The Nike-Amazon break up and what brands can (and can't) do to manage Amazon

The late George Carlin said, “if you can’t beat them -- have them arranged to be beaten.”

For brands and manufacturers struggling against the rise of counterfeit goods, unauthorized reselling and MAP policy violations on Amazon, supplying Amazon directly through Vendor Central and participating in Brand Registry offers hope Amazon might play enforcer on behalf of trademark owners.

But the recent announcement that Nike is ending its two-year partnership with the marketplace shines light on a hard truth: protecting your brand on Amazon remains a challenge -- even if you’ve got the clout of Nike.

“The deal was that Nike would sell direct to Amazon in return for Amazon removing fake Nike items and stopping unauthorized third-party sellers from selling Nike products on its site.”

While Amazon does not step up to play enforcer directly (and clearly fell short of Nike’s expectations), it has made several tools available to brands looking to win back some control over the marketplace. But are they enough? What do brands and manufacturers need to know about protecting trademarks, enforcing MAP pricing, combating counterfeits and plugging leaks in the supply chain?

How brands lost control

Bullet-tight wholesale and distribution contracts haven’t prevented branded product from popping up on online marketplaces. Generally, Amazon permits third party (3P) sellers to attach their inventory to ASIN (Amazon Standard Identification Number) product pages so long as the goods are authentic.

The frustration for brands is many Amazon seller accounts are unidentifiable, with cryptic seller names like Time for Deals and ECommerce Distributors. They can’t easily be identified as authorized retailers, nor can their wholesale or distribution sources be traced by brand owners.

The problem of “leaky distribution”

While some sellers acquire goods through retail arbitrage (buying through retail channels or outlets and reselling online), 3P sellers may obtain product through “gray market” distributors who buy closeouts from legitimate retailers and wholesalers. Per Amazon policy, such resellers should list these items as “Used” (legal by first-sale doctrine), but many will list as “New” for better visibility and a chance to win the Buy Box.

Distributors may wittingly or unwittingly supply 3P sellers. Authorized retailers can set up an Amazon account to move or clear inventory faster than they can sell in store, using obscure handles and different bill-to/ship-to addresses than their authorized accounts. Some view this tactic as “fair game” once product from a given manufacturer is already listed on Amazon -- especially if it’s selling below MAP (Minimum Advertised Price).

Why Amazon won’t enforce MAP

MAP agreements are made between manufacturers and authorized sellers. Because Amazon is not party to these agreements, it will not intervene or enforce MAP pricing on third-party sellers. Similarly, resellers who obtain goods through gray market distributors or outlet stores and have not signed MAP agreements with manufacturers are not bound to adhere to minimum advertised pricing policies.

For first-party sellers (brands and manufacturers supplying Amazon directly through Vendor Central), Amazon won’t adhere to MAP unless it’s stated in the contract. Allegedly, getting Amazon to contractually agree to MAP is next to impossible. Rather, Amazon imposes a reverse MAP, requiring 1P sellers to maintain price parity and never advertise a price lower than available on Amazon. And it’s no secret Amazon uses bots to monitor prices across the Web and routinely reprices its listings to always match or beat them.

What about the Brand Registry?

Joining the Brand Registry as a manufacturer or trademark owner gives you greater influence over your brand’s content and how it’s presented on ASIN pages.

Prior to “Brand Registry 2.0,” both 3P sellers and brand owners could make edits to ASIN content, with brands’ edits weighted higher and accepted at Amazon’s discretion. Third-party sellers could even reassign ASINs to different categories. The latest iteration of the program gives brands sole admin privileges over content and categorization.

However, ASIN pages belong to Amazon, and Brand Registry does not give control over which sellers attach their inventory to ASIN pages, pricing or the Buy Box.

Brand gating

In 2016, Amazon began restricting the ability to list certain brands and ASINs as “New” for new third party sellers (brand gating). To become ungated for such items, sellers must pay up to $1500 per brand and submit invoices proving they acquired product from legitimate distributors or the manufacturer itself.

Brand gating is not intended to protect brands from unauthorized sellers (nor do brands receive any of the fees). Amazon’s objective is to keep counterfeits off the site and preserve consumer trust with the platform. Amazon doesn’t involve brands in the approval process for new sellers who apply, and so long as their source is legitimate, it matters not whether an ungated reseller is blessed by the brand.

Because brand gating only applies to new sellers, thousands of grandfathered sellers remain exempt from these policies.

While today brands can apply for gating through Brand Registry, approval is at Amazon’s discretion and the process can take several months. If your application is successful, it’s no guarantee each of your brand’s ASINs will be gated, and you may only be gated at the “sold as New” level.

Amazon may also gate a brand or ASIN without a brand’s knowledge if it receives enough counterfeit complaints or speculation.

Project Zero

Project Zero is Amazon’s new(ish) counter-counterfeit program. It uses machine learning to scan over 5 billion daily listing updates and match back to brands’ trademarks, logos, images and more (provided through Brand Registry). It also gives brands the self-serve ability to remove counterfeit sellers from their ASIN pages through their Brand Registry accounts.

Prior to Project Zero, brands had to continually monitor and report potential infringement such as sellers using brand marks in titles or branded product images for their private label items (for which sellers would be contacted and asked to provide invoices and other proofs. To prove counterfeit claims, Amazon required brands to place a “test buy” from every seller in question, submitting photographic and other evidence when a product was found to be a knock-off. This process was slow, and it was never guaranteed Amazon would remove reported listings.

While this self-serve privilege is intended to police only counterfeit listings, many brands and manufacturers use it as a means to gate their ASINs and kick off unidentified or unauthorized sellers -- especially when the brand is a 1P seller competing with 3P merchants. This tactic is not without risk, if sellers appeal and can provide the necessary documentation to prove authenticity, the brand can face consequences if it’s found to be abusing the program.

Only brands with a registered trademark are eligible for Project Zero.

Transparency

A subset of Project Zero, Transparency is Amazon’s product serialization service that brands and manufacturers can use to verify product is authentic and prevent 3P sellers from listing on ASINs registered in the program.

Transparency provides unique QR codes for each unit manufactured, and the brand places 2D stickers on its product as part of the manufacturing process. (Amazon generates the codes, and manufacturers must purchase them from approved label suppliers such as Avery).

For each ASIN registered in Transparency, Amazon will scan incoming inventory to its FBA (Fulfillment By Amazon) warehouses and reject units without the labels (even if it comes direct from the manufacturer). Shortly after registration, existing unlabeled FBA inventory is pulled with corresponding sellers removed from ASIN pages. Affected sellers receive notice they must acquire codes from the manufacturer to be re-listed or must recall their inventory and cease selling on the marketplace, even as Used. If they do not provide the codes and continue to sell after the warning emails, seller accounts are suspended.

Sellers who fulfill themselves (FBM or Fulfillment By Merchant) must provide codes for each unit of affected inventory through its Seller Central account before Transparency-enabled items can be shipped or the orders will be canceled.

Like Project Zero, some brands see Transparency as another way to brand gate their ASINs and control which sellers can list on Amazon. However, participation in Transparency requires a manufacturer to go all in -- codes must be generated for every unit manufactured of every registered UPC, no matter what channel it will be sold through, including physical retail. This doesn’t allow a brand to clear ASIN pages of competition or restrict authorized sellers from listing stickered goods acquired through legit distributors or the gray market. Transparency only serves to validate a product’s authenticity, not to manage a brand’s supply chain.

That said, Transparency or any product serialization solution helps brands identify where product came from and may help identify rogue distributors or retail partners violating policy and contractual agreements.

For many manufacturers, using Transparency serialization gives Amazon too much visibility into its supply chain and distribution data. In light of major brands such as Allbirds calling Amazon out for private labeling its own knock-offs, this concern is valid. Stickering every unit with Amazon’s QR codes also signals to retail and channel partners that you’re closely involved with Amazon, which may exacerbate existing channel conflict.

If you choose to use your own serialization service over Transparency, you can still use this as proof for “May be counterfeit” or “Used as new, no factory warranty” complaints filed through Brand Registry, but you will need to place a test buy and go through the regular claims process.

Are Brand Registry tools enough?

It’s clear that Amazon’s objective is protecting Amazon. Brand Registry exists to ensure product content accuracy and combat counterfeit goods -- not to solve supply chain issues or give brands a direct method to gate sellers it doesn’t approve of.

Amazon values and protects 3P sellers with long sales histories and positive reviews, and values its customer even more.

No brand gets special treatment on Amazon.

Although third party listings for Nike products fell 46% between February and September 2018, the game of whack-a-mole never stopped, with grandfathered sellers continuing unchecked and new sellers finding workarounds such as creating new ASIN pages for restricted products. In addition, brand performance dropped 15% as Nike’s own listings (with fewer reviews and sell-through history) competed for visibility and “Amazon Choice” status in categories and search.

The good news is smaller brands and manufacturers will likely be more satisfied than Nike with Registry and its tools. The high-scale demand for brands such as Nike creates higher-scale issues with unauthorized selling and counterfeits than the average business. Today’s Brand Registry 2.0 may be sufficient for brands who want a more streamlined way to report IP infringement, ASIN hijackers and counterfeit goods, and protect the accuracy of product descriptions and other content.