Another way to look at Amazon's counterfeit-busting Project Zero: Making merchants cough up protection money

It's up to you to stop fake stuff going on sale in our cyber-bazaar, says multibillion-dollar biz

Man selling counterfeit goods

Analysis Amazon is rolling out Project Zero, a system the online souk is touting to deal with the problem of counterfeit goods in its storefront.

The initiative, announced on Thursday, is supposed to help merchants police products sold through Amazon, and stop the sale of any faked clones of their gear. It may also end up helping Amazon make money from its vendors' efforts to protect their cash flow.

Project Zero, initially available only by invitation, consists of automated product scanning, a self-service counterfeit removal too, and a product serialization scheme. Merchants obtain tracking numbers from Amazon and apply them to their products and packaging, so Amazon's systems can scan items for authenticity. It builds upon the Brand Registry, for registering logos and trademarks to facilitate detection of infringement, introduced in 2017.

"We’re excited to announce Project Zero, a new program that empowers brands to help drive counterfeits to zero," said Amazon VP Dharmesh Mehta in an online post. "Project Zero combines Amazon’s advanced technology, machine learning, and innovation with the sophisticated knowledge that brands have of their own intellectual property and how best to detect counterfeits of their products."

Project Zero is unlikely to make things worse, apart from the potential expense. Amazon says the automated scanning and self-service removal tool are free to use; the product serialization scheme costs between USD$0.01 and USD$0.05 per unit, based on volume. Amazon said sellers that opt to use the paid-for serialization approach "see the best results," so go figure.

"The interesting thing about this program is it's not without cost," said Mark Schonfeld, a partner at Burns & Levinson LLP in Boston, in a phone interview with The Register. "Amazon intends to charge for these codes and to charge probably for each package that bears the code. So Project Zero is a method that Amazon proposes for stopping counterfeiting on its website, but it is also a way for Amazon to earn revenue."

Amazon for years has struggled with counterfeit products, in so much as collecting commissions as third-parties sell knockoffs through its souk can be described as a struggle. It's not clear, however, how much money Amazon has made selling fakes, if any. "There really aren't any figures to enable one to estimate the amount of counterfeit goods sold on Amazon," said Schonfeld. "The anti-counterfeiting community believes the amount is significant."

Schonfeld said he's had smaller clients who have been driven out of business by those selling imitations of their goods on Amazon.

The piracy problem

In 2016, the OECD said that the sale of counterfeit and pirated goods accounted to almost half a trillion dollars a year, or around 2.5 per cent of global imports.

In recent years, Amazon has been sued many times by aggrieved merchants, notably by William Sonoma and Daimler among others. In 2017, computing book seller NoStarch Press complained that Amazon was selling counterfeit copies of its Python for Kids title and the issue got attention for a time. But the problem hasn't gone away.

There have been a variety of lawsuits against Amazon over counterfeiting, said Schonfeld, but so far they haven't been successful. That's largely a consequence of the 2010 decision in Tiffany v. eBay, in which the jeweler sued the online auction site over counterfeits for sale and lost.

"The court rejected Tiffany's argument and held that trademark owners are responsible for policing the marketplaces," said Schonfeld. "Since then all the internet markets like Alibaba, eBay and Amazon have relied on that ruling for their defense that they're not liable for counterfeit goods. The chief requirement for internet marketplaces is they must have prompt and effective takedown procedures. If they don't have that, then they can be held liable."

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Schonfeld said Amazon's takedown procedure is less effective than eBay's but the company does at some point remove counterfeit items after receiving a complaint.

Part of the reason counterfeiting has become so prevalent on Amazon's website is that third-party sellers have become more important to its business. In Q4 2018, third-party sellers accounted for 52 per cent of units sold, bringing in $13.38bn during the quarter.

"The Amazon business model has changed radically in the last five to ten years," explained Schonfeld. "It used to be Amazon was a third-party intermediary between seller and buyer, but not a seller itself, just like eBay."

But since then, he said, it has become both a seller of goods and has developed a program called Fulfillment By Amazon where the company stores third-party goods in its warehouses, collects payments, and handles shipping.

"Project Zero is being applauded by the anti-counterfeiting community," said Schonfeld. "They make it sound like it's the greatest thing ever. And indeed it may be. However it's not free." ®

Updated to add

Amazon is upset at the "insinuation" that it makes money from knockoff gear sold through its web empire. "Counterfeit damages our brand, disrupts the integrity of our store, and challenges the trust we have worked hard to earn from customers," a PR told us after publication.

"We hold bad actors accountable for returns, refunds, claims and other issues related to the sale of counterfeit goods. And because customers are always protected by our A-to-Z Guarantee, when a bad actor doesn’t pay, Amazon covers the costs."

The spokesperson also stressed that portions of Project Zero are free. However, we note that the paid-for serialization technology is the portion Amazon recommends merchants use.

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