Recommendations For Controlling Online Sales Daren S. Garcia Vorys, Sater, Seymour and Pease LLP 412.904.7717 dsgarcia@vorys.com

Vorys Online Seller Enforcement Group Represents 150+ companies across the country regarding online brand protection matters. Thought leaders regarding legal claims, distribution strategies, authorized seller policies and agreements, and more Integrated graduated enforcement system Technology Investigation Legal SF ACC, DSA Annual Meeting, DSA Global Summit, Law360, Professional Pricing Society, Compass, Winner of 2017 Innovation Award, etc.

Bridget Sedlock Associate Online Seller Enforcement Team Whitney Gibson Partner Daren Garcia Partner Adam Sherman Partner Ken Rubin Partner Herbert Hedden Partner T. Blake Finney Associate Amanda Roe Associate Laura Erdman Associate Leslie Allen Associate Jordan Cohen Associate Maureen Kelly Associate Samuel Yamron Associate Bridget Sedlock Associate Meredith Caplan Associate

Third Party Marketplace Pain Points

Marketplace Price Wars $65 $60 $55 $50 $45 $40 $35 $30 $25 $20 $15 $10 $05 $00 *Move to intro Financial impact: Marketplaces lower purchase prices from brand. Lower # of higher margin sales online Authorized sellers use lower-priced online sales to negotiate lower prices Authorized sellers refuse to do business with company Reduces profits * Simulated results

Financial Impact of Uncontrolled Marketplaces Marketplace negotiates lower purchase prices, eroding the brand’s margin Marketplace refuses to sell certain products because they cannot make a profit. Stunted growth - E-commerce team is not motivated to invest in advertising, SEO, etc. because they are losing buy-box to unauthorized sellers. Marketplace cannot sell as a 3P or use a 3P reseller because of unauthorized third party sellers. Authorized brick and mortar sellers refuse to do business with company, or promote brand aggressively because of low-priced unauthorized sellers.

Unauthorized Resellers Causing Negative Product Reviews No quality controls by 3P sellers resulting in damage/defect/spoilage Price related reviews driving low ratings Counterfeit claims damage product and brand credibility

Strategy To Protect Your Brand On The Marketplaces & Position For Growth

Protect & Grow Your Brand On The Marketplaces Select Marketplace Sales Method 5 Monitor, Investigate Enforce 1 6 - Grow Your Sales 4 Reseller Policy 2 Grey Market Controls 3 MAP Policy

Select Marketplace Sellers

Authorized Reseller Policy: No Sales on Online Marketplaces

Foundation For Claims Against Unauthorized Sellers COMPANY Reseller/MAP Policy First Sale Doctrine AUTHORIZED SELLERS UNAUTHORIZED SELLERS (Unauthorized Channels)

Unauthorized Sellers Have a Higher Tendency to Violate MAP Policies SOURCE: http://insight.kellogg.northwestern.edu/article/when-retail-prices-cross-the-line 15% of authorized retailers violate MAP policies 53% of unauthorized retailers violate MAP policies Optional / customize as needed

Material differences don’t have to be physical What Constitutes a Material Difference? Material differences don’t have to be physical

Non-Physical Material Differences . . . Recall Assistance Report Safety Incidents Online Sales QC Inspection Obligations Promotions Customer Service Warranty

Online Quality Control Policy Pre-approve Online Sellers/Marketplace Sellers Exclusive Sellers on Marketplaces Stops comingling Allows company to determine source of reviews Provide Approved Sellers Online Sellers Quality Control Policy For Online Sales Monitor Authorized Sellers For Compliance Test Purchases Address Quality Issues With Online Sellers Track Review Scores/Sentiment

And the List Goes On…

Legal Claims Against Unauthorized Sales COMPANY Trademark Infringement, Tortious Interference Reseller Policy AUTHORIZED SELLERS UNAUTHORIZED SELLERS (Unauthorized Channels)

Unauthorized Online Sellers Push Back “What I’m doing is not illegal!” “You can’t identify me!” “You won’t actually do anything!”

Online Seller Enforcement Process

Marketplace Monitoring for Unauthorized Sellers and MAP Violators

Marketplace Monitoring

Online Seller Enforcement Process

Comprehensive ID Services Open Source Intelligence Investigative Databases & Research Product Buys Experienced Investigator Subpoenas

Online Seller Enforcement Process

Cut Off Source, Put on ‘Do Not Sell’ List

Online Seller Enforcement Process

C&D Letters

Online Seller Enforcement Process

Draft Complaints

Online Seller Enforcement Process

Protect & Grow Your Brand On The Marketplaces Exclusive Marketplace Seller 5 Monitor, Investigate Enforce 1 6 - Grow Your Sales 4 Reseller Policy 2 Distinguish Grey Market 3 MAP Policy

Example Quality issues & others selling on marketplaces Company decided to sell on marketplaces

Unauthorized Third Party Sellers Cannibalize Sales Unauthorized sellers offering: competitive prices fast/free shipping products diverted from Japan No method in place to address unauthorized sellers.

Implementation of Seller Enforcement Program Developed foundational policies for legal claims against unauthorized third-party sellers Started using a marketplace monitoring service to track online sellers Used a graduated enforcement system to step up legal pressure until seller removed its products Selected enforcement targets based on likelihood that they were securing sales

of sales on marketplace go to company’s authorized seller. As of January 2018… an estimated of sales on marketplace go to company’s authorized seller. 98%

Additional Example Results Went from selling at 50% below MAP on Amazon to selling at MAP Compliance in 6 months. Increased authorized sales on Amazon 100% in 3 months. Went from 74% MAP compliance to 97% in two months. 50% stop after C&D 90% after draft complaint

Benefits of Controlling Sales On The Marketplaces Stable Retail Pricing Control Over Brand Equity Better Marketing Opportunities Better Buyer Interaction Good Product Reviews Faster Growth

Step 1: Consultation

Step 2: Policies, Agreements, Procedures

Step 3: Enforcement