Federal Investigators Confirm Amazon's Counterfeit Marketplace

The website is ideal for malicious, fraudulent and counterfeit product sales.

March 6, 2018 - Los Angeles, CA – Shady Amazon counterfeit practices have not escaped the attention of federal investigators. The U.S. Government Accountability Office ("GAO") issued a report last week after their undercover investigation of e-commerce counterfeit goods sales, including Amazon (AMZN)¹. The GAO report concluded in part that "counterfeit goods harm the U.S. economy and can pose a threat to consumers."

Amazon is no stranger to allegations it enables, facilitates and directly participates² as a retailer of counterfeit goods. Amazon receives a transaction fee for each fake sold, profits soar, and Jeff Bezos now ranks on Forbes wealthiest persons list. The downstream consequences are destroyed U.S companies and retailers, lost U.S. jobs and deceived consumers spending good money for bad products.

The problem isn’t just the well-known fakes; watches, shoes and handbags, but a vast counterfeit universe of auto parts, cosmetics, drugs, electronics, sporting goods, toys, and much, much more. Even inarguably fake items - trademarked items that do not even exist in any authentic product line - are also offered, tarnishing reputations and destroying brands.³ The counterfeits can be seen on TheCounterfeitReport.com website.

U.S. and cross-border scam artists freely unload an inexhaustible supply of counterfeit merchandise, mostly from China, which appear right alongside authentic items conveying Amazon's endorsement. Amazon's 13 global websites operate under a huge legal loophole¹, virtually immune to prosecution, IP laws and safety standards. Amazon also utilizes a crafty approach to avoid removing reported counterfeit listings claiming "Your trademark must be in registered status in [each country the item is sold in]," ignoring their own counterfeit policy*. The foreign sellers are difficult to identify and escape liability.

• The Counterfeit Report found over 54,000 counterfeit items on Amazon, and removed 34,199, authorized by the right holders.
• Apple® reported that 90% of Apple products it purchased directly from Amazon were counterfeit, while Birkenstock, the global footwear icon, slammed Amazon as "an accomplice" of the fraudsters. The Recording Industry Association of America (RIAA) placed orders with Amazon and found that 44 of the 194 top CD's delivered were counterfeit. Swiss watch company Swatch (Longines, Omega and Blancpain) scrapped selling on Amazon when Amazon refused to "proactively police its site for counterfeits and unauthorized retailers." Smaller manufacturers complain that their business is being destroyed by Amazon counterfeit sales^{2, 3}.
• A Tennessee family is suing Amazon for $30 million after a counterfeit hoverboard caught fire, injuring two of the family's four children and completely destroying their $1 million Nashville home and personal property.
• If counterfeit listings are removed, sellers can relist or return under new accounts.
• Amazon recently started lowering third-party seller prices with as much as a 9% subsidy to undercut competitors. "This item is sold by a third-party seller. The discount is provided by Amazon,"
• Forbes deemed the e-commerce giant a "cesspool of counterfeits and other illegal and potentially dangerous goods."⁴
• CNBC reports "In Amazon's quest to be the low-cost provider of everything on the planet, the website has morphed into the world's largest flea market — a chaotic, somewhat lawless, bazaar with unlimited inventory"³

About 50% of Amazon sales are not from Amazon, but from 2-million third-party "Marketplace" account holders Amazon allows to list just about anything they want, including counterfeits. This same model landed Alibaba, appropriately named after the fable "Ali Baba and the 40 Thieves," on the Office of the United States Trade Representative Notorious Markets List - a designation is reserved for the world's most notorious markets for counterfeit goods.

Could you identify these counterfeit products listed on Amazon? Many of the fake products remain listed.

(Photo: The Counterfeit Report® - left to right)

1. Tiny microSD® computer memory cards are used in cell phones, cameras and laptops. Authentic microSD cards bear the microSD trademark which owned by SD-3C, LLC, who licenses its use to authentic, conforming products. Memory on counterfeit cards is usually not the capacity of what is published on the card, and the fake items may fail. When that happens, you are likely to lose your data, images, and damage your equipment. These fake items from Amazon do not exist in any authentic product line and are not licensed by SD-3C, LLC.
2. U.S. based Fullips, LLC is a family owned business producing very popular beauty and cosmetic products under the registered Fullips® trademark. Unscrupulous counterfeiters will produce anything to deceive consumers and make a fast dollar, including the counterfeit Fullips product shown. Almost visually indistinguishable from the authentic product, consumers are easily deceived into purchasing a poor quality counterfeit that may contain dangerous lead and other suspect ingredients.
3. Federal, State and local laws regulate the sale, purchase, possession and display of counterfeit badges, as of course does common sense. Replica current issue U.S. Secret Service, FBI and police badges are available on Amazon to terrorists, child predators and other criminals. 2,274 of the counterfeits were found on Amazon and repeatedly purchased by The Counterfeit Report, yet notices to Amazon management for of the alarming practice have been ignored. The items remain.
4. Composite Resources Combat Application Tourniquet® (C-A-T®) has been supplied to the U.S. Military, police, first responders, and the public worldwide for the past decade. Counterfeit versions of the C-A-T tourniquet have catastrophically failed during actual life-saving applications. The Counterfeit Report reported 5,728 infringing items to Amazon, yet infringing items continue to be listed as well as non-FDA registered knockoffs of the critical medical device.
5. Counterfeit Apple® USB Adapters have caused two deaths, fires, injuries and equipment damage but are common on Amazon. Apple recently claimed that 90% of Apple Chargers it purchased directly from Amazon were fake.
6. Consumers wouldn't suspect AutoMeter's popular Sport Comp-II tachometer would be counterfeited, but it is. A sluggish or inaccurate tachometer may result in damage, or complete destruction of your vehicle's engine. This poor quality fake was purchased by The Counterfeit Report on Amazon for just a fraction of the authentic items price – an immediate identifier of a fake.
7. Drew Technologies' Mongoose® Pro interface cable is used by vehicle technicians and dealers to program vehicle computers including braking, emission and safety equipment. Counterfeit Mongoose products may severely damage your vehicle, and install malware on your computer. The authentic product is not made in purple - an obvious fake.
8. Vans® does not make iPhone 6, 7 or 8 cases – but they are common on Amazon. Counterfeit product sales support terrorists, organized crime and other criminals.

While Amazon hides behind its illusory counterfeit policies⁵, ineffective website policing, and was initiating lawsuits against two Amazon counterfeit sellers, sharply contrasting activity was occurring in the background. Amazon argued and won a U.S. Appeal's Court decision to disavow itself from any responsibility for 'offering to sell' counterfeits products.⁶ The decision does not affect Amazon escaping liability ass a direct seller.

Right holders simply don't have the resources to fight the flood of e-commerce fakes, or pursue individual sellers. Companies that facilitate criminal activity and profit from dishonest sales which impact consumer safety, jobs and public trust create a public perception of deception and impunity. However, their reputation damage is only a small part of the problem: the value of counterfeit and pirated goods is forecast to grow to $2.8 trillion, and cost 5.4 million net job losses by 2022⁷ while manufacturer's brand integrity is tarnished or destroyed.

Footnotes:

⁽¹⁾ Report to the Chairman, Committee on Finance, U.S. Senate
Full Report: Agencies Can Improve Efforts to Address Risks Posed by Changing Counterfeits Market
GAO-18-216: Published: Jan 30, 2018. Publicly Released: Feb. 27, 2018.
Summary: https://www.gao.gov/products/GAO-18-216

⁽²⁾...imports, exports, advertises, distributes, prices, offers for sale, sells, and ships directly to consumers.

⁽³⁾ Paul Ausick, Is Amazon Doing Enough to Combat Counterfeit Product Sales?,
24/7 Wall St. (Mar. 2, 2017), available at http://247wallst.com/retail/2017/03/02/is amazon-doing-enough-to-combat-counterfeit-product-sales/

⁽⁴⁾ Wade Shepard, "How Amazon's Wooing of Chinese Sellers is Hurting American Innovation,"
Forbes (Feb. 14, 2017), available at https://www.forbes.com/sites/wadeshepard/2017/02/14/how-amazons-wooing-ofchinese- sellers-is-hurting-american-innovation/#419e95ab1df2

⁽⁵⁾ Amazon's counterfeit policy claim; "The sale of counterfeit products, including any products that have been illegally replicated, reproduced, or manufactured, is strictly prohibited" is clear, but not Amazons actions. The truth is that counterfeits and replicas can be and are easily listed and sold on, and by, Amazon.

⁽⁶⁾ In a devastating blow to manufacturers and consumer protection, the U.S. Court of Appeals upheld a U.S. District Court decision by Judge Ricardo S. Martinez excusing Amazon (NASDAQ: AMZN) from liability in the sale of counterfeit items on its website. (Milo & Gabby, LLC. v. Amazon.com, Inc.)

⁽⁷⁾ THE ECONOMIC COSTS OF COUNTERFEITING AND PIRACY
The report was prepared for The International Chamber of Commerce, Business Action to Stop Counterfeiting and Piracy unit (ICC BASCAP) and The International Trademark Association (INTA)
January 2017
Frontier Economics, Ltd.