Amazon's arbitration attack of its own merchants is system gaming at its best

The move is an attack against bogus reviews, but there's a lot more going on here

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Kārlis Dambrāns, CC BY 2.0, via Flickr (Creative Commons BY or BY-SA)

Online product reviews are one of the most powerful e-commerce sales tools, and it's in the interest of every major e-tailer to keep them credible. That's why Amazon has gone out of its way many times to track down and try to punish — often via lawsuits — site visitors who post bogus reviews. But late last week, Amazon added a tactic that is new in two very critical ways.

First, it started to attack its own merchants. And second, contrary to several published reports, Amazon didn't sue those merchants. Amazon pulled those merchants into arbitration disputes, which is radically different for several interesting reasons.

Let's start with what Amazon did. It filed arbitration demands to three of its merchants: Michael Abbara, CCBetter Direct and Kurt Bauer. By the way, it seems that Bauer, who Amazon said owns an Amazon seller called Barclin Home Products, has had legal tussles before. (Tip of the hat to TechCrunch for mentioning that Justice Department settlement with Bauer.)

"A very small minority of sellers attempt to gain an unfair competitive advantage by creating false, misleading and inauthentic customer reviews for their products on," Amazon said in its arbitration filing. "While small in number, these reviews threaten to undermine the trust that customers, and the vast majority of sellers and manufacturers, place in Amazon, thereby tarnishing Amazon's brand."

In that statement, Amazon speaks truth. Well, it's mostly true. Note how it stresses that bogus reviews are done by "a very small minority of sellers" and are "small in number." This is an attempt to argue both sides of the issue, signaling to shoppers that this hardly ever happens and that they should trust reviews while signaling to merchants that this is a terrible approach.

In the same filing, Amazon said that it has filed "lawsuits against over 1,000 respondents who offered to post fake reviews in exchange for payment." And Amazon has admitted the obvious, that it can only make cases against an infinitesimal percentage of the fake reviews. It's standard law enforcement thinking: punish — loudly and publicly — a handful of criminals to serve as a deterrent to similar criminals.

But it's hard to argue with a straight face that this hardly ever happens and then boast how often you've attacked these bogus-review-crafters. The truth is that these misleading reviews are quite common. Indeed, Amazon only referenced half of the problem. The misleading reviews are not merely saying good things about the products from the company paying for the reviews, but they also often say bad things about competitors. That's key because it means that due diligence has to extend beyond finding a connection between a suspicious review and the merchant/manufacturer being talked about.

Indeed, I've run into some clever fraudsters who are paid to write favorable reviews about the competition, but to write them in such over-the-top phrasing that they read as if they're paid for. The idea there is to do a double con: Let potential buyers conclude that it's a paid-for review and decide to not purchase a product that has to resort to such chicanery. Fortunately, few of these sleazy fraudsters are that sophisticated.

There was a fascinating comment on a Gizmodo story about this Amazon action. And, yes, given the topic of this column, it's certainly possible that the comment was itself bogus. But, philosophy majors, if a thought itself is valid and compelling, its source is not always determinative of credibility.

The commenter said she was a top 500 reviewer. Note: Unless someone gets paid by a publisher to do reviews, it's not quite clear how these people can justify doing all of these reviews for free. But let's put that cynicism aside for the moment.

"A few months ago, I got some headphones (Aonsen) to review (I review stuff I buy, but I also get offers to review other products). They were loud, and reasonably comfortable, but the sound quality sucked, so I gave them 3 stars and said they’d be good for people with hearing issues but others should look elsewhere. Within days, I had almost 140 'unhelpful' votes on a headphone I doubt even 10 people actually bought, and so did all the other non-5-star reviews. My rank dropped from ~380 to ~780 in days. Side note: if someone who’s been reviewing for years and years can drop precipitously because of one review out of hundreds, something is wrong with their algorithm," the person, who identified herself as Angela Chen, wrote. "A top 50 shill (who 'reviews' 5-10 things a day) bumped his review from 4 to 5 stars because he 'decided they were really worth 5 stars after listening more.' He and all the other 5 star reviews had roughly 140 'helpful' votes. My theory? The seller used Amazon Turk to buy votes. Oh, the irony."

Her point is that voting up/down the "helpfulness" of reviews is yet another way to game the system.

Speaking of gaming the system, let's look at why Amazon chose to use arbitration rather than use the public court system. Amazon isn't in the legal game and wants to do as little of this as possible. The media is its friend here and it wants to create the image that it is forcefully fighting to attack fraud everywhere it can.

But if it sues someone, the defendant's responses are also public records. That's also true for various judge decisions and explanations and documents filed as evidence. And if the defendant chooses to stand firm, this could end up being played out in a public court hearing or even trial. That would shed light on how this is not at all a trivial problem, and it would undermine Amazon's position.

Up until now, Amazon has simply hoped that reporters would cover the initial filings (which speaks solely from Amazon's perspective) and never bother to check later on for the other side. It's actually not a bad bet. Journalists are generally overworked and tend to prefer to cover new stories than revisit old ones. (Not all, but many.)

Arbitration, however, offers some wonderful benefits. First, it's entirely private. The only reason these arbitration filings leaked out is because Amazon wanted them to. Unless the attorneys for the companies being attacked by Amazon think to reach out to some reporters, their responses will never get out. (If you happen to represent one of those merchants, you'll find my email address at the end of this column.)

This gets even better for Amazon. As a large company, it gets to judge-shop far more literally than in the public court system. As we've noted before, these companies get to hire whichever arbitrator they like. Arbitrators know that companies such as Amazon do an awful lot of arbitration, which means they are a potential source of a lot of arbitration fees. Arbitrators who get one gig from a large company know what will happen if they will rule against them. Bottom line, arbitrators who get a reputation of issuing pro-consumer decisions won't be working a lot as arbitrators.

This isn't an advantage when the arbitration battle is between, let's say, two Fortune 50 companies that both do tons of arbitration. But when it's a case pitting a big company against a consumer or a much smaller company, as is the case here, arbitration is very helpful to the large company.

This move means Amazon can get the benefit of having its argument played out in public, with very little risk of the responses or the eventual outcome getting similar play. Smart move, Amazon. You're getting almost as clever as the fraudsters you're fighting.

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