We’ve all encountered them—pesky hijackers that just won’t seem to hit the road.  These leeches hop on our Amazon listings and sell our products without our authorization; and while this seems like a travesty to us, Amazon does little (if anything) to combat the problem.  Filing complaint after complaint, only to get shuffled around, or more often, ignored, can be incredibly frustrating, especially while you are losing inventory and profits daily.

The problem is that these hijackers are selling what are generally considered genuine products–likely they obtained your authentic product through legitimate channels (promotions, third party marketplaces, etc.); and according to the First Sale Doctrine, resellers of authentic goods cannot be held liable for infringement since there is no harm to or confusion among consumers receiving genuine products.   Therefore filing an infringement claim against them with Amazon may seem fraudulent. However, there are likely material differences in the purchasing experience that consumers get from hijackers vs. the original seller that could be construed as constituting counterfeiting.

The Material Difference Exception

 

According to the “Material Difference Exception” to the First Sale Doctrine, resellers are not protected if they offer “trademarked goods that are materially different than those sold by the trademark holder.” Beltronics USA, Inc. v. Midwest Inventory Distrib., LLC, 562 F.3d 1067, 1072 (10th Cir. 2009) (quoting Davidoff & CIE, S.A. v. PLD Int’l Corp., 263 F.3d 1297, 1302 (11th Cir. 2001)).

So what constitutes a material difference?  Courts have construed the term broadly.   The Court of Appeals for the Federal Circuit stated that there is a “low threshold of materiality, requiring no more than showing that consumers would be likely to consider the differences between the . . . products to be significant when purchasing the product, for such differences would suffice to erode the goodwill of the domestic source.”Gamut Trading Co. v. U.S. Intern. Trade Com’n, 200 F.3d 775 (Fed. Cir. 1999).

Further, material differences can be “subtle” and “not blatant enough to make it obvious to the average consumer that the origin of the product differs from his or her expectations.”Societe Des Produits Nestle, S.A. v. Casa Helvetia, Inc. 982 F.2d 633, 641 (1st Cir.1992).

This broad interpretation has purposefully left the door open for trademark owners to pursue action against unauthorized sellers of their genuine products.  Beyond the obvious physical differences, such as size, packaging, and function, there exists a vast field of intangible benefits that come with an authentic purchasing experience.

 

Material Differences in the Consumer Experience 

The following can be material enough to be considered infringement if they are offered when consumers purchase from you and not offered when purchased from unauthorized sellers:

  • Unique Manufacturer’s Warranty
  • Money-back guarantee
  • E-mail sequence follow-up with instructions, bonus material, etc.
  • Customer service from company
  • Brand-specific coupons, deals, stacks, etc., sent post-purchase
  • Any other post-sale service

When consumers do not receive the benefits such as those above promised in the Amazon listing, it can result in:

  • Negative reviews
  • Loss of brand goodwill
  • Loss of revenue
  • Brand value dilution
  • Diminished company reputation

            This list serves to underscore the importance not only of having some sort of post-purchase customer service, but also of emphasizing these benefits in your listing.  If these services are guaranteed in your listing and not received when a customer buys, Amazon will be more likely to consider them material to the consumer. 

According to Amazon’s anti-counterfeiting policy, “Prohibited products include bootlegs, fakes, or pirated copies of products or content; products that have been illegally replicated, reproduced, or manufactured; andproducts that infringe another party’s intellectual property rights” (emphasis mine). The last part is key—as stated above, the law is well-settled that anything that damages the goodwill or reputation of a brand is infringement. When filing an infringement claim with Amazon against a reseller or authentic products, cite these differences.

 

The Problem With Warranties–The Seller Is The Manufacturer

         Amazon allows only manufacturers’ warranties to be advertised on listings.  

While a manufacturer’s warranty can be used as a basis for an infringement complaint, Amazon has trended toward requiring a unique warranty from manufacturers to take action on a report of infringement.

Remember, you as a seller are generally considered the manufacturer, and therefore liable for product safety and quality, as well as fulfilling claims under any manufacturer’s warranty you provide.

Though the liability of Amazon itself is a highly litigated subject right now, the general consensus among courts is that Amazon is neither the manufacturer nor the seller. A Pennsylvania court recently compared Amazon to an auction company—it simply acts as a conduit between the seller/manufacturer and the consumer. Oberdorf v. Amazon.com, Inc. 295 F. Supp. 495, 501 (2017) (“The Amazon Marketplace serves as a sort of newspaper classified ad section, connecting potential consumers with eager sellers in an efficient, modern, streamlined manner.”).

You are probably questioning how you as a seller can be considered the manufacturer (and therefore considered to bear the liability for your products) when you are not a factory that is producing garlic presses and can openers; you essentially have no control over the way the products you sell are put together.  Nonetheless, U.S. agencies such as the Consumer Product Safety Commission (CPSC) and the Federal Trade Commission (FTC) define Amazon sellers and other importers as manufacturers (as does the U.S. judicial system in general), rather than the Chinese factories where the products are actually “manufactured.”  This means that you are responsible for ensuring that federal regulations and standards are met.   The CPSC’s policy states that “. . .the importer is in a unique position in the chain of distribution. By influencing the foreign manufacturer and monitoring the safety of the products imported, the importer can indirectly control product design and production . . .

. . . Because the importer determines what foreign goods are brought into the United States, he or she must be the one to bear the primary responsibility of those products.” CPSC Policy on Imported Consumer Products(1975).

As unfair as this may seem, embracing this ill-defined role as manufacturer can actually work in your favor. With great responsibility (or liability) comes great reward. Because you are the end of the line for any consumer issues with your products, you have the freedom and authority to create a manufacturer’s warranty that can be fulfilled only by you.  Crafting an effective and unique warranty can be used to deter counterfeiters and hijackers and can cause Amazon to pay more attention to your complaints of arbitragers.

 

The key word here is unique—you cannot use a boilerplate warranty from Google and expect Amazon to consider it “material” in determining whether a hijacker can be considered a counterfeiter.

 

Drafting An Effective Warranty

Though crafting this type of warranty may seem daunting, understanding that specificity is key can help with deciding what to include.  Here are some basic steps to draft an effective warranty to create a material difference between original seller and arbitrager:

(1) First and foremost, you must make certain your warranty is Magnuson-Moss compliant.   The Magnuson-Moss Warranty Act governs product warranties in the U.S. While it is to your benefit to read the law in its entirety, there are three basic requirements you MUST follow:

(a) As a warrantor, you must designate, or title, your written warranty as either “full” or “limited.”

(b) As a warrantor, you must state certain specified information about the coverage of your warranty in a                 single, clear, and easy-to-read document.

(c) As a warrantor or a seller, you must ensure that warranties are available where your warranted consumer products are sold so that consumers can read them before buying.

 

(2)   Create a full warranty rather than limited.  A full warranty places no conditions on the consumer for fulfillment of the warranty promises.  While limited warranties serve their purpose, a full warranty is key for establishing brand loyalty and trust.  A full warranty contains ALL of the following elements:

  1. You do not limit the duration of implied warranties (an implied warranty is basically an unwritten rule applied to all consumer products that promises that a product will do what it’s supposed to do—i.e., a can opener will open cans).
  2. You provide warranty service to anyone who owns the product during the warranty period.
  3. You provide warranty service free of charge.
  4. You provide, at the consumer’s choice, either a replacement or a full refund if, after a reasonable number of tries, you are unable to repair the product.
  5. You do not require consumers to perform any duty as a precondition for receiving service, except notifying you that service is needed, unless you can demonstrate that the duty is reasonable.

If any one of these elements is missing, the warranty is considered limited.

 

(3)  Consider both primary and ancillary issues that may arise:

  • Will you cover consequential damages? If a freezer you sell breaks, do you pay for the spoiled food?
  • What steps will you take to repair or replace a defective product?
  • Do you have any conditions that must be met in order for the warranty to be fulfilled? Can your product only be used for certain purposes?  Can your can opener be used on plastic lids?
  • What exactly will you do for a consumer with a defective product?

Err on the side of over-inclusivity in your warranty.  You will be better protected as a seller/manufacturer in the long run.

 

(4)      Include a manufacturer-specific provision in the document.  This needs to be some sort of service that only you as the manufacturer can provide. For example, if you sell a can opener, the warranty could protect the sharpness of the proprietary blade wheels. If they ever dull, the manufacturer will use a special machine to re-sharpen them.   If you sell waterproof peel and stick floor or wall tiles and the waterproof coating gets damaged or wears off, your warranty could ensure that the manufacturer will re-apply its special finish to your damaged tiles.   An unauthorized re-seller of your tiles would not have access to the waterproof coating solution.

This provision will necessarily be incredibly product-specific.  Think about what service you can offer that re-sellers of your product can’t duplicate.

 

(5)  Understand the difference between “tie-in” sales provisions and unique manufacturer’s provisions.  You are prohibited by law to require that a consumer buy only your complementing products in order to validate the warranty on another product. For example, you cannot require consumers to use and buy only your company’s slide-on rubber grips (sold separately of course) for the can opener in order to for you to replace worn handles on the can opener.  You can includethe rubber grips with can opener orders for free and then require that they be used; but requiring an additional purchase from you to validate the warranty is illegal.

 

Follow the law, be specific, and consider all issues that may arise—basic but important steps to create the warranty you need.

 

Incorporating the Warranty Into Your Listing

 Though Magnuson-Moss does not restrict warranty advertising in any way, the FTC has its own set of guidelinesAdvertised warranties for products that cost more than $15 must be available in their entirety to consumers before purchase. This necessarily implies that you need to make your warranty available on your listing if any variation of your product costs more than $15 and you plan to advertise that you have a warranty or guarantee (separate from Amazon’s return policy guarantee) in your listing.

Unfortunately, Amazon restricts the ability to provide warranty information to Enhanced Brand Content (EBC) participants, or Brand Registry members.  Because no third-party site links are allowed, Brand Registry members can only post PDFs in their warranty section.  And as you well know, you have to have a trademark in order to be considered for Brand Registry.

For all of you non-BR, non-EBC, garden-variety sellers–fear not, for you can attach a PDF of the agreement in a follow-up e-mail sequence.  However, if your product costs more than $15, you cannot advertise the warranty in your listing, as it must be available to consumers before purchase. This convoluted area of law, coupled with Amazon’s ever-changing terms, makes for a very confusing set of guidelines to follow.  Understanding the compliance rules is time-consuming, but will serve you well as a business owner.

 

What if Your Brand Isn’t Trademarked?

Apply for a trademark—now.  The process can take months or even years, and the protections you receive are essential for combating hijackers and counterfeiters. In the meantime, you began accruing common law rights to your brand from the moment you began selling, trademarked or not.  These can be used as a basis for a complaint with Amazon, albeit a weaker basis.

 

 

 

For any questions regarding Amazon listing strength, drafting a proper warranty, the trademark process, post-purchase e-mails or customer service, or filing an infringement claim with Amazon, e-mail [email protected] or [email protected]