The Columbus-based law firm's eControl practice draws attorneys from multiple offices and disciplines to help the world's biggest brands fight unauthorized online sales.
A few years ago, a consumer who went online to buy her favorite flavor of Yogi Tea on a marketplace like Amazon.com had a chance of receiving a product from a third-party seller that was either expired, not packaged properly or suffering from water damage because it wasn’t elevated off a warehouse floor.
Or, in some cases, all of the above.
That lack of quality control, usually the result of practices by an unauthorized seller, prompted the Oregon herbal tea company to turn to a Columbus law firm to help it come up with a plan to have more command of its brand. It needed a legal strategy to keep the tea out of the wrong sellers’ hands and establish quality standards for authorized sellers. The effort paid off.
“We have much less of a gray market of unauthorized sellers than we did 18 months ago,” says Robin Gabel, a national account manager at East West Tea Co., the maker of Yogi Tea. “What that allows us to do as a business is to lean in to our authorized partners and channels and allow them to be more competitive and successful while preserving the customer experience.”Stay up to date with the region’s movers and shakers, top employers, philanthropic causes, real estate developments and thriving creative and startup scenes. Subscribe to Columbus CEO’s weekly newsletter.
With online sales projected to reach $645 billion in 2020, according to FTI Consulting’s 2019 U.S. Online Retail Forecast, those who practice in Vorys Sater Seymour & Pease’s burgeoning “eControl” group expect to help more companies with products sold online protect the significant investment they make in brand reputation and the loyalty they’ve forged with consumers.
Vorys eControl group emerged out of the firm’s intellectual property, trademark and copyright practice about five years ago as more consumers flocked to online marketplaces and companies ran into problems that tarnished their brands—unauthorized sales, a lack of quality control, counterfeiting and price erosion. Food and beverage companies like East West Tea were especially vulnerable, not only because their consumables expire but that improper storage and distribution could make the product flat-out taste bad.
“If a product listing doesn’t match what they receive, that’s a problem, and it was happening quite a lot,” Gabel says. “That impacts brand integrity and dilutes the relationship with customers.”
Gabel’s research and contacts led her to Whitney Gibson, a partner in Vorys’ Cincinnati office and the person who created the eControl group’s three-step program that combines legal, technological and investigative tools and services to control online sales, eliminate channel conflict and protect brand value.
The law firm performed a business assessment that highlighted areas of opportunity and challenges. The firm also helped the company draft and disseminate sales policies to East West Tea’s authorized distributors and retail partners who would be expected to uphold a set of required quality standards. The goal was to maintain the integrity of the product throughout the supply chain.
Once that foundation was laid, Vorys then became the company’s enforcement counsel to remove unauthorized sellers or those who weren’t upholding those standards through a variety of legal tactics. The result, Gabel says, was moving a lot of the online business that was unauthorized to authorized partners.
“It’s benefitted our business in terms of growth but also in managing and preserving relationships with valuable retailer and distributor partners,” Gabel says. “I was particularly impressed with the firm’s respect for and understanding of how to apply a legal framework in a business environment that intends to be supportive of existing relationships.”
The new policies also have been helpful to smaller sellers that don’t have the resources of larger sellers but can use the guidance to meet Yogi’s expectations.
Third-party sales channels have exploded on online marketplaces like Amazon.com. According to a recent report in industry publication Retail Dive, the percentage of sales by third-party sellers on the site rose from 3 percent in 1999 to 30 percent in 2008, and then to 58 percent in 2018.
So what happens when a company loses control of its online sales channels?
According to Vorys, the brand equity is eroded, sales are lost, negative reviews surface and authorized channel partners that follow the rules can become upset.
To help its clients gain more control of the process, the eControl group uses intellectual property, distribution, consumer, competition and litigation law combined with cyber investigations, data and analytics and channel management consulting. The team has 50 members across several offices who have worked with hundreds of brands across just about every product vertical.
“When products are able to be taken out of authorized distribution channels, the brands lose the ability to maintain quality oversight,” says Daren Garcia, a Vorys partner and member of the eControl team. “Poor quality creates problems for brands … so just about every manufacturer is evaluating today, ‘How do I step in and assert better control over my distribution networks and over who is able to resell my product?’ They want to do so in a way that’s going to preserve the (brand) value that they’ve worked so hard to build up.”
Brands spend millions of dollars and years of work building up their name, yet in seconds their reputation can be tarnished by bad online reviews or counterfeit products. Unauthorized sales channels also can lead to consumers receiving products that may be used but had been marketed as new.
That’s what led Kevin McPherson, senior director of brand protection and corporate counsel at Otter Products in Fort Collins, Colorado, to contact Vorys about a year ago. The company that makes the OtterBox drop-resistant cases for mobile devices had hundreds of unauthorized resellers on several marketplaces selling counterfeit or used Otter products.
“Those products are not up to our quality standards and a poor customer experience leads to negative reviews,” McPherson says. “If something is defective, they’ll call our customer service department and ultimately the company, not the random unauthorized reseller, takes the brunt of their frustration.”
The company worked with Vorys on an aggressive plan that started with cease-and-desist orders, then secondary letters and federal lawsuits. About 98 percent of the cases ended up being settled out of court. A year after hiring the firm, the number of unauthorized sellers has dropped from 400 to a handful that pop up every now and then.
“They are pioneers in this field,” McPherson says of Vorys. “In just a year we’ve been able to move into maintenance mode because things have improved dramatically and consumer feedback is so much better on all the marketplaces.”
Martha Motley, a partner in Vorys’ Columbus office and a member of the eControl team, says the eControl issues touch on other legal disciplines the firm can help clients address, including franchise licensing, anti-trust advice and litigation.
“We get to do a really deep dive and understand a client’s entire business,” she says. “It ranges from different food products, manufactured goods, different accessories—really anything in your pantry, refrigerator or garage.”
Vorys plans to bring in brand and ecommerce professionals from across the U.S. for its first eControl360 Summit that will be held Nov. 6 at the Renaissance Columbus Downtown Hotel. It will feature speakers from some of the world’s best-known brands, including Procter & Gamble, Otter Products and Macy’s.