First, a definition: “substitute sellers” are individuals and companies who take advantage of systems on online sales platforms which enable their users to list their own products under existing listings for identical products by supplying their own branded products or generic unbranded products under listings for other brands.
The online marketplace has become a battlefield as legitimate companies are forced to slash their prices, and even sell at a loss, to try and keep up with sellers seeking to piggyback on the success of established brands. Many British internet businesses have already become casualties in what commentators have described as the “Battle for the Buy Button”, in reference to the feature on the Amazon site enabling customers to purchase a product in a matter of clicks. However, British brand owners are leading the fightback against so called “substitute sellers” and the early signs suggest that the tide is turning in their favour.
In 2013, it is estimated that more than 91,000 Kingfisher 5 litre pressure sprayers were sold on online sales platforms, such as Amazon and eBay. This doesn’t sound remarkable, until you realise that Bonnington Plastics, the company behind the Kingfisher garden and homeware brand, only imported 36,000 of them. So what about the other 55,000? An investigation launched by the company in response to complaints from its customers about online sellers advertising products at impossibly low prices discovered that more than 60% of products sold online under the Kingfisher brand were substitute products.
Bonnington Plastics, like a growing number of British brand owners, found that its brand was being used by hundreds of other companies to sell those companies’ substitute goods, damaging the reputation of the company and depriving legitimate customers of sales.
Internet businesses built up over many years by hard-working, tech-savvy entrepreneurs are folding in the face of the sustained onslaught on their already-squeezed profit margins by companies bent on flooding the market with their own imports from the Far East. Others have resigned themselves to competing on an uneven playing field with businesses unhindered by rules, ethics and, more worryingly, health and safety testing requirements.
The substitute sellers advertise their own products under listings for more established brands on sales platforms such as Amazon and eBay, thereby benefiting from the superior ranking and pulling power of bigger brands. By focusing on products which consumers usually search for by item description, rather than brand name, these unscrupulous sellers maximise their profits while limiting the risk of items being returned. The substitute sellers know all too well that consumers are unlikely to go to the trouble of returning an item that matches the description of the item they wanted if it works well enough.
The substitute sellers often deal in goods which are of an inferior quality and are therefore able to advertise them at such low prices that retailers selling genuine branded products cannot compete. The differences can be so subtle that average consumers may be completely unaware that they are not getting what they ordered. Many online retailers assume that their suppliers are offering better prices to their competitors, fundamentally damaging relationships built up over the years between brand owners and their customers.
Unlike traditional counterfeiting, which many brand owners have fought with varying degrees of success since time immemorial, substitute selling is a relatively new phenomenon, so new in fact that many businesses and the lawyers that advise them are struggling to tackle the problem and stem the flow of lost sales.
A united front
In February 2015, an article in the magazine DIY Week caused a frenzy of activity among British brand owners, with the news that Bonnington Plastics had secured £80,000 in compensation against a group of prolific substitute sellers [Katnote: it's no good looking for a judgment on the BAILII database -- this was an out-of-court settlement of a High Court IP infringement claim].
Businesses and brand owners from a wide range of market sectors contacted the company and its legal team to seek advice on how they too could go after the substitute sellers targeting their brands. The response was so overwhelmingly positive that Bonnington Plastics decided to arrange an event to bring companies together to develop a unified strategy to combatting substitute selling and online intellectual property infringement.
Representatives of 20 companies whose products account for over £500 million of retail sales each year, met recently in Nottingham to discuss how to tackle what has been described as “the biggest threat to internet retail today”. One business owner told the group:
“These companies selling substitute products go to the same factories in the Far East and ask them to put a different logo on the product. That’s it. The artwork stays the same. The pictures stay the same. Even the internal product code. I’ve seen some products brought in by one company in the North West that had pictures of my staff on them!”Almost every company represented at the seminar lamented the loss of customers due to the problems caused by substitute sellers, but many also expressed anger at the manner in which online sales platforms facilitate IP infringement and protect substitute sellers, with Amazon being regarded as the chief culprit.
Millions of pounds of lost sales
Brand owners who had tried to take legal action had often been frustrated by the slow progress and exorbitant costs associated with the court process. Representatives of some companies said that they had lost patience with their solicitors, who appeared unable to tackle what is, even now, a fairly novel issue for the legal profession. Many companies had resigned themselves to either fighting the problem with the limited means at their disposal or co-existing with the substitute sellers and watching the steady decline of the reputation of their brands and their profit margins.
Dale Silverman of Streetwize Accessories described his experience of tackling substitute sales of car, leisure and travel equipment:
“We noticed companies advertising our products at impossibly low prices; below cost in some cases. We started making test purchases to see what was being supplied and were staggered to discover that up to 90% of the products advertised online under our brand name were substitutes. The more we investigated the problem, the more shocked we were by the scale of it. I dread to think how much we were losing in sales before we began to take legal action. As soon as we got our solicitors involved, we started to make real progress. It is an eminently winnable battle and the more companies that take action, the sooner we can put a stop to this problem.”Elliot Peckett, managing director of fancy dress company Smiffys, echoed this point and told the assembled business owners that substitute selling was costing his business an estimated £10 million a year in lost sales. With such staggering losses, it is no wonder that the substitute sellers have caused many internet businesses to admit defeat.
The Brand Owners Strike Back
Unfortunately for the unscrupulous sellers who have built their businesses on the brands of others, the tide is turning. Frustrated by the flaws in the systems of online sales platforms that allow substitute sellers to operate with impunity, some British brand owners have turned to technology, with Leicester IT firm, Williams Commerce, developing new software specifically designed to target this kind of problem.
Armed with this innovative new “scraping” software which monitors online sales and advised by solicitors who have pioneered the approach to tackling substitute selling online, a growing number of companies have decided to go on the offensive, notching up high profile wins and heralding the start of a brand owner-led fightback.
Ian Fisher (Bonnington Plastics) said that the money he has spent on the development of the software and issuing claims against the rogue businesses ripping off his Kingfisher brand was “the best quarter of a million pounds I’ve ever spent”. Ian added by offering a stark warning to fellow brand owners:
“It’s us and them. Either legitimate businesses like ours unite against these substitute sellers or there will be no future for any of us. The longer we let this practice go on, the more damage it will cause to our brands, our business and our customers. Many of the companies in this room are competitors, but this is bigger than any of us. This is a problem we all face, and we need to work together to fight it. This a fight for the future of internet retail.”The Union of British Brand Owners
All of the businesses represented at the seminar, and countless others who form part of an ever-growing network of companies co-operating to tackle the threat posed by substitute sellers, have been trying to take action to protect their brands for years. Their isolated actions have often failed to yield any sort of result, with expensive legal bills adding insult to the injury of lost sales. The companies shared a sense of frustration at the refusal of online sales platforms to address their concerns, with some major sites also complicit in the infringement.
Several of the companies represented said that they had made trap purchases from Amazon itself, and had been supplied with substitute products. However, their protestations to the internet giant had fallen on deaf ears, and there was a general sense of exasperation regarding Amazon’s almost complete failure to prevent IP infringement on its site.
“On the face of it, Amazon have good procedures in place when it comes to reporting IP infringement, but the people reviewing the reports don’t seem to know what they’re doing, and substitute sellers are allowed to continue unimpeded. Amazon’s systems make it so easy for substitute sellers and there doesn’t seem to be any desire on Amazon’s part to tackle this kind of practice. Essentially, as long as Amazon get their cut of the sales price, it doesn’t seem to care what is being sold or whose rights those sales violate.”Many of the companies that attended the seminar are now working together and sharing their knowledge to tackle common enemies. An informal brand owners union is emerging; a union, it is hoped, that will one day have the power and resource to force even the largest online sales platforms to address the loopholes that allow substitute sellers to thrive.
Sites like Amazon and Alibaba are already embroiled in high profile litigation relating to IP infringement, with companies like cosmetics brand Lush and high end watch manufacturer Multi Time Machine Inc. leading the charge. The tired old excuse that such sites are merely platforms for internet retailers and are therefore not responsible for the epidemic of IP infringement they have helped to spread appears to be wearing thin with courts minded to back David against Goliath.
Time to clean up the internet?
Off the back of the success of its first seminar, Bonnington Plastics is working with a number of household name companies and specialist IP lawyers to organise a second event at the end of the year, with plans to develop a “Brand Owner’s Charter” and create a formal body to protect and promote the interests of British brand owners.
Life for the substitute sellers and the sites that facilitate their infringements is about to get a whole lot harder. The union of British brand owners has entered the Battle for the Buy Button.
The Union of British brand owners is just the name that I’ve given to the informal alliance of companies that we are working with to share information and experience in tackling substitute sellers. We aren’t linked with the British Brands Group at all -- though it might be worth investigating!
It’s incredible just how many companies are affected by this. We work with everyone from sole traders to multi million pound household names. We hope that by getting these companies together and unifying the approach to tackling this, we’ll be able to force the online sales platforms to take IP infringement more seriously and change their systems accordingly.Yes, do investigate the BBG -- and MARQUES, for that matter, this Kat urges. And do let us (and everyone else affected by substitute selling) know if it is possible to take a licence to use the software developed by Williams Commerce.
This Kat's favourite Substitute here
A very successful substitute here