October, 24th, 2017

By Christina L. Winsor

Amazon is a behemoth of online retailers and a godsend for busy parents who just don’t want to have to leave the house for diapers. The company has completely turned physical retail on its head and is the fourth most valuable public company in the world, the largest Internet company by revenue in the world, and the eighth largest employer in the United States.[1] It has also been rapidly expanding its market reach into physical retail in the food and beverage industry as it acquired Whole Foods, an upscale, organic, grocery store for $13.4 billion this past summer. Competition is fierce in online marketspace, especially since companies like Walmart are doing everything they can to play catch up.

While companies like Amazon and Walmart are trying to capture all market sectors, there is one in particular that has not taken the bait – luxury goods. While tensions between online marketplaces, like Amazon, and luxury retailers is nothing new, the topic came to a head earlier this month when it was announced that the negotiations between Amazon and Swatch, to have the brand’s luxury watches such as Longines, Omega, and Blancpain sold on Amazon’s marketplace, came to an abrupt end. The problem is, and always has been, counterfeits and numerous unauthorized dealers in the marketplace. While Amazon says it is concerned about counterfeits and will respond to notice and take-down complaints, the company will not commit to policing its site or assisting to stop legitimate products from being sold outside approved distribution channels.[2] Amazon is not the only one to take this position, however such a­ stance inhibits luxury brands from lining up at the door for their own Amazon shops.

From a trademark perspective, there are a few major concerns if luxury brands decide to partner with large online marketplaces, such as Amazon. Unless these concerns are resolved, many luxury brands will not see the benefit of partnering with these online companies to sell their goods.

The first issue is maintaining brand identity. How do brands keep their luxurious appeal if they are sold in the same marketspace as toilet paper and hundreds of thousands of other household items, inexpensive goods, or even counterfeits? Luxury brands are about the look, the feel, the service, the experience, the touch, the smell…everything that makes a customer feel special. How do you capture that on these massive online retailers? When consumers see a luxury trademark, they envision certain qualities and characteristics of the products being sold. They may even envision the store front or the case lights shining perfectly on a desired handbag or glistening watch or the custom registers at the back of the store. There is a certain reputation they must uphold. This can get lost on these massive online retailers when the only thing a customer has to differentiate the product is price and perhaps a couple paragraphs explaining the brand. As described further below, it is essential for these trademarks to maintain their reputation and high quality appeal as such reputations are the basis of multiple trademark claims, including trademark infringement, trademark counterfeiting, unfair competition, false advertising, and so on.

The second issue is brand tarnishment and quality control. This issue builds off of and is complimentary to brand identity. Tarnishment has been a real issue for many brands in the fight of online sales. Most luxury brands have their own stores or sell their goods in high end retailers. Some of these high end accounts include venues such as country clubs, exclusive events, or sponsorship opportunities. In all these instances, the brands have contractual relationships where the quality of its brand and goods are tightly controlled. While it may not seem like a few unauthorized sales on an online marketplace would impact these accounts and/or opportunities, they greatly do. These accounts look at everything before deciding which luxury brand to carry or accept as a sponsor. Losing one of these accounts or opportunities, may mean real tarnishment of its reputation. Luxury marks must meet the standards at which its customers are accustomed and the quality of the goods must be controlled in fear of losing rights in the trademark. As such, the unauthorized sales of legitimate product causes as much of a headache for brands as the sale of counterfeits. When marketplaces such as Amazon are not willing to assist luxury brands in curtailing the unauthorized sales, it is likely not worth pursuing partnership negotiations. As Swatch noted, the online marketplace has a lot to gain by having luxury goods represented, but at this time there is not much value added for the luxury brands. [3]

The third issue is a trademark policing nightmare. As it is now, trademark enforcement is up against major hurdles when it comes to unauthorized online retail sales. First, there are difficulties enforcing trademark rights after the “first sale” by the manufacturer due to the first sale doctrine, and second, customers become accustomed to seeing “authentic” goods sold online making it difficult for them to distinguish between what it authorized and what is not.

Fortunately, there is an exception to the first sale doctrine known as the “material difference exception” (which helps some brands) and there are other claims such as false advertising, unfair competition, interference with business relations, or other contractual claims (which may help others). However, if the public opinion is that legitimate luxury goods are sold directly by those luxury brands on various online marketplaces, further hurdles will be added to enforcement. The strength of some of the legal arguments which once set these brands apart will no longer be available. The days of “Marketplace ABC is not authorized to sell XYZ’s goods” will be a thing of the past. Channels of trade will grow closer together. And unless these marketplaces do more to curb the unauthorized retailers, the more confusion online consumers will experience as to whom they should be purchasing the goods from.

Over the last 10+ years, the luxury goods sector has accepted and even embraced having an online presence through their own websites and social media marketing strategies, as this is a great way to reach new and next generation consumers. But, to sell their goods online through large online retailers is just not beneficial at this time without the help of those marketplaces to transform the sites into more stringently regulated channels of trade. Perhaps one day luxury brands and these online marketplaces will be able to work together to establish the exclusivity that the brands represent and demand. However, now is just not that time. There is much work still to be done before luxury can be adequately represented and protected.

[1] Evelyn Cheng, Amazon climbs into list of top five largest US stocks by market cap, CNBC (September 23, 2016)

[2] Matthew Dalton and Lauran Stevens, Amazon has a Luxury Problem, Wall Street Journal (October 11, 2017)

[3] See Amazon has a Luxury Problem, Wall Street Journal.

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