Fulfillment by Amazon Legal FAQ: Internet Business Law

Setting Up A Fulfillment By Amazon Business

fulfillment by Amazon law FAQ

What do I need to start a Fulfillment by Amazon business?

You’ve made the decision! It’s time to jump into the Fulfillment by Amazon (FBA) game. First step? Create an Amazon account. Here’s what you’ll need:

  • Email Address
  • Standard Mailing Address
  • Phone Number
  • Social Security Number or Tax Identification Number (EIN)
  • Credit or Debit Card
  • Bank Account
  • Bank Routing Number

Once you’ve gathered the above information, head to www.sellercentral.amazon.com. Click on “Not already selling on Amazon” and follow the directions.

You can choose to be an “individual seller” or a “professional seller.” “Individual” accounts are free (sort of, but we’ll get to that in a minute) and “professional” accounts cost money (at the time of this writing, US$40).

Benefits of a Professional Amazon Seller Account

  • No per item royalty fee in most cases;
  • Advanced reporting and selling tools;
  • “Buy Box” eligibility. (What’s a “buy box”? Don’t worry, we’ll get to it below.)

Should I register a formal business to participate in private label selling on Amazon?

To register or not to register, that is the FBA question. When starting out, many people defer registering a formal business — and sometimes that can be a mistake.

Sure, Amazon makes it easy to set-up shop, but that doesn’t mean your operation isn’t subject to formal laws and regulations. It is. So, if you want to protect yourself and your assets to the fullest extent, it may be wise to establish a corporate entity for your Fulfillment by Amazon business.

Business Types

What type of company? You have options.

Sole Proprietorship

The Benefits: Low overhead.

The Drawbacks: You open yourself to a host of civil torts including breach of contract. Plus, if your product is deemed defective and results in a personal injury claim, everything you own can be yanked away with the stroke of a gavel.

Limited Liability Company (LLC)

The Benefits: LLC Members are protected from various civil liabilities. Also, an LLC may provide some anonymity, depending on the state.

The Drawbacks: You’re taxed as a flow-through corporation, which can sometimes be at a higher rate.

Corporation

There are several different types of corporations – all with their own sets of benefits and potential pitfalls. It’s best to speak to a private label lawyer that has fulfillment by amazon experience.

Trade Names and dbas

If you already have a company, but want to use another name for your FBA business, you can register a trade name or “dba (doing business as)” – a business alias you can tailor for branding purposes. Dba rules differ by jurisdiction. Catch up with a private label lawyer who can sort out what you’d need to do to register trade name.

What type of insurance do I need to start an FBA business, if any?

If you’re going into the business, then get the proper insurance. For FBA sellers, it’s wise to invest in:

  • Business Insurance (preferably one that covers civil legal costs);
  • Product Insurance (especially if you’re marketing dietary supplements or other organic products);
  • If you’re sourcing products from overseas or a distant U.S. manufacturer, then get cargo insurance.

Product & Shipping Considerations

FBA lawyer

Are there any product design legalities to consider?

The more you stylize and distinguish your product, the more legal control you’ll have. The more legal control you have, the better potential for profit. The best thing to do when starting off is to register your product with the Brand Registry with Amazon, but it’s not the only way to protect your product.

When designing products, be creative. For example:

  • Instead of relying on sticker labelling (which is easily counterfeited), include subtle engravings;
  • Bundle your products. People looking to hijack or piggyback on listings are less likely to target bundled products, as it’s more of a hassle;
  • Add surprises in the packaging. The more unique a product, the easier it is to protect the listing from hijackers and intellectual property infringers.

Also consider getting your products formally trademarked and copyrighted right from the beginning. Doing so will give you much more legal leeway should another party try to steal your ideas – or grift off your listings.

Someone copied my design / product / listing. Can I sue for copyright or trademark infringement?

In most circumstances, to for an intellectual property infringement lawsuit to be materially worthwhile, the product in question must be formally registered with the United States Patent and Trademark Office.

But not always. Common law parameters do bolster some claims.

Talk to an FBA lawyer about your situation. He or she can review the particulars to determine whether or not you have a solid copyright, trademark or patent infringement claim. An attorney will consider:

  • Market Saturation: How long has your product been on the market? Is it well known? The longer it has been around, the better shot you have at winning an infringement claim.
  • Similarity: How alike is your product and the copycat product in question? Clearly, the more similar they are, the better your chances for coming out on top in a legal dispute.
  • Deception: Is the potentially infringing product marketed in such a way that could trick consumers into thinking it is your product?
  • Material Gain: Is your competitor materially benefiting by piggybacking on your efforts?

Fair Warning: Proving any kind of intellectual property infringement isn’t easy; but it’s possible, especially when you’ve properly registered products and established a sound business entity.

I want to import products from overseas. What do I need to know?

The goal of the FBA game is to turn a profit. So, while many people would rather have their products “Made in the USA,” for financial, liability – and even ethical – reasons, it’s not always possible. The hard truth of the matter is that factories in China, Korea, Southeast Asia and India are infinitely cheaper – and as such the choice of many FBA entrepreneurs.

But even though overseas factories are cheap, shipping costs do apply. More than that, by using a foreign manufacturer, you – the distributor – may open yourself up to greater liability.

Shipping law is a dense legal niche. Before hooking into a contract, read up! Moreover, consult a professional (preferably an attorney) who knows the space. This is one of those things best handled by a professional – and in the long run, doing so will probably save you money.

In the interim, here are a few things to consider in regards to overseas manufacturing and shipping.

Vet Very Carefully!

Pretend like you’re the front-runner in the Presidential race and you’re vetting a potential running mate. Seriously. Because the #1 pitfall to which newbie FBA sellers succumb is production and carting problems. Evaluate:

  • How long has the factory been in service?
  • Do they have good or bad reviews? Research!
  • Are you sure you have the proper paperwork completed for importing goods?
  • Does your contract stipulate procedures for defective products?
  • Have you enlisted an inspector to make sure your factory is on the up-and-up?
  • Have you arranged to receive a sample before making a large order?

Duties, Fees and Taxes

Don’t forget, if you’re shipping items to the U.S., you must pay certain some fees and taxes. To name a few:

  • US customs/duties fees
  • Merchandise processing fee (customs)
  • Harbor maintenance fee (customs)
  • ISF Filing (required to be filed 24 hours in advance for every sea shipment coming to USA)
  • ISF Bond (you must have a continuous or single-entry bond to import anything)

There could be more depending on the type of product.

What are some common manufacturing pitfalls?

A lot of people jump into the FBA selling game without doing much due diligence. And more often than not, these people pay the price – usually in the manufacturing and shipping stages. So, to help you avoid a major *doh,* here’s a list of things to consider before slapping down a few thousand dollars.

  • Terrible Manufacturers: Don’t just go with the cheapest manufacturer. In FBA land, the old adage absolutely applies – you get what you pay for. Now, that is not to say that all overseas factories are boiling hot messes to be avoided at all costs. Some are very good – and cheap. But do your research before signing on the dotted line.
  • Order Samples First: One of the most common manufacturing mistakes is failing to get a sample. Get several!
  • Hire an Inspector: Using a manufacturer outside of the United States means that most of the liability will fall on your shoulders. So, take the extra step to hire an inspector to physically check out the factory you’ll be using. Since Fulfillment by Amazon selling has become so popular, there are reputable inspectors around the world. Join an FBA community and find out who they are, then hire the person that best gels with your operation.
  • Timing: If you’re intent is to be up and running for a certain holiday, be sure to start setting up seven months in advance. Don’t listen to manufacturers who swear they’ll be done within weeks. Think of setbacks as inevitable.
  • Communication: FBA selling often involves communicating with people whose first language isn’t English. As such, it’s of the utmost importance that all your business communications are concise and easy-to-understand. Don’t use big words because you want to sound “smart.” Flowery language could lead to huge financial losses. Employ the K.I.S.S. method – keep it short and simple.
  • Made in the USA: If you feel strongly about having your product manufactured in the United States (which may be more expensive, but does have other benefits), the most popular marketplace to find a manufacturer is Thomasnet.com.

Reviews & The Art of FBA Selling

Private label law

I’ve heard that some people order their own products to improve standing in the Amazon marketplace. Is this legal?

“I know. I’ll just order a bunch of my own stuff to rocket my products to the top of the listings!” Think again. Amazon is not – I repeat NOT – down with that, and will suspend your account without thinking twice.

From Amazon’s Website:

You may not solicit or knowingly accept fake or fraudulent orders. This includes placing orders for your own products. You may not provide compensation to buyers for purchasing your products or provide claim codes to buyers for the purpose of inflating sales rank. In addition, you may not make claims regarding a product’s best seller rank in the product detail page information, including the title and description.

My competitor is messing with me.  He’s gotten friends and family to order from me and then cancel their orders or leave bad reviews. What can I do to stop it?

So, you’ve got a fierce, unethical competitor on your scent, eh? It happens. What can you do?

Well, first and foremost, gather evidence. Why do you suspect that the bad reviews are disingenuous? Can you not match sales to reviewers? Did the reviewer leave a sparkling review on an identical product? Does their wish list name not match their review name? Did all of their reviews come on the exact same day? Are they recommending another product?

You’ll need all this information to file a complaint or removal request from Amazon. Also, if you decide to file a defamation lawsuit over the review, you’ll need every stich of available evidence to prove that the detractor is a fraud.

After you’ve collected the goods, contact Amazon. Explain the situation and support your claim with the evidence you gathered. In a lot of cases, Amazon will side with you if you’ve proven that your adversary is a competitor purposefully trying to jack your listing for their own gain. But not always. When Amazon refuses a request, if the problem is, in your opinion, egregious, talk to an Amazon FBA lawyer. He or she may be able to rectify the situation with a simple letter. If that doesn’t work, a lawyer could subpoena Amazon for IP addresses to determine who is behind the postings.

Whatever you do, don’t knee-jerk retaliate. Revenge postings almost always backfire. How? For starters, like your mom used to scold: two wrongs not making a right. But beyond ethical standards, you risk getting yourself in trouble with Amazon. In theory, the company could shutter your operation for engaging in faux-post shenanigans.

My listing was removed from amazon because they say I am making claims about my product that could not be verified? Is this fair? How can I get reinstated?

One of the most frustrating pitfalls of the FBA business is account suspensions and closures. One day everything is going along swimmingly, and the next day, BAM! – the little red flag of death and Amazon shuts you down.

You inquire, “What did I do wrong!?” Amazon answers, “You made unverifiable claims about your product.”

Typically, account suspensions involve dietary supplements or beauty products and potential FTC or FDA violations.

FDA Compliance

If you’re selling anything that people ingest, apply topically or use to somehow change their physical appearance (i.e., supplements, makeup, soaps, creams, miracle cures), make sure the product falls within Federal Drug Administration bounds – because (many) regulations apply. To name a few:

  • Labelling Regulations
  • Ingredient Regulations
  • Testing Regulations
  • Shelf Life Standards

This list is not exhaustive. Speak with a lawyer who works with supplement marketers for a full list of regulations to which a specific product is beholden.

FTC Compliance

Not only do supplement and beauty product marketers have to follow FDA rules, but they’re also obliged to follow marketing guidelines established by the Federal Trade Commission (a.k.a., the nation’s consumer advocate). The FTC’s marketing rules are compiled in the Dot Com Disclosures, which you can read more about here [link]. In short, the DCD is a quasi-legal guide that outlines promotional do’s and don’ts.

Moreover, if you quote studies in your marketing materials, according to recent FTC guidance, said studies must be:

  • “well-controlled human clinical studies of the product, or a substantially similar product;”
  • “Randomized, double-blind, and placebo-controlled;” and
  • “Conducted by researchers who are qualified by training and experience to conduct such studies.”

(Source: http://www.adlawaccess.com/2015/11/articles/weight-loss-claims-how-many-studies-does-the-ftc-really-think-it-takes/)

If you don’t adhere to the standards set forth by the FTC and FDA, Amazon has every right to suspended your account – or even close it. For that matter, if you don’t adhere to Amazon’s terms of service, the company has every legal right to shut you down.

Now, what if you’re in compliance, but Amazon kills your account anyway? This happens to. Here’s what to do:

  • Contact Amazon. Politely explain your dilemma and offer to present any appropriate evidence. This may be enough to get your account unlocked.
  • If Amazon still refuses, read up on FTC and FDA regulations [links]. Be firm and honest with yourself. Are you really following the letter of the law, or are you playing fast-and-loose with the regulations? If it’s the latter, tighten up your ship. When you feel like you’ve made the necessary changes – approach Amazon again.
  • If Amazon still rejects your request, lawyer up. An attorney can audit your products and promotional campaigns in search of any hidden red flags – and act as an advocate. Often, a lawyer can spot a problem that may not be evident. You may also consider investing in a compliance review before listing your products; better to be safe than sanctioned into oblivion.

 

FCC Compliance

If your product emits a radio frequency it will be subject to FCC regulations.  If you don’t, you could be fined or have the products held up in customs – which is a massive headache.

What does “hijacking” mean in the FBA world and how do I stop it?

Note: “Hijacking” and “Piggybacking” are nearly synonymous in Fulfillment by Amazon world.

FBA sellers are constantly fighting “hijackers.” Now, in online marketing argot, “hijackers” aren’t people stealers. Instead, they peddle other people’s products at a reduced rate – and without permission. Parasitic and sneaky, hijackers are public enemy #1 in Amazon FBA World.

So, how does one shake a hijacker? Many methods exist, but the soundest advice comes from Scott Voelker, the Amazing Seller (a podcast about the FBA business) [link]. Voelker advises:

  • First send a cease and desist letter as soon as you discover the hijacker. To this we’d add: get a lawyer to write it. That way, you know it’s perfectly enforceable and custom molded to your business. Be sure, an attorney doesn’t have to draft a new letter for each act of hijacking. Get your lawyer to create one that you can duplicate and send any time a piggyback troll pounces.
  • As a preventative measure, sign up for Amazon’s Brand Registry program. Straight talk: brand registry membership doesn’t mean you can Harry-Potter-away bad reviews with the flick of a wand. However, it will give you an advantage when negotiating a removal with Amazon. Also, trademark, copyright and patent protect your products and inventions when appropriate.
  • If a hijacker strikes, buy one of your products from the hijacker. “But that defies logic,” you protest. Sure, handing money to a piggybacker may seem counterintuitive, but it’s a smart move. As Voelker explains, “the chances of removal increase dramatically” when you take the time to buy the faux listing. Why? Because you can examine it and are better positioned to prove that it’s not the same product as yours.

What are the benefits of “brand registering” my products?

A common misconception: brand registering is a cure-all for any and all infringement and hijacking hijinks. It’s not. In fact, even Amazon’s FBA FAQ says that other sellers can list your brand registered products on their pages.

So, what’s the point of brand registering? Basically, by doing it, you’ll to have more control over your product detail pages. And when you have more control over your detail pages, the easier it is to combat other sellers who are trying to leech off your listings.

Brand registry is not the same as copyrighting or trademarking. Formally copyrighting or trademarking your products is, ultimately, the best legal way to fight against hijackers.

Can I sell a generic product against a branded listing?

Nobody likes a malevolent vampire – especially in FBA World. More than that, you can get kicked off the platform for “counterfeiting” if you copy other sellers’ unique products – especially if said products are trademark or copyright protected.

In other, plainer, words: you cannot sell a generic product against a branded listing.

I always see FBA-ers talking about Buy Boxes? What, exactly, is a “Buy Box”?

In some ways, the “Buy Box” is the holy grail of FBA selling. Marketers covet it – and Amazon uses it as a carrot. So, what is a “Buy Box”? According to Amazon:

The Buy Box is the box on a product detail page where customers can begin the purchasing process by adding items to their shopping carts.

A key feature of the Amazon platform is that multiple sellers can offer the same product. If more than one eligible seller offers a product, they may compete for the Buy Box for that product.

To give customers the best possible shopping experience, sellers must meet performance-based requirements to be eligible to compete for Buy Box placement. For many sellers, Buy Box placement can lead to increased sales.

And how do you earn “Buy Box” rights? According to Amazon, the company considers:

  • ODR (Order Defect Rate): We [consider] ODR customer feedback, A-to-z Guarantee claims, and chargebacks.
  • Other seller performance metrics
  • Customer shopping experience offered on an item, such as speed of delivery, shipping options, price, and 24×7 customer service (including through the seller’s participation in Fulfillment by Amazon)
  • Time and experience on the Amazon selling platform.
  • Status as a Professional seller.

Bigger sellers are claiming to sell my private label products for less. How can I stop them?

As we’ve already stated, the FBA marketplace is fierce. Sellers are constantly jockeying for position – and a whole lot of people don’t play fair. One of the more popular, albeit unsavory, tactics is listing other sellers’ products for less. Though there are several names for it, the practice is often called “piggy backing.”

Some people do it in service of a money laundering scheme, other people do it in an attempt to increase their sales. Either way, it’s annoying and can cut into potential profits.

So, how do you stop it? Some sellers have developed proprietary piggy back abatement methods. Let’s review the most common.

  • Buy the item. These may seem counterproductive, but it’s a necessary step. Why? Because in order to compel Amazon into action, you must be able to prove that the piggy backer is selling unauthorized goods – your goods! To do that, you must purchase one and inspect it to plead your case to Amazon.
  • Several things can happen at this juncture:
    1. The product never arrives. In these cases, file an A to Z claim against your adversary. Doing so will add a demerit to your competitor’s Amazon record, and you may be able to get a refund.
    2. The product arrives, but isn’t exactly the same as your product. If the seller piggy backed on your listing, and the product differs from your product – in even the minutest way – you can file an A to Z claim with Amazon. In some instances, you can get a refund – plus you can keep the item.
    3. The product arrives and it’s exactly the same as yours. In these situations, recourse is limited, which is why it’s so important to distinguish your products in the production and shipping phase. Add an engraving that’s not easily noticeable in a picture; include something to your packaging that differentiates it from the crowd. Maybe even add a bundle product not advertised.

How Do You Get Great Reviews? I hear some people pay for them. Is that really legal? Can I “report” a competitor that I suspect of buying fake reviews?

It’s oh so tempting to purchase fake reviews, but it’s monumentally unwise – especially lately. Why? Because Amazon is on the warpath against fake reviewers and the people who use them. In the past, everyone did it, and not much happened. But starting in the middle of 2015, Amazon decided to start suing both fake review companies, individuals who write fake reviews, and sellers that use fake reviews.

The bottom line is that fake reviews are against Amazon’s terms of service. Moreover, fake reviews are contrary to the Federal Trade Commission’s “unfair and deceptive” marketing practices. In other words, you could be fined by the government for knowingly using fake reviews. You could also be banned from Amazon.

Can you snitch on a competitor whom you suspect of using phony reviews? Sure. But be careful. After all, there is always the possibility that they’re not, in which case your actions could backfire.

So, how do you garner copious amounts of genuine reviews? Many FBA sellers use auto-responders which email-prompt purchasers to leave reviews.

Pro tip: To avoid negative product reviews, direct people to give seller feedback first. Then email the folks who left positive responses and say “oops, Amazon put your review in the wrong place – would you kindly copy and paste your review as a product review? Thanks a bunch.” For negative seller, in some instances, if requested, Amazon will delete them.

I got negative feedback from someone complaining about the reviews of my product.  How can I get it removed?

Sometimes, Amazon is willing to work with sellers looking to delete aberrant reviews that have nothing to do with products or listings. After all, the platform is fueled by quality reviews – so getting rid of the flimflam helps Amazon, too.

So, if someone posts something that has nothing to do with the product (i.e., a complaint about the shipping or other reviews), contact Amazon. Explain that the post in question is invalid because a) it doesn’t jive with an actual purchase or b) it doesn’t address the product. Reviews that don’t discuss the relevant product are actually a violation of Amazon’s terms of service, as such, the company often nixes them without much effort on your part.