In this episode of The Kula Ring, Jeff and Carman get some valuable strategic advice on brand protection through online seller enforcement with topic expert Daren Garcia, managing partner of the Vorys, Sater, Seymour and Pease law firm. During the podcast, Daren walks listeners through five steps to successfully grow your B2B brand in a protected way in ecommerce and online marketplaces.
5 Steps to Successfully Protect Your Brand Through Online Seller Enforcement Transcript:
You’re listening to The Kula Ring, a podcast made for manufacturing marketers. Here are Carman Pirie and Jeff White.
Carman Pirie: So Jeff, I’m really excited for today’s guest. I first heard of Daren at a B to B conference focused on ecommerce and digital transformation more broadly. I guess it is fair to say that Daren struck me as the kind of lawyer that you want to have on your side. I think that’s always a good thing and I thought he had some great insights to share. So, let’s get started. Daren, without further ado, welcome to The Kula Ring.
Daren Garcia: Thank you. Thanks for having me here.
Carman: Daren why don’t you introduce to the listeners a little bit about who you are and what you do and specifically talk about the online seller enforcement practice.
Daren: Sure. So I’m a partner in the Vorys, Sater, Seymour and Pease law firm. I’m based in our Pittsburgh office and I am one of the Co leaders along with a partner of mine in Cincinnati, of a group that is, I think truly unique in the country. There may be a few groups tangentially similar, but our mission statement is to help companies control their sales in today’s digital age that we find ourselves in. We refer to ourselves as the Vorys online seller enforcement group and we help companies that are struggling with the fact that historically they had sold their products perhaps into distribution and distributors would resell and perhaps resell beyond that. Historically they didn’t really care about what happened with their products once they sold them initially because somebody may not know what somebody was getting a product for in Pittsburgh for example, versus what somebody was getting one for in Chicago or pick your place.
But today, with the advent of ecommerce and in particular online marketplaces, it’s very easy for a seller with no investment in your brand with whom you have no contact, no oversight over to somehow get ahold of your products and put them up for sale online. And that has been very disruptive for companies, and it does all sorts of things in terms of erosion of the brand equity of their brand value. It creates a lot of channel conflict between ecommerce and perhaps brick and mortar type settings. It’s very damaging to a quality oversight and things like that. The pain points driven by this phenomenon are significant and a number of major companies in a number of different verticals consider these issues to be among the very most pressing, most threatening to their organizations today.
Carman: I think that’s what really got me as I sat down and was starting to listen, I just noticed everybody in the room starting to write and it struck me that we were speaking to a lot of key pain points. You mentioned that channel conflict that this can cost, etc. Let’s talk a little bit about it. It seems to me that consumer product manufacturers would maybe be a little bit more attuned or at least have felt the pain a little earlier of unauthorized online reselling versus maybe something that is just kind of coming into a point of concern for those B to B professionals that were in the room that day. Talk a little bit about the differences between that or if there are many and and a general state of the nation. And beyond that, I’m curious how many manufacturers overall do you feel are even approaching this in a savvy or sophisticated way?
Daren: So what we’re seeing is that it is the distinct minority of companies that really understand the appropriate strategy to achieve their business goals, which are typically consistent across across companies largely and that is because there’s just so much confusion out there. There’s a lot of vendors in this space and companies are—we call it kind of a bridge to nowhere it type situation— going down a path thinking that it’s going to solve the underlying problem. And that could be something like a map policy. They may try or sending some C&D letters out or things like that without sort of looking at this holistically and really getting to the root cause of the pain that they’re feeling, which typically, in the vast majority of cases, stems from a fundamental lack of control over their sales channels and their products once they leave their warehouses. Success comes from regaining that control and everything else is kind of a half measure that’s gonna leave a lot of people frustrated and having spent a lot of money.
Carman: So what I hear you saying is that people maybe have maps or a minimum advertised price policy or have worked through beyond that and perhaps are struggling with just working with their legal team or what have you, to get out cease and desist letters to unauthorized resellers they’re having success or not with that. And basically what you’re saying is that it all stems from the fact that they failed to really lay the appropriate foundation for an overall strategic approach to this. And it really seems like if I were to put words in your mouth—like they’re patching holes in the boat, if you will rather than dealing with it.
Daren: Whatever analogy you want to, you want to put on it. I mean, putting a bandaid on a sucking chest wound—you need to get to surgery and get the underlying cause fixed. The bandaid’s not going to do anything for you other than frustrated you longterm and frustrate your good customers. I absolutely believe that. And you know, for example, somebody gets a call from the c suite and they think, okay, I’ve got to go fix this problem. They start poking around online. They come across the notion of map policies. So you know, they may reach out to like a map monitoring company that has a software and they have this software that scrapes the Internet. They say oh, we’ll give you all this data. You just need to put this map policy in place. Here’s a form, send it out to everybody and you’ll be good to go a month later or a week later whenever the cadence that they’re on, they get some massive spreadsheet with all of their map violations and they don’t know who these people are on these storefronts and you know, they’re trying to hold their good customers to map. But the good customers are upset because there are all of these unauthorized sellers out there and saying, how do you expect me to compete in this environment? And, you know, pretty soon they ended up scrapping the map policy and sort of, you know, everybody has their tail between their legs and is upset about it. Relatedly, there’s a lot of vendors out there that say ‘we’ll send C&Ds and we’ll send the automated letters and we’ll do all of this and will drive 100 takedowns a month.’
But you know, what they don’t tell you is how many of those people just change their name and pop back up someplace else. They don’t tell you how many new people came in. They don’t tell you that they may be removed. Several sellers that were just, you know, relatively innocent people not thinking they were doing anything wrong and just had a one or two things maybe in their garage that they put up for sale on Amazon. And those aren’t the problems. It’s the diverters and the professional sellers are out there that will do anything in response to a C&D. And so, a lot of companies are trying these, these half measures, or they’re looking to the marketplaces themselves for help. And the resounding answer is that they’re operating in open marketplace and that these issues have distribution issues that the companies need to address.
Carman: So if we’re going to get an appropriate foundation in place to deal with this in a strategic way, then that tells me that there’s probably a foundational understanding that we need to have, that we’re not operating with the day that manufacturers are using a map policies and C&Ds as a way of attempting to solve a deeper problem. So what I guess what’s underneath that, what do I need to know that’s driving this and how do we begin to put in place the right framework—the right structure—to make this make sense?
Daren: Sure. So we believe very strongly to solve this issue requires five steps. They’re all interlocking and intertwined and each dependent on the other in terms of their ability to succeed overall. And you know, we quantify success in terms of maximizing your ability to grow your brand in a protective way in the ecommerce channel that is not going to cannibalize your other channels. I’ll just kind of tick off these steps and you can let me know if you’d like to go into anything in any greater detail. First we advocate you need to get the right strategy in place with respect to how you’re going to sell your products on the marketplaces and in particular, we recommend that you select one sales method on the marketplaces and ideally one or a very small handful of permissible sellers on the marketplaces because you don’t want to have, you know, this massive intra-brand competition. That’s I N T R A-brand competition on the marketplaces where you’re pitted against yourself or your brand is pitted against itself before you even get out the door to engage in competition with your true competitors. So, when you have a situation where you’re sitting out there online and for example, in an online marketplace and you have your listing out there and then you have, 20, 30, 40 other sellers, all advertising under that listing, that is just an incredible amount of intra-brand competition for your products. And you want to be in a place where you have one marketplace—retail side or a three p seller or something like that out there selling your products and maybe you have a handful of other trusted sellers, but you want to get away from this notion that you have this wild free for all, particularly in an online marketplace.
So once you have that right marketplace distribution method set, you want to then have appropriate policies in your other sales channels that make clear about the where, the when, the how your products are allowed to be sold by them in an unauthorized fashion. And you want those policies to reach down to each level of your distribution. So, if you’re selling into two step distribution, for example, you would have a policy with the distributor, then the distributor would be asked to pass down your authorized reseller policies and among other things, these policies would prohibit the sale of your products by that reseller on a third party website without your express permission. So then once you have that in place, that allows you then to scan the entire internet at a moment’s notice and understand right away whether somebody is an authorized or unauthorized seller of your products because that will drive the the enforcement that you’re going to be doing.
Thirdly, once you have a structure like that in place and the ability to understand who’s who, you can implement something like a map policy. So that now you have the ability to have parity in terms of your advertised prices across your various channels. Without the appropriate foundational controls in place, like if you’ve got a map policy and you’ve got just a free for all where you know your resellers aren’t told, they can’t turn around and sell online without your permission, as one of my colleagues says, it’s like like leaving his kids in his house with ipads and all their favorite candy and saying, you can’t touch this stuff when I leave. It just doesn’t work. But, when you have those foundational controls in place, now you have the ability to start to be able to do things like map programs and things like that.
So now you got your map policy in place. Now you also need a basis upon which to differentiate your products from those sold by gray market and unauthorized sellers. When you’re set up the appropriate way, you have the ability to protect the quality and integrity of your brand and your trademark. As a result of that, companies will have legal claims against those selling their products in an unauthorized fashion. So it gets you away from having send a message on some type of messaging platform on a marketplace or something. “Hey, would you please stop selling my stuff? You’re not authorized.” Well, you know, those go in the trashcan with the $100 that seller may have gotten that month. You need that legal foundation in terms of benefits that come with my authorized products, these are quality controls associated with my authorized products. And now when you put those things in place, they’re just very important in the ecommerce channel because people get what shows up on their porch, they can’t grab the next one on the shelf at the boxes, dinged up, or if it looks like the product is going to be expired soon or they just don’t like the way it looks. They don’t have the ability to hold it and feel it and make sure that they’re comfortable with it. And so, brands just can’t be at the mercy of these unauthorized sellers. You know, who knows how they’re storing their products that are caring for the products. And it really is very damaging. When you look at any brand online and read product reviews, you will be astonished at the stuff that is ending up in people’s hands. When you have these appropriate quality controls or benefits in place associated with your products and your authorized channels, now you can go out and say everybody that is selling outside of these channels is doing so in a way that infringes on my trademark.
Carman: This is the point in your presentation where you really began to explore what first sale doctrine meant and the introduction of nonphysical material differences in the situation. So I guess talk us through that a little bit.
Daren: So under the first sale doctrine, it’s a legal doctrine that stands for the principle that as a manufacturer, once you sell something the first time, make your first sale, i.e. the first first sale doctrine, you have effectively relinquished your ability to control it downstream. And it can be bought and resold without repercussion. And that is generally true, unless the product that the reseller is selling, is quote unquote materially different than your genuine products?
Carman: I think I’m probably putting words in your mouth here, but so many people make the mistake of thinking that a material difference means physical.
Daren: That’s right. And, what the courts say about that is, courts have recognized that it is the subtle non-physical differences that are most deserving of protection because those are the types of differences that are most likely to confuse consumers.
Carman: That’s interesting because it’s not just that, nonphysical differences can also play in this, but it’s actually the courts have recognized that the nonphysical differences are more important.
Daren: Well, that they are very deserving of protection. Because say for example, a manufacturer has a warranty on the product but only extends that warranty to products purchased from authorized sellers. And there’s a number of reasons why a manufacturer might do that. I mean, they just may feel that with all of the touch points at issue in the sales channels, and all of the sort of shady goings ons in the ecommerce space, if something is sold outside of their authorized channels, they have no idea how it’s being cared for or treated before it gets to the end user. So they can’t warrant those products. And so as a consumer, if you are not expressly told, and you know these anonymous unauthorized online resellers do not say, hey, by the way, what I’m selling doesn’t come with the manufacturer’s warranty. No, I mean they list under the listing and hold themselves out as having the same exact thing. And that’s where the confusion comes in.
Jeff White: So how do you enforce that Daren?
Daren: So you as a brand would determine who is behind—if it’s not readily evident—who’s behind the operation, the online seller would investigate, find that identity and now, instead of ABC product’s storefront, you realize that it is John Smith that lives on Main Street in Los Angeles. And now you have a person and the ability to exert leverage your legal claims against them, given that they are causing consumer confusion by purporting to sell the same types of authorized genuine products that are sold under your trademark—when in fact they’re not. And so now, you’re not dealing with an anonymous storefront. You’re dealing with an actual person or an actual company and we would recommend some type of escalating enforcement action. I mean, you could start off with a c&d letter saying, hey, we know who you are—here’s why what you’re doing is not appropriate. Here’s why the first sale doctrine doesn’t protect you, and here are the types of damages that you would be liable for if you don’t stop. You can go from there all the way up to and including a lawsuit.
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Jeff: Do you find that many of the distributors that are working with the manufacturers that you deal with are pushing back against this or or are they seeing the benefits as well?
Daren: Yeah, I think by and large distributors understand that their existence is threatened by this disruption and they want value and the brands that they are selling that they’re choosing to represent and they understand that with all of these people out their reselling products with no investment whatsoever, that don’t need to make any margin on their products because they don’t do things like have sales staffs. They don’t do things like invest in product trading. They don’t advertise, they don’t do anything and they make it incredibly difficult for distributors and others in the sales channels to have a basis upon which to continue selling the product. So by and large, they are very receptive to this and oftentimes, you know, applaud manufacturers for taking control. That’s not to say that there aren’t some that are selling to diverters and know that they’re selling to diverters and want to continue selling to diverters. But, as a manufacturer, you need to look at that—we call those kinds of fast food sales. I mean, they know that it tastes good, initially, but they’ll end up hurting you in the long run.
Carman: That, that makes total sense to me. And I know that distributor who are worth having, they don’t desire channel conflict any more than the manufacturer does. I’m curious—and this is a sweeping generalization—most of the more popular online marketplaces are based in the US. But obviously manufacturing is a global thing, so a lot of manufacturers are based outside of the US, but are finding that their products are perhaps making their way onto US-based marketplaces, which, you know, makes everything that you’re talking about very relevant to them, but puts them into a legal framework and situation that they were even less familiar with, I would say. Are you finding that in your practice?
Daren: Yeah, we do see that a lot of them have some type of US operation or office and we typically work with that entity, but there are certainly and I can think of a number of European entities that we represent that are sort of locus of power and presence in Europe. They are trying to unwind this issue here with the US-based marketplace sites. So yeah, we see that a lot.
Jeff: Are you finding at all, this is almost entirely a reactive measure on the part of manufacturers? Is there anyone who is kind of coming into this setting this up from the very beginning with you?
Daren: The answer your question is yes, and a few limited instances. One may be where it’s a new product launch that’s not already out in the market and they can kind of get control of it on the front end—a new company that is dealing with a new product launch. But what you’re seeing is a lot of these companies are household names that have household main products and are trying to put the genie back in the bottle here after they realized that it’s out of control and the difficulties that they’re having with everything as a result.
Carman: Yeah. I’m just imagining those brands, I mean established brands that are experiencing this and are finally coming to terms with it in a reactive way. Just to even begin to quantify the possible costs, not what they’re encountering or what they’ve encountered so far. But how much risk exposure there is—even hard to put a number on that.
Daren: Well, it is. I mean, sales are impacted, certainly margins and things like that are impacted. They have the whole, there’s reputational risk in terms of, you know, when you have so many bad reviews on a large ecommerce site, you know, that is very impactful. And actually, in that regard we see a lot of the old line manufacturers where they’re not really a growth store anymore, but they have incredible brand loyalty and they’re realizing that, as they continue to not have control, they continue to have people out there representing their brand and selling their products that are selling very low quality, perhaps expired damage, improperly cared for products. And those reviews go up then from disgruntled consumers. And now when somebody wants to replace some household appliance. Okay. And, here’s my favorite brand and that I’ve had for the last 10 years or 15 years. And let me go and see what people are saying about it versus what are they saying about their competitor and that, that that’s very concerning for a lot of companies.
Carman: Yeah. Look, I think it’s a huge blind spot for a lot of manufacturing marketers. I think it’s something that takes up so many of the potential downstream impacts of this. So much of them are challenges I’d say that the marketing department ends up being tasked with fixing. I just think that maybe they haven’t considered what they could be doing to address this appropriately. So I think this has been a really helpful discussion, Daren. I’m really excited to hear what the listeners think. So as we wrap up here, any kind of parting thoughts as we conclude.
Daren: Well, I think that what manufacturers and brands have to understand today is that this is a totally new world with a totally new set of challenges and they need to sort of fundamentally revise their thinking in terms of what works and what are best practices and they need to really delve into this holistically. I mean, I’ll tell you what, we go to meet with any company of any size, we delicately insist that the people present be somebody with responsibility for ecommerce. Somebody like in a VP of sales role, in-house legal, and whoever the business leader is a for the particular business segment because you need buy-in and alignment across each one of those disciplines within an organization to really grasp and implement the appropriate strategy to allow these companies to be able to protect themselves and grow as fast as they can in today’s age. So everybody just needs to come around to that and there is a way forward and there’s a path forward that that is not going to be wildly disruptive to your business or require a ton of investment or anything like that. But it does require a thoughtful, holistic approach to be able to reassert that control and, and succeed going forward.
Carman: I think that’s great parting advice. Thanks so much, Daren—it’s been great chatting.
Daren: Well, great. Thank you very much for having me.
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