Amazon Workers Used Data From Third-Party Sellers to Launch Competing Products, Contrary to Company Policy: Report

The practice was referred to internally as 'going over the fence,' and contradicts past statements by Amazon.

Amazon’s marketplace practices are in the spotlight again, following a report that Amazon  (AMZN) - Get Report employees used information about third-party sellers to launch competing products under their own label.

Amazon employees have tapped into data on individual sellers in making decisions on whether to launch similar products under Amazon’s own private labels, according to the Wall Street Journal. And those actions run contrary to past statements by Amazon, including statements to regulators, that the company doesn’t use data from individual sellers to launch competing products.

Amazon shares rose 1.59% on Thursday to $2,401.00.

Former Amazon employees told the WSJ that they had regularly accessed data about individual sellers, skirting the company’s policy, and used the information to launch competing products with similar features. 

One specific product that arose from this practice was a popular car-trunk organizer made by a small company called Fortem, with Amazon ultimately creating its own private label version based on detailed information about Fortem's sales and expenses, according to the Journal's report. 

The practice was referred to internally as “going over the fence,” and employees speaking to the Journal said it happened regularly. In other cases, according to the WSJ, individual seller data was extracted from "aggregated" data sources that were supposed to include data on multiple sellers.

"This is no different than Walmart launching the 'Great Value' brand, which sit on its shelves right next to other products. Amazon 'Private Label' then becomes just another seller on the platform, like the millions of others," said Kunal Chopra, CEO of etailz, a third-party Amazon seller and marketplace growth platform. "However, if Amazon's private label is using internal private data, then this could turn negative very quickly for its antitrust review.”

In statements to the press and to Congress, Amazon executives have denied that Amazon uses individual seller data to launch competing products.

At a Congressional hearing last July, Amazon's associate general counsel told lawmakers that it doesn’t “use individual seller data directly to compete.” The company has also pointed out that sales of its private label goods make up only a small percentage of overall sales on the site, and that it’s generally common for retailers to launch competing versions of popular products. 

In a statement to TheStreet, Amazon denied that the company's testimony to Congress about its use of third-party seller data was "intentionally misleading," and that employees are well aware of the prohibition on using individual seller data.

“As we told the Wall Street Journal and explained in our testimony, we strictly prohibit employees from using non-public, seller-specific data to determine which private label products to launch. While we don’t believe these claims made by the Wall Street Journal are accurate, we take these allegations very seriously and have launched an internal investigation,” an Amazon spokesperson told TheStreet.

Along with several other tech giants, Amazon has fallen under scrutiny by antitrust regulators in the U.S. and Europe, in part over its dual role as both a seller and the operator of a widely-used marketplace. 

"To the extent federal antitrust enforcers are scrutinizing Amazon’s market behavior and presumed on-line dominance, it is a certainty the government will also incorporate into its investigation whether Amazon is undermining the competitive process and negatively impacting consumers by learning and using competitively sensitive price and output information as a result of its role as an on-line seller of third party goods,” said Rick Hamilton, an attorney at Ulmer & Berne and former trial lawyer with the DOJ's antitrust division.

Amazon has been among the leading beneficiaries of the coronavirus pandemic, with demand for online delivery skyrocketing as millions around the world stay at home. 

Shares of Amazon are up about 26% year to date amid losses across all major indexes.

Amazon is a holding in Jim Cramer’s Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells AMZN? Learn more now.