Replacing Frustration with Success – How to Truly Cleanup Online Marketplace Sale Channels.

4 Minute Read Time
Written by David Howell

This article was co-authored with Whitney Gibson, a Partner at Vorys, Sater, Seymour and Pease LLP.

Lately, I have received many questions and some curiously raised eyebrows regarding my decision to join a large law firm this past year. After all, I’m not a lawyer, and I’ve typically worked with brand protection technology and investigation firms.

Well, the answer is simple.  I want to be part of a team that I believe is best positioned to solve product diversion and price erosion problems for its clients.

As many of my colleagues are aware, I have been speaking for almost 20 years about online brand protection strategies, product diversion issues, and the three pillars (technology, investigations and effective enforcement strategies) needed to help solve these problems. Last year, I had an opportunity to discuss these issues with Whitney Gibson, a partner at Vorys, Sater, Seymour and Pease and head of the firm’s online seller enforcement group.

Whitney shared his team’s unique approach, which is presented to brands in a single unauthorized third-party seller enforcement program. The program includes legal tactics designed to assist with the reduction of gray market sellers and the integration of technology and investigation.  Ensuring brands have a strong legal claim within their enforcement effort is essential. We also discussed the importance of strong reseller/distribution policies that support enforcement claims and not just their selling policies.

It was the first time I had come across what I felt was a comprehensive approach to pursuing bad-faith, third-party sellers. So, when the opportunity presented itself, I made the decision to join the team.

Below I share more information about Vorys’ novel approach to MAP and unauthorized seller enforcement.  I’d love to hear what you think as well. Be sure to leave your comments or direct message me if you would like to receive more detailed info.

Executive Summary

As online marketplaces continue to grow in both size and number, an increasing number of products are sold online. The problem? Brands are only benefiting from a small and decreasing percentage of those sales. For every legitimate seller, growing numbers of unauthorized sellers emerged for nearly every product – from batteries to skin lotion and from air conditioners to work boots. These unauthorized sellers of online goods were destroying revenues. They caused legitimate sellers to drop prices, the perceived value of products to erode, and angry authorized retailers to refuse to continue doing business with a company.

Vorys entered a market full of separate entities spinning their wheels to help in any way possible. Vorys’ innovation was combining novel legal tactics with the abilities of cyber investigators and the efficiencies of technology. Our program – for seemingly the first time – not only helps remove unauthorized online products for sale but also can stop them from returning by identifying and pursuing the source of the goods.

Vorys represented its first client in the space two years ago and now supports more than 100, many of which are global brands. Our clients repeatedly say they were starving for a way to tackle this problem, and we discovered a way to help solve it.

E-Commerce is Quickly Consolidating Within Marketplaces

In the last decade, e-commerce was the fastest growing sales channel, with online sales growing 16-20%. In addition, third-party marketplaces now comprise 31% of all e-commerce. As a result, a tsunami of unauthorized sellers emerged. Nearly every brand has authorized sellers and channels. Unauthorized sellers are those who are – for a variety of reasons – not permitted to sell a product. Some gained access to the inventory illegally, while others were simply not licensed to sell.

Third-party online marketplaces traditionally have done little to help brands to stop unauthorized sellers. Brands naturally turned to the technology companies that had previous success monitoring authorized sellers. But authorized sellers were documented and easily tracked; unauthorized sellers are unpredictable and undocumented. Brands also approached their legal counsel, who struggled to act quickly enough to stop the whack-a-mole from continuing. Finally, brands failed to consistently identify and locate the person behind the screenname selling the goods. And, even if brands were lucky enough to identify an offender, the offender’s sale was often protected by the First Sale Doctrine.

Each sale by an unauthorized seller translated into a brand’s lost revenue. The stakes could not have been higher.

Innovation Born Out of Necessity

Our innovation was two-fold. First, Vorys realized that attorneys – acting alone – could not end this cycle. We needed to use the strengths of both technology companies and cyber investigators. We worked with technology companies that developed software to monitor and track many of the online usernames selling brands’ SKUs online. Secondly, we worked with cyber investigators to identify and locate the unauthorized sellers.

Next, Vorys created a graduated enforcement system that included efficiencies in our legal pursuit of unauthorized sellers. Packaged with the technology and investigations, our legal work became part of an all-inclusive program that was cost-efficient for brands.

Vorys also identified novel ways to help companies defend themselves against the First Sale Doctrine. The first step is ensuring there are material differences in the products sold by authorized sellers and the products sold by unauthorized sellers. These differences include warranties, service guarantees, etc. Then, the program follows a series of steps, including the mass and automated sending of electronic cease and desist letters, the sending of physical cease and desist letters, and – finally – taking further legal action.

The entire program is priced in a way that allows for customization and flat monthly fees, which allowed for consistent budgeting.

Brands and Manufacturers Replace Frustration with Success

The results greatly exceeded both our and our clients’ expectations. Soon after introducing our first edition of this program, our clients began seeing tangible and significant reductions in the number and size of their unauthorized sellers. Better yet, the unauthorized sellers were not returning to the marketplace. As a result, many of our clients were able to stop price erosion and see immediate increases in revenue.

We deliver a report each month that identifies a brand’s unauthorized sellers and what pursuit we have made. At the end of the month, we show our progress. We can’t guarantee results, but many of our clients have experienced improvements that are even better than the following:

  • A global skin care company experienced in just 60 days a 75% decrease in the number of unauthorized sellers.
  • A large manufacturing client saw a 76% decrease in unauthorized sales between October 2015 and October 2016, and the number of unauthorized sellers remains low.
  • A global direct selling company saw a drastic decrease in sales and used the results as a marketing point to grow and strengthen its authorized network of sales consultants.
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