Retail Arbitrage, the Kirtsaeng Case and Amazon Third-Party Sellers

By Cliff Ennico

July 1, 2014 6 min read

This week's email questions are from third-party sellers on Amazon.com, — some of the three million Americans who sell their own merchandise on Amazon's website.

"I just received an email from a major manufacturer telling me to stop selling their merchandise on Amazon. The email says I have to apply to become an 'authorized reseller' or else I can't sell their stuff. I have only sold one or two of their items, which I acquired from thrift shops. Is that really illegal?"

It is absolutely legal. Under the U.S. Supreme Court's recent Kirtsaeng ruling (http://www.supremecourt.gov/opinions/12pdf/11-697_4g15.pdf), a manufacturer cannot prohibit someone from reselling their merchandise after acquiring it legally from a retailer, liquidator or other source as you did.

Many Amazon sellers engage in "retail arbitrage" — buying goods at retail and reselling them on Amazon for even more money to people who can't find similar items in their local stores. The Kirtsaeng case gave a big green light to retail arbitrage activities.

If you ever receive an email like this one, here's how you respond: "Please be advised that I make only isolated sales of your merchandise on Amazon.com. I acquire these items from a local thrift shop and pay the full listed price for them. It is my understanding that reselling such merchandise online is entirely legal and does not require any sort of authorization from your company."

If you receive an email accusing you of selling counterfeit or knockoff merchandise, that's a different kettle of fish. When selling trademarked goods online, you always have the burden of making sure each item is 100 percent genuine.

"I run a group Amazon sellers with about 50 members. One of our biggest challenges is to find good information that we can talk about at our monthly meetings. There are a number of authors who have written e-books for Amazon sellers. Recently I downloaded a couple and sent the download code to all of our members so that they can download the e-book as well. Well, I just got a phone call from one of these authors screaming at me because I did this and threatening me with legal action. I thought these authors would be thrilled that I was helping them promote their books to the Amazon community."

While the Kirtsaeng case allows you to dispose of merchandise online that you acquired legally (even in a bulk purchase of hundreds of items), it doesn't allow you to make unauthorized copies of books and other literary works that are protected under federal trademark and copyright laws.

What you did, although with the best of intentions, clearly infringed the author's copyright on his e-book, and he was right to threaten legal action. To calm the author down, I would offer him a small royalty for each of your members who actually downloaded the e-book and promise never to do this again.

Going forward, if you wish to use copyrighted material for your sellers' group, follow these rules:

—Contact the author/publisher and ask for a book club discount.

—Ask your members to download the book directly from the author's/publisher's website, and give them the coupon code for the discount.

—Inform your members that while they can dispose of their copies after use (that's what Kirtsaeng is all about), they cannot make multiple copies and resell them online (or anywhere else).

"I just visited my local department store, as I do each week, to buy inventory for sale on Amazon. When I approached the counter the sales rep, who knows me, told me I had to meet with the store manager in his office. The store manager was very nice, but basically told me that because of my personal buying profile it was clear I was reselling their merchandise online, which violated their rules. The manager warned me that if I didn't stop doing this they would prohibit me from shopping there. This sounds really un-American to me. Can they do that?"

Some manufacturers of high-end luxury goods are dusting off their contracts with their key retailers. Under these contracts, the retailers are given the exclusive right to sell the manufacturer's merchandise at retail with some limitations, one of which is that the retailer not sell the merchandise "at wholesale or otherwise for resale."

Because of the Kirtsaeng case and the rise of retail arbitrage, manufacturers are pressuring their retailers to enforce this restriction. Retailers are now telling their salespeople to keep an eye out for customers who are buying things in abnormally high quantities. If you are buying thousands of dollars of sneakers each week and are not a professional basketball player, you probably will be called on the carpet at some point.

If you are engaging in retail arbitrage on Amazon, you must stay under the radar screen by:

—limiting your purchases at any individual store, and

—varying your inventory so you don't become too dependent on one line of merchandise that is available at only one or two local stores.

Cliff Ennico ([email protected]) is a syndicated columnist, author and former host of the PBS television series "Money Hunt." This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com.

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