Technologist - The FindLaw Legal Technology Blog

Amazon Awarded $3.6M in Vendor System Manipulation Lawsuit

A jury recently awarded Amazon $3.6 million against one of their Marketplace vendors, Beautyko. Unfortunately for Amazon, this massive verdict won't cover their losses related to the underlying dispute. Nevertheless it is still a win which potentially reinforces the public trust in their "zero tolerance" policy for vendor fraud.

The lawsuit alleged that the vendor manipulated Amazon's automated purchasing system to offload millions in unneeded inventory onto Amazon. When Amazon requested that Beautyko accept the return of their inventory, the company refused. Unable to justify the overstock of inventory Amazon liquidated the inventory, incurring a nearly $4 million loss in the process.

Automated Purchasing Manipulation

Basically, after years of being a vendor on the marketplace, Beautyko allegedly saw a way to beat the automated system. Unfortunately, that way was also a violation of their contract with Amazon.

In short, some vendors are able to sell their products directly to Amazon via an automated purchasing system. Those products are then "fulfilled by Amazon" because Amazon has purchased and warehouses the vendor's products. Due to Amazon's massive size, Beautyko was able to put in thousands of automated purchase orders that were accepted by the automatic system before Amazon realized that something wasn't quite right.

Buying a Loser

Amazon noticed that Beautyko was adding quite a bit of inventory despite having flat sales, which is a bit unusual on its own. However, when Amazon started looking closer at the products being pushed through their system, it noticed that Beautyco was gaming their system. Rather than actually adding new products, it was adding multi-packs of the same products already for sale. Also, it was using alternate vendor accounts (with different names) to push through automated purchases of the same exact products sold via Beautyco.

When Amazon advised Beautyko that it had breached their vendor contract, Beautyco was unwilling to remedy the problem. This led Amazon to investigate even further, which led it to discover the alleged manipulative business practices, which it believed to be an intentional attempt to defraud the massive retailer and its customers. Not surprisingly, given the facts, a jury sided with Amazon.

Related Resources: