Amazon Sellers are typically some of the most innovative entrepreneurs and are constantly finding new ways to make money and drive profit margins on the Amazon platform. One of the most lucrative business models used by Amazon Sellers is on and off-line retail arbitrage.

However, even though arbitrage can be lucrative, Amazon Sellers should be aware that Amazon has recently started to crack down on online retail arbitrage and more strictly enforce their policy against Amazon Sellers engaging in the practice.

In addition, many brands are becoming more savvy in their ability to identify Amazon Sellers engaged in online retail arbitrage. Many of these brands have taken enforcement into their own hands and some have hinted that the issue violates more than just Amazon’s policy. Amazon Sellers engaged in online retail arbitrage may not be protected by the First Sale Doctrine, and as such, the practice may cause Sellers to receive to intellectual property complaints and potentially Amazon Seller account suspensions.

What is Online Retail Arbitrage?

Online retail arbitrage is when an Amazon seller offers products for sale which they do not have in their physical possession. Instead, these sellers list products for sale, and when a customer makes a purchase, the Amazon seller subsequently enters their shipping and payment information into a third-party website which is also selling the product and ultimately arranges for shipment directly to the purchaser. In this scenario, the Amazon Seller never actually purchases or takes possession of the product themselves.

The team at Amazon Sellers Lawyer has recently seen a significant rise in Amazon Seller suspensions due to a seller’s involvement in online retail arbitrage. Keep reading to find out how Amazon has updated their policy, what this means for Amazon Sellers, and how intellectual property complaints fall into the picture here.

Online Retail Arbitrage

Amazon’s Policy – Online Arbitrage Forbidden

Although many Amazon Sellers do get away with online retail arbitrage, in the experience of our team, almost all of these Sellers will run out of luck eventually. We see countless suspensions caused by sellers who refuse to abide by Amazon’s policy, but what exactly does the policy state? More importantly what does violating the policy truly mean for an Amazon Seller?

Specifically, when selling on Amazon.com the following practices are forbidden:

  • “Purchasing products from another online retailer and having that retailer ship directly to customers; or
  • Shipping orders with packing slips, invoices, or other information indicating a seller name or contact information other than [that seller].
  • Failure to comply with these requirements may result in the suspension or removal of your selling privileges.”1 

Amazon clearly states on their website that online retail arbitrage is forbidden, yet countless Amazon sellers engage in the practice every day. Some sellers are unaware of
Amazon’s policy or that Amazon has recently started more strictly enforcing it. Other Sellers simply do not care and are willing to risk Seller account suspension for the lucrative profit margins often associated with online retail arbitrage. The bottom line is that engaging in online retail will put an Amazon Seller’s account at a high risk of account suspension. Even though the practice can be lucrative, Seller’s engaged in the practice might want to reconsider continuing to do so.

Online Retail Arbitrage, Intellectual Property & the First Sale Doctrine

One of if not the most common causes for a suspension on the Amazon platform is Intellectual Property complaints. As many Amazon Sellers know, intellectual property includes
copyrights, patents, trademarks, and trade dress. Amazon places a high value on intellectual property, and will often suspend an Amazon Seller’s listing and/or selling abilities simply due to a complaint being made. Typically, our clients are protected by what is known as the First Sale Doctrine. However, Amazon Sellers who engage in online retail arbitrage may not be protected by the First Sale Doctrine.

The First Sale Doctrine:

The First Sale Doctrine provides a defense for those accused of intellectual property infringement under certain circumstances. The doctrine states that any person who legally
purchases a work or product protected by intellectual property rights has a legal right to “sell or otherwise dispose” of that work or product in any way that they see fit. Essentially, so long as an Amazon Seller is legally purchasing authentic products and reselling them in exact manufacturer condition, that Amazon Seller is excused from liability for any potential intellectual property infringement that otherwise would have existed under those facts. However, the First Sale Doctrine arguably does not apply to those Sellers engaged in online retail arbitrage.

First Sale Doctrine

Applicability of the First Sale Doctrine to Online Retail Arbitrage:

As Amazon has started to crack down on those violating their online retail arbitrage policy, many major brands are following suit as well. Some of our clients at Amazon Sellers
Lawyer have recently forwarded us letters they received from manufacturers alleging that the First Sale Doctrine does not apply to situations in which an Amazon Seller is engaging in online retail arbitrage.

Why? Because in reality, an Amazon Seller engaged in online retail arbitrage has never actually touched or even purchased any of the products they are offering for sale. As such,
without an actual legal first sale, the doctrine may not apply when an Amazon seller is merely drop shipping products using a third-party retail website. That means Amazon Sellers who engage in online retail arbitrage may not only be in violation of Amazon’s policy but may also be considered to infringe upon the intellectual property rights belonging to the brands they offer to sell using online arbitrage.

Alternatives for Amazon Sellers Engaged in Online Retail Arbitrage:

Online retail arbitrage is the bread and butter for some of our client’s Amazon Seller accounts – some even derive their entire income by engaging in online arbitrage. Although these sellers have gotten away with their violation of Amazon’s policy, it seems the platform is slowly starting to phase out the days of buying and reselling products as they continue to increase their scrutiny over online arbitration prevention and suspend sellers engaged in the practice. As such, Amazon Sellers Lawyer recommends that Amazon sellers who are currently engaged in online arbitrage begin to eliminate the practice from their business model and focus on developing their own brands and products.

Amazon seems to be pushing harder than ever before for a platform made up entirely of established major brands selling alongside other third-party sellers who create their own products/brands using the tools Amazon offers to do so (Brand Registry, Private Labeling, etc.). For Amazon Sellers who currently are engaged in online arbitrage and wish to shift away from doing so, we recommend evaluating your current sales and identifying the types of products which sell best and are the most profitable. From there, a seller can use the tools Amazon provides as well as their own resources, to source, manufacture, and brand their own products. Although this process can be difficult, Amazon Sellers should be prepared for the future of the platform and the possibility that online arbitration will be entirely abolished from the platform.

Are You Ready

The Amazon platform has already started to crack down on Amazon Sellers engaged in online retail arbitrage, and it does not seem like the platform has any plans in slowing down its’ efforts to do so. Further, the First Sale Doctrine may not apply to Sellers who engage in online retail arbitrage, and may ultimately leave Amazon Sellers exposed to liability for intellectual property infringement should they choose not to cease engaging in the practice. Our team at Amazon Seller’s lawyer recommends that sellers plan for the future of the
Amazon platform and begin to diversify their businesses and shift away from the practice of online arbitrage. This may be the best way to protect a Seller account for the long term.

1 See, SELLING AT AMAZON.COM – DROP SHIPPING POLICY

Guest author Robert Segall is a paralegal with AmazonSellersLawyer.com.  He has a bachelor’s degree in business administration with a focus in finance. Robert is currently pursuing his Juris Doctor as a third-year student at Maurice A. Deane School of Law and will graduate with a concentration in Intellectual Property Law. Robert’s financial background and experience provide him with unique insight into the needs of Amazon Sellers and allow him to efficiently identify and serve client’s needs.

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