Why We Should Be Concerned With What Amazon Is Getting Away With

April 5, 2018, Los Angeles, CA - As the slugfest continues between President Trump and Amazon supporters over U.S Postal Rate losses, serious core issues in Amazon's quest for retail dominance have skirted attention. The reality is much bigger than how much Amazon pays for shipping -- Amazon is allowed to play by its own set of rules.

Adding to the uproar over U.S. Postal Rate agreements, Amazon "Marketplace" sellers in China also receive substantial U.S. Postal Rate discounts through “terminal dues agreements" (loopholes) that allow Chinese sellers to mail an inexhaustible supply of poor quality, counterfeit, dangerous or potentially deadly products to the USA at a fraction of what legitimate retailers can mail an authentic item across the street. The Post Office loses hundreds-of-millions of dollars handling these items, and U.S. retailers can't compete.

Amazon has immunity, or “safe harbor,” to enable, facilitate and deliver counterfeit merchandise to unsuspecting consumers. About 50% of Amazon sales are not from Amazon, but from outside unvetted global sellers, many from China, who can list just about anything they want, including counterfeits. Amazon's third-party seller fees were $32 billion in 2017 and accounted for 17 percent of Amazon's net sales. Shockingly, Amazon won't pay any federal income taxes after topping $5.6 billion in income in 2017.

While Amazon was publicly 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. Counterfeits, trademarks, and copyrights became the right holder's problem, and when there is an outcry over the infringements, Amazon claims it is simply a venue and immune from prosecution and liability.¹

• A U.S. Government Accountability Office ("GAO") undercover investigation of counterfeit consumer goods on e-commerce websites, including Amazon, found that about 50% of the items it purchased were counterfeit. 
• 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.
• Amazon normally does not notify buyers they purchased a counterfeit, dangerous or potentially deadly product.
• Amazon seller profiles do not indicate punitive action by Amazon for counterfeit sales. Sellers may remain and continue selling despite repeated counterfeit complaints, even sellers with over 50 complaints from industry watchdog, The Counterfeit Report.
• Amazon, with about 40% of e-commerce sales, recently started lowering third-party seller prices with as much as a 9% subsidy to destroy outside competitors; "This item is sold by a third-party seller. The discount is provided by Amazon."

City Watch LA ("CWLA") reports that Amazon has reached a preliminary agreement with the City of Los Angeles, the County, and the State to locate its second corporate headquarters (“HQ2”) in the city of Los Angeles. Will Amazon be earning billions at the expense of taxpayers? Some CWLA highlights include;

• The State, along with the City, County, and Metro, have agreed that the build out of HQ2 would not be subject to any sales taxes.
• The State has also tentatively agreed to exempt existing Amazon employees from capital gains tax on any existing gains in the Amazon stock price, including those from stock options. 
• The City and the County will use its power of eminent domain to buy needed parcels, for multifamily housing. 
• The City has also agreed to waive its Gross Receipts Business Tax for the first twenty years of operation. The Department of Water and Power will also waive the City Utility Tax (12.5%).

This isn't just an e-commerce website inconveniencing or putting consumers at risk, Amazon is undermining the entire global marketplace². Counterfeiting, now the world largest global criminal enterprise, is forecast to grow to $2.8 trillion, and cost 5.4 million net job losses by 2022.³  The consequence; one-third of online shoppers received an unexpected surprise last year - they unwillingly received a counterfeit product.⁴

Why are taxpayers, the U.S Postal Service, and consumers subsidizing Amazon, and one of the world's richest men?

Congress can act to protect consumers, and consumers can shop elsewhere - will they?

Footnotes:

⁽¹⁾ 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.)

⁽²⁾ Wade Shepard, "As Amazon And eBay Flood With Illegal Goods From China, Beijing Cracks Down On Foreign E-Commerce"
Forbes (Nov. 22, 2017), available at: https://www.forbes.com/sites/wadeshepard/2017/11/22/as-amazon-and-ebay-flood-with-illegal-goods-from-china-beijing-cracks-down-on-foreign-e-commerce/#7223f1604dfd

⁽³⁾ 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.

⁽⁴⁾ Global Online Shopping Survey 2017 – Consumer Goods
Prepared by: Clarivate Analytics for MarkMonitor® Inc.    November 2017