What’s in the Box? Counterfeits and Online Marketplaces

In March, Senators Durbin and Cassidy introduced the INFORM Consumers Act, legislation meant to provide us with greater transparency when shopping through large online marketplaces, which is to say Amazon. In a co-authored editorial in Roll Call, the senators state:

It is well documented that third parties are selling massive amounts of counterfeit, stolen and unsafe consumer products on online marketplaces. The Office of the U.S. Trade Representative reported last year that the “rapid growth of e-commerce platforms has helped fuel the growth of counterfeit and pirated goods into a half trillion dollar industry.” Also last year, the Department of Homeland Security stated that such trafficked goods “threaten public health and safety, as well as national security.”

At this point, we probably all have a pretty good intuition that when we order various goods from Amazon, the source of the product may be questionable. If it’s a phone case for ten bucks, there’s probably no great risk, but as Senators Durbin and Cassidy note, if it’s a carbon-monoxide detector that doesn’t work, that’s another matter. Thus, the INFORM Act proposes to mandate a verification process for online marketplaces to certify some degree of legitimacy and accountability by third-party sellers through the collection of bank, tax ID, and physical address information. Any third-party sellers that fall out of compliance would have to be banned from the marketplace, and the process would be enforced by the USTR.

While the legislation strikes me as a good step toward demanding some accountability from the online marketplace, the platforms’ control over the display of information may yield results that are more translucent than transparent, but time will tell. Further, I believe Congress and other governing bodies around the world should be more aggressive with Amazon in particular.

One reason a platform like Amazon provides such fertile opportunity for counterfeiters is that we tend to shop on the platform quickly while looking at two things:  a photograph and a price. The photograph is easily deceptive, and only when the price seems unrealistically low do we, perhaps, pause to wonder whether there is any deception afoot. All that text, including the meaningless name of the seller, is probably ignored most of the time.

If this describes the habits of millions of consumers, it seems the task at hand is to require Amazon et al do far more to prevent counterfeits from trading on their platforms in the first place. And, of course, one way to achieve that end is to make Amazon or WalMart or Target liable for harm resulting from the transaction of dangerous products. Liability does wonders for cleaning up corporate conduct; in fact, it is often the only thing that does. Amazon et al would say that this is too burdensome, but is it? Durbin and Cassidy write:

… Amazon and the powerful online marketplace lobby say our bill is too onerous. They say that they already do a great job of policing who is selling what from where on their websites and that the best solution is to leave the status quo in place.

Reality couldn’t be further from the rosy picture painted by these companies. We need to take stronger steps to both prevent illicit sales on online marketplaces and to make sure bad actors are held accountable. As The Wall Street Journal recently reported, law enforcement investigators say they struggle to obtain information from Amazon about shady sellers on their marketplace. 

What’s interesting about that reference to Amazon’s opacity and uncooperative posture, if you read the recent story byAditya Kalra and Steve Stecklow for Reuters, is that it seems that one of the “shady sellers” operating on Amazon is Amazon. Because, of course, there are two sides to the counterfeiting narrative—potential harm to consumers and certain economic harm to legitimate manufacturers.

Though it probably comes as little surprise to many, documents obtained by Reuters investigators show that Amazon, at least in India, has been using its proprietary data to track certain brand trends, replicate (knock-off) those attributes in its own house brands, and then ensure that is house brands appear in search results above the same brands they copied. Kalra and Secklow write:

In sworn testimony before the U.S. Congress in 2020, Amazon founder Jeff Bezos explained that the e-commerce giant prohibits its employees from using the data on individual sellers to help its private-label business. And, in 2019, another Amazon executive testified that the company does not use such data to create its own private-label products or alter its search results to favor them.

But the internal documents seen by Reuters show for the first time that, at least in India, manipulating search results to favor Amazon’s own products, as well as copying other sellers’ goods, were part of a formal, clandestine strategy at Amazon – and that high-level executives were told about it.

So, not only should Amazon’s extraordinary data-driven advantage disqualify it from becoming a counterfeiter on its own marketplace, but having demonstrated its effectiveness at doing so, we should also conclude that it has the resources to comply with the INFORM Act, and a lot more. If Amazon has the ability to track specific sizing trends in a brand of men’s shirts for the purposes of copying the products and undercutting the brand’s market, surely it has the ability to connect a few data points to keep products like counterfeit smoke and carbon-monoxide detectors off its pages. Again, Kalra and Stecklow write:

The 2016 document stated a goal: offer Amazon’s own goods in 20% to 40% of all product categories on Amazon.in within two years. Amazon would achieve profitability in its private-brand business by ‘only launching products that will provide more margin than comparable reference brand products’.

We get it. When Amazon calls proposals like the INFORM Act “burdensome” this is shorthand for the fact that they like making money better than they like spending it. No kidding. But as the senators also note, Amazon seems to have plenty of money to burn on rocket fuel. So, it can probably bear the “burden” of protecting buyers and sellers on its platform.

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