Many online sellers are curious about the Amazon arbitration process. Fortunately, due to a recent case, we get a window into this opaque proceeding.
In the case, a merchant was suspended for allegedly selling counterfeit goods. Amazon withheld the goods (50,000 products) and $80,000. The merchant was successful and was awarded $775,000 in restitution.
Here are a couple of interesting notes about the article:
Amazon Arbitration is Rare
There are over 2.5 million sellers on the Amazon platform. Many of these sellers have faced suspensions or had their payments frozen. However, only 163 merchants have filed for arbitration!
A report issued last year by the House Judiciary Committee investigating the power of big technology companies revealed that between 2014 and 2019 only 163 merchants—out of the millions who sell on Amazon—had initiated arbitration proceedings against the company.
Many of my clients are upset and feel exhausted about the Amazon Appeal or escalation process. They want to rush in to Amazon Arbitration until they realize there are reasons why sellers avoid this avenue.
Amazon Arbitration Is Expensive
The first reason why they avoid Amazon is due to the costs and risks. In this case, the seller spent $200,000 in legal fees!
You will first have to pay a filing fee that is dependent on the amount of the claim. If you are an international seller your fees will be higher.
The next fee is the cost of the arbitrator. For Amazon arbitrations under $1 million, you will only require one arbitrator. You can expect the hourly fee to be $500 or more.
Finally, you have your lawyer fees. You will need an Amazon seller attorney to file the Demand for Arbitration.
Amazon will reimburse all filing, administration and arbitrator fees up to $10,000 if you are successful. The caveat is that if your claims are deemed “frivolous” by the arbitrator you will not be reimbursed.
Fortunately, if you lose at Arbitration Amazon will not seek attorneys’ fees and costs from you in arbitration unless the arbitrator determines the claims are frivolous.”
Now you can see why only 163 Amazon sellers have chosen the Arbitration path.
“It’s very expensive and time-consuming, and most small businesses don’t have the money or the time,” says Mario Simonyan, a Burbank, California, attorney. He says most clients decide against launching arbitration cases against Amazon because they typically cost $80,000 in legal fees.
Every online seller must perform a cost benefit analysis. You tally up the size of your claim vs. your expected arbitration costs. You then multiply that by your probability of success to get an expected value.
You Will Most Likely Lose
Unfortunately, online sellers have avoided Amazon arbitration because it is expensive and the probability of success is low. Amazon has tipped the scales in it’s favor.
Stone says lawmakers are finally waking up to the antitrust implications of big companies using arbitration to gain an unfair advantage over smaller ones. “Arbitration functions as a way for Amazon to keep disputes within its control, with the scales tipped heavily in its favor,” the House Judiciary Committee said in its report. “As such, Amazon can withhold payments from sellers, suspend their accounts without cause, and engage in other abusive behavior without facing any legal consequences.”
In the case above, the seller was successful. However, he was only awarded half of his claim. In other words, this was more of a moral victory.
Conclusion
Make sure that you have exhausted all of your options before you even think about Amazon arbitration. This includes multiple Plan of Actions, escalation, contacting the legal department and other tools that Amazon attorneys use. Due to the cost and low probability of success, arbitration should be viewed as your last resort.