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The e-commerce industry has boomed in recent years, further amplified by the pandemic. In fact, the global e-commerce market was worth $14.13 trillion in 2021. It could reach $52.06 trillion by 2027 with a compound annual growth rate (CAGR) of 26.55%.
Amazon has become one of the leading e-commerce platforms globally. It has recently reached the $1 trillion market cap, with its sales accounting for almost 50% of the U.S. e-commerce market. It provides over 300 million customers with a vast array of product options.
Amazon also provides aspiring entrepreneurs with business opportunities. It now has nearly two million partners worldwide. Also, third-party sellers make up 58% of the total Amazon sales, with a 52% growth every year.
Amazon selling is profitable, whether through Fulfillment by Amazon (FBA) or Fulfillment by Merchant (FBM), or Seller Fulfilled Prime (SFP). But regardless, you can list your products on Amazon right before the eyes of global customers.
But while Amazon offers several benefits, it also has some potential drawbacks. On top of these disadvantages are legal issues these sellers may confront. But how do you go about addressing these?
This page covers eight legal issues that Amazon sellers are facing. Keep reading to learn how to resolve them.
8 Legal Issues Confronting Amazon Sellers, and How to Solve Them
There’s no denying how Amazon unlocks plenty of business opportunities. As an online seller, you’ll get the support you need. These include inventory software, stock distribution, sales channels, product listings, and more.
However, be wary of some legal concerns surrounding the e-commerce industry. Consider the legal implications between the sellers and Amazon as an e-commerce platform. Factor in regulatory compliance, product liability, data protection, sales tax, and more.
1. IP Right Infringement
The law protects intellectual property (IP) specific to the expression of an idea. IPs include trademarks, patents, and registered designs, among others.
Copyright is the right granted to the IP creators. A person stealing creative ideas without permission can get sued for copyright infringement.
As an Amazon seller, be wary of accidental or deliberate IP use. It’s good that Amazon has recently launched the IP Accelerator program. It helps you quickly acquire IP rights and have brand protection in Amazon stores.
Solution: Have trademark protection. It’s a requirement before signing up for the Brand Registry program.
2. Patent Violation
As mentioned, a patent is a type of intellectual property. But specifically, it refers to an exclusive right granted for an invention. As the owner, you have the legal right to exclude others from making, using, or selling your creation.
But as an Amazon seller, you might be committing a patent violation. You receive a complaint from another seller for selling the same product. It turns out the seller has a design patent, which forces Amazon to take down your account.
Solution: Conduct a patent search at the outset. Or consult a patent lawyer when setting up your Amazon business.
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3. Product Liability
Product liability holds a seller legally accountable for selling defective products. But what about the laws on the e-commerce industry? Online platforms like the Amazon model appear legally complicated. Who’s responsible for product liability: Amazon or the seller?
Chelsea Cohen, Co-Founder of SoStocked, mentioned the 2019 case: Oberdorf v. Amazon. "It was the first time a court decided Amazon was responsible for a defective product sold by a third-party seller. It was a game-changer for Amazon’s product liability."
Cohen added, however, that "The decision has serious implications on Amazon. It might decide to enforce more restrictions on new third-party sellers.”
Solution: Ensure your product quality, regardless of who is liable for product defects.
4. Listing Hijacking
Listing hijacking occurs when unauthorized sellers list your product versions on Amazon. They usually sell them at affordable prices to get more customers.
Brian Dechesare, founder and CEO at BIWS, said listing hijacking is a huge concern. “It’s relatively easy for unscrupulous individuals to hijack product listings on Amazon."
Dechesare added, "Every seller must partake in combating this bad practice. Make sure to report this and file a grievance with the Amazon Seller Performance Team.”
Solution: Enroll in Amazon Brand Registry. Also, brand your images and get automatic Amazon hijack alerts.
5. Black-hat Tactics
Black hat refers to unethical or illegal strategies used by online entrepreneurs. Some Amazon sellers use black-hat tactics to destroy competitors and gain more customers.
Some bad strategies are the following:
- Hijacking listings (refer to legal issue #5)
- Leaving fake bad reviews on the competitors’ pages
- Manipulating Amazon’s A9 algorithm by placing bogus orders
Solution: As an Amazon seller, never employ black-hat tactics to avoid legal consequences. On the other side of the spectrum, be on the lookout for black-hat tacticians and report them.
6. Vague Service Terms
Sure, Amazon is a leading e-commerce platform helping online entrepreneurs. However, some Terms of Service remain relatively vague up to this day. That has repercussions between the sellers and Amazon.
Jerry Han, CMO at PrizeRebel, said that Amazon enforcement is sometimes inconsistent. “The problem starts when you receive account suspension due to the violation of terms. It can be hard to communicate with Amazon to have your account reinstated.”
Solution: Carefully review the terms of service before taking action. Understand them by heart and take steps within those terms to avoid penalties.
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7. Antitrust Violation
In the U.S., antitrust law consists of federal laws regulating the conduct of businesses. It aims to promote competition while preventing unfair monopolies.
Jeff Zhou, CEO of Fig Loans, said that Amazon must be wary of antitrust violations. “Online sellers should also be aware of the e-commerce laws. They should know and assert their legal rights.”
Per the American Bar Association, Amazon is subject to congressional scrutiny for possible violations. Some antitrust concerns include:
- Buy box eligibility: Professional sellers meet Amazon's performance-based requirements. However, they are not clearly defined.
- Advertising: Some sellers have questioned advertising practices. They are potential antitrust concerns due to the inconsistency of the Amazon model.
- Data Access: There are potential risks involved with accessing data. These include information about customers, manufacturers, advertising research, and sales.
Solution: What do they mean to an Amazon seller? Be well-acquainted with antitrust law. Understand Amazon's terms and your rights as a seller on the platform.
8. Sales Tax Obligation
Of course, tax is part and parcel of life. And this applies to e-commerce sales. However, third-party sellers get legally caught between Amazon and state taxing authorities.
Thanks to the recent mandate, Amazon is responsible for collecting sales taxes. It calculates, obtains, and remits taxes made by merchants and shipped to customers.
Catherine Schwartz, Finance Editor at Crediful, that sales tax is inevitable. "While Amazon handles tax-filing, Amazon sellers should know their tax obligations too."
Solution: As a responsible Amazon seller, understand what the sales tax includes. Make sure your customers get taxed fairly and correctly.
Understanding E-Commerce Laws to Avoid Legal Implications
Amazon is one of the best e-commerce platforms for online entrepreneurs. As an Amazon seller, you'll benefit from the following:
- Global customers
- Low marketing costs
- Organized inventory
- Seamless order processing and fulfillment
- More sales
However, you might encounter potential drawbacks, such as those legal issues above. For this reason, be wary of these law-related concerns in e-commerce. More importantly, follow our recommended solutions for these, if ever encountered.
Ultimately, understanding e-commerce laws will help you avoid legal implications.
Additionally, as with most things in life, the benefits of selling via Amazon's FBA come with limitations such as:
- Branding activities are hardly possible
- Unbranded and generic Amazon packaging is being used
- Frequent increases in fees cut your margins
- Great competition
- Purchase decisions are often mainly price-related
To avoid this and some of the legal implications mentioned above, many e-commerce merchants trust 3PL companies like byrd with storing their products, fulfilling their orders, and handling returns.
