Is dropshipping legal? This is a question that every aspiring dropshipper should ask themselves. When you start any business you need to make sure that what you are about to pour a lot of work into, is in fact legal.
A lot has been said about products from China and the ongoing trade wars with the USA. This raises a lot of questions for any business sourcing products from China.
The short answer is that dropshipping is indeed legal BUT it depends on a lot of factors.
If you do dropshipping correctly then it most certainly is legal.
So, when is dropshipping illegal?
Let’s look at a few of the most common scenarios that can land you in hot water.
Selling counterfeit goods:
While selling fake Gucci handbags or fake iPhones are the obvious no-no’s there is another level of counterfeit goods that many dropshippers are not even aware of. Some Chinese manufacturers have little to no regard for ripping off other brands.
Alibaba (and AliExpress) has taken steps to stop counterfeit goods from being sold on their sites which has removed a lot of the obvious products.
There are a lot of products that fly under the radar – products of lesser known brands. You need to do your due diligence BEFORE you start selling any product. If you are sourcing your dropshipping products from China then you need to be very vigilant.
Very few Chinese sellers on AliExpress will be licenced to sell major brands. If you see a branded product that you want to dropship from China, then you should request the licence from the supplier. Get it in writing and check all the references in the documentation.
Intellectual Property Infringement
While counterfeit goods will just blatantly copy someone else’s brands and products there is something that is far more prevalent with AliExpress, Alibaba and Taobao in 2020. That is intellectual property infringement and the penalties is as harsh as it is for selling counterfeit goods.
Since Alibaba cracked down on counterfeit goods a lot of suppliers started copying famous brands and products BUT changed the logos or left the logos off the products. The result is that the products closely resemble the branded quality product but is is in fact a cheap knock-off.
This is a huge problem with dropshipping from China in 2020 and beyond. It can be so hard to identify quality products that are original.
A recent trend that has started showing up more and more is Chinese suppliers that steal product ideas and designs from crowdfunding sites like Kickstarter and IndiGoGo.
These sites are used by inventors and entrepreneurs to help fund their ideas and bring them to life. They usually do not have the resources to manufacture their ideas. The transparency on these sites makes it easy to see what products and ideas are popular and Chinese manufacturers can easily exploit this.
They swoop in and steal the ideas and manufacture something similar very quickly. Often times you will have no idea that you are dropshipping a product like this. The penalties will not be as severe since the infringement was primarily with the manufacturer and they will probably try and shut them down first.
However, if you are successful with dropshipping these products you will come on their radar and apart from getting shut down by Shopify, you can still get in trouble. Ultimately, you are responsible.
Using stolen product images
The product photography on Alibaba and AliExpress usually suck. In the last year or two there has been some huge improvements. The problem comes in with Ali sellers just blindly copying photographs.
You then land on their AliExpress listing and copy the product images to your Shopify store and – bang! You are using potentially illegal images.
I’ve seen a lot of Aliexpress product listings use stolen images from Etsy – mostly in women’s fashion. Be very careful with fashion products. If the images look to good to be true then it probably is.
Dropshippers who are more savvy (and usually more successful) usually take their own product photos. Not only does it look better but it helps to set them apart.
If you use these images (knowingly or unknowingly) you can get in serious trouble and it is not legal. If the owner of the images file a dispute with Shopify you will get shut down.
An easy way to check this is to do a reverse image search. Check your product images to make sure they do no not belong to a big brand.
Copying other stores
There is a widespread lie that is being promoted by many Shopify gurus on Youtube and that is the idea of “simply copying what works”. While there is a lot of truth to it, you just can not copy someone else’s work. Copying stores word-for-word is definitely illegal and very easy for Shopify to find (and ban you).
It goes even further than that. You can most certainly sell the same (or similar) products as someone else BUT you will need to write your own product descriptions, create your own images ec. To make it unique.
If your store does not pass Copyscape then you can be in trouble as it will be deemed illegal.
This is why I would NEVER recommend buying a complete store from anyone or from anywhere – especially not from Fiverr or some random guy on a Facebook dropshipping group. Most of the time you will be one of many with exactly the same store.
Apart from potential legal issues, there is the issue of uniqueness. Facebook and Google Ads is definitely moving towards cleaning up junk ads and duplicate products and stores leaves a clear footprint for you to be identified and penalised.
Dropshipping illegal products
While this goes without saying, you can not sell illegal products. While weapons, drugs and explosives are the obvious ones, there are some more subtle products you need to look out for.
The ones you have to look out for mostly are edible products (or any product you can consume). Every country has different rules and regulations regarding these types of products and trying to sell them if it contains a banned substance can land you in a world of pain.
As a rule, I would recommend you stay well clear of any consumable product that ships from China. There are reputable companies that allows you to whitelabel and dropship these products from the USA. They tend to be quite safe but you still need to do your due diligence.
With the legalisation of CBD products in certain areas, there is a whole new vertical of products opening up.
Although this can be a big opportunity for dropshippers you need to proceed with caution and check every step of your work against the legalities of what you are selling and where you are selling it to.
Illegal Dropshipping and What happens with Shopify and Paypal
The real question with illegal dropshipping is what will happen to you if you get caught? The reality is that most dropshippers never get in trouble because they don’t have enough success to come on the radar.
The flip side however is that when you do become very successful you can see your entire business evaporate.
If you do any sort of infringement, you will most probably get shut down by Shopify first. Shopify has a really bad reporting system where they would shut you down before they investigate.
A lot of dropshippers have lost their businesses due to they competition reporting them. It is really bad style, but it can happen.
That is why you should always have your own marketing material. That way no copycat can get you shut down since you own all the images. That is the very least you should do.
You can also get shut down by Paypal (or your payment provider) but this is usually a much bigger hurdle for someone who wants to shut you down because of illegal activity.
Most of the time when you do dropshipping that is not legal, you will get shut down through the appropriate legal channels. If you live in a first world country, this can happen quite easily.
Your personal details can be requested from Shopify to allow the legal channels to get hold of you.
If you are in a third world country you could get away with it but Paypal and Stripe are usually quite vigilant as to which countries they allow into their payment processors.