By Cliff Ennico
In last week’s column, we talked about some of the wrong ways to engage in “private labeling” on eBay, Amazon and other e-commerce websites – buying someone else’s merchandise (legally) and reselling it online at a significantly higher price under your own trademark or “brand label”.
A lot of online retailers are taking someone else’s branded merchandise, removing all the trademarks and logos, replacing the manufacturer’s packaging with their own, and reselling the merchandise under their own name and logo. It’s the “Wild West” of e-commerce, and if not done right, it’s illegal.
Here are some rules for engaging in “private labeling” the right way.
Get the Manufacturer’s Permission. There are some manufacturers, mainly in Asia, that sell generic merchandise to online retailers for the specific purpose of allowing them to “private label” it. Never assume that you are dealing with one of these folks. Get the manufacturer’s written consent to “modify, enhance, improve, repackage, rebrand and resell” the merchandise on “all physical and electronic media, channels of distribution and means of communication, whether now existing or hereafter developed.”
While you’re at it, ask the manufacturer for the “exclusive” right to do all of the above. “Private labeling” merchandise that’s being “private labeled” by dozens of other online retailers is a waste of your time, as that kind of merchandise probably isn’t worth much.
Add Some Value to Your Merchandise. I really have a problem with retailers who take someone else’s merchandise, slap their name on it, and resell it online without doing anything else. A true “private labeler” does something to change, modify or enhance the products they sell, even if it’s only bundling them with other products in a “package deal” the manufacturers don’t offer. It always enhances your status in the marketplace if your stuff is “new, improved” or somehow better than other stuff that appears to be identical.
Make Sure the Stuff Isn’t Counterfeit. Do not resell or “private label” merchandise you do not know or understand. If you do not know your merchandise, you have no idea if it’s counterfeit or not. Some Asian manufacturers of “generic” merchandise are actually selling counterfeits, and you will be caught with your pants down if the U.S. manufacturer finds out you are selling counterfeit goods here. They won’t just sue you for trademark infringement, they will sic the Government on you. It’s a federal crime, people – for the first offense, up to 10 years in prison and a $2 million fine for individuals ($5 million for companies). For multiple violations, you don’t want to know.
Trademark Your Brand Identity. Your whole purpose in “private labeling” is to develop your own brand recognition online. That won’t happen if other people can easily use a similar name or logo and confuse people into thinking it’s you. The only way to prevent that is to get a federally registered trademark – the “®”.
Have a professional design your name and logo, and prepare to spend $2,000 to $3,000 to have a qualified lawyer register the trademark with the federal Government. It’s worth it.
Get Products Liability Insurance. As a private labeler, you are responsible for anything that goes wrong with the merchandise (you can try suing the Asian manufacturer, but good luck with that). If someone is injured or dies using your product, they will sue you for “products liability.” You need insurance for that, at an average cost of 26 cents per $100 of your cost of goods sold.
If the law requires your merchandise to be tested prior to sale, make sure you get it done. For example, the federal Consumer Product Safety Improvement Act requires extensive testing of toys and children’s products imported from China (see www.chinaimportal.com/blog/cpsia-importing-childrens-products-china-united-states).
Get Your Own Universal Product Codes (UPCs). E-commerce websites require you to have a UPC code on each new item you sell online. The law on UPC codes is a bit fuzzy right now, but if you are “private labeling” legally – either you have the manufacturer’s permission or your reselling activities are protected by the “first sale” doctrine (see www.creators.com/lifestylefeatures/business-and-finance/succeeding-in-your-business/the-kirtsaeng-case-and-the-future-of-retail-arbitrage.html), you not only can – but may legally be required to – use your own UPC code for each item.
You should not remove the manufacturer’s UPC code, as that may constitute trademark infringement if the manufacturer uses these codes to police counterfeiting, ensure product quality, facilitate product recalls, or some other legitimate commercial purpose (see http://sunsteinlaw.com/the-upc-code-a-new-frontier-for-trademark-infringement/).
Also, there should be a unique UPC code for each individual item you sell – using the same UPC code on multiple items is an old counterfeiter’s trick and could get you into legal trouble.
Hire a Really Good Lawyer. If you are serious about “private labeling,” you will need a lawyer. Prepare to spend at least $1,000 a year on services such as:
- Defending against claims that you are selling counterfeit merchandise;
- Setting up your consumer warranties and warranty disclaimers; and
- Sending nasty “cease and desist” letters to other sellers who are “private labeling” your merchandise without permission.
Cliff Ennico (firstname.lastname@example.org) is a syndicated columnist, author and host of the PBS television series ‘Money Hunt’. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. Follow him at @cliffennico. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com. COPYRIGHT 2016 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC.