Global retail sales are projected to exceed $25 trillion in 2020 and the portion attributed to e-commerce is growing rapidly. For example, in 2015 e-commerce accounted for only 7.4% of the total retail market but is projected to be more than double that to 16.1% in 2020. The United States, with the world’s largest GDP, is a major contributor to these staggering numbers. According to Forbes, Amazon, the king of U.S. e-commerce, recently dethroned global retail giant Walmart as the largest global retailer. Amazon exceeded $220 billion in sales on Amazon.com in 2019. Despite Amazon’s dominance, its unique business model relies on over 1.7 million active and independent sellers. Many professional sellers run significant businesses by capitalizing on Amazon’s platform. For example, in 2018 Vox reported that 19% of Amazon’s professional sellers had yearly sales exceeding $1,000,000 and 3% exceeded $10,000,000. Even more interesting is the significant number of small businesses using the platform. In 2019, third party companies’ sales surpassed Amazon’s proprietary sales and according to Amazon’s Small Business Impact Report, independent sellers earn on average, $90,000 annually.
The immense migration to e-commerce and the success of Amazon’s platform has resulted in a highly competitive battle for even a small share of the market. With over 300 million active buyers, even cheap, low margin items can be good business with a dominant market share. This intense battle for recognition, sales, and market share on Amazon has given rise to unfair practices, or what many refer to as “Black Hat Tactics.” These unfair tactics include intentionally leaving false reviews, changing pack sizes to ensure a competitor incurs losses, listing sabotage, hijacking, co-opting, catalog manipulation, false infringement allegations, and counterfeiting among countless others. Many of these tactics attempt to unfairly use Amazon’s policies or practices to get a listing or seller’s account permanently or temporarily suspended. Black Hats often exploit Amazon’s shared or universal listings. Amazon’s policy restricts creating new listings and prohibits creating duplicate listings for an item. Further, there can be many benefits to having multiple sellers sharing a single ASIN including customer experience, competitive pricing, increased sales, increased reviews, and ultimately a higher search ranking.
Despite these benefits, providing multiple sellers with the ability to use and modify a single listing is ripe for abuse. For example, a “black hat” can change a product’s description to include foul language or illicit drugs. The listing will likely be flagged and may even be suspended. When coupled with targeted attacks around holidays or Christmas, a suspended listing could substantially harm company revenue and divert sales to a competitor. Moreover, even if the listing is restored, future revenue could be impacted by a lower search ranking, poor customer reviews or loss of offended customers.
Similarly, a black hat may hijack or co-opt a generic listing from multiple sellers. For example, multiple sellers may be reselling Saint Patrick’s Day-themed necklaces under a single listing and the brand “Generic Manufacturing Company.” A black hat seller may watch the sales, inventory, and reviews for this listing grow for multiple months and then, just prior to the Saint Patrick’s Day holiday, edit the listing’s title, image, brand, and/or description to “Black Hat Party Saint Patrick Necklaces.” The multiple sellers can then battle to remove the black hat seller’s changes or sell “Generic Manufacturing Company” goods under the “Black Hat Party Gags” listing. Selling goods under a mislabeled ASIN could anger customers or worse yet result in a violation of Amazon’s policy which could lead to a seller’s account being suspended. An even more aggressive black hat seller could file an Amazon complaint against sellers after changing the listing or using Brand Registry take complete control of the listing.
Very few sellers are willing to risk their seller’s account privileges (i.e., their entire business) being suspended and are ultimately forced to disable the disputed listings. These seller’s may file a complaint with Amazon, but there are numerous instances of such situations being resolved unsatisfactorily. Ultimately, many sellers feel contacting Amazon is against their best interest because resolution takes too long, is too burdensome, jeopardizes the seller’s other business, or results in retaliation from the black hat seller. Its not difficult to understand these concerns, as many of Amazon’s internal policies for dealing with these situations are unknown, evolving and dynamic. The Verge explains,
For sellers, Amazon is a quasi-state. They rely on its infrastructure—its warehouses, shipping network, financial systems, and portal to millions of customers—and pay taxes in the form of fees. They also live in terror of its rules, which often change and are harshly enforced . . . Sellers are more worried about a case being opened on Amazon than in actual court, says Dave Bryant, an Amazon seller and blogger. Amazon’s judgment is swifter and less predictable, and now that the company controls nearly half of the online retail market in the US, its rulings can instantly determine the success or failure of your business, he says. “Amazon is the judge, the jury, and the executioner.”
Some sellers believe Amazon’s only concern is mitigating its own liability and not assisting the small businesses or worker bees fueling its enormous empire. Amazon’s concern for the liability for such practices is no secret. A 2018 earnings report filed with the Securities and Exchange Commission states,
We Could Be Liable for Fraudulent or Unlawful Activities of Sellers
The law relating to the liability of online service providers is currently unsettled. In addition, government agencies could require changes in the way this business is conducted. Under our seller programs, we may be unable to prevent sellers from collecting payments, fraudulent or otherwise, when buyers never receive the products they ordered or when the products received are materially different from the sellers’ descriptions. We also may be unable to prevent sellers in our stores or through other stores from selling unlawful, counterfeit, pirated, or stolen goods, selling goods in an unlawful or unethical manner, violating the proprietary rights of others, or otherwise violating our policies. Under our A2Z Guarentee, we reimburse buyers for payments up to certain limits in these situations, and as our third-party seller sales grow, the cost of this program will increase and could negatively affect our operating results. In addition, to the extent any of this occurs, it could harm our business or damage our reputation and we could face civil or criminal liability for unlawful activities by our sellers.
Seller’s who want to avoid arbitrating the controversy in the court of Amazon and would rather bring the dispute to the public courts, which are built to deal with such issues, still face problems. Litigation is costly, burdensome on the company and is usually not resolved quickly, but in many cases, it is the only course of action.
Traditional business torts such as defamation and tortious interference with business relationships may be possible avenues to remedy the situation. Other alternatives include actions under section 43(a) of the Lanham Act such as false designation of origin and false advertising. Finally, actions under state law such as deceptive trade practices and unfair competition may be available. Although, extended litigation can be expensive, settlement or a preliminary injunction may result in a quick satisfactory resolution. Even, a default judgment can provide significant weight, when it is necessary to work directly with Amazon to resolve the issue.
Despite the possible remedies discussed above, the old cliché prevention is better than reaction rings true. One of the best measures to preventing and remedying black hat tactics is registering, maintaining and enforcing U.S. intellectual property (IP) rights such as trademarks, patents, and copyrights. Further, Amazon is much more receptive to preventing and protecting established IP rights. Amazon has even set up remedial programs for dealing with and addressing IP violations including Brand Registry, which requires a registered trademark, and the Utility Patent Neutral Evaluation, which requires a utility patent. Many of the measures discussed above are not solely applicable to Amazon and may apply to other e-commerce platforms.
As Amazon and e-commerce continue to grow, both preventive and remedial action to addressing online black hat tactics becomes increasingly important. IP protection is an important step in starting or running a sustainable e-commerce business.