EcommerceBytes-NewsFlash, Number 3008 - February 25, 2013     2 of 5

InStyler Fights Amazon in Court of Public Opinion

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After losing a court battle for a preliminary injunction* against Amazon over counterfeit goods, hair-products firm Tre Milano is bringing its fight to the court of public opinion. In its lawsuit against Amazon, Tre Milano alleged that knock-offs of its InStyler hair-straightening iron were rampant on Amazon's marketplace pages, and it is seeking an injunction against the company to halt the sale of fake InStylers as well as damages, alleging that Amazon is liable for both direct and contributory trademark infringement.

As we previously reported, Tre Milano lost its court battle for a preliminary injunction* in August. On Monday, Tre Milano's counsel Tom Peistrup said the trial is scheduled for October 22, 2013.

A search for Tre Milano InStylers on Amazon currently returns only competitors' products, and the manufacturer is trying to get out its message about the availability of counterfeit goods on Amazon.

A recent CBS news story that aired in Los Angeles featured a customer who claimed the InStyler she purchased from Amazon Marketplace was a counterfeit and burned her hair. The news report quoted James Lee of Consumer Fraud Center, stating, "We think the amount of fraud and counterfeit goods that were sold to consumers was between $110 and $140 million just this past holiday season." The news report was damning, with the victim stating she would never buy anything from Amazon again.

A look at the Consumer Fraud Center website shows it takes an anti-Amazon, pro-eBay stance, and calls itself the "home for the best source of information and warnings about counterfeit goods and services sold on legitimate websites." We reached out to the organization and learned it is backed by manufacturers. Its Executive Director James Lee is a PR pro who founded and heads the Lee Strategy Group.

Lee said the Consumer Fraud Center believes Amazon's integration of its Marketplace for third party sellers into Amazon's overall customer experience is confusing to the customer.

"Moving to the integration of the Marketplace more deeply into Amazon's overall customer experience, and also allowing third-party vendors to access Amazon's distribution and delivery system and warehousing,.. those are great for a business model from Amazon's perspective," said Lee. "But the problem is that that's kind of a fast track for counterfeiters to go ahead and start moving illicit and counterfeit goods directly into Amazon's distribution system."

Lee said there's an opportunity for Amazon to work with manufacturers, especially when it comes to receiving shipments from overseas manufacturers. He contrasted Amazon's approach with that of eBay. "eBay has a very simple one-click system for consumers to report suspected fraud. Amazon does not." He said at the least, Amazon could improve the reporting system.

"The problem we have right now is that the illicit products are basically on the same shelf in the warehouses next to legitimate products," Lee said, "and we've tested this out." He also said the returns process is a significant problem, since Amazon's third-party sellers can refuse to accept returns. (Note that they are required to offer returns in some categories.) "That's a very significant issue, because the vast majority of the fraud that we encounter happens on the Marketplace."

The difference with eBay, according to Lee, is that eBay doesn't attempt to couch third-party sellers as "some sort of eBay certified and approved type of seller." But Amazon does that by integrating the Marketplace into the Amazon website, he says. "And that's a really big, significant difference." When ordering an item from a Marketplace seller, "it comes in an Amazon smiley box," so the connotation for the consumer is that this is an approved Amazon product, Lee said.

But is the Consumer Fraud Center representing Tre Milano specifically? Lee said it's a nonprofit supported by a couple of different manufacturers and said it works with retailers and law enforcement groups. "A lot of manufacturers sell through Amazon, so they're very reluctant to openly criticize Amazon, which is one of the reasons we try to be circumspect in how we deal with this particular issue." When pressed about its nonprofit status, Lee said he is still working out the details of incorporation for the recently formed organization. The Consumer Fraud Center website was registered privately in October.

The Consumer Fraud Center published a news-style video on its website that features Lee, Tre Milano's lawyer Tom Peistrup, and Tre Milano CEO Dave Richmond. "Sites like eBay that help us, and give us assistance, it's terrific, because it makes our job a lot easier in protecting the consumer," Richmond says in the video, and he says Amazon is giving them "very little help."

While manufacturers may be loathe to speak out about Amazon publicly (Lee calls them "uneasy partners"), the Consumer Fraud Center's media savvy could be part of the beginning of a trend in which Amazon finds itself on the defensive when it comes to consumer perception of counterfeiting on its site.

And that also leaves Amazon's legitimate third-party sellers, who don't like having to compete with sellers of counterfeit goods, dealing with yet another challenge. See Monday's article about Warner Bros' lawsuits against third-party Amazon sellers over alleged counterfeit DVDs.

*Note: This article was updated on 2/25/13 to clarify the status of Tre Milano's lawsuit against Amazon.com, which is ongoing.

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About the author:

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.

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