brand protection attorney

Brand Awareness: Beauty & Cosmetic Industry Key Considerations for Online Brand Protection
By: Robert Segall, Esq.

Although still dominated by the retail sector, the Beauty and Cosmetics industry has made an undeniable shift to online sales and e-commerce marketplaces like Amazon, Walmart and eBay. Globally, the Beauty Industry is enormous and continues to grow exponentially. From 2020 to 2021, global revenue increased from $438 Billion to $511 Billion and numbers are expected to continue to climb, with an expected global revenue to exceed $716 Billion by 2025.

The catalyst for this growth in the US has been e-commerce and online sales. Although e-commerce sales in the US have only increased slightly over recent years, the Beauty and Cosmetics industry is expected to grow by 48% in the US by 2023.

 

What is Driving E-commerce Growth for the Beauty & Cosmetics Industry?

 

One word describes the reasoning behind the Beauty Industry’s growth in e-commerce and that word is “EXCLUSIVITY.” The one thing big box stores and retailers cannot offer is Direct to Consumer sales and online marketplace exclusivity. The most successful Beauty and Cosmetics brands on Amazon and other e-commerce platforms manage their distribution channels very carefully. Smart brand owners understand that to succeed they must give consumers what they want – convenience and top quality products. While extremely important, price is not always the driving force influencing consumers to purchase a branded item.

Typically, buyers who primarily focus on the quality of the item they are purchasing are approximately three times (3x) more likely ro make a purchase directly from the manufacturer or an authorized reseller rather than a big box store with a better price.

The consumer experience has become vital to growth and success on Amazon and other e-commerce platforms for brands of all sizes. Consumers demand quality, support, fairness and selection. Maintaining online marketplace exclusivity is the only way brands can ensure products that are safe to use and of the highest quality reach the hands of their consumers and that the consumer experience is ultimately what the brand intends.

 

Why is maintaining Online Marketplace Exclusivity so important?

 

Imagine ordering your favorite shampoo, conditioner or skin care treatment from Amazon.com only to open the packaging and find that the item is damaged and leaking all over the place, making a mess of your hands, shirt and floor. As a consumer, you would likely feel frustrated or even angered by the inconvenience (which could have been avoided) and even more likely your experience with a brand you thought you knew and loved has been hindered. The result? You leave a scathing review on the Amazon listing you purchased the products from. What you do not know, however, is that this experience may not have been the fault of the brand.

This scenario is all too common for brand owners, especially those in the Beauty and Cosmetics industry where products are typically viscous liquids that require special handling and packaging to ensure they are not damaged in shipping.

While brand owners who sell their products directly to consumers and via properly managed authorized reseller programs can work hard to ensure the products they sell online reach consumers in the condition they intend, they cannot control the often haphazard practices typically employed by “rogue” or “unauthorized” sellers.

It goes without saying that an unauthorized third party e-commerce seller will not take the same care in storing, packaging and shipping branded products as brands themselves or their authorized sellers who are required to adhere to heightened quality controls and engage in pre and post sale product education.

 

E-Commerce Enforcement – Using Brand Protection to Protect Sales and Maintain Exclusivity.

 

Most Beauty and Cosmetic companies offer their products through various distribution channels. When branded products are sold through professional distribution and wholesalers, brick and mortar stores and online, there are a number of ways in which products can “leak” to unauthorized sellers.

As unauthorized or “rogue” sellers join branded listings on Amazon or other e-commerce sites the probability of a negative consumer experience and in turn, harm to the brand increases exponentially. Unauthorized sellers only care about their own profits and not the long term success and reputation of a brand.

So how can brands in the Beauty and Cosmetics industry protect themselves from unauthorized sellers to maximize profits and protect their reputation?

 

Beating the First Sale Doctrine:

 

The First Sale Doctrine generally allows the resale of authentic products by any seller as long as the item matches “manufacturer” condition. Many unauthorized sellers will improperly argue that the First Sale Doctrine protects them because Amazon and other e-commerce platforms do not take action in response to claims of violations of exclusive distribution agreements.

However, the First Sale Doctrine does NOT apply when unauthorized sellers offer products that may be authentic, but are “materially different from manufacturer condition.” With this in mind, the firm of Rosenbaum, Famularo & Segall has helped many brands “beat the First Sale Doctrine” by creating distribution agreements or brand exclusive policies that build in mechanisms to create intellectual property disputes.

 

Again, products that are authentic, but “materially different” from manufacturer’s condition are not protected by the First Sale Doctrine. Courts all over the US have found that material differences can include whether the manufacturer honors their warranty or guarantee when products are purchased from unauthorized sellers. Courts also have held that materially different products include those sold without manufacturer implemented quality control requirements, which can include but is not limited to :

 

  • Temperature & Humidity controls for storage of products;

  • Batch checks to ensure products are not expired, defective, or damaged;

  • Restrictions on Commingling of Inventory at FBA;

  • Restriction on use of the FBA repackage and return feature;

  • Customer service training;

  • Ability to receive notice of and implement recalls;

  • Packaging requirements (ex; pump lock, poly bog, secondary boxing);

  • Labeling requirements (batch codes;

  •  

Enforcement

 

Once a brand has properly implemented material differences into their products, the brand is in a position to begin enforcing their rights against unauthorized sellers. The firm of Rosenbaum, Famularo & Segall and its Brand Protection Amazon team have unmatched experience removing rogue and unauthorized sellers from Amazon and other e-commerce platform listings.

 

Our data driven processes and focus on e-commerce has helped us develop one of, if not the largest index of Amazon sellers in the Beauty and Cosmetics industry in existence. We conduct high level investigations of every unauthorized seller to ensure we are making the most effective communication possible when sending cease and desist letters. We also work intimately with our clients and their brand(s) to ensure we understand their weak points and where products are being diverted to and from.

 

Stopping the existing unauthorized sellers is only half the battle to control your online sales – identifying distribution leaks and sources of diversion is key to ultimate success. Our firm uses a cost effective approach to ensure unauthorized sellers are removed as efficiently as possible and position our clients for maximum growth. Our knowledge of Amazon and the Amazon Brand Registry program is truly what differentiates our team from other law firms and consultants engaged in brand protection practice. We know how to escalate the unauthorized seller situations properly with e-commerce platforms to take the decision to sell out of the unauthorized seller’s hands.

 

If you would like to learn more about how the firm of Rosenbaum, Famularo & Segall helps brands in the Beauty and Cosmetic industry protect their sales from rogue and unauthorized sellers, please contact us at 212-256-1109 or by email at Rob@BPAmazon.com.

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