Amazon is witnessing a change in the legal landscape. The platform today is largely unrecognizable from the one that launched in 1995. Much of its growth is attributed to Amazon’s third-party sellers, who are independent retailers who use Amazon’s platform to sell goods directly to consumers. The platform has witnessed an unprecedented rise in third-party sellers since its inception. Third party sellers accounted for 58% of physical gross sales in 2018, up from 3% in 1999.[1] With the number of users on the rise, sellers are facing a myriad of concerns from the platform.
Fake Reviews
An increase in competition amongst Amazon markets has led some sellers to start playing dirty to go ahead. Some sellers have been caught leaving fake negative reviews of their competitors’ products,[2] while some have left fake positive reviews of their own products.[3] These reviews are rely on when making purchasing decisions. These sellers enlist professional reviewers to drive a product’s ratings up or down by purporting to be genuine, bona fide customers. The more positive the customer feedback for a particular product, the more favorably it is treated by Amazon’s algorithm, and thus, the higher the product is listed on Amazon’s search results. The increase in visibility alone is often enough to drive up the sales of a particular good, given the amount of competing similar goods on any given search results page.
Sellers have also manipulated a competitor’s product ratings by having their employees vote of the helpfulness of a particular rating, either by marking certain positive or negative ratings as “helpful” or “unhelpful” depending on if it is their product or a competitor’s product. The manipulation of product ratings deceives prospective customers into avoiding a product they might otherwise have purchased, and vice-versa, which can seriously impact business.
Courts have held that these deceptive practices can have legal consequences, and sellers engaged in these such practices may face claims of tortious interference with prospective economic advantage, unfair competition under either common law or the Lanham Act, false advertising, and false or misleading representation.
Counterfeit Goods
It is no secret that the rise of counterfeit goods poses a looming threat to small businesses, and Amazon sellers are not immune. The continuous growth of global markets means that counterfeit products are easier than ever to produce and sell to consumers seeking a cheaper alternative to their favorite name-brand goods. Many sellers see their goods copied and sold as counterfeits on Amazon next to their genuine goods. These counterfeit sellers that escape detection as third-party sellers- often FBM (Fulfillment by Merchant) sellers, which have less of a relationship with Amazon than professional accounts or FBA (Fulfillment by Amazon) sellers, which use Amazon fulfillment services.
Recently, the e-commerce giant has undertaken efforts to crackdown on counterfeit merchandise. In 2020, it destroyed over 2 million products that were sent to its fulfillment center by third-party sellers suspected of being counterfeits. However, it continues to oppose legislation requiring online retailers to authenticate the identities of “high-volume third-party sellers.”[4] So for now, it looks like Amazon retailers are still largely on their own when it comes to tackling counterfeits.
Product Liability
In selling any consumer good, a seller should strongly consider protecting themself from any potential product liability claims that may arise against them. Amazon sellers that are sole proprietors are leaving themselves open to facing personal liability in the event of a products liability suit, meaning that a seller’s personal assets may be seized in the event there is a judgement against them. Protection in the form of a legal formation behind your business (such as a Limited Liability Company, or LLC) will ensure a seller’s personal assets are separated from their business in the event of legal trouble.
The Buy Box
A key feature of Amazon’s user interface is the buy box feature. This is a feature on the far-right side of a listing’s page that enables users to view options for purchasing- new, used, expedited shipping- before offering the option to add the listing to the user’s cart. Once the listing is in the user’s cart, they are offered a yellow “Proceed to Checkout” button, where they may choose to keep shopping or make an immediate purchase. The buy box serves to expedite the purchasing process by allowing a user to quickly find and purchase their desired items, which takes one or two clicks from adding to cart to completing the purchase as opposed to the normal 3-5. An important feature of the buy box is that it must be “won” by the seller, so not all listings are afforded the luxury of the coveted buy box.
So, how does Amazon decide who “wins” the buy box and who doesn’t? Amazon doesn’t actually give any criteria or minimum requirements for a seller to win the buy box. Although, many have speculated a number of features that may be considered, such as being a Prime seller, having FBA eligibility, and running advertising.
Recently, use of the buy box feature has generated cries of anti-trust violations for the competitive advantage that the feature gives. First, the process of deciding which sellers receive a buy box is blantantly arbitrary. This also extends to keeping the buy box. Sellers who had won the buy box might wake up one day and find that they have lost it. So, getting the buy box is just as much of a mystery as losing it, leading some sellers to speculate favoritism within the platform. Second, the buy box instils a level of confidence in the buyer. One might view a buy box listing and believe that what they are viewing is more of a “legit” listing than those listings without the buy box. Third, consumers engaged in e-commerce largely seek efficiency in their online transactions. A consumer might be more inclined to purchase a buy box listing than a listing without the buy box simply due to the more leisurely purchasing experience that the buy box creates. Lastly, advertisements cannot be generated for a listing in which the seller does not have the buy box. These factors place sellers without the buy box at a massive disadvantage because Amazon has rendered them effectively unable to compete within the Amazon marketplace.[5]
Competition from Amazon Itself
Anti-trust concerns have also arisen regarding Amazon’s ability to competing directly with sellers. Many are familiar with Amazon’s own “Basics” brand that dominates product listing pages. Not only does Amazon have the funds for large-scale advertising for its brand, but it also has the resources to target certain demographics that would be interested in a particular product. Sellers often spend large sums of money to hire consultants that research and provide data on sales demographics, efficient keywords to utilize in listings, and other information useful in marketing. Nothing prevents Amazon from taking this data to compete directly with those sellers, as it already offers its affordable “Basics” brand that is trusted by Amazon customers.
Conclusion
When facing legal concerns, sellers are largely on their own. The best way for sellers to protect themselves is to be apprised of the issues that may arise. For more information, visit Revision Legal.
[1] See American Bar Association.
[2] See, e.g., AlphaCard Systems LLC v. Fery LLC, No. 19-20110, 2020 WL 4736072 (D.N.J. Aug. 12, 2020).
[3] See, e.g., Interlink Products Int., Inc. v. F & W Trading LLC,No. 15-1340, 2016 WL 1260713 (D.N.J. Mar. 31, 2016).
[5] See Jungle Scout.