How Brands are Responding to Product Diversion and Unauthorized Online Sales

How Brands are Responding to Product Diversion and Unauthorized Online Sales

Many companies tell authorized sellers or consultants that they will sell their products exclusively through them. Such companies might also have written policies against product diversion and unauthorized online sales. This looks good for purposes of marketing and trying to convince prospective sellers to distribute their products.

However, what companies say and what they actually do can vary. This can range anywhere from legitimately enforcing their anti-product diversion polices to doing nothing at all.

Below is an overview of four different approaches that we have seen companies adopt in response to unauthorized sales and product diversion:

Inaction

Some companies simply do nothing to stop unauthorized sales.

They might communicate to their authorized sellers that they disapprove of product diversion and that they will enforce their policies.

Such companies might even have an anti-diversion policy displayed on their web page. Yet they will do nothing about the hundreds of their products being sold online, such as on eBay. Their the purported commitments to stopping unauthorized sales might merely be a means to persuade distributors to sell their products.

Worse, some of these companies might even knowingly provide their products to online retailers in order to meet their numbers.

Aiming to stop unlawful use of infringing images

Some companies will hire a technology company to handle its monitoring. This approach involves identifying online sellers and then requesting removal of the products from the websites. While not always successful, it is a starting point.

More specifically, these technology companies will locate product listings that unlawfully use the other companies’ copyrighted images or trademarks, which they can use as a basis for demanding that the third-party websites remove the product listings.

There are several issues with this approach, however.

For example, these efforts might only result in, at best, the removal of products for which the unauthorized sellers are unlawfully using their copyrights and trademarks. In other words, these companies cannot remove the products not infringing on their intellectual property – which could be most of their products.

Additionally, this approach might only result in web sites communicating to the sellers that they cannot sell the products with the others’ images. The sellers, thus, can simply change their listings to not include the images.

Accordingly, this can turn into a “whack-a-mole” situation. In other words, companies might get certain product listings to come down, only to see them pop up again.

Pursuing a limited number of sellers

Some companies will have a law firm sue a few unauthorized sellers to make an example out of them. In many cases, this can be as few as one or two violators.

In short, without expending significant money, this will not be effective if the sellers are “high volume” sellers.

Establishing a full-scale enforcement system

Some companies set up their businesses such that they can easily bring legal claims against unauthorized sellers.

For example, by establishing certain quality controls or making it difficult to sell genuine versions of the products, it will be easy for the companies to have legal claims against the unauthorized sellers.

As part of this process, it is helpful for brands to utilize enforcement systems to monitor for unauthorized sales. This includes identifying the bad actors and then taking the necessary legal action to stop the infringing activity.

Once the unauthorized sellers become aware of the potential liability—such as upon receipt of a cease and desist letter and potentially a copy of a draft complaint—they will generally stop diverting or otherwise sell the products without authorization.

Takeaways

It is up to each company to decide what to do about the unauthorized selling of its products. This can come down to a number of factors, including the company’s budget and a number of products others are diverting outside the authorized distribution channels.

For those companies that can afford it (and are seeing a high volume of its products being sold online, without authorization), the fourth category listed above is clearly the most effective approach.

To successfully stop large numbers of unauthorized sales, a company cannot go part way. It must be both proactive and reactive, taking preventative actions up front, monitoring for unauthorized sales, identifying unauthorized sales and going after those sellers and getting the products removed.