Parallel Imports — Another eBay VeRO Stumbling Block For Sellers

With over half of all eBay users registered outside the USA, selling internationally can mean a big boost in profits. This is where the supply and demand equation often tips on the sellers’ side — even with the high cost of shipping. Internet retailers can get premium prices for their goods globally as competition locally creates smaller margins.

However, with the additional market share you may find yourself a pawn in the middle of an international distribution chess game. Not only do you have to understand import laws and restrictions you must understand individual manufactures distribution channels and licensing rules as well.

Products are often designed in one country, manufactured in another, and then sold to customers all over the world. Many of these branded products are intended only for certain countries. In fact the same product can have different specifications depending on the country. The reasons for this can be many, including:

  • consumer preferences
  • national laws
  • product distribution models and/or licensing agreements

This means that the trademark owners must maintain control over the geographic distribution and sale location of their products. To maintain control over their brands used to be fairly simple. There was an order to the retail distribution chain. The manufacture was done in one location, and then the products were shipped to the authorized distributor. They then broke the lots up and sold them only to authorized retailers. A retailer had to have a business license, often times had to be approved by both the manufacture and distributor to sell the goods.

EBay Certified Business Consultant & Former Retail Buyer Carolyn Jacinto explains the process:

  1. The “rights owner” contracted with one or more factories to make their goods overseas. They would import them, and fill their own warehouses, or fill at one or more distribution centers. You would write your purchase order directly to the “rights owner” and he would either fill and ship your order, or contract with the distributor to ship
  2.  The “rights owner” would sell directly to a middle man, usually a large distributor of goods. ie Western Hoeege for fishing …. Troy Shroeder for automotive products … there are tons and tons of distributors, most of them specialize in a group of products of one sort. They buy in truckloads or container loads, and ship to mom and pop stores with minimums. Often breaking pack (a master pack of 144 might be in inner packs of 12) or (a pack of 24 might be sold in increments of 2 at a time)

Many times the retailer had to pay special licensing fees to the Trademark owners for the rights to sell the products. The retailer often had to agree to only sell the products for MAP (minimum advertised price) in a certain territory only. One example comes from my garden store — after several years of begging and pleading we were finally allowed to sell Territorial Seeds (a Northwest specialty seed company), but we were only allowed to sell them from our one location in the Ballard area (of Seattle). We were not allowed to sell them through a catalog. Or, if we opened a second store in another part of Seattle — we were not authorized to sell the seeds there either. Each location had to be authorized by the company; any violation meant they would withdraw our seed rack.

With the internet — where the boundaries between cities, states and countries are blurred and the traditional retail distribution model has started to chip, crack and crumble….

  • we have the manufacturing countries starting to sell products directly,
  • people bypassing the traditional distribution chain and purchasing cheaper goods and offering to world markets,
  • gray market goods that were meant for the dumpster suddenly showing up for sale online,
  • garage sale shoppers finding used handbags that may, or may not be, knock-offs being resold online,
  • goods produced for one countries’ market — being sold to another countries market cheaper.

Of course most of these cases — whether good or bad for the consumer — is cutting profits from the manufacturers and suppliers of goods. It’s compromising quality and, in some cases creating safety hazards for end users.

This leapfrogging of the supply chain is creating another complex problem. Trademark owners have to protect their retailers, who pay hefty fees for the rights to resell trademarked products, in some cases upwards of $50,000 or more.

To protect their brands, trademark, copyright owners and manufacturers are looking closely at eBay listings. Once considered untouchable — because the sales were classified as internet purchases for personal use — eBay is now considered more than that. The old eBay stance that the company is not the seller, only the conduit, has eroded with the many lawsuits eBay has endured over the past few years. The net result means that sellers who sell certain trademarked items will find their listings closed down without question when the copyright/trademark holder contacts eBay’s VeRO department.

My question as a retailer, and it may be yours, is specifically which products should we watch for and where should we avoid selling them? There is no real solid answer to that question.

Here’s a general list of many of the items I found mentioned — but this is by no means complete…

  • CD’s
  • Books
  • Music
  • Cars/auto parts
  • Camera/film/memory cards
  • Fashion
  • Cosmetics
  • Pharmaceuticals

I asked eBay’s Jim Griffith (dean of eBay University) if he had any specific knowledge of product brands or types we should be aware of, he told me; “My experiences are spotty at best but I do know that Tommy Hilfiger is aggressive when it comes to Parallel Import Laws. There is not sure fire way for a seller to determine before the fact, which companies utilize PI laws for their merchandise so this issue will continue to be a thorny one for sellers who sell brand names and ship outside of the US.”

I was able to find an email that eBay sent to a USA seller who had a Tommy Hilfiger listing shut down: “Your auction has been removed since you are offering Tommy Hilfiger® products for sale in the E.U that were or will be imported into the E.U without the explicit consent of Tommy Hilfiger. Since Tommy Hilfiger Europe BV is the exclusive licensee and distributor of Tommy Hilfiger® apparel, shoes and accessories in Europe, such importation into the E.U. without Tommy Hilfiger’s consent, also known as parallel- or grey import, is not allowed. We hope the above is clear and hope and trust that you will take the above into consideration in the future.”

What can we do to protect ourselves as sellers? If you are selling new products that you purchase from a distributor here in the USA check with them about trademark licensing agreements. Ask them about trademark agreements and territory. If you sell in the used and collectible market focus on a niche segment. That will help you learn the rules and regulations for that specific type of product. If the items you are selling has a licensed trademark such as Tommy Hilfiger, Porsche, a sports team, etc you may want to limit sales to only the USA (or if you are an seller outside the USA — limit the sales of those items to your home country only).

One last word: Parallel imported goods are sometimes confused with pirated and counterfeit goods. That’s not correct. Parallel imported goods are legitimately manufactured goods that are sourced from an authorized or licensed overseas supplier rather than the owner of the intellectual property right in the importing country. Pirate or counterfeit goods, on the other hand are infringing manufactured goods that are produced without the authorization of the owner of the intellectual property right. The whole subject of gray market and bootleg goods is the subject for another time….