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Amazon needs to get a handle on its counterfeit problem

'Fulfilled by Amazon' should be a badge of trust, not a legal loophole.
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Chances are you wouldn't suspect that whatever you're buying from Amazon, whether it be clothing, sunglasses or a handbag, is fake. And, for the most part, that tends to true. But that doesn't mean you should trust that every product is legit. In fact, right now if you search for "Yeezys," a highly coveted pair of Adidas shoes, you'll get more than a thousand results that are clearly fake. Two dead giveaways are design flaws and an unlikely low price -- trust me, Adidas doesn't sell them for $20. The worst part is that some of them bear the seemingly trustworthy Fulfilled by Amazon (FBA) label. But all that really means is that the company is acting as the middleman between you and the actual seller.

When Amazon is questioned about it, it tends to downplay the issue and shift the blame to third-party sellers. Legally, Amazon isn't responsible for third-party counterfeits, as its Fulfilled by Amazon service acts as a shield against liability. With FBA, 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.

Counterfeit goods aren't something you generally have to worry about when you're shopping in person at a traditional, established store. While Amazon has made efforts to combat this issue, like requiring sellers to get permission from certain brands to list their products, there are still clearly thousands of fakes being sold on the site. That's the main reason the high-fashion industry refuses to work with Amazon.

The Counterfeit Report (TCR), an advocacy group that works with brands to detect fake goods, has found around 58,000 counterfeit products on Amazon since May 2016. That's a small slice of the 560 million items on the site, but even a single counterfeit is probably too many for most customers. Craig Crosby, TCR's publisher and CEO, said that as Amazon's sales keeps increasing, so does the fake-goods problem. All told, the group managed to have 35,000 items taken down, but TCR says that the total number of fakes on Amazon could be much higher than 58,000, since that accounts for only brands it represents.

Crosby added that manufacturers often have to police sites like Amazon for repeated counterfeit listings, which can become a tedious task. Back in 2016, footwear designer Birkenstock said it would stop doing business with Amazon, citing an increase in counterfeit goods on the site and "a constant stream of unidentifiable unauthorized resellers." Birkenstock CEO David Kahan said that policing "this activity internally and in partnership with Amazon.com has proven impossible."

That same year, Apple filed a lawsuit against Mobile Star LLC for making counterfeit Apple chargers and cables and passing them off as authentic goods on Amazon. As part of the suit, Apple said it bought more than 100 Lightning cables and chargers marked as "Fulfilled by Amazon" over a period of nine months and that about 90 percent of those were fake.

Customers tend to trust listings that are sold under the Fulfilled by Amazon branding, but cases like these suggest that maybe they shouldn't. This is why it's essential that Amazon tackle the issue head-on. Even if the number of counterfeits seems small, Amazon's reputation is still on the line.

A pair of fake Adidas Yeezy shoes on Amazon.

Amazon said that one of its main goals for 2017 was to fight counterfeits, and it vowed to work with brands on a registry that would require any merchant offering its products to prove that it's an authorized seller. The year before that, the company rolled out a plan that required third-party sellers on its site to pay a fee of $1,000 to $1,500 and provide proof of purchase to list items from Adidas, Asics, Hasbro, Nike and Samsung. Amazon told Engadget recently that there are more than 60,000 companies on its Brand Registry program, and that it encourages those with concerns about fake versions of their products to notify it.

Of course, Amazon isn't alone in its fight against fakes. Sites like eBay also have programs in place to combat counterfeits, such as VeRo (Verified Rights Owner), which allows intellectual property owners and their authorized sellers to report eBay listings that may be fake. The problem with that, Crosby said, is that it's reactive, not proactive, and requires brands to be constantly monitoring the sites.

Meanwhile, Chinese e-commerce giant Alibaba last year created the Big Data Anti-Counterfeiting Alliance with 20 international brands, including Samsung and Louis Vuitton. The goal, Alibaba said, is to use technology to remove pirated goods from its online retail sites, such as its namesake one and Taobao, which has a reputation for being flooded with fakes. Unlike eBay's VeRO, what Alibaba is building is a proactive system, powered by artificial intelligence, that can detect anomalies in customer reviews, product listings and specs. In addition, the company said it would work closely with Chinese authorities to seize and arrest the people selling the counterfeits. These efforts, Alibaba said, led to the seizure of $207 million worth of fake goods.

TIANJIN, CHINA - 2018/05/18: Alibaba shows its smart technology in e-commerce to the visitors.  The 2nd World Intelligence Congress  was held in Tianjin Meijiang Exhibition Center from May 16-18, 2018. (Photo by Zhang Peng/LightRocket via Getty Images)

As part of its Big Data Anti-Counterfeiting Alliance, Alibaba is using artificial intelligence to crack down on fakes.

Amazon said that, along with using machine learning and automated systems, it employs dedicated teams of software engineers, research scientists, program managers and investigators to operate and continually refine its anti-counterfeiting program. The company claims that, as a result of the Brand Registry, it has managed to reduce the number of suspected infringements by 99 percent. What's more, the company said, it usually investigates and takes action on about 95 percent of reports from brands in that program within eight hours. And if a customer happens to buy a fake, Amazon says it will refund the order. While these figures seem promising, it also means that if a brand you like isn't part of the registry, there's a higher risk of counterfeit items from it being on Amazon.

Crosby said that another issue is whether Amazon actually prevents the counterfeit items it removes from reappearing on it site, which is just as important as removing them in the first place. "If 60,000 brands had to register to protect their intellectual property," he said, "Amazon's counterfeit problem must be significantly greater than [it] reports." (Crosby said that clients of the Counterfeit Report do not use Amazon's Brand Registry, since the program requires disclosure of confidential counterfeit identifiers, like special tags.)

Although Amazon is not be liable for the sale of counterfeits on its marketplace, thanks to its FBA program, that may not be the case for long.

Although Amazon is not be liable for the sale of counterfeits on its marketplace, thanks to its FBA program, that may not be the case for long. Mark Schonfeld, a partner at law firm Burns & Levinson LLP, in Boston, who focuses on intellectual property cases, said that Amazon has been able to shield itself because when it started its business, it acted only as an intermediary between buyer and seller. But that's clearly changed in the past few years as Amazon has taken on the approach of being more of a direct seller, be it through its own sales or those that are Fulfilled by Amazon.

He added that, because the sale of counterfeits is subject to strict liability, Amazon should be legally responsible if a fake good is being sold by a seller using FBA. Schonfeld said that while this hasn't caught up with Amazon yet, it's only a matter of time. A legal case that has kept the company from being held accountable dates back to 2010, when the US Court of Appeals for the Second Circuit found that eBay wasn't liable for the sale of Tiffany & Co. fakes on its site.

"Amazon refuses to take reasonable steps to police intellectual property infringement or to source their 'shipped from and sold by Amazon.com' products only from authorized manufacturers, wholesalers, and retailers." -- Daimler AG

The argument in that case was that eBay wasn't a direct seller, which is why Amazon's FBA is the perfect safeguard for the company. It allows Amazon to avoid accountability, even though it handles almost the entirety of the transaction. When you buy something from eBay, you know that you're doing so from a random person somewhere in the world, whereas on Amazon that's not always clear, thanks in no small part to the Fulfilled by Amazon program.

That said, there is an ongoing legal battle that could change how Amazon approaches sales on its marketplace. Daimler AG, Mercedes-Benz's parent company, has filed cases against Amazon that accuse the company of profiting from the sale of wheels that violate its patents. In an October 2017 complaint filed in the US District Court for the Central District of California, Daimler AG said that, despite its efforts to convince Amazon to respect intellectual property rights, "Amazon refuses to take reasonable steps to police intellectual property infringement or to source their 'shipped from and sold by Amazon.com' products only from authorized manufacturers, wholesalers, and retailers." The company said that, while these cases aren't about third-party FBA sales, Amazon needs to be more mindful about products that it ships and sells under its Amazon.com brand.

Rather than go into a legal fight with Amazon, even companies like Nike are basically forced to team up with the online retailer -- proving just how powerful Amazon is.

In order for Amazon to adopt better practices, which could filter out fakes, Schonfeld said that there needs to be more pressure from brands and the public. Most important, he said, there has to be an indication from the courts that Amazon has a legal obligation to keep fake goods out of its marketplace. Schonfeld said that the former is hard because many frustrated brands can't afford to sue Amazon or simply remove their products from the site. Rather than go into a legal fight with Amazon, even companies like Nike are basically forced to team up with the online retailer -- proving just how powerful Amazon is.

That power is what Amazon could use to create anti-counterfeiting protection for all brands, including those that aren't part of its Brand Registry. James Cooper, a professor at the California Western School of Law in San Diego, said that Amazon has the ability to lead by example, especially as it continues to expand its empire by acquiring businesses like Whole Foods. Amazon's anti-counterfeiting policy states that it works with brands and sellers "to improve the ways we detect and prevent inauthentic product" from being sold to customers. Additionally, the policy reads, Amazon removes suspect listings based on its own review of products, and it's said to work with rights holders and law enforcement "worldwide to take and support legal action against sellers and suppliers that knowingly violate this policy and harm our customers."

Launch of eBay Authenticateô Boosts Shopper Confidence for Luxury Handbag Purchases (PRNewsfoto/eBay Inc.)

Amazon's counterfeit troubles don't appear to be as bad as Alibaba's Taobao or eBay were at one point, but it could get there if it isn't careful. In 2016, 2017 and 2018, Taobao was blacklisted by the US Trade Representative, the government agency responsible for trade policy in the country, over the suspected sale of fake goods on the site. eBay, meanwhile, paid $61 million in damages to fashion house LVMH in 2008, after it argued that 90 percent of Louis Vuitton bags and Dior perfumes sold on the site were fake.

eBay has since launched a way to authenticate luxury items, which relies on a team of experts that receive the products and inspect them to ensure that what the customer is buying is legit. In a statement, eBay said, "Consumers can shop eBay's 1+ billion items with confidence, knowing we have key partnerships and processes in place with rights owners to ensure a trusted shopping experience." Alibaba did not reply to our request for comment.

Ultimately, if Amazon doesn't want counterfeit goods to be a widespread issue, it will need to be more transparent about its efforts to combat it. And, most important, it will need to start taking more responsibility for third-party sales through its FBA service.

Images: eBay (Gucci bag); Amazon (Screenshot); Getty Images (All others)

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