The Amazon River of Counterfeit Products

Adam Baumli

IP Portfolio Manager

Contact: adam@ipval.com

This article is a start of a series to explore the current landscape of Intellectual Property Law and how it is enforced with respect to the e-commerce marketplace.  This article highlights one specific case to be decided by the Federal Circuit and expands on the damage the current decision has on American Businesses.  The next article will extrapolate more on the underlying question of law, is an e-commerce marketplace company responsible as an “offer for sale?”

While it hasn’t been covered by many sources, an interesting matter will be decided by the Federal Circuit about the liability Amazon.com Inc. (“Amazon”) bears by providing a marketplace wherein copyrights, trademarks, and patents are often infringed by foreign entities at the detriment to an American Business, Milo & Gabby LLC. v. Amazon.com, Inc.  CAFC 16-1290.  This case is an appeal of a Washington Jury’s decision to dismiss Milo and Gabby’s claim that Amazon is liable for infringement.

More specifically, the case involves counterfeit products being sold on Amazon.com.  The most disappointing aspect about this matter is that even though Amazon admits  infringement occurs, Amazon denies responsibility.

Milo & Gabby sells novelty pillow cases.  Amazon provides a marketplace for Milo & Gabby, but also for competitors who sell counterfeit Milo & Gabby pillow cases.  The Amazon marketplace is a river of products with its mouth being consumers.  “Access a massive audience of confident customers—in the U.S. alone, Amazon has over 95 million monthly unique visitors.”   Some of the counterfeiters have even used the same images (pictures) and product name as the company who they are counterfeiting.  To better illustrate, a hypothetical of this occurring would be if you searched for Milo & Gabby pillows, the search returns many counterfeit products.  The counterfeit sellers are able to undercut Milo & Gabby.  Currently, Milo & Gabby is not listed on Amazon when searched.  Milo & Gabby’s website is no longer registered.  It is probably safe to assume that they are out of business.

When it comes to stopping the flow of counterfeit products, Amazon operates more like a fisherman than it does a dam or filter.   Amazon does offer an option for sellers and buyers to report infringement.  However, that requires businesses to constantly police Amazon’s site.  So Amazon is really asking for the businesses to operate as the fishermen, but Amazon is at the shore with a net to remove the counterfeiter.  For a small business like Milo & Gabby, that would require reallocating employee time to police Amazon’s marketplace, instead of dedicating that time to their business.   Milo & Gabby needs to invest in the fishing business instead of their product or clientele.  There is no guarantee that Amazon will fix the problem if reported.  Amazon will often remove the reported infringer’s listing, but fail to stop the infringer in the future from listing on Amazon again.  To be fair, Amazon is not operating a counterfeit conservation system of catch and release, but they might as well.  If Amazon removes a counterfeiter, that counterfeiter can simply dive back into the river under a different name.  Sometimes, that counterfeiter may even retain their original Amazon registration number.

Amazon’s marketplace is big business.   The Amazon river continues to grow and  Last year, Amazon stated that it’s fulfillment service delivered over 1 billion items and continues to grow.  The same article states that Amazon earns between $1.50 to $100 per item order, in addition to the monthly fee associated with being an Amazon seller.  So not only is Amazon enabling this rampant infringement, they are profiting off it.

This problem doesn’t just cost the Intellectual property holders sales, it costs them retailers.  For example, let’s say you sell a specialized product.  Your company sells that product at Home Depot, Target, Walmart, and Amazon.  Your company sells that item for a specific price, let’s say $10 for easy math.  Now, let’s say a Foreign counterfeiter sells a knock off product and uses the same name and same pictures as your product posting on other e-Commerce websites, like www.Homedepot.com, but sells it for less than you sell it yourself, so $8.  Your vendors are not going to be pleased to see your product for sale on a competitor’s site for less than what you sell your product to them.  As a result, those companies will probably drop your product.  Now, you are left with only Amazon.

This is a huge victory for Amazon, because now, you have to sell to them exclusively and they have no competitors.  They have isolated your company and left you with no other option.     What if you decide to take legal action?  Amazon can pull your product leaving you with no business at all.

Milo & Gabby’s issue is not an isolated case.  Forearm Forklift is another example of an American drowning victim of Amazon’s counterfeit flood.  Provided below is a selection of the results from searching “Forearm Forklift on Amazon.com:

The top result is from the actual company Forearm Forklift:

pic 1

Here is another entry provided by a rampant counterfeiter on the first page of search results:

pic 2

As a result, there are negative comments about the order from the counterfeiter not matching the picture, for example:

pic 3

pic 4

pic 5

The result is that the Forearm Forklift not only has lost sales, but now loses profit margin and loses their reputation.

Should Amazon be required to filter their river, police their marketplace?

It is disappointing for such a large American company to enable and fail to adequately police counterfeiting that negatively affects small American businesses.

The Federal Circuit needs to hold those who profit from intellectual property infringement liable.   This decision can require Amazon to dam up the counterfeit tributaries.