Amazon Acknowledges Counterfeit Problem in Recent Annual Report
A few years ago, I purchased a Kate Spade iPhone case on Amazon.com (“Amazon”). When my case arrived in the mail, I immediately knew it was counterfeit. The navy blue was not as vibrant as the ones I had seen on similar models at my local Best Buy, nor were the gold lines etched on the perimeter of the case as sharply defined. Disappointed, I returned my purchase and drove to the nearest electronics store.
For years now, Amazon has had a problem with counterfeit goods and has been unsuccessful in addressing the issue. Companies such as Daimler AG, Williams-Sonoma, and Apple have publicly raised concerns over Amazon’s unwillingness to reduce or eliminate counterfeit goods frequently sold on their site.[1] For example, in 2016, “Daimler AG, the parent company of Mercedes-Benz, filed a lawsuit against Amazon in U.S. District Court in Washington State, arguing that Amazon ‘has gained profits’ by selling wheels that violated Daimler’s patents.”[2] Daimler claimed that because consumers are more apt to trust items listed as “shipped from and sold by Amazon.com,” Amazon should be more diligent when detecting and deterring the infringement of patents.[3] Similarly, in 2017, Oliver Reichert, the chief executive officer of Birkenstock, a shoe manufacturer headquartered in Germany, accused Amazon of “modern-day piracy” for allowing the site to sell counterfeit versions of his company’s shoes.[4] Shortly after, Birkenstock pulled its footwear from the site.[5]
While Amazon has made efforts to combat the sale of counterfeit goods—such as requiring merchants to provide either proof of purchase or documentation from the manufacturer or distributor that they are authorized sellers—Amazon still sells thousands of counterfeit items on its site.[6] The Counterfeit Report (“TCR”), an advocacy group that detects counterfeited products of certain brands found roughly 58,000 fake goods on Amazon as of May 2016. According to TCR, “the total number of fakes on Amazon could be much higher than 58,000 since that accounts for only brands it represents.”[7]
Although lawsuits concerning the sale of counterfeit goods against the Seattle-based e-commerce platform have increased, courts have yet to rule against Amazon because the company acts as an intermediary between buyers and sellers.[8] In 2010, the U.S. Court of Appeals for the Second Circuit found in Tiffany & Co v. eBay Inc.[9] that eBay was not liable for the sale of counterfeit Tiffany & Co. jewelry on its site because eBay was not a direct seller.[10] Like eBay, Amazon is not responsible for third-party counterfeits because its business model shields the company from liability.[11] “Amazon takes care of the entire transaction between sellers and customers. It stores, ships and processes payments, but the only thing it doesn’t do is claim to be the owner—and that’s what keeps it from being held accountable.”[12]
Despite Amazon’s shield from liability, Amazon acknowledged for the first time, in its annual report filed with the U.S. Securities and Exchange Commission on February 1, 2019, that counterfeits pose a significant risk to the business.[13] Specifically, Amazon provided that “the company’s online sales platforms face the risk of being found liable for fraudulent or unlawful activities of sellers on those platforms.”[14] Amazon conceded in its report that it 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.”[15]
According to CNBC, the acknowledgment of counterfeit goods in Amazon’s annual report “reflects Amazon’s increased concern over the counterfeit problem on its marketplace, as the words ‘counterfeit’ and ‘pirated’ were never mentioned in its annual filing before.”[16]
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