Brand Enforcement / 07.29.2019

Changes for Amazon Sellers: One Investigation Into Its Business Practices Concludes; Another Begins

By David Posteraro

amazon seller agreementChanges are coming for Amazon sellers worldwide. On August 16th, updates to Amazon’s Business Solutions Agreement (“BSA”) will take effect. The changes, summarized below, are the result of a year-long process with German regulators.

Background.

In July of 2018, Germany’s Federal Cartel Office, the Bundeskartellamt, initiated an abuse proceeding against Amazon to examine its contractual business terms and practices toward sellers on its German marketplace, amazon.de. At the time, Andreas Mundt, President of the Bundeskartellamt, stated that as the largest online retailer operating the largest online market in Germany, Amazon played a dual role: it is both its own retailer and the marketplace for other sellers. As such, it functions as a de facto “gatekeeper” for customers. This double role as the largest retailer for sellers and largest marketplace for buyers had, he noted, the potential to hinder other sellers on its platform. As a result of many complaints it had received, the Bundeskartellamt, would “examine whether Amazon [was] abusing its market position to the detriment of sellers active on its marketplace.”

The terms of Amazon’s business agreements and related practices which the Bundeskartellamt considered abusive included the contractual liability provisions of its agreements, the choice of law and jurisdiction clauses, rules and practices concerning on product reviews, the non-transparent process for termination and blocking of sellers’ accounts, withholding or delaying payment, clauses assigning rights to use information and sellers’ intellectual property (e.g., trademarks and copyrighted images) which sellers had to provide with regard to the products offered, and terms of business on pan-European product dispatch.

Changes.

The Bundeskartellamt proceeding has concluded. As a result, Amazon is amending the general terms of business for sellers on its marketplaces objected to by the Bundeskartellamt, and promised further alterations to its marketplace operation to dispel competition concerns about its contested practices. In a statement, Mundt said:

In conclusion of our proceedings Amazon will adjust its terms of business for sellers active on its marketplace for the German marketplace amazon.de, for all European marketplaces (amazon.co.uk, amazon.fr, amazon.es, amazon.it) and marketplaces worldwide including those in North America and Asia. Amazon will . . . announce and publish the changes to its terms of business (Business Solutions Agreement – BSA). They will take effect 30 days later. The amendments address the numerous complaints about Amazon that the Bundeskartellamt received from sellers. They concern the unilateral exclusion of liability to Amazon’s benefit, the termination and blocking of sellers’ accounts, the court of jurisdiction in case of a dispute, the handling of product information and many other issues. With our proceedings we have obtained far-reaching improvements for sellers active on Amazon marketplaces worldwide. The proceedings are now terminated.

The Changes in Detail.

In announcing the conclusion of its proceeding, the Bundeskartellamt summarized the changes that Amazon was implementing.

  • Transparency and contract amendments: Up until now, it was difficult for sellers to see which conditions applied to them on the Amazon platform. The limited transparency and searchability of the terms of business were not treated by the Bundeskartellamt as a specific accusation of abuse but were indirectly objected to in the examination of other aspects. All Amazon’s terms of business will now be easier to find, and in particular, all of its program guidelines will be accessible via a hyperlink in the BSA. In the future, any changes to the conditions in its contracts and programs will be announced with 15 days’ noti Furthermore, notifications from Amazon will be received in a documentable manner.
  • Choice of law and court of jurisdiction: German sellers wishing to take action against Amazon were obliged to file appeals in Luxembourg via lawyers there because Luxembourg was given as the only court of jurisdiction in Amazon’s terms of business for the European marketplaces. Amazon has now abandoned this exclusivity of the court of jurisdiction for Europe both in its terms of its BSA as well as in its Amazon Payments Agreement (“APE”).
  • Liability and exemption rules: The current BSA contains a very comprehensive exclusion of liability and far-reaching limitations of liability in Amazon’s favo In contrast, the rules provided for extensive liability for the sellers and the obligation to indemnify Amazon from any claims from third parties. Due to the new rules for European marketplaces, Amazon’s exclusion of liability will be significantly limited in the future and the exemption obligation to the disadvantage of the sellers more narrowly defined. Amazon will be liable to the same extent as sellers for intent or gross negligence and for any breach of major contractual obligations. Significantly, the exemption obligation of the sellers will no longer apply to merely alleged violations of intellectual property rights or contractual obligations but only if concrete indications exist. Amazon also clarified in its final letter to the Bundeskartellamt that within Fulfillment by Amazon, (“FBA”) a right to indemnification with regard to units (i.e. returned products) of the seller only exists if Amazon proves that the rejected unit is, in fact, the product sent by the seller.
  • Termination and blocking of accounts: Until now, Amazon reserved an unlimited right to immediately terminate contractual relations with sellers or block them or their payment accounts without justification. Numerous sellers complained about the unsubstantiated and surprising cancellations and resulting loss of turnover. Going forward, the ordinary termination of an account will require 30 days notice. In the case of an extraordinary termination (based on alleged legal infringements by a seller) and the blocking of a seller’s account, Amazon is now obligated to inform the seller and provide reasons for such measures except where this would help fraudulent or unlawful sellers to see through the company’s control systems.
  • Rights of use of product information and parity requirement: Until now, sellers had to irrevocably grant Amazon as the marketplace operator and its affiliated companies very extensive rights to use the sellers’ product material (e.g. product images, descriptions). In accordance with the so-called parity requirement, they also had to provide product material of the same high quality as the one that they use in other sales channel According to the Bundeskartellamt’s preliminary assessment, the sellers could be pressured into providing product material for which they cannot grant the required extensive rights of use. If entitled third parties were to make claims, the sellers would also be obliged to exempt Amazon from such claims.
    The granting of rights of use of product material will be more clearly and narrowly defined in the future. The transfer of rights will be limited to the duration of the (original or derived) property rights of the seller and in terms of content to the possible use by Amazon. Furthermore, the parity requirement, whereby material in the highest quality used in other sales channels has to be provided, will not apply in the future. This includes the indirect restriction on sellers to publish more extensive or higher quality product material on their own shop websites.
  • Returns and reimbursements: Amazon’s customer-friendly rules on returns and reimbursements for customers will remain unaffected by the amendment However, in the future, more consideration will be given to the interests of sellers in their internal relationship with Amazon. For example, those sellers using FBA will now be able to demand that items returned to Amazon be returned to them and object to Amazon’s reimbursement decision within 30 days.
  • Seller ratings/product reviews: At the Bundeskartellamt’s instigation, Amazon will promptly make its Vine rating program available to those marketplace sellers which own a brand name or representatives of brand name owners and gradually increase the necessary capaciti Amazon will also launch its “Early Reviewer” review program in Europe. This program will allow sellers to register new products for which Amazon will ask customers to provide reviews after they have purchased a product against a small remuneration. Amazon also stated that the company was preparing to introduce further programs to assist third-party sellers, e.g. with the translation of customer reviews in other languages. The Bundeskartellamt sees a considerable risk of the abusive, false and manipulative use of customer reviews, which disadvantages both customers as well as competing sellers. Amazon has shown a great and justified interest in acting against such non-authentic re-views (“fake reviews”).

Other Developments

On July 17th, the same day the Bundeskartellamt closed its abuse of dominance proceedings against Amazon, the European Commission announced the opening of a formal antitrust investigation to assess whether Amazon’s use of sensitive data from independent retailers who sell on its marketplace is in breach of EU competition rules. In particular, the EU will examine Amazon’s use of competitively sensitive information – about marketplace sellers, their products and transactions on the marketplace. The Commission will focus on whether and how the use of accumulated marketplace seller data by Amazon as a retailer affects competition, the role of data in the selection of the winners of the “Buy Box” and the impact of Amazon’s potential use of competitively sensitive marketplace seller information on that selection.

If you have any questions or would like further information, contact David Posteraro at 216.736.7218 or drp@kjk.com, or reach out to any of KJK’s Brand Enforcement professionals.

 

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