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Counterfeiters on Amazon are putting this American company in jeopardy
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Mark Lopreiato was thrilled when he was invited to promote his Forearm Forklift on ABC's "Good Morning America" last month. The chance for a small manufacturing business to reach 4.5 million viewers for free doesn't come around often.
Lopreiato appeared on "Buy it and Try It," a segment for hosts to test out popular niche gizmos from infomercials in front of an enthusiastic New York studio audience. The first product they tried was a steel nonstick pan, which smoothly cooked up eggs without the use of oil or butter.
Then it was Forearm Forklift's turn. After viewing a commercial for the product, ABC's Lara Spencer and Gio Benitez pulled the heavy-duty moving straps over their forearms and proceeded to lift up a washing machine and walk with it.
"I was pretty impressed," Spencer said to the crowd.
You'd think such a shoutout from the hugely popular morning show would provide a huge boost for Lopreiato's 18-year-old family business.
But this is Amazon.com's (AMZN) world, and Forearm Forklift, like so many brands, is uncomfortably inhabiting it.
Once a thriving product for movers and contractors available at a dozen big-box retailers including Wal-Mart (WMT), Target (TGT) and AutoZone (AZO), Forearm Forklift has been ravaged over the past half-decade by counterfeiters, mostly selling on Amazon. Scores of merchants have copied the patented product, using its name, images and labels and undercutting the real Forearm Forklift on price.
When "Good Morning America" viewers go online to buy a set, which retails between $20 and $25, odds are they'll be purchasing someone else's product.
"It just keeps funneling business to the knockoffs," said Lopreiato, 48, whose wife Sophia also works at the company and traveled with him to New York. "It's almost like winning the lottery if they choose our item."
Forearm Forklift is hanging on by a thread. The company is down to 21 full-time employees from 52 at its peak and recorded less than $500 in profit last year. Annual revenue in 2008 topped $4 million and has since plunged 30 percent. Retailers stopped placing orders because they were finding what appeared to be the same thing online for much cheaper.
Lopreiato has diversified his product line, adding a harness for the shoulders, a strap that goes over a single shoulder and straps for carrying boxes. But nothing has come close to replicating the success of his flagship Forearm Forklift.
Meanwhile, Lopreiato bears the costs of workers' compensation, product quality control, commercial insurance, mortgage payments and patent management fees all so counterfeiters can act as freeloaders.
"We're competing with people who are stealing our brand, stealing our pictures and stealing our intellectual property," Lopreiato said in an interview last week from his 20,000-square foot warehouse in Baldwin Park, about 20 miles east of Los Angeles.
Amazon's growing dominance in commerce brings with it plenty of collateral damage. The counterfeit problem, in particular, goes largely undiscussed by CEO Jeff Bezos and ignored by investors and analysts.
The stock has climbed 37 percent over the last 12 months making Amazon the world's fourth-most valuable company, and 89 percent of analysts tracked by FactSet say shareholders should buy more.
Heading into the Seattle-based company's third-quarter earnings report Thursday, investor focus is on Amazon Web Services, Prime membership growth and additional investments in supply chain and fulfillment. Analysts at Pacific Crest Securities, in their earnings preview, called Amazon "one of the most disruptive forces in retail and technology today."
Conversations with merchants elicit a very different reaction. Since CNBC.com began reporting on Amazon's budding counterfeit issue in May, we've spoken with dozens of merchants that have narratives similar to Lopreiato's, but very few are willing to speak on the record out of fear of retribution from Amazon.
Lopreiato, an Army veteran and father of two middle-school daughters, said he felt compelled to tell his story.
"If Jeff Bezos knew exactly what was happening to us, he'd do the right thing," he said. "It's not that he's a bad guy. It's that there is, in my opinion, a lot of pressure put on folks at Amazon to increase sales, increase sales, increase sales. That's wonderful. That's the American way. But do it right."
Amazon's obsessive focus on pleasing consumers with discounts and service has come at the expense of brands like Forearm Forklift. In trying to provide the lowest-cost option for virtually every product on the planet, the company opened the doors to merchants from across the globe with little respect for intellectual property, despite an anti-counterfeiting policy that prohibits the sale of inauthentic items.
That's enabled manufacturers largely from China to take advantage of cheaper production and labor costs to compete on the Amazon market.
Some big brands have voiced their concerns.
Birkenstock said in July that it's no longer authorizing sales on Amazon starting in 2017. Last week Apple (AAPL) sued a distributor named Mobile Star for selling counterfeit power adapters and charging cables on the site, claiming the products "pose an immediate threat to consumer safety."
Amazon has taken steps to crack down of late by forcing new sellers of major brands like Nike (NKE), Hasbro (HAS) and Cuisinart to show invoices proving the items are legitimate and then pay a fee. Third-party sellers are getting suspended in droves for activity that Amazon deems suspicious or for complaints from buyers, sparking outrage from merchants who say they're being punished for Amazon's inability to control counterfeiting.
"Amazon has zero tolerance for the sale of counterfeits," a company spokesperson said in an e-mailed statement. "We are working closely with manufacturers and brands to identify offenders, and removing fraudulent items from our catalog. We are also taking action and aggressively pursuing bad actors in this space."
The company didn't offer a comment on Forearm Forklift's situation.
Until now, Forearm Forklift has been forced to self-police the site and take action to get unauthorized listings removed. See an infringer? Send a cease-and-desist letter. Suspicious of a counterfeit? Buy it, and prove to Amazon through a formal complaint that the listing should be taken down.
Repeat, repeat, repeat. And pray it works.
On the second floor of Forearm Forklift's warehouse, Lopreiato opens a closet filled floor-to-ceiling with cardboard boxes from Amazon purchases. Inside each, supposedly, is a version of his product.
There's no subtlety. The packaging includes not only his name and label but images of his family members and co-workers moving washing machines, armoires and exercise equipment. Open a box and find orange straps that are either too thin, too short, have loose stitching or are made of entirely different and weaker material.
Lopreiato said he's submitted more than 100 cease-and-desist letters to third-party sellers and takedown notices to Amazon. But go to Amazon today, and infringers are easy to spot. One listing for furniture moving straps contains an image that looks like a couple of seat belts. Among the attached photos is one of Mark's wife moving a mattress.
In a July 2015 e-mail to Amazon's patent team, Marty Proops, an Amazon marketplace expert who previously worked with Forearm Forklift on its account, said he and Lopreiato had identified 53 separate sellers offering infringing products over the past year.
Buyers who assume they're getting the real thing are dismayed when the product can't possibly help them move a 300-pound refrigerator. Thus, Forearm Forklift has one-star reviews from customers calling it a "cheap knockoff (don't purchase)" and "very obvious counterfeit."
"That posts on our offer page on Amazon so a lot of people think we're offering fakes," Lopreiato said.
He never expected this to be easy. He developed the original contraption while working as a mover and dealing with clients who didn't want dollies rolling across new wooden floors. Carrying items by hand meant bending down with 200-pound appliances to get through doorways.
Lopreiato got started renting a small warehouse in 1998 and had so little money that he lived in the office. He had an evening gig at a law firm doing clerical work and waited tables on weekends.
For 12 years, Lopreiato built the business by attending trade shows and networking with distributors and buyers. He forged deals with companies ranging from U-Haul and Home Depot (HD) to Ross Stores (ROST) and Canadian Tire (CTC.A-CA).
He was on QVC every two months or so starting in 2003, selling more than 20,000 Forearm Forklifts per live show at the peak. He started selling to Amazon as a vendor that same year, but it was never a big part of his business, representing under 2 percent of revenue in 2008.
Lopreiato was fully prepared for competition, knowing that patent protection only goes so far. But he never expected a counterfeiting onslaught.
The slide started in 2010. He got a call from an Amazon employee, saying that other sellers were offering his product at a much lower price and he needed to cut his rate to keep the business.
Lopreiato investigated and quickly found the rival products were fakes. He told Amazon that he would aggressively defend his intellectual property but that he couldn't compete with those prices and still make money. Amazon was unhappy with that response, and within weeks there were more than 100 knockoffs on the site, Lopreiato said.
"Since that date, it's just been absolutely downhill," he said.
Over the past six years, Lopreiato has seen vendor managers come and go without fixing the problem or notifying him that they're leaving.
He forwarded a number of e-mails from the past two years, where he and Proops showed explicit infringement and asked for help. In addition to jeopardizing Forearm Forklift's business, Proops wrote in June 2015, "Sooner or later an Amazon customer is going to be seriously injured by one of these cheap knockoffs!"
Responses ranged from terse to deflecting. Amazon told Proops to send complaints to generic e-mail addresses firstname.lastname@example.org and email@example.com. Other e-mails suggested that the company was looking into the matter, but then the account would move to another representative.
In July 2015, an Amazon lawyer told Proops by e-mail that Forearm Forklift should take up infringement matters directly with the third-party sellers. "At this time we consider this matter closed and we will take no further action," he wrote.
C.J. Rosenbaum, a lawyer who represents Amazon sellers, said the rapid turnover in vendor managers and inconsistency in how they treat issues is a constant source of frustration.
"Amazon's responses are very erratic," said Rosenbaum, who recently published the "Amazon Law Library," a book compiling the legal issues surrounding the company and platform. "You can send in one complaint through the system about an IP violation and they take down the listing, and submit the same exact thing again and just fail."
For Lopreiato, legal action presents an expensive option with little upside. Individually going after infringers, who he'd first have to track down, would require more time and money than he's got in the bank. He filed one case in 2013 against a domestic company and was awarded a settlement before trial.
Taking on Amazon directly has been a non-starter for the three intellectual property lawyers Lopreiato has contacted.
More than anything, he needs Amazon's help. With traditional retailers sinking fast and more retail and wholesale activity shifting to Amazon, Forearm Forklift now counts on the site for about 12 percent of revenue, a number that's growing despite the flood of counterfeits.
A tiny number of additional orders rolled in after the "Good Morning America" appearance, even though Lopreiato is certain that far more went to the knockoffs.
Similarly, a Facebook page called Impressive Things posted Forearm Forklift's commercial earlier this month, generating 909,000 views and counting. Again, more revenue for the fakes.
On Friday morning, Lopreiato received a particularly discouraging call.
Aafes, a retailer targeting military communities, had been planning to buy Forearm Forklift for 120 of its stores. The representative handling the deal was calling Lopreiato because an Aafes executive had discovered lookalikes on Amazon for a much lower price.
He e-mailed a screenshot showing two different sellers using Forearm Forklift's photos (including the one below) to promote their products, one for $8.09 and the other for $11.24.
Lopreiato is all too familiar with this routine. He replied with a lengthy apology and offered assurance that the cheaper products are fakes. He gave his standard "buyer beware" pitch, explaining that the knockoffs are low-quality, unsafe and uninsured.
He's not at all confident that it will be enough. In a text message on Friday afternoon, Lopreiato wrote, "Another prospect will probably be lost."