
Third Party Sellers Need To Rethink The Amazon FBA Program - hippich
http://www.startupnation.com/start-your-business/plan-your-business/third-party-sellers-need-to-rethink-theamazon-fba-program/
======
Lazare
Here's an interesting hypothetical.

Step 1: User A purchases a shrinkwrapped DVD with excellent packaging from a
counterfeiter in China.

Step 2: User A sells the DVD to an FBA merchant, who forwards it on to Amazon.

Step 3: User B buys the DVD from Amazon; due to commingling they get the
counterfeit DVD. Before they can open it they get hit by a bus.

Step 4: User B's executors sell the DVD back to an FBA merchant, who forwards
it on to Amazon without a second thought (since it's a shrinkwrapped DVD
straight out of Amazon's warehouses.

Step 5: User C purchases the DVD from the FBA merchant, opens it, and finds
its counterfeit.

In short, the FBA/commingling stuff means that merchandise you buy directly
from Amazon can be untrusted. In turn that means that, as an FBA merchant,
even merchandise that came directly from Amazon can be untrusted. Any
shrinkwrapped DVD that has passed through an Amazon fulfillment warehouse is
actually of entirely unknown provenance; it could have been purchased at a
stall in Shanghai for all you know. And if your business relies on never
selling a counterfeit DVD, then that means nothing you buy _or_ sell can ever
touch an Amazon warehouse.

I doubt this is a real concern (this is the first I've heard of any issues
with counterfeiting and FBA), but it's still an interesting structural flaw.
Given Amazon's volume, they're probably shipping out multiple counterfeit DVDs
right now, under their own shipping label as well as that of various FBA
merchants.

Fascinating.

~~~
thaumasiotes
> Any shrinkwrapped DVD that has passed through an Amazon fulfillment
> warehouse is actually of entirely unknown provenance; it could have been
> purchased at a stall in Shanghai for all you know.

Not to disagree, but as someone who lives in Shanghai and occasionally buys
pirated DVDs, the quality (for a western show) is generally _at least_ as high
as you'd expect of official merchandise. I got all of Futurama on many fewer
discs than the official stuff uses, at no visible hit to quality.

I find it unlikely that a user, as opposed to a media company running stings,
would ever complain.

~~~
rallison
To disagree, no.

 _the quality (for a western show) is generally at least as high as you 'd
expect of official merchandise_

 _I got all of Futurama on many fewer discs than the official stuff uses, at
no visible hit to quality_

If you got Futurama on many fewer discs than the official edition, it is
extremely likely that the quality was not "at least as high as you'd expect of
official merchandise." You may not have noticed it, in your viewing scenario,
but it is almost guaranteed that your copies were compressed at a much higher
level of compression loss. That, and the physical media itself is of unknown
quality.

As a user, I would complain. Loudly.

~~~
thaumasiotes
Higher level of compression, of course. Why higher level of loss? There are
various compression technologies. Some are better and worse, according to your
purpose.

My viewing scenario was a 16:10 17" screen (I believe 1440x9XX) and Bose
headphones. That beats the resolution expectations of broadcast TV, and
definitively crushes the audio expectations.

Full disclosure: I've watched Futurama in the form of torrented episodes
（quality varies), chinese bootleg DVDs (high quality), and official DVDs (also
high quality).

May I ask about your experience with Chinese DVDs?

~~~
rallison
I hesitate to respond, only because this is becoming somewhat off-topic to the
article itself.

That said, I was assuming the scenario of a counterfeit DVD that would play on
any standard DVD player. Sure, there are more efficient compression algorithms
now, but most aren't supported as standard on every DVD player out there. The
base DVD specification is rather limited in codec support.

Those Futurama counterfeits - which compression algorithm are they using? Will
they play on all standard dvd players?

~~~
thaumasiotes
Sadly, I don't know the answer to this; even the impeccably-licensed official
translated Disney movies I've bought don't tend to work in US DVD players
(region coded, I guess), so I never try. I play DVDs via computer (for one
thing, that means I don't have to buy a DVD player in China; I already have
computers). I don't have the discs with me, so it's impossible to check. :(

I can think of a couple scenarios -- (a) my error, it's actually the same
number of discs, but packed into one box instead of four boxes; (b) they're
nonstandard, but still recognized as DVDs by VLC; (c) (highly speculative)
something about the limited palette of cartoons makes them more susceptible to
compression, and that was exploited.

For what it's worth, the reason I included the qualifier "(for a western
show)" is that I once bought a set of bootleg DVDs for a chinese TV show, and
they were compressed to the point where I found them unwatchable. They still
played through VLC; my best guess is that DVD-making software was used on
ripped, heavily-compressed video files. It is entirely possible that something
similar was done for my Futurama discs, although no compression was visible in
that case.

------
droopyEyelids
Mysterious.

"80 companies were sued in the past 12 months".

Where did the new counterfeit items come from? Is someone making them and
feeding them into these guy's pipeline? How does that happen?

How were there enough counterfeits to sue 10 companies a month? What did the
purchase history look like for his last buyer of a new "the mentalist"?

Did the author mean to imply that Amazon might have shipped a forged copy that
Amazon procured?

Why is the tone of the article so glib? Why was it posted on a site like that,
and where is the follow up, now that it's a year later? And whats with his
next article about selling xbox games in June

I'm a cynic and conspiracy theorist, but I can't help but wonder if this tribe
of amazon merchants found a source for "new" DVDs that was too good to be
true, and looked the other way while passing them to amazon. A more outlandish
theory would be that the rights holders set these guys up to destroy huge
volumes of used merchandise.

~~~
anentropic
"A more outlandish theory would be that the rights holders set these guys up
to destroy huge volumes of used merchandise."

My first thought when reading the OP was that this is what probably actually
just happened

------
hga
Certainly avoid buying books sold through this process, Amazon doesn't pack
them carefully like it does their own books.

And I must say, I always wondered why Amazon seemed to be so "fair" to
apparent competitors. Looks like "seemed" was right.

Also emphasizes the wisdom I read a while ago about YC not touching music
related startups with a 10 foot pole. Media with insane rights holders does
not sound like a safe domain to play in.

~~~
mathattack
I think Amazon's thought process here is that if there's going to be an after
market, they might as well get paid for it. This also could grow the total
market size if people can easily resell their books, rather than pitch them or
give them to goodwill.

It's kind of like companies selling their premium soap under one label, and
then selling the excess inventory to private label brands.

~~~
hga
Oh, I agree 100% on the after market part, and Amazon makes a not
inconsiderable amount of money from me that I do not begrudge in the least
because of the quality of their marketplace, including useful quality scores
for their merchants (e.g. I've learned to not touch anyone below 96% outside
of special cases).

However here we're talking about direct competitors in selling new goods. Look
closely at the right items, and you'll see that Amazon sometimes does two
amazing things: if someone else is offering something new for a lower price,
they, not Amazon will get the sale if you just click on the Buy button. (Of
course, I'm often willing to pay a bit more to get it directly from Amazon.)
If 2 or more including Amazon are offering it at the same price, Amazon
sometimes rotates who gets the sale if you just hit the Buy button.

That's what I meant by "fairness", although I couldn't find any examples of
this just now (ADDED: that might be because according to another commentator
in this topic they only offer this for highly rated merchants). Then again if
Amazon is analyzing my purchasing habits, they know a) I prefer to buy direct
from them and b) for most of what I buy from them unit wise (but not price), I
always check out lower priced new and used offers from their merchants.

And, yeah, especially with how much media I buy that's out of print, it's win-
win-win for them. But to the extent this story is true ... well, it was a
"new" item that was claimed to be counterfeit.

------
eyesee
Co-mingling is a nightmare, even if you aren't an FBA seller.

Amazon was a reseller for a product we launched on Kickstarter. Our product
was a precision optic, made in the USA. A few months in, a counterfeit knock-
off of our product was manufactured in China and distributed in great
quantity. The counterfeit items had the same bar code and nearly identical
packaging (except it said "Made in China"). The knock-off wasn't optical
quality and took lousy pictures.

Third party FBA sellers were buying the counterfeit unit and stocking them at
Amazon. These would appear as "Other Sellers" on our product page, and would
usually be selected by default because of crazy low pricing. Amazon co-mingled
the counterfeits with their own inventory of genuine goods that we sent them.
They began to draw from the counterfeit stock for their own sales instead of
the real deal. Customer reviews tanked.

We figured out what was happening since we knew these other sellers weren't
legitimate, and we received counterfeit returns. We were able to ask Amazon to
shut down the sellers, but the tainted goods remained in inventory. Amazon was
either unwilling or unable to screen their inventory to eradicate the
counterfeit goods. Since they were useless in fixing the problem we just
stopped selling to Amazon and labeled the product page as counterfeit.

------
pseingatl
The Seller (Amazon client) operated his business from paycheck to paycheck
(i.e. invoice to invoice) with no reserve fund, no insurance and no set-aside
for legal. He lost the lawsuit because he never filed an appearance. There are
lots of lawyers who would handle such a case for much less than a $25,000
retainer. At the end of the day, though, if your business depends on Ebay,
Google, Amazon or their ilk, you have no security.

~~~
pbhjpbhj
>" _He lost the lawsuit because he never filed an appearance._ " //

Is that how law works in USA, forget finding if the claimant has a case just
destroy the little guy?

As this was a tort case, assuming it's like English law (big assumption), then
the measure of guilt is the balance of probabilities. On balance with the
evidence available did the defendant commit copyright infringement? Doesn't
appear so - there's one DVD that no one can actually link to the supplier.

Also "He lost the lawsuit". Wasn't he just the CEO of an LLC?

~~~
pseingatl
Depends on whether he was named personally or not. Based on his post, a
default judgment was entered. You'd have to take a look at the complaint. What
the facts are in reality really doesn't matter--unfortunately--because he did
not appear in a tribunal to prove or assert those facts. Don't forget that in
U.S. courts (as in the UK) the uncorroborated testimony of a single witness is
enough to meet the burden of proof, even in a criminal case. Whether you
prevail or not is something else, but in terms of a minimum threshold, all you
need is the testimony of the person who placed the order and who received
counterfeit goods. The burden then shifts to you to prove that a) the witness
is mistaken or lying or b) the goods are not counterfeit.

But he never showed up. Moral of the story: buy insurance. Budget for legal in
the same way you budget for accountants.

------
cm2012
As someone with 20,000 units in FBA right now, that is horrifyingly scary.

~~~
rurounijones
So, what are you going to do about it?

(I am asking honestly, the last time someone I know said something along these
lines they just said "Oh my god, that is terrible" then promptly did nothing
and just hoped for the best.)

~~~
makomk
What can they do? Amazon charges a fortune to return FBA items or dispose of
them...

~~~
rurounijones
Wind down stock and use a different program / partner and abandon the FBA
program would be one option.

------
beaker52
It was Warner Brothers.

[http://www.ecommercebytes.com/cab/abn/y13/m02/i25/s01](http://www.ecommercebytes.com/cab/abn/y13/m02/i25/s01)

------
joemi
I work for a book store that sells roughly 40,000 items on Amazon (some but
not all of those via FBA), and since I've been in charge of the Amazon sales,
I've had our account "permanently" shut down several times. Each time, I've
written an appeal that gets our account reinstated in just a week, and I can
tell you that, based on this article, the seller did not write the correct
kind of appeal.

When you're kicked off, Amazon very clearly says (I'm paraphrasing) "If you
appeal, explain why this happened and how you're going to prevent it from
happening again". At this point, your only option (if you want to continue
selling on Amazon) is to suck up your pride and do exactly that. You can not
argue against their decision. You have to tell them you messed up and tell
them you're going to fix it, whether or not you messed up and whether or not
you're actually going to change anything. It's essentially that simple. Just
try to make your "changes" sound as bullet proof as possible, and if possible,
mention that you've already implemented them.

I am by no means excusing Amazon, mind you. I completely sympathize with the
OP, and dealing with Amazon in any way is the worst kind of bureaucratic BS
I've ever dealt with. (It once took me over 6 months to get the title of a
book corrected, and during that entire time I had the book in my possession
and sent Amazon copious pictures of it with the corrected title.) The only
reason I knew how to write successful appeals was because another seller once
told me. Otherwise, I would have done exactly the same thing, and suffered
exactly the same problems.

edit: I should add that it seems as though all correspondence with Amazon is
handled by very very low level employees, and there always seems to be a
checklist or script they're always working off of. Unless you hit certain
points on their presumed checklists in your emails (including your appeals),
nothing gets done at all.

~~~
ScottWhigham
He talks quite a bit about how he did the appeal and talked to his "Amazon
contacts" about the appeal. His resulted in a lawsuit and I'm assuming none of
yours has had that outcome. I can't imagine Amazon would've re-stated the
above account if Warner Bros, for example, had sued your company as a result.

~~~
joemi
I apologize for the confusion, but I meant the official Amazon appeal that you
can do when you're kicked off. It's a one-shot thing, and his description of
the appeal said that he tried to ask for more details and state that he has a
good Amazon record. It makes no mention of suggesting fixes or anything like
that. I admit, he may have said that, but from what Amazon seems to want in
the appeal, the tactics he says he details trying are completely wrong.

What went on after his official appeal (including talking to his "amazon
contacts") is the bureaucratic BS I briefly mentioned. Almost nothing gets
done that way, especially if one's previous official attempts (ie. the
official appeal) were already concluded (and failed).

------
grealish
Email jeff at amazon.com he sometimes personally responds or forwards problems
to his minions to fix.

~~~
FormerAmazoner
Oh God, I still have nightmares about emails with the subject line "Fwd: Fwd:
Fwd: Fwd: Fwd: Fwd: Problem with my account". It'd be from my manager, with a
note that said "Look into this, this is your top priority. I'd scroll down, he
was forwarding a note from his manager, which would read "<boss>, look into
this immediately please, and keep me in the loop." In horror, I'd keep
scrolling. Oh, there's my director. And my VP. And my SVP. And at nearly the
bottom, there'd be an initial email from jeff to my SVP, and its entire
contents would be "?".

There is nothing that terrifies Amazon management like a "?" email.

~~~
crucifiction
> There is nothing that terrifies Amazon management like a "?" email.

Not true, the ":(" email is much much worse.

~~~
ars_technician
No, you forgot about the horrifying "):" email.

------
Fuxy
Why do I have the feeling this is just a blanket lawsuit and product may not
even be counterfeit.

Big companies do it all the time and smaller companies that don't have the
financial means to defend themselves loose because justice is blind to
everything except money.

~~~
jfoster
Amazon also would've had a pretty good idea about the financials of his
business, since most/all of the sales were happening through Amazon.

------
arprocter
I haven't been involved in Amazon in a few years, but when I was, buyer
feedbacks could really turn sales off and on like a switch.

A seller needs to have 'good' feedback to show up in the More Buying Choices
box on a listing - getting a couple of silly negatives ("I ordered the wrong
item and they sent me what I ordered! 1/5") on a Friday night can push you
down so you only show up on the Used and New page for the weekend resulting a
lot fewer sales.

I also recall that buyers leaving 4/5 instead of 5/5 carried more weight than
it should've done, because then you didn't have 'perfect' feedback

~~~
hga
" _I also recall that buyers leaving 4 /5 instead of 5/5 carried more weight
than it should've done, because then you didn't have 'perfect' feedback_"

URK! Could you be a bit more specific? I rarely give out 5 stars, since in my
mind "Excellent" requires something above and beyond "normal", "Good" service,
which is the expected level.

Does this just matter for the rare bird who has a 100% rating or thereabouts?

~~~
arprocter
I'm guessing it happened because the stars are really a percentage, so a 4/5
would count as 80%; although whenever we asked amazon 'why has xyz strange
thing happened?' they seemed to just respond with a stock 'it's how the
algorithm works'.

It probably matters less for sellers who shift a lot of stuff, but there was
always the problem of annoyed customers being more likely to leave feedback.
It can get pretty serious because your whole account can get suspended out of
the blue if your feedback goes too far south.

Perhaps a better system would be to assume that customer is fully satisfied if
they haven't left a negative rating after x amount of days.

------
bemmu
This story is frightening, but at the same time inspiring too, considering the
volume they managed to achieve. Seems like everything would have turned out OK
if the product had not been media. Slightly confused about how the second
business ran though, as it says they bought private collections of DVDs, but
they must have been new, otherwise couldn't put them co-mingled on FBA.

~~~
Lazare
I got the feeling they bought lots of DVDs for a variety of sources; estate
sales, going-out-of-business sales, disposals from other merchants or
whatever. There's no reason to think some new/shrinkwrapped items wouldn't be
in there.

For example: My mother has an enormous collection of DVDs, some of which she
rented from the local DVD rental shop, loved, and then purchased a (new) copy
from Amazon "just so she owns a copy" but has never rewatched it or even
unwrapped it. As I don't watch DVDs, in the (hopefully long away) event of her
passing, I'd be highly inclined to see if I could find someone to just take
the entire collection off my hands for a reasonable sum. In theory, some of
those DVDs, including "new" shrinkwrapped DVDs could end up as FBA
merchandise.

In fact, it's entirely possible that she has a shrinkwrapped, counterfeit DVD
right now without even knowing it (due to commingling, who knows where the
DVDs she orders, overwhelmingly from Amazon, actually came from?); a timebomb
waiting to take out some FBA merchant if it ever finds its way back into
Amazon's supply chain (which isn't unlikely).

The more I think about it, the more FBA and commingling seem like utter
disasters. It's mixing untrusted merchandise into a "trusted" pool; I can't
know if the DVD I buy from Amazon came from Amazon or not.

------
sjg007
So if you do use FBA.. Tag everything?... even the new shrink wrapped stuff...
Then you can verify if it was yours or not.

------
ericcholis
Interesting story that might affect my company. We have a large amount of
sports apparel with Amazon FBA. Obviously there is a high amount of knockoff
sports apparel in the industry. I wonder if I should investigate how this
might affect us.

Anybody else have experience with Amazon FBA for textiles/apparel?

------
mathattack
Is there another side to this story? Not about the individual, but Amazon
overall?

For instance - could it be that Amazon was historically guilty of passing on a
large amount of counterfeit goods via 3rd party resellers, and they are now
just being overly strict as a counter-reaction?

Or is this an issue of Amazon being forced to respond this way, similar to
Youtube taking down 3rd party videos?

I'm curious, as this is a very damning report against them, and behavior like
this could kill them as a preferred supplier for used goods resellers.

------
nrser
having some of the largest rights-holders in the world identify your
organization's destruction as a significant revenue opportunity puts you in a
rather haphazard spot. if you don't have a war chest, you're not going to have
a very fun war. we've all seen how these corporations have acted. they have
been stockpiling legal weaponry and applying it belligerently for a decade.
something about a lot of hammers and you look like a nail.

~~~
hga
Well, this works both ways. If you don't have a war chest, the rights holders
aren't going to get much money from you (blood from a stone and all that).

The theory that this results in a side effect of Amazon destroying massive
quantities of used merchandise, since that's the cheapest option for the
target, is just about as plausible. A number of rights holders have been
whining about used media, now that it's a LOT more durable than in the bad
old, pre-polycarbonate, pre-digital era.

------
brianbreslin
I hope something good eventually comes of this. I wonder if they do in fact
destroy your media or do something else with it when you pay for destruction?

------
pbhjpbhj
I don't understand one point - he was protected by an LLC, how then did he
have a personal liability for the goods held by Amazon when the LLC failed.

Similarly with the tort case for alleged copyright infringement - were
Warner/Sony/etc. CEO's fined for their companies infringement of the music for
the "you wouldn't steal a car" ads a while back?

~~~
dminor
Your opponent can argue that your LLC's business and your personal business
were not separate, and therefore the LLC's liability protections don't apply
("piercing the corporate veil"). So, the LLC liability protections only matter
to the extent you can defend them in court.

------
troupe
How did Warner Brothers find out about this? Did Amazon contact them when a
customer sent in a allegedly counterfeit DVD? Was Warner Brothers the customer
who purchased the DVD?

