Amazon in Hot Water Again For Allegedly Using Seller Data to Launch Competing Products

Amazon Office Building

The Wall Street Journal reports that Amazon employees accessed proprietary data collected from third-party marketplace sellers to launch its own products in violation of company policies and contradictory statements to Congress.

The Journal report relies on interviews with 20 former Amazon employees who worked for its private-label division and on internal documents WSJ reviewed.

In one example, the report cites employees supposedly accessed sales and marketing data on a best-selling trunk organizer.

The data included how much the marketplace seller paid for advertising and shipping on the platform and how much Amazon made from the sales. The company later introduced its own brand of trunk organizers under Amazon’s private label brand.

Certainly, this data, in addition to the gross sales data and industry averages on costs for such products, would give Amazon’s private-label arm enough data to make intelligent business decisions on the success of offering similar products.

Previous Allegations of Copying Products by Amazon

There has been a long-standing belief in the Amazon seller community that as soon as a product shows sustained growth and sales on the platform, Amazon will rip it off under its own brand.

Last year Amazon launched a shoe called “Galen,” which appears to copy a popular wool-blend sneaker with a foam sole produced by Allbirds, known as the Wool Runner.

In 2016, Rain Design claimed that Amazon launched a product to compete against its best-selling aluminum stand at half price. “We don’t feel good about it,” said Harvey Tai, the company’s general manager to Bloomberg. “But there’s nothing we can do because they didn’t violate the patent.”

That is a key point as Amazon doesn’t have to make an exact copy of a product, but can offer a reasonable imitation that skirts patents. The “Galen” shoe wasn’t made from the same sustainable materials Allbirds uses but looked similar enough to be confused by consumers.

Even if companies are willing to go up against Amazon for intellectual property rights violations, the cost of funding such litigation makes it a risky business decision.

“We’re a company of about 500 people [in] total. I would suspect Amazon has more than double that in just lawyers,” Allbirds co-CEO Joey Zwillinger said on CNBC’s Squawk Alley. “So it’s probably a risky territory to wade into, but we’re always looking at it. We look carefully every time this happens.”

Amazon Denies Wrongdoing

In the WSJ report, Amazon said it is launching an internal investigation into the matter since using the internal data to make private label decision violates its policies.

“Like other retailers, we look at sales and store data to provide our customers with the best possible experience,” Amazon said to the WSJ. “However, we strictly prohibit our employees from using nonpublic, seller-specific data to determine which private label products to launch.”

Last July, Amazon associate general counsel Nate Sutton during a Congressional hearing fielding questions if Amazon uses data from its marketplace sellers to develop private label products, he said, “We don’t use individual seller data directly to compete.”

The Wall Street Journal article is upsetting House Judiciary Committee Chairman Jerrold Nadler (D., N.Y.) who said to the Journal following the article’s publication, “This report raises deep concerns about Amazon’s apparent lack of candor before the committee regarding an issue that is central to our investigation. We plan to seek clarification from Amazon in short order.”

Amazon Faces Similar Criticism in Europe

Amazon also faces questions in Europe. Last year, the European Commission opened a formal antitrust investigation against Amazon investigating similar anti-competitive business practices.

“European consumers are increasingly shopping online. Ecommerce has boosted retail competition and brought more choice and better prices. We need to ensure that large online platforms don’t eliminate these benefits through anti-competitive behavior. I have therefore decided to take a very close look at Amazon’s business practices and its dual role as marketplace and retailer, to assess its compliance with EU competition rules.”

 

Commissioner Margrethe Vestager, in charge of competition policy

The commission’s action followed a German anti-trust inquiry that prompted Amazon to make changes to its third-party seller agreements.

The adjustments in the agreement addressed other concerns but ultimately all these inquiries involve various accusations of unfair business practices by Amazon.

Easy Sales Process Keeps Attracting More Sellers

Despite long-standing rumors and accusations about Amazon using marketplace seller data to launch competing products, more sellers keep signing up on the platform.

The simple send products to Amazon and watch the money roll in approach has worked well for many sellers. The Amazon FBA program has made selling online easy and removed a lot of the shipping and order-related customer service headaches for small business sellers.

During a time when Amazon sales are exploding online, eBay’s anemic growth shows just how many sellers prefer an online marketplace to take on the inventory, payment, and order fulfillment process.

With Walmart and Shopify now offering order fulfillment services similar to Amazon FBA, it could lure some Amazon sellers away.

However, Amazon still has the eyeballs the others don’t have and that will continue to make the online retailer the go-to platform for many sellers.

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