262: How Amazon Counterfeits Nearly Destroyed A 7 Figure Business With Kevin Williams

Today I’m really excited to have Kevin Williams back on the show. Kevin runs the site BrushHero.com where he sells a power cleaning brush.

Last time we spoke on episode 209, Kevin’s company was doing great, sales were going gangbusters and they had just been on Shark Tank. But last year, things took a sharp turn due to an unfortunate sequence of events involving IP theft and piracy.

In today’s episode, Kevin and I talk about what happened and how he almost lost his entire business.

What You’ll Learn

  • The revenue and profit of Kevin’s business
  • How Shark Tank affected sales
  • The dangers of comingling inventory
  • Amazon’s take down policy for trademark and patent infringement
  • How to fight the fakes

Other Resources And Books

Sponsors

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Avalara.com – Handling sales tax is complicated. Fortunately, Avalara simplifies sales tax with real-time tax rate calculations and automatic return filing. And the best part is that Avalara already integrates with your existing accounting, e-commerce and marketplaces like Amazon, so it’s super easy to setup. Click here and get a FREE TRIAL.

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Transcript

Steve: You’re listening to the My Wife Quit Her Job Podcast, the place where I bring on successful bootstrapped business owners and dig deep into what strategies they use to grow their businesses. Now today, I’m thrilled to have my friend Kevin Williams back on the show. And the last time I had Kevin on; his business was flying high and growing at an exponential rate. But this past year, a group of malicious Amazon sellers basically came close to destroying his entire multimillion dollar business. And in this interview, we’re going to talk about what happened and what you can do to fight the counterfeits.

But before we begin, I want to give a quick shout out to Privy who is a sponsor of the show. Privy is the tool that I use to build my email list for both my blog and my online store. And right now I’m using Privy to display a cool Wheel of Fortune pop up. Basically a user gives their email for a chance to win valuable prizes in our store. And customers love the gamification aspect of this and when I implemented this form email signups increased by 131%.

You can also use Privy to reduce cart abandonment with cart saver pops and abandoned cart email sequences as well at one super low price that is much cheaper than using a full blown email marketing solution. So, bottom line, Privy allows me to turn visitors into email subscribers and recover lost sales. So, head on over to Privy.com/Steve and try it for free. And if you decide you need some of the more advanced features, use coupon code MWQHJ for 15% off. Once again, that’s P-R-I-V-Y.com/Steve.

I also want to give a quick shout out to Klaviyo who is also a sponsor of the show. Whether you’re getting your business off the ground or looking for new ways to scale, Klaviyo offers fast, simple and repeatable ways to grow. And with Klaviyo you can personalize your marketing, build your customer relationships and automate your online sales. And it is now easier than ever to create amazing email and advertising experiences. So I just want to introduce Klaviyo’s new entrepreneur growth guide. It is packed with must read blog posts, case studies and getting started content and this guide will help you prioritize what you need to do to maximize revenue growth.

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Intro: Welcome to the My Wife Quit Her Job Podcast. We will teach you how to create a business that suits your lifestyle so you can spend more time with your family and focus on doing the things that you love. Here’s your host Steve Chou.

Steve: Welcome to the My Wife Quit Her Job Podcast. Today I’m really excited to have Kevin Williams back on the show. And Kevin runs a site BrushHero.com where he sells a power cleaning brush that hooks up to your hose and spins with a lot of torque to clean up hard to clean objects like wheels, bikes, boats, and more. Anyways, last time we spoke on episode 209, Kevin’s company was kicking butt, they had just been on Shark Tank, sales were going like gangbusters. But last year, things took a sharp turn due to an unfortunate sequence of events involving IP theft and piracy. And I want to let Kevin talk about what happened. And with that welcome to the show Kevin, how are you doing today?

Kevin: I’m doing great, Steve, how about yourself?

Steve: I’m doing well. And you sound great by the way.

Kevin: So last time we talked was…

Steve: Six to eight months ago I want to say right.

Kevin: Yes, six or eight months, February or March last year. Our Shark Tank episode aired right at the end of January, which to be honest, was a little sub optimal for a water power clean brush. But still all the anecdotes you hear about Shark Tank are pretty much true. We got a bunch of media attention, we got a surge in sales, real high levels of morale. And then we realized that the judges and the American public weren’t the only people that were watching Shark Tank. It turns out that a lot of Chinese manufacturers were watching Shark Tank as well.

Steve: Why is it always the Chinese manufacturers? I mean, you could have just said manufacturers. But I guess they were…

Kevin: No, it was Chinese manufacturers.

Steve: Oh they were, okay right.

Kevin: It’s true. It’s true that it is — it could easily have been Bangladeshi or…

Steve: I’m just giving you a hard time sorry, go on.

Kevin: But it is a good question, it really is. And I think the answer in my case is that because it’s an injection molded product, and China is the land of injection molded products. For clarity, I produce my product in the UK and then assemble it in the US. So I don’t actually do Chinese injection molding. But China is the source of all things plastic, generally speaking.

Steve: That’s correct.

Kevin: Anyway, so we’re doing well, we’re selling a lot of units, even though it was cold and dank outside. And then right around the end of April and the beginning of May, we started to see fakes pop up. And the way that we just discovered it was truly unfortunate. We started to get calls into our customer service department saying, hey, my brush popped off or the turbine just broke, or hey, this thing is just a piece of junk. Or most disturbingly, why does it say made in China on the box? That raised all kinds of red flags.

So we had some really well-meaning customers send in their packaging and it turned out that not only did we have knockoffs, but they were true fakes. They were using all of our images, including images of me, they put our patent numbers and our customer service phone number right on their fake box. So after they sold the product, and people had trouble, those customers rightfully dialed that customer service number and it was absolutely devastating for us.

Steve: Are you sure the – so how did this affect sales? So first of all what were your numbers in profit? I guess the last time we talked and what happened immediately after that happened?

Kevin: Well, we were on a big upswing anyway. Before Shark Tank, we had both Walmart and Costco retail distribution heading our way. So we were – oh gosh, in 2017 we were heading towards $3 million. After Shark Tank in 2018, we were projecting hitting about five and a half million dollars all things considered. Remember, this is early in our season. Our season really hits its stride somewhere in April, May, June somewhere, but we absolutely started to see some sales impacts because first there was one and then there were two and then there were five and then there were dozens and dozens and dozens.

First day really popped up on eBay. Then they popped up on the Amazon EU marketplaces, we sell in most of the Amazon marketplaces. It actually lagged a little bit with Amazon US because due to a quirk of fate, we had brand restriction or brand gating in the US, which prevented sellers from selling on our listing.

Steve: How do you get brand new gating by the way? What did you have to go through to get that?

Kevin: You have to know the right people. No, that’s not true. Brand restriction, which is the actual term that Amazon uses, we all say brand gating. Amazon doesn’t really like that term. But brand restriction is granted on a case by case basis. And it’s rarely, rarely granted. My supposition is often it’s granted these days as a result of arbitration or litigation of some kind. In my case, our brand was a very early participant in something called the Launchpad program. And the Launchpad program was what Amazon was terming an incubator for little brands to help them grow.

And I think that our rep at some point, just basically flipped the switch on the back end, we didn’t get any proactive notice about it. We didn’t even know it had happened until we had an authorized reseller try and list the product and bump into the gating screen or restriction screen, which says, hey, you need written permission in order to sell this brand. Honestly, there was a ton of rejoicing in our ranks when we found that. We were like, yay, we’re gated, we’re safe, it’s good. And then gating went away.

Steve: They took it away?

Kevin: They didn’t take it away. As best as we can figure, there was a big upgrade in the Amazon Brand Registry system in May, April, May of last year to Brand Registry 2.0 which offers a whole bunch of new IP enforcement tools to sellers, which is great. But when we upgraded it, we think it did something on the back end of Amazon that just refreshed our records. Amazon has zero record of us ever being restricted but we totally were. In retrospect, I really wish that we’d taken screenshots and had some sort of proof that we had restriction in place because once it went away, Amazon just said, no, you weren’t. We had really no way to do anything about it.

So basically, hours after gating went away, we had our first hijacker on Amazon. And for your audience, the difference between a hijacker and say an imitator is that the hijacker actually lifts on your listing. So they undercut your price and they sell a counterfeit or alternate version of your product. And they steal the Amazon buy box, which gives you the best opportunity for sale. This is different from somebody just listing and another product that similar or even a counterfeit of your product in parallel.

And it’s much more damaging because the listing that we had established over several years of operations had 1,200 reviews, it had over a four star ranking. It had keyword relevance all over the map. We were pushing traffic to it externally through media activities like Shark Tank and our own Facebook activities. So it was horrifying because we had all of these dollars that were floating around there in marketing and all of those dollars were basically going to Chinese fakes.

Steve: So these fakes, these are the guys that were copying your packaging, everything, your customer service numbers, everything exactly, except it was made in China.

Kevin: Except it was made in China. Well, it was all inferior quality. I like to quip that had they done a better job with the counterfeit, everything would it be a lot better for everybody because the counterfeit was such low quality that it just didn’t work. My device is — it is a little complicated as far as a spinning brush, and they just sort of slapped it together. So my brand was then on a product that just didn’t function very well. So the next thing that happened is because it was being sold on my listing on Amazon, I got just a flood of one star reviews. So I had something like 150 one star reviews in a row, just it was funk, a POS etc.

Steve: So those who weren’t malicious right, those were legit one star reviews.

Kevin: Oh yeah, that wasn’t one of these scenarios where somebody is like paying to hurt me. These are real customers who thought they were buying my product and instead got a fake version that was a piece of junk. And they got on the internet and they told the world. That was a giant deal. So we went from number one in the number of categories to just off the first page, sales plummeted by 50% plus on those listings, and that’s not even including the issues that we had with the hijackers.

Steve: How did they get the buy box? Were they just drastically undercutting the price? Is that what happened?

Kevin: Sure, yeah. We had both FBM, so fulfilled by merchant hijackers at extremely low prices that were shipping direct from China. And we had FBA hijackers, who were either directly placing their inventory in Amazon under their own seller name, or they were commingling their inventory in Amazon based on just the UPC.

Steve: Let’s talk a little bit about that. So first of all, if you wouldn’t mind defining commingling for the audience, that’d be great.

Kevin: So commingling is seems to me that it’s on the way out. But a few years ago, Amazon, it was really hard to the idea that you could have what you call fungible inventory. So we all know what a UPC is, the labels in individual product. Well, from Amazon’s perspective, if two products have the same UPC, they’re the same product. So if you Steve in California are selling let’s just say a coke, and I’m in Utah selling a coke and they both have the same UPC, and we’re selling it on Amazon, from the consumers’ perspective, as long as those products are identical. It doesn’t matter if Amazon grabs your piece of inventory or my piece of inventory, because they’re fungible, they’re the same thing right?

Steve: Yeah.

Kevin: That breaks badly when you have a counterfeit situation. Because in the vast fulfillment centers of Amazon, what happened was, we ended up with a boatload of products that had our UPC on them, but were fakes. So I would end up selling a product to someone that totally legit, I’d have the buy box, but an Amazon fulfillment center would grab a fake off the rack, and then they’d ship that to that customer. So now the customer gets a fake that I actually sold. And then they go back and they write a one star review.

Now, I go back to Amazon and say, hey Amazon, you know we’re having a fake problem, a counterfeit problem, help me out here, this one star review is clearly related to it. And Amazon says no way. Look here, this buyer Steve is connected to one of your orders. And since they’re connected to your order, you sold it to them and go on, prove to us that the inventory we shipped is fake, and just can’t. The flip side is the fake seller would occasionally sell a real unit to their people. So somebody would buy a real Brush Hero for 9.99 or 12.99, and get my real product.

Steve: So what’s confusing to me is I remember, you were featured in Inc. Magazine recently and it said that you are the only seller of your product. So what are the chances that someone else would be selling it and so what advantage did you have on commingling your inventory?

Kevin: It was encouraged by Amazon early on in that from an Amazon fulfillment efficiency perspective a lot of my inventory tends to go to Stockton, the Stockton fulfillment center for whatever reason. But if I have an East Coast customer and some East Coast seller of the product had the product and inventory over there, they’d far rather be able to give the amazon customer one day delivery than two or three day delivery by having to airfreight it from Stockton.

Imagine what that would cost if all my inventory was in Stockton, and I had a New York customer and Amazon needs to meet their prime promise for New York, yeah, a New York customer, they’re going to have to fly that thing all the way across the country. And they’ll do it so they can satisfy that customer. But when they analyzed it, they thought oh well, inventory is inventory, all the UPCs are the same. So why not just pick the one from New York? It also saved some complexity in my warehouse. Most of my volume actually comes off Amazon. It is from retail and from my direct channels. So if I’m having to sticker Amazon inventory with FN SKUs, it just adds complexity, it adds a little cost etc. In retrospect, it was a huge mistake. So if you take one thing away from this Amazon sellers, don’t ever commingle your inventory, don’t do it.

Steve: So what you just said implies that you have resellers that are actually selling your product legitimately, right?

Kevin: No, I don’t. I have pretty tight channel control. In various times that has happened. It’s not something we encourage, it’s not any part of our strategy. And in our reseller agreements, we actually prohibit it now. But for a brief time, we thought that it might be a good idea. That’s also a horrible idea. If you can control Amazon, you should control Amazon.

Steve: Okay. All right. So in terms of – all right, so obviously, you complained to Amazon. And what happened after that? First of all, what is Amazon’s takedown policy for this sort of thing?

Kevin: So we have three different types of protection in Amazon. We have well, three different types of intellectual property protection in general. We have utility patents, US and some international utility patents, we have our trademarks which are registered with a USPTO and we have general copyright protection. In Amazon land, in excess of 85% of our successful take downs, actually just at large, 85% of our successful take downs are related to copyrights. And the reason why is there is something called the Digital Millennium Copyright Act, which requires marketplaces like eBay, Amazon, even Google or others to make a reasonable effort to remove infringing copyright material once it’s reported.

So they’re pretty clean and clear reporting mechanisms and Amazon for saying, hey, this is clearly our image. Where it gets really complicated is when a seller who may or may not be in your listing by the way, a lot of these copyright claims are, they’re not hijacking our listing, they’re actually creating a parallel listing, and then they steal our images. So there’s a picture of me standing there cleaning my neighbor’s dog, literally. And that’s something that’s in one of our listings. And it’s pretty obvious that it’s me, and we can point to the copyright and Amazon will take that down, sometimes in as little as 12 hours, 24 hours, 48 hours, not a big deal.

Where it really stinks is when there’s a hijacker or there’s somebody who’s not superficially using copyrighted material. You actually have to purchase the item, and demonstrate the copyright or trademark infringement. So again, my brand is Brush Hero. So I bet if you looked on one of the Amazons right now, you’d find something called 360 brush cleaner. And 360 brush cleaner at this point has done away with stealing my images but they’re still using the box. So I have to buy the product, have it shipped from China, which can take two or three weeks and then photograph the box, which always still includes pictures of me, and then report the box. Meanwhile, that listing has been sitting up and active for two or three weeks, and it’s been siphoning off small amounts of my traffic the whole time.

The most insidious example of this was over Black Friday, Cyber Monday weekend. I was on — you should never go on vacation that particular weekend. Yeah, in e-commerce world, you pretty much give up Thanksgiving. But I was in San Francisco with my family. And right around four o’clock on Thanksgiving afternoon, we had seven hijackers pop up on our listing, because they knew full well that it being a US holiday, followed by Black Friday, followed by a weekend followed by Cyber Monday, it wasn’t likely that Amazon was going to be able to take down those listings.

So even though we reported them by 4:30 on Thanksgiving, it took until Tuesday or Wednesday for them to go down. So on one of the biggest sales weekends of the year, and this was just a few months ago, we didn’t own our buy box for significant portions of the time. And that could have directly cost us $30,000 over that weekend. It’s sort of hard to quantify. But they’re smart. They know what they’re doing. They know how the system works, and they know how to work it.

Steve: All right, so you just presented two problems. So it sounds like the parallel listings are not really a problem. Is that accurate?

Kevin: No, they are definitely a problem. They’re out there. They look a lot like our product. They generally have low star rankings.

Steve: But they’re not pretending to be you. It’s just like another piece of competition from your perspective, right?

Steve: Yeah. Yeah, at this point, it’s less of a problem now because we’ve been very effective in our whack a mole efforts. I looked last evening, and we have 7,200 individual intellectual property actions since May.

Steve: Oh my gosh, okay. Do you automate this process or is it just like a real manual process?

Kevin: We use — last year, when it was really starting to ramp up, at one point we employed three different intellectual property whack a mole firms. I mean, that really is the best way to describe them. These are firms that specialize in identifying keywords, images, multilingual references to your product in market places all over the world. And they’ve established API, or in some cases manual reporting mechanisms through those. And just every single day, they’re refining and reporting more.

I also have a virtual assistant who spends a chunk of every day doing our own internal checks and then adding those to the firm we use, which the firm that we landed on is one called Pointer Brand, which is out of the Netherlands. They’ve been a very good partner. And we now have a lot of data as far as who these people are, where they’re coming from, what the countries are, etc.

Steve: Okay, so you went to Amazon and there’s this process for getting them taken down. So presumably, once you actually get the product in hand, you take a picture, and they’ll take it down, right. But obviously more pop up faster than you can take them down. So what can you do about that?

Kevin: Well, we are a participant in the transparency program; it hasn’t fully kicked in yet. But that’s an individual unit labeling program that provides a born on date, and basically a unique identity for each unit. So if you were to use your Amazon consumer app and scan one of these little QR codes on the back of my product, it would say built in Salt Lake City in November of 2018 because that’s when we initiated that particular production run that the stickers are using. Amazon is supposed to prohibit units that don’t have the transparency code affixed to them from entering circulation. But we have yet to see that kick in. It’s in process, I have faith in it, but it hasn’t fully kicked in yet.

Similarly, there’s an FBM version that requires fulfilled by merchant sellers to demonstrate that they have the QR codes through photographic evidence. But that is in beta and hasn’t fully rolled out yet either, so other ways to prevent this from happening.

Steve: So before it came back up on the transparency program, why hasn’t it kicked in yet exactly, or what hasn’t kicked in yet?

Kevin: It’s a big rollout for Amazon, and they’re still basically trying to figure it out. We enrolled in transparency in mid-2018 and it has, it’s still rolling out. The fulfillment centers are still dealing with how to find these codes and identify them and scan them accurately etc.

Steve: Are you paying money for this right now?

Kevin: So yes, you pay five cents a code plus you have the sticker itself, which is it can be a center too and then you have to adhere it. So I would say I’m spending 10 cents a unit to make this happen. There’s no subscription fee, there’s no recurring fee that’s tied to it. Given the issues I’ve had and the sort of financial impact we’ve had, to me it was a no brainer to at least give it a try to see if it would work.

Steve: It’s really new so I’m not sure what the procedure is. So let’s say someone gets a fake, are you supposed to have that customer report that code to Amazon?

Kevin: So they wouldn’t be able to have a code. It should never make it into the Amazon system. These things are — they look like little QR codes, and like a data matrix and every single one of them is unique. Unlike an FN SKU which is the Amazon unit identifier within the fulfillment system, you can print those right on a box and it’s not going to change. Every single unit I have has a slightly different QR matrix that is machine readable. Theoretically, those are encrypted and it would be very, very difficult for somebody to spoof them. They can spoof one and copy it over and over again but Amazon is supposed to pick up on that.

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Right, okay, and that infrastructure is not in place yet right, the detection and enforcement?

Kevin: It is in place. It’s just it doesn’t feel like it’s at full force yet. We know that we still have hijackers, and we know that we still have fakes. This is one of — I feel pretty positive about this program. And I feel that Amazon will get it under control, they will recognize this issue. This is one of the ways that they have to mitigate it. And I absolutely see down the road, everyone who’s in any sort of sensitive category, like toys or nutraceuticals or high counterfeit items, you’ll see Amazon pushing everybody towards this program, I’m sure.

Steve: So that actually solves a problem at the end customer. But is there anything that you can do at the source to like shut down the manufacturers themselves?

Kevin: So we have — in 2018, we filed for a pile of Chinese intellectual property documents. So we filed for utility patents, for trademark protection, for copyrights, etc. Those are all going through the Chinese patents in the intellectual property system right now. And had we had the trademark in particular filed in China, we would have had a lot more teeth. Alibaba has been a decent partner as far as taking down trademark violations because they recognize the bad press it creates, but some of the others less so. And they want to see that there’s actually a Chinese violation. In my opinion, the Chinese tend to respect Chinese law a little bit more than they do other laws. So had I had those pieces in place before, I may have been able to stem the tide.

Steve: Did they register the trademark in China though?

Kevin: They did.

Steve: Oh my god. Okay.

Kevin: So they registered my patents, they registered my trademarks; they even tried to register some of my copyrights. We’ve won some of the trademark battles; we’re probably going to lose the patent battles. But we’re actually trying at this point just to invalidate their patents based on the fact that there was prior art as in the product is already out there. So you don’t get to patent it. But it’s expensive. And I think this is it’s a good point to be made. People say, oh, what do you wish you’d done differently? Well, the company was headed towards $3 million in revenue.

Had I known what was going to happen to me at that sort of scale, it probably would have made sense for me to file for the Chinese trademarks then. And it’s ended up costing me almost $50,000 to do that. So that’s not an easy thing to do for a small company that’s growing really rapidly. I would way rather spend that $50,000 on most of a new person or a new product or whatever. But instead, I’ve been playing whack a mole. So before we went on Shark Tank, which that was never a sure thing, right. It’s not like you know you’re going to go and you know you’re going to air. But we were on an upswing, things were going in the right direction. So it would have been smart for us to invest in that sort of protection before we grow.

Steve: So trademark is $50,000 in China?

Kevin: Well, but by the time you go through a reputable firm and register for multiple categories, and in our case, we had to battle down the previous filers of our trademark. So there was some back and forth, not necessarily litigation, but there was a lot of administrative process that we had to go through. Had we filed before there was anyone, it would have been quite a bit less than that. I don’t have a particularly good number. We also went through a large US law firm DLA Piper, because at that point we just needed to make it happen and make it happen right. I’m positive that if you found local council, you could pay a lot less.

Steve: But once you have the trademark, I guess your point is you could have shut these people down?

Kevin: Faster and easier. It would have stemmed the tide. Just picture it like a funnel at the very top of the funnel, it’s like an inverted funnel are the manufacturers. And as far as we know, we had at least five distinct manufacturers making the product. And that comes from an analysis of the fakes that we’ve seen and their mold lines and things like that. They’re all slightly different from each other. And if those guys are getting battered down when they’re doing their first test runs, they may decide not to proceed with the run. But we also think that they made hundreds of thousands of units.

And although we’ve been very successful in battling them, they’re still out there, and they’re still out there in big piles, and they’re devalued because their customers don’t want to buy them because they know that we as the brand are going to go after them with vigor. So now they’re pretty much dumping the inventory. We’re seeing listings popping up. Yesterday we had one pop up in Bangladesh; we see them in like Bolivia, and really crazy places. Those of you who backpack and travel, you might well see my product in like third world market places, because the Chinese are now selling them at a loss just to get rid of the inventory.

Steve: I want to talk a little bit about I guess the value of a patent. I mean, I can’t even imagine how much money, it sounds expensive everything that you’ve done. I don’t know if you have a number for that. But when you get a patent, which you had both the trademark and a patent like how truly valuable is that?

Kevin: So when I tell people what I do, I’m really not just Brush Hero, we own a couple of different patent lines, or we have licenses for a couple of different patent lines. And that was what we built our business on this idea that we could test products, figure out what works, license the patents or acquire the patents and then grow from there and the patent would give us some level of protection. In those 7,200 take downs, I think at last count we had something like 23 that were patent related. So 7,200 intellectual property take downs and 23 the grounds were patent.

And we suspect those were basically accidents. Somebody like Alibaba just — we claim whatever we can, and Alibaba maybe clicked the box that said patent. And the reason why is the big platforms aren’t in the business of arbitrating patents. You just think about Amazon and one garlic press versus another garlic press, one has a patent in one doesn’t, how the heck is Amazon supposed to make the difference between them. So if you pursue a patent action in Amazon, they say that’s great, show us the court order. And pursuing a court decision for patents can cost you $100,000 each.

It’s also sort of worthless, because given the whack a mole aspect of this, if you were to get one amazon seller shut down under a patent, it’s pretty easy for them to just shift their inventory to another seller name, and you take down lanky one and then two days later, you’ve got lanky two who pops up. And guess what, that’s a different seller. So now you have to go through the court order again. That is enormously frustrating. So for superficial, tactical, intellectual property enforcement, the patents have not been useful to us.

Steve: Okay, so I guess the next question is, should that be a priority for someone?

Kevin: Well, think of it this way. We are — now we have pretty broad distribution in these big retailers. And we are establishing this category of the hose power water brush, right. And if we didn’t have the patent, all of this work that we’ve done could easily be replicated by people who are real and big and can just crush us. So I’m not saying they would do this. But imagine somebody like AutoZone, who runs a lot of their own private label products. If we didn’t have a patent on this, we spent all of these dollars developing the category. And it would be pretty easy for them to go out and make their own version of it, and basically shut us down.

Steve: I guess that’s the case for people that play by the rules, right? But let’s say someone in China decided to create a better mousetrap than you did and sell it. It doesn’t sound like there’s much you could do, right?

Kevin: No, there’s really not much I can do.

Steve: So it’s basically a projection.

Kevin: [Overlapping 00:33:50] small scale.

Steve: Yeah, it basically protects you from people who play by the rules, which I guess is like US manufacturers or whoever obeys those laws, right?

Kevin: Sure. At the end of the day, that’s what the big business is, right? So I’m growing past the point of these kind of little transactional issues and now I’m gaining attention of big players. And my business was definitely hurt by the Chinese but my business could be ended if someone really big decided just to eat my lunch.

Steve: I’m kind of curious how you recovered off of that Amazon listing. So you’re getting 150 or whatever negative one star reviews and I imagine they’re just coming in on a regular basis. What do you do at that point, or what did you do at that point?

Kevin: This was a rough week; we eventually shut down that listing. And this was a listing that was doing seven figures a year, and was first in a number of keywords and a number of categories. And for the Amazon sellers out there they know how valuable that is. But once Amazon declined to help us with removing the reviews, we just couldn’t let it sit there with a 3.6 rating. It was having huge impact on the rest of our business. We would go visit a big retailer and the first thing the retailer would do is they go look at Amazon and they’d see 150 one star reviews.

So it wasn’t just about our direct sales. It was actually just it was hurting our brand everywhere. So we shut down the listing. We happened to have vendor central listing or vendor Express listing from our days in Launchpad that was a similar product that could be adapted. And we revived that one which had more like 150 reviews. And honestly, its stars weren’t awesome for other reasons, but it was way better than what we were looking at. So we shut down the awesome listing with 1,200 reviews, and we relaunched another one with 150. And to date we have not recovered our ranking. We have not recovered our velocity, we have we have less keyword relevance, etc.

Steve: What’s to stop the hijackers from finding this new listing and starting this process all over again?

Kevin: Oh, they have.

Steve: Oh they have, okay.

Kevin: Absolutely, they found it within days. We did get Amazon to fully close the old listing, which impaired the inventory that all the hijackers had and the fakes had. So they had to re-sticker everything, they had to call back inventory that probably hurt them a little bit. But as soon as the new listing was there, they re-stickered for this listing and sent it back in. But we were more geared up to fight them. So we take down seven or eight a day at this point.

Steve: Oh my God, that’s crazy.

Kevin: And it’s not just Amazon that’s everywhere, eBay is the worst, eBay makes up probably 90% of the claims. But yeah, we take down a bunch every single day. And we’re just faster about it and we’re better about it. If you were to do some brand search on us, you’d also see that we make clear that there are counterfeits out there. It’s painful, because I will end up with fakes in Google PLAs, which are product listing ads as well. So most of our direct to consumer sales come through Facebook advertising, which then leads to Google searches for our brand, which can yield a non-Amazon fake, say a Shopify store or a drop shipper, who has — they’re undercutting us in the PLA. So we have to fight that too.

Steve: So Kevin, I kind of want to, we talked about a bunch of stuff in this interview, I just want to kind of turn it into like a little summary of if you had to start all over again and you knew you were going to get on Shark Tank, for example, or you were going to get mass exposure, what are the steps that you would have taken ahead of time to mitigate this disaster?

Kevin: I think one, I would have been being more aware of international intellectual property, particularly in China. So I would have spent the money early on to get the protection that I need in China.

Steve: Which includes what, sorry?

Kevin: Trademark in particular, copyright filings, I would have filed for registered copyrights. This is something we haven’t touched on yet. But when at the bottom of your website, you put copyright My Wife Quit Her Job 2019; you are claiming the rights to the imagery and the copy on your website. But you’re not actually registering that. And in order to have any teeth in court, you need to register your copyright. You can do this pro se which means on your own with the USPTO. It’s actually a really simple process to take your website, to download a PDF version of it and submit the whole website to the USPTO as an actual registered work.

At the end of the day, after eight to 12 months, you receive a registration number. And that means that as opposed to reaching out to someone and saying, hey, you’re infringing, take it down, you can now reach out and say, hey, you’re infringing on this specific copyright registration. And that entitles us to statutory damages, which can be 10X per incident, actually, something like $30,000 per incident. So if you’ve taken six of my images, the statutory damage can be $180,000 for just the number of incidents, plus loss of income plus whatever you took in plus some sort of multiplier, it has a lot of teeth. But it takes a long time. So I would have done that. I would have filed…

Steve: So the regular copyright is not worth very much is that what you’re saying?

Kevin: Oh, it’s good as a tool for takedowns but you can’t really go to court and sue…

Steve: For damages.

Kevin: For damages with it.

Steve: Got it okay.

Kevin: It’s just a tool you can use to take down and obviously have everything copyrighted. Another thing that we do now that I wish we’d done is we do very tiny watermarks in all of our images, because a lot of the platforms are highly automated. So imagine if there’s a image of my brush that is 45 degrees to the right, it’s pretty easy in Photoshop just to flip that. So it’s 45 degrees to the left, and the sort of dumb AIs that are behind the reporting systems. I won’t pick that up necessarily. So what we do is we bury pixel level watermarks. They’re not obvious, but they’re pixel level watermarks in the images. So even if it’s skewed or distorted, we can point to that mark and say no, no, no, no, this is a derivative of our original work.

Steve: I see. So even manipulating the image and receiving in Photoshop, the watermark still gets preserved.

Kevin: Unless they know how to find it. And most of them are pretty lazy to be honest.

Steve: Okay.

Kevin: I’m trying to think of other things that we may have done. Transparency wasn’t there?

Steve: Well, okay. How about — I mean, assuming today, right?

Kevin: Yeah, transparency? Oh, yeah, I’d absolutely do transparency. That’s super important.

Steve: Where does – so if we could just prioritize all these steps, it seems like trademark is probably the most important one. Where does the transparency program fall into that?

Kevin: Well, I would say registering your copyrights. Even though that seems it’s just so easy to do and it has a long timeline to it. It costs $135 to file something like that, 150, whatever it is, but it takes eight to 12 months. Next, I would say the trademarks in China. And again, it would just be estimating, but 15 to $20,000, in multiple categories to file original trademarks, and figure that will take a year right. Transparency, because well, our experience with transparency is it’s taken six, eight months to happen. But we were one of the first companies, as far as I know to start down that road. I suspect if you started transparency now, it could be live in even a matter of two or three months. So think of it as far as timelines of things that you need to do and dependencies that you need to do.

Steve: Where does filing a patent internationally fall into this in terms of priority?

Kevin: Well, for me my business model is predicated on those patents. So patents can take a long time, and they can be very, very expensive to maintain. You want to know that you have some sort of commercial value in your product before you are going to spend all of that money. For me, that would be lightweight testing of a concept. Basically, minimum viable product stuff where you have the concept, you have the idea, put up a landing page, see if anybody cares. And if I’m really excited about it, and I’m going to invest in it, at that point, I would probably pursue the patent path. But to be clear, I license existing patents so I don’t have to do that.

Steve: Got it, no, no. Okay. That’s clear. What about your hijacker strategy now? Like let’s say, I’m sure a lot of people listening out there have hijackers and piggy backers. What is your strategy for getting them off right now? It sounds like it’s an automated — it’s not automated, but you have like a procedure for it now, right?

Kevin: So given the volume of my problems, I’m using one of these IP monitoring firms has been really useful for me. But that’s about $24,000 a year we’re paying the firm to help hold our hand. Once you understand how the process works, and how the Brand Registry reporting process works, it’s pretty straightforward to develop SOPs that you could implement internally. We just haven’t done it yet. But you can do it yourself based on scale. What you’re not going to catch yourself are the crazy things that are appearing in other countries, like the Bangladeshi listing like I would — I actually did catch that one. But generally speaking, you are going to be focused on the marketplaces where you sell. And meanwhile, your brand is being trounced in Brazil or other places. So you might find five years down the line that your brand reputation is ruined, because you haven’t been monitoring in these other countries.

Steve: Okay. But within the US, it’s as simple as going on the Amazon Brand Registry site for your brand and then reporting a violation there.

Kevin: Yes, the piece that’s really painful is the recognition that you have to buy the fake and a lot of people get stuck in this rut where they’re like, well, it’s obviously a fake. And Amazon says, well prove it. I actually had an Amazon employee telling me once that it was possible that I had shipped bulk product to some retailer in China who is now shipping it back from China one at a time at a quarter of the price that I was charging.

Steve: Crazy.

Kevin: Crazy. So, you can’t really fight the gorilla, you have to learn the rules of the Amazon jungle. And one of them is if you have a hijacker, do not try and fight them and prove to them that it’s a fake, you actually have to buy it. And we just hit this point, we buy them, we expedite them, we get them as fast as we can, we take pictures of them and then turn those around and submit those to Amazon. Super, super frustrating in the case of FBM from China, because of the time lag involved.

Steve: And I have a higher level question for you, Kevin. Has this been worth all the stress? I mean, that the Amazon Marketplace for your product?

Kevin: Oh, that’s a good question. I had a good life before. Yes, I mean, I am an entrepreneur. This is a neat brand. We’ve done neat things with it, we continue to grow. Even in the middle of this, we grew by 80% year over year. We could have grown by a lot more. This cost me the ability to acquire a new brand or invest in a new brand or develop new employees. But I am bullish on Amazon. I think there are big changes afoot as Amazon realizes the impact on their own brand of counterfeits, and you can see it coming.

There were big actions in vendor central just a couple of weeks ago, the implementation of this project zero thing that they’ve announced, which will, in my opinion, end up being the universal adoption of transparency codes. Amazon is not going away anytime soon, and the naysayers out there like if you just walk away and you don’t participate, you’re leaving a lot of money on the table. So for me, it is worth it. It’s agonizing and it’s painful. And boy, it really was like waking up every day and getting kicked in the shins, but I’d probably do it again.

Steve: Okay. One thing I really appreciate about you, Kevin, is you actually decided to fight this. Not only did you fight it on your own, but you also got press coverage in Inc. Magazine, which I will link to underneath this interview. And I’m just kind of curious, I know there’s a lot of people who are getting violated out there. How did you manage to get Inc. to take your article and take your story live in public?

Kevin: So obviously, this was a huge mess for us. I had more faith than I should have in the Amazon system. And we contacted so many well-meaning awesome Amazon employees who absolutely could help us. We hit the director level within the transparency program. And even that person was at the end of the day only able to basically toss the information over a fence with a no reply email, he couldn’t make anything happen. So we decided that maybe the way to do this was to shine a light on the issue.

And so we put together a press release, telling our whole story, the Shark Tank thing, sort of American, this American entrepreneurial journey that we’ve had, and the fact that Amazon basically didn’t care at the end of the day. And then we targeted major media outlets that we thought might care. And more importantly, we thought that they might be read by Amazon people. Inc. was three or four down on that list. We solicited The Wall Street Journal, New York Times, LA Times, and Money, Fortune, etc. And Inc. was the first one that bid. A reporter actually a bureau chief of San Francisco reached out to me. And it turned into a many week affair as far as interviews and back and forth, and me serving his background, making sure that there’s — there are a lot of anecdotes about that.

I’ve had a lot of Amazon adventures. But there are things I know that have happened to other people within our e-commerce community that haven’t happened to me directly. So I was then a resource for the reporter to go find those people and interview those people so that he could get directly quotable information about things like false positive reviews, or review dumping or some of the black hat stuff that’s floating around out there. And I just tried to collaborate with them as much as possible. I had no idea where it was going to go. They did get an exclusive on the story.

So once they picked up on it, we couldn’t solicit the story to others. But I didn’t really know if it was going to get published or what was going to happen. And then they announced that they were flying a photographer out from LA to Salt Lake City to meet with me. At that point, I realized, well heck, this is actually going to be a real story if they’re going to spend that sort of money to do that. And we did a whole photo shoot at our 3PL in Salt Lake, and they had me look pensively into the distance.

Steve: That was a really good shot actually; you look like the president of the United States.

Kevin: My kids love it. My staff thinks it’s hilarious, smiley, happy guy. And the photographer was like, dude, stop smacking, you’re supposed to be pensive.

Steve: Well, Kevin, I am very happy to spread the word about the article, and all the experiences that you’ve had. And it’s important that anyone who’s selling on Amazon to be aware that these things can happen, especially if you get media attention for your product.

Kevin: Absolutely, yeah.

Steve: So Kevin, where can people find you online if they have any other questions, or if any other press outlets want to get a hold of you?

Kevin: So BrushHero.com is our major retail site. I’m on LinkedIn under Kevin Williams. I’m pretty easy to find out there as well. I’m happy to help out as much as possible. I’m definitely seeking more media attention if we can get it. I think the story is an interesting one to tell. And it’s important that people actually understand this sort of dark side of Amazon and e-commerce.

Steve: Cool. Well, Kevin, I appreciate your time. Thanks for coming on.

Kevin: All right, Steve. Cool.

Steve: All right, take care.

Hope you enjoyed that episode. Now even though Amazon is doing their best to fight the counterfeits on their platform, it’s a fairly large problem that is going to be very difficult for them to solve. For more information about this episode, go to Mywifequitherjob.com/episode262.

And once again I want to thank Klaviyo for sponsoring this episode. Klaviyo is my email marketing platform of choice for e-commerce merchants and you can easily put together automated flows like an abandoned cart sequence, a post-purchase flow, a win-back campaign, basically all these sequences that will make you money on autopilot. So, head on over to Mywifequitherjob.com/K-L-A-V-I-Y-O, once again that’s Mywifequitherjob.com/K-L-A-V-I-Y-O.

I also want to thank Privy for sponsoring this episode. Privy is the email capture provider that I personally use to turn visitors into email subscribers. They offer email capture, exit intent, and site targeting tools to make it super simple as well. And I like Privy because it’s so powerful and you can basically trigger custom pop ups for any parameter that is closely tied to your e-commerce store. If you want to give it a try, it is free. So head on over to Privy.com/Steve, once again that’s P-R-I-V-Y.com/Steve.

Now, I talk about how I use all these tools on my blog, and if you’re interested in starting your own e-commerce store, head on over to mywifequitherjob.com and sign up for my free six-day mini course. Just type in your email, and I’ll send you the course right away, thanks for listening.

Outro: Thanks for listening to the My Wife Quit Her Job Podcast, where we are giving the courage people need to start their own online business. For more information, visit Steve’s blog at www.mywifequitherjob.com.

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