CRF Blog

How counterfeits benefit Amazon

by Bill Hayes

In a feature article, the Los Angeles Times examines How counterfeits benefit Amazon. [Amazon] has made e-commerce accessible to more than a million small- and medium-sized businesses in the U.S., creating 900,000 jobs, according to Amazon. More than 20,000 small- and medium-sized businesses worldwide reached sales in excess of $1 million last year on its platform, the company said.

So ingrained is Amazon in our purchasing habits that more than half of all product searches begin on the site rather than alternatives such as Google. The world’s second-most valuable company by market capitalization behind Apple Inc. is on pace to capture half of all online sales in the U.S this year, according to research firm eMarketer.

Amazon’s market dominance gives it the power to influence the future of retail. How it handles counterfeiters could shape the behavior of the entire industry, experts say.

The sale of fake goods is at least a $461-billion global industry and expanding, in no small part because of the rise of e-commerce giants like Amazon and China’s Alibaba.

Customs agents had a fighting chance when pirated goods predominantly arrived in cargo containers. But with the rise of e-commerce, counterfeiters and their middlemen can ship goods in parcels too innumerable to catch.

“They’re like ants,” said Piotr Stryszowski, an economist for the Paris-based Organization for Economic Co-operation and Development. “They’re too small for customs officers to focus on one. Yet they accumulate into a huge number.”

There’s little authorities can do apart from name and shame offenders. Alibaba’s primary platform Taobao has repeatedly been included in the United States Trade Representative’s list of “Notorious Markets” for selling counterfeits.

Then there’s Amazon. Not only has the platform avoided any serious backlash for allowing the sale of fake goods, it’s actually thrived from it, say more than two dozen brand owners, e-commerce consultants, attorneys, investigators and public policy experts.

Sellers of fake goods pay transaction and shipping fees just like legitimate businesses. But counterfeits also help Amazon’s bottom line in other ways.

The company aspires to be the store of first resort for everything, which means it needs as many brands and sellers as it can get, all offering goods at low prices. Counterfeiters help pressure brands to sell their wares on the site. Companies that avoid Amazon risk letting counterfeiters determine how their goods appear to customers on the most influential e-commerce site — ceding control, for instance, of which pictures are used to promote a product and which colors and sizes are offered.

The spread of cheaper knockoffs can also put pressure on authentic sellers and brands to lower their prices, helping Amazon win more customers.

The company has resisted calls to do more to police its site and address claims by businesses that they are losing millions in lost sales and reputational harm, according to experts. [more]

Debates over intellectual property can be fascinating. CRF, along with Street Law, has created Educating About Intellectual Property, a web site with free lessons on current issues of intellectual property.