Alibaba Fights Fakes With Image at Stake

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By Alexis Kramer

Alibaba Group Holding Ltd. is trying to combat illicit goods—from knock-off Gucci shoes to imitation Bottega Veneta handbags—in its online marketplace, especially since landing back on a U.S. government watchlist.

But completely stamping out counterfeits likely is an impossible task for the Chinese e-commerce giant, trademark attorneys told Bloomberg BNA.

Alibaba’s best hope for getting off the U.S. Trade Representative's “Notorious Markets” list of international counterfeit goods is to convince the agency that it is doing everything it can to help businesses and reduce the number of counterfeits on its sites. The bottom line: Alibaba must demonstrate that the benefits its marketplaces provide to U.S. businesses exceed the risks.

“Alibaba’s task is to show that the pros of Alibaba outweigh the cons,” Eric Perrott, a trademark attorney at Gerben Law Firm PLLC in Washington, said.

Alibaba’s global reputation is at stake. The company is trying to expand business relationships with retailers, brands and entertainment companies. More than 100,000 consumer brands already operate on Alibaba’s marketplaces, including Apple Inc., Ford Motor Co., Starbucks Corp. and Nike Inc., according to Matthew Bassiur, Alibaba’s head of global IP enforcement. Alibaba’s global revenue in fiscal 2016, which ended March 31, 2016, was $15.91 billion, 29.3 percent more than the previous year, Bloomberg Intelligence data show.

Getting delisted as a notorious market is important for Alibaba, Bloomberg Intelligence analyst Paul Sweeney said. “The company has repeatedly stated that it is committed to improving the security and trustworthiness of its marketplace,” he said. “However, doing so is a challenge given the expansive reach of its marketplaces.”

Perrott said smaller trademark owners in the U.S. can often use Alibaba’s marketplaces to connect with Chinese factories to manufacture owners’ genuine products, instead of going through a middleman. Alibaba must keep making efforts to show that such benefits of use more than offset the damages caused by counterfeits, he said.

Alibaba has launched a public relations campaign to demonstrate that the company is working to help American businesses. Alibaba executive chairman Jack Ma met with President Donald Trump Jan. 9 to discuss how the company could help create 1 million U.S. jobs. Alibaba released a fact sheet showing the extent that U.S. businesses can profit in the Chinese market. According to the sheet, more than 300 million middle-class consumers in China have high demand for U.S. products.

Alibaba has also been publicizing the steps that it is taking to fight counterfeits. On Feb. 27, the company publicly urged the Chinese government to strengthen its law enforcement efforts and impose tougher sanctions on counterfeiters.

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Fighting an Unwanted Image

The U.S. Trade Representative restored Alibaba’s TaoBao, a consumer-to-consumer marketplace, to its Notorious Markets list on Dec. 21, 2016, after removing it four years earlier. The list is an annual report highlighting physical and online markets reportedly linked to widespread piracy and counterfeiting of U.S. goods, based on public comments and in consultation with other federal agencies. Companies don’t receive legal penalties for being on the list, but it tars them with an unwanted public image of tolerating piracy and counterfeiting.

Alibaba’s marketplace success depends in part on the trust it receives from brands, consumers and shareholders. The fact that 75 percent of the world’s most valuable consumer brands operate on Alibaba’s marketplaces shows a “clear indication of their trust,” Alibaba’s Bassiur told Bloomberg BNA.

But remaining on the list could erode the trust of those who use or have an interest in the company’s platforms.

Alibaba is trying hard to get off the list and combat the image of being a marketplace for counterfeit goods, Perrott said. “As long as you have U.S. companies that feel Alibaba is providing counterfeits, you’re going to have backlash from stakeholders,” he said.

Unfeasible Feat?

Alibaba has worked with Chinese law enforcement, used artificial intelligence to detect counterfeiters and collaborated with global brands such as Samsung and Louis Vuitton to bolster efforts to remove counterfeit goods. In January, it filed its first lawsuit against sellers of allegedly counterfeit Swarovski watches.

Bassiur said that Alibaba is confident in its anti-counterfeiting efforts, and knows it has work to do.

“Our scale means that we must work harder and smarter than many other online marketplaces to protect IP,” Bassiur said.

But the very scale of Alibaba’s platforms, and the fact that third-parties are the ones selling goods on them, may hinder the company’s ability to identify and remove fakes.

“Alibaba’s anti-counterfeiting efforts are not keeping pace with the growth of its business,” William Mosher, senior counsel at Novian & Novian LLP in Los Angeles, said. “But once consumer-to-consumer businesses reach a certain size, it might not be feasible to fight counterfeit goods.”

Eliminating counterfeits from consumer-to-consumer marketplaces such as Taobao is difficult because the platform owner doesn’t have possession of the goods being sold, Mosher said. It can remove listings for what it suspects are counterfeit goods, but it can’t examine those goods to determine whether they are actually counterfeit, he said.

Alibaba has developed several procedures designed to help it detect and remove listings for allegedly counterfeit goods. But “it has become clear that these procedures haven’t worked,” Mosher said.

Marcella Ballard, a trademark lawyer at Venable LLP in New York, also said the size of Alibaba’s marketplaces makes the task difficult. “The scale and scope of things make it challenging” for Alibaba to control counterfeits on its websites, she said.

Different Views

The USTR and Alibaba haven’t agreed on the effectiveness of the company’s procedures in removing counterfeits.

Rightsholders still report challenges to reducing counterfeit goods on Taobao, despite Alibaba’s moves to address concerns, the USTR said in its 2016 report. Rightsholders reported that Alibaba inconsistently denies requests to remove infringing goods, provides little to no justification or guidance on how to amend takedown requests that are denied, and fails to translate communications to rightsholders from Chinese, the USTR said.

“Rightsholders in the United States and internationally continue to report serious challenges to reducing high levels of counterfeit and pirated goods on Taobao,” the USTR said.

The agency recommended in its report that Alibaba: simplify processes for rightsholders to request enforcement action, make its good faith takedown program generally available, and reduce the time between a request’s submission and the allegedly counterfeit good’s takedown.

Bassiur said the company has “addressed every single area raised by the USTR.” He said it has no evidence of inconsistent refusals and is unaware of rightsholder comments to the USTR on language barriers to communications.

Alibaba has created a “one-stop shop” for rightsholders to register their intellectual property and submit takedown notices; uses big data and anti-counterfeiting technology to identify repeat offenders; and holds training sessions and meetings with rightsholders, among other things.

“We’ve made significant progress on the USTR’s recommendations from last year, especially on simplifying processes for rightsholders to understand and utilize our IP enforcement programs,” Bassiur said.

Still, although Alibaba’s recent actions “set positive expectations for the future,” the level of reported counterfeiting on Taobao is “unacceptably high,” the USTR said.

Public Relations

Although Alibaba may not be able to get rid of counterfeit goods on Taobao completely, publicizing its efforts to fight fakes may go a long way.

If Alibaba can show that its efforts are robust and sincere, “it does leave open the possibility that it will get off the list,” Michael Zakkour, vice president of consulting firm Tompkins International’s China/Asia Pacific practice, told Bloomberg BNA.

To contact the reporter on this story: Alexis Kramer in Washington at aKramer@bna.com

To contact the editor responsible for this story: Keith Perine at kperine@bna.com

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