Bonus: How One Brand Recovered $1.5M in Amazon Sales From Unauthorized Sellers

0:00You have to be on Amazon in order to control the marketplace. If you're not Amazon controlling your listings, you're going to have someone else create those listings, buy your products for cheaper, and sell it on there. If you've got infringers or unauthorized sellers, they're driving down your prices, and they're also affecting your brand reputation. They're also affecting your customer experience. When you get into the basement of what's going on with these marketplaces, there is a lot of dirt happening. And it could be kind of scary.

0:35Mario Simonyan:Mario, welcome to the D2C podcast. You fight the unauthorized sellers and copycats that hijack a brand's products on Amazon and other marketplaces. How big of a problem is this really for brands at scale? It's a problem. Now, it's not a problem for every brand, but the ones that do have even a little bit of this problem, it tends to really snowball into something bigger. So I would say every brand doing over$5 million should definitely be aware of it. So if, say, you're doing$5 or even$10 million, what's an amount that potentially you could be losing to this problem? Estimates show anywhere from 15 % to 25 % of your revenue could be going to infringers and unauthorized sellers.

1:16Mario Simonyan:You told me an example of a fitness brand that was doing eight figures. Tell me about what happened there. Yeah, so this is a brand that had an issue with unauthorized sellers. And what they tried is going to enforcement agencies and also when that didn't work, go into a litigation firm. They go to the agency and most agencies are going to just go ahead and do very shallow work where they're just submitting the IP complaints to the marketplaces. And after a few months, they realize, hey, this isn't working. So then they're like, all right, what's our next option? Let's go to a law firm. Let's go try to sue these guys.

1:53They go to a law firm and law firm is like, well, this is going to cost you six figures to just get started. And we don't know if we're going to be able to remove them. And we don't know if you're going to be able to get any damages back because we can go in and sue. We could even win. But if the other party doesn't have any money, like what are you going to get from them, right? So they decide, you know what? We've had too much. We have no idea who these people are. We spent all this money and I'm just done with it, right? The emotional toll, I think, is what really affects these founders. But with this specific brand owner, he just left Amazon.

2:26And this is on Amazon itself. They were doing about$1.5 million a year, Eric. So they left the marketplace. So when I talked to him, I was like, what's going on? They're like, well, we tried this. We tried that. It didn't work. And we gave up and we left. I was like, there's$1.5 million out there that you guys could give back. What about cease and desist? Does cease and desist ever work? Yes and no. There's a lot of law firms. there's a lot of agencies that love to throw around the cease and sys letter, right? My thing is we could leverage that, but I have that sort of as a last resort, Eric, right?

3:02You'll see videos. If you go online searching for it, there's videos in Facebook groups and forums where people receive the cease and sys letters and they're like, okay, so what? All right. Oh, there's videos of them throwing it in their barbecue, sort of burning it or in their fireplace, right? It doesn't really do anything. And there's one law firm that really leveraged this and sort of now made it a bit futile where sellers don't even care, especially if you go to a seller and you're like, hey, I'm going to sue you. They don't care about a lawsuit. What they really care about psychology is if you take away their account, their seller account, that they're more scared of than an actual lawsuit.

3:42Because if you take down their account, that's a big portion of their business, if not 100 % of it. So again, cease and cease letter, I'm not a fan of it, especially initially.

3:51Mario Simonyan:If we're going to be using it, we should use it strategically. So back to the example of the fitness brand that was walking away from Amazon. So they went through a bunch of these steps. They probably spent, they burned a bunch of money trying to fight it. And eventually they walked away, which is crazy. So what did you do differently? One thing we do differently is we'll go ahead and obviously do due diligence, find out who these people are, but we're going to different departments within Amazon. And Amazon will sometimes care more about their policies being violated than the actual damn law, right?

4:22So if a law firm or an agency is going to Amazon and just saying, hey, there's IP infringement here, Amazon's like, oh, okay, right? Especially for unauthorized sellers because Amazon's policies, we don't enforce private agreements that you guys may have or lack of those agreements. So if you go to Amazon and say, hey, Amazon, this is our authorized seller, these are unauthorized, remove them. Amazon's like, that's not our problem, right? Because Amazon's thing is anyone that's selling the genuine product can go ahead and sell it. It's the first sale doctrine. So what we have to do differently is now bring up IP enforcement, but in a different way.

4:58There's something called trademark material difference that says, if my brand is selling this pen and an unauthorized seller is also selling this same pen, But my brand now offers pre-sale support or post-sale support or has some sort of warranty that is only offered to people that buy from my brand or my authorized retailers. Now that creates, according to the law, it creates a distinction between the product that this brand sells and what the unauthorized sellers are selling. Thereby, this is now inferior and materially different, right? That's part of trademark law. So you have to make arguments like that.

5:38And on top of that, you have to take a look at Amazon's policies. Amazon has several policies that you could look at. Their counterfeit policy being one that says, if you're selling a product on Amazon, you should know the entire supply chain. Most of these people don't have invoices to show the entire supply chain back to the manufacturer or the brand owner. So those are arguments that you could bring up. On top of that, knowing what arguments to make, depending on which department and which contact you're going to at Amazon, that makes a huge difference. So that's the approach that we took.

6:13Mario Simonyan:They're ultimately protecting the customer experience. And if you've got a product and it's the same as another product that's cheaper and it shows up, they'll put it next to the buy box. And if all things are the same, the better customer experience might be the cheaper one. So it makes sense that you're highlighting the aspects of their customer experience that are inferior or outright fraudulent in some cases. Exactly. So again, the point is to prove that, hey, these products may look exactly the same, but they're materially different. And let me tell you why. And marketplaces are a frustrating example for sellers because of that idea of the buy box, right?

6:47Mario Simonyan:Because they will literally, like if you're advertising on Meta, there's no tool on Meta that allows them to show up right next to your offer while you're trying to sell them on your offer. Whereas on Amazon, it's right there. Yeah. On Amazon and Walmart, both of them operate the same way, right? where it's one listing, but several different offers could be there. So for example, eBay, if I'm selling the same pen as you are, this pen, it would be a separate listing, right? If a customer goes to that listing, they're not going to probably see yours as another option for that product on the exact listing.

7:20But Amazon and Walmart are structured differently. And that's where you get the unauthorized sellers all competing for the buy box.

7:27Mario Simonyan:Interesting. So take me back to the fitness example. Walk through the process that you went through in this case to get them back on Amazon and beating their copycat. Yeah, so our client already had sort of the good bones already in there, right? The framework was there where on their website, they said, hey, this is our manufacturer warranty. And our manufacturer warranty is only valid if you purchase from us or from these brick and mortar stores. So that's one thing that we were able to leverage. Now, for other brands that may not have that, that's something that we help them create because it has to be authentic.

7:58It can't just be for the reason of I want to take down this unauthorized seller. That's why I have this sort of framework in place or these policies in place. It has to be authentic. And it's something that the brand itself has to be exercising and actually utilizing. So we identified that there was probably around four or five unauthorized sellers. And when we talked to the client too, what we learned is that the products were supposed to be going out of the country. So this is a larger brand and they sell it globally. the products were supposed to be going to Africa, but the client learned that, hey, these products may not be leaving the States, the United States.

8:36The client may come to us and say, hey, I'm going to take this to Africa, but it never happens. They somehow end up going back to Amazon. And that's something that we've learned throughout the years, Eric, is there'll be people that approach larger brands and say, Eric, you've got a great brand with those DTC hats. You know what? I've got a couple of brick and mortar stores here. Why don't you give me an order for a million units. And next thing you know, they place the order. And next thing you know, they're coming back for more. Like, wow, that brick and mortar was able to get rid of that many units.

9:04But what's happening with these sellers is your units, your hats, DTC hats are going to their brick and mortar store, but they're also vanishing from the backend being sold to another legal entity that they own. And that legal entity is now selling on Amazon, on Walmart, on eBay and Shopify. So it's like, you look at the listing as far as the entity that's selling on Amazon, you're like, it's company ABC. I never sold to them, right? But you sold to company A, who then sold to company ABC. So that's what we figured was happening here. We approached Amazon with a trademark material difference and with marketplace policy violations that they were committing.

9:39And again, the argument with Amazon is we want the best for you guys, for your customers, and also for our client, the brand. And the best experience for your customers is going to be if our client is the only one that's offering these products, right? Especially with the warranty that they can go ahead and provide. So that's the approach that we took. I can't remember at which stage we got it removed because there's about eight to 10 stages we could go through with any of these sellers as far as escalation, but we could go to their legal department, brand registry, all the way up to their litigation council out of Seattle or to the Washington State, Washington Attorney General.

10:15So I can't remember which one it was, but we've got rid of, I think, four out of the five. There's only one more left, but our client's back there selling, and now he's got control over 95 % of the listings. So huge win for him. And just two days ago, I learned that he got a licensing deal with a major studio. So now they're going to be using the licensing of those characters for their accessories, which is super cool.

10:41Mario Simonyan:Even if that deal would have come without them having Amazon, you need Amazon once you get that deal because that's where everyone wants to go shop. So it has a real knock-on effect if you end up being scared away from these marketplaces by these fraudulent sellers. Yeah. Eric, I'm sure you've talked to brands where they're like, hey, I've got my own website. I'm doing well. I don't want to be on Amazon, right? Nowadays, it's not your choice because if you're not Amazon controlling your listings, you're going to have someone else create those listings, right? Buy your products for cheaper and sell it on there and sell it on Amazon.

11:13So nowadays, you don't have a choice. You have to be on Amazon in order to control the marketplace.

11:17Mario Simonyan:You mentioned the different parts of where you might appeal to Amazon. In this example, which department of Amazon were you appealing to? Usually, we'll go to the legal department as like the third or fourth option. And that's usually where we see the most results. But we also have to show Amazon's legal department that we try the other departments first, to lower level departments, and we were unable to get any movement, any results. Therefore, that's why we're coming to you guys. But here it was probably, I could look it up and sort of provide you the information later, but I do believe it was their legal department, Amazon's legal department.

11:53But we could also go to their executive department too. They have plenty of departments.

11:57Mario Simonyan:How long does a process like this generally take? So for infringers, it can be a little bit faster. Meaning if someone is literally ripping off your brand name and created their own listing, that could be faster. With unauthorized sellers, it could take about 30 to 45 days to see the first sort of results, right? So it does take a little bit longer. There's a lot of framework and groundwork you have to set initially before you approach Amazon, especially if the brand doesn't have it, but it takes a little bit longer. But I would say within months. I think probably a lot of people listening might think of brand protection as a cost, but you make the argument that it's actually a number one revenue driver.

12:35Mario Simonyan:Can you make that case? I don't think it's just my argument, Eric. I think it's the truth, right? If your brand protection isn't giving you back revenue, then I don't think it makes sense. What do I mean by that? If you've got infringers or unauthorized sellers, they're driving down your prices, right? Or at least you have no control over the prices anymore. And they're also affecting your brand reputation. They're also affecting your customer experience. Now, if we just look at it that way, that's perfectly fine and maybe worth every penny you pay. But the way we look at it is how can we get rid of these unauthorized sellers and these infringers to allow the brand owner to absorb more of that revenue?

13:14In this case, with exercise accessories, there was$1.5 million out there. Now,$1.5 million he absorbs now, right? And if let's just assume 20 % profit margin, that's$300K. A brand like that would be selling at, let's say, 8X or even if we say 5X. Let's be super conservative and say 5X multiple. So 300 times 5x, that's 1.5 million in brand equity value, enterprise value that we're able to deliver back to him, right? It's like, why not? That's how I look at it. It's like we need to make sure that we're able to deliver at least a 500 % ROI on every single penny that they pay us. On every single dollar, we should be able to show that, hey, we got you back$5.

13:57And on top of that, being able to set the legal infrastructure in place to increase the value, making sure all of their IPs in place. If there's any gaps, go ahead and suggest that, hey, client, you might want to get DTC registered as a trademark, maybe globally, maybe in China, right, where you manufacture. Making sure all of your retailer and authorized seller agreements are in place, your map policy is in place. So adding all those to it increases the marketplace value too.

14:24Mario Simonyan:And once you go through this process once with a seller, is it more likely, is it like a precedent set so that if another one pops up, it's easier to go through the second time? or you have to kind of start from scratch each time? Yes and no, right? All the letters are there. So it's like we could go ahead and reuse it. But also it sets the precedent in the marketplace that, hey, if you sell this product, you're going to be taken down and possibly get your accounts suspended. Amongst sellers, amongst wholesalers, there's forums, there's Facebook groups where people will talk and say, oh, don't talk, don't take on any DTC products.

15:01He's going to go ahead and get you suspended. There's forums out there that'll go ahead and talk about that, right? But also for us, it becomes easier to know that, okay, this seller we've worked with before. The same violator or the same unauthorized seller that you have for your DTC brand, we've worked with them before. And we know who they are and sort of where they're getting products from. And on top of that, we could add more information into the legal letter that we sent over to Amazon or the enforcement letters we send over to the marketplaces.

15:26Mario Simonyan:You have this idea of using the marketplace's own army again. And I like it because I think there's probably risk associated. Like I think people's first instinct is to go to the unauthorized seller and maybe, you know, with some kind of threat or, you know, hey, take this down kind of thing. But if they're unscrupulous enough to be copying you in the first place, they're probably unscrupulous enough to ignore it or maybe even worse. What are some of the downsides of going head to head against these unscrupulous sellers? Yeah. So a lot of our brands, when we give them the option as far as like, hey, we could go approach them because anytime you send a cease and cease letter or anytime you're contacting them directly, they're going to know that it's DTC brand that's coming after me, right?

16:06You have no idea who these other sellers are, what they're capable of. I've seen some horrible things happen to brands. I think I've shared that with you before. We can also share it here too. So why even put yourself at risk for that? You don't want them messing with your account, with your listings, any black hat tactics that they could do. Let's just stay away from it. As much as possible, let's reduce that risk. So why not go to Amazon and say, hey, Amazon, that's the bad guy over there. And let me tell you why they're hurting you along with us, right? And have Amazon step in and say, hey, you're a bad actor.

16:38We're going to go ahead and remove you for violating this policy and this policy. All right. So that's my philosophy. And I've always operated that way.

16:45Mario Simonyan:And then what happens to those sellers generally? They get fully kicked off the platform? So they could get suspended. So there's a few things. Number one, the listing itself, if they're selling an infringing listing, the listing itself could go ahead and get suspended, right? Maybe not their account. But if they've got several violations, because Amazon and these marketplaces, like track your quote-unquote criminal record, right? If you've had several violations, they could go ahead and suspend your entire account too. Now, the marketplaces do allow you to appeal, right? To try to sort of say, hey, we made a mistake or this is what happened or there was a misunderstanding and get your account back.

17:18But that is going to be a very difficult obstacle to get through is getting your account back. The listing is sort of a slap on the wrist, but the account suspension or termination is a bit of a death sentence. Now, can they go create additional accounts? Yeah, but usually they won't come back and sell on your own listing, especially if they know you're actively enforcing on your brand.

17:42Mario Simonyan:You've laid out, I think, these pillars in your example that you've talked about, but just be clear and lay out your framework with your three pillars for how you approach this situation? So because we've spent all this time in the Amazon space, because my background, I used to sell on Amazon when I was in law school, right? Built and sold to brands. So it's like, we've got a pretty good understanding of how the marketplaces work. So when we looked at what the options were for brands right now, Eric, we saw that most of them were just using one sort of pillar, which is IP infringement to report these infringers and unauthorized sellers.

18:14OK, what we said is, hey, there could be a few other pillars. So the second pillar we came up with is the marketplace policies that I mentioned earlier. All right. If they're violating Amazon's policies or the marketplace policies, let's go ahead and put that in there in the letter to an enforcement letter. The third one is if there's any regulatory compliance issues. And I'll tell you an example of what that is. But those are three pillars of what we rely on when we're trying to take down these infringers and unauthorized sellers. If you've got one, that's OK. But if you could combine two or more of those pillars, if they're being violated, you've got a lot more powerful argument you can bring to any marketplace.

18:50So let me go back to the regulatory compliance and sort of give you an example of where we've used that. There was a Fortune 500 company I was advising, and they had used attorneys, they had used enforcement agencies, and they're like, we know the products are coming from Germany. They're coming over here to the U.S. being sold, right? And one thing that I thought of is, why aren't you guys talking about Prop 65? Prop 65 is a California law here that says any product that contains any of these chemicals, and it's like a list of like 2 ,000 chemicals, right? And the state of California keeps on adding to those.

19:23Anytime any of those chemicals are in there, you need to have a warning on there. Now, if you're selling on Amazon, that warning needs to be on the product listing itself and also at checkout and preferably on your product too because you don't know who's going to buy it from Amazon. It could be someone from California, someone from Florida. So that's one thing that I advise them. I'm like, why don't you guys report that to Amazon, right? You guys don't even need to go to any regulatory body. Just report that to Amazon. And that's the angle that they took and that's what worked for them. But there's a few other examples like that.

19:51If there's FTC violations, such as a competitor saying this is made in the USA, but it's actually not, right? FTC has gotten very strict about that. And maybe we don't even go to the FTC, but we report that to Amazon. And Amazon does care about that or any FDA statements that are being made about a product that they make medical claims, right? Those are things that Amazon will take very, very seriously.