon has a serious counterfeit problem: Fake goods from China proliferate on its marketplace. In some cases, fakes from China have destroyed once thriving small businesses. Yet Amazon has resisted pressure to act proactively fight counterfeiters. Its defense boils down to the following: "We act as a platform for third-party sellers. Since we don't own the goods being sold, we can't be held responsible if they are fake."
Amazon's ability to shirk responsibility for counterfeit goods sold on its marketplace is rooted in a legal loophole. Because Amazon is an e-commerce platform used by third-party sellers but not the owner of the goods being sold, it is not legally responsible for counterfeits. The loophole doesn't work for something that's illegal in the first place - such as controlled substances - but for goods which are ostensibly legitimate, like iPhone chargers, that turn out to be fake, Amazon evades liability.
A May Engadget report notes that the advocacy group The Counterfeit Report has discovered 58,000 fake goods on Amazon since May 2016 and succeeded in taking down 35,000 infringing listings. That's just a fraction of the 560 million items Amazon sells, but the true number of counterfeits on the platform could be much higher. The Counterfeit Report told Engadget that it only looks for products that infringe on the trademarks of the brands it represents.
Amazon's anti-counterfeiting strategy is inherently reactive. Rather than actively police its marketplace for infringing goods, the company asks brands to register in its "Brand Registry." It then waits until it receives a complaint from a trademark owner before taking down an infringing listing. The company told The Guardian in April: "Amazon investigated and took action on 95 percent of all notices of potential infringement received from Brand Registry within eight hours," adding that brands in the Brand Registry "are finding and reporting 99 percent fewer suspected infringements" than before the launch of the program.
Mark Schonfeld, a Boston-based IP lawyer, told Engadget that a 2010 case in which eBay was found not liable for fake Tiffany & Co. products sold on its site set a legal precedent that has worked in Amazon's favor - thus far. Schonfeld believes that Amazon may soon be held legally liable for infringing listings because it increasingly acts as a direct seller of products, rather than the middleman connecting buyer and seller.
In our view, Amazon should take a more proactive approach to fighting counterfeiting because it's good for business in several ways. Firstly, Amazon could attract more high-end brands to its platform. Compared to Alibaba's TMall, Amazon has far fewer luxury brands. LVMH, the world's No. 1 luxury group, sells none of its products on Amazon. In contrast, it has a flagship store on TMall.
An October report in The Wall Street Journal notes that a dearth of luxury products has prevented Amazon from being influential in the fashion industry. Selling luxury goods would likely increase the company's profit margins and appeal to customers of Amazon Prime - a premium shipping service for wealthier shoppers, The Journal says.
At the same time, given tense Sino-US trade relations, acting as a conduit for the sale of counterfeit goods from China isn't wise. That's especially true when we consider the Trump administration launched the Section 301 investigation to fight back against years of alleged Chinese infringement of American intellectual property.
Amidst a widespread backlash against tech giants on Capitol Hill, we believe that it's likely lawmakers will turn their attention to Amazon's counterfeit problem. The damage caused by Chinese counterfeiters on Amazon to American small businesses will particularly incense U.S. lawmakers.
In September, California-based entrepreneur Mark Loprieato, creator of the adjustable lifting straps Forearm Forklift, told Forbes that Chinese counterfeiters on Amazon had hobbled his business. His annual revenue eventually dropped 30%, forcing him to lay off half of his employees. Profits sank to $500 per year. Amazon failed to curb the counterfeiting, Loprieato said.
It's also worth mentioning that President Trump is not fond of Amazon founder Jeff Bezos. A source told Vanity Fair in March: “He’s wondered aloud if there may be any way to go after Amazon with antitrust or competition law."