SHANGHAI — Alibaba Group’s announcement Wednesday that it is pursuing legal action against two merchants for allegedly selling counterfeit products on its Taobao platform may be a first in the fight that the country’s major e-commerce players are waging against counterfeits — but China-based intellectual property experts question whether it will be an effective one.
Paolo Beconcini, senior global intellectual property consultant at Squire Patton Boggs, described the development as “interesting,” but suggested a wait-and-see approach before judging its merits as a strategy, citing the sheer number of counterfeiters operating on the Taobao platform as a significant barrier to fighting the problem through the court system.
“Is this a real long-term strategy? Given that there are millions of such infringing instances, how could such a strategy be really sustainable and effective and which cases would be meritorious of protection?” Beconcini asked, suggesting that at best this legal strategy will deter a small number of current or potential counterfeiters.
Alibaba said it filed the suit with Shenzhen Longgang District People’s Court, claiming 1.4 million renminbi, or $201,555 at current exchange, in damages for contract and goodwill violations from two Taobao vendors allegedly selling counterfeit Swarovski watches.
Alibaba said its platform governance team detected one of the fake sellers through its “test-buy purchase program” by buying a watch and having Swarovski authenticate it. The Shenzhen Luohu District police then raided the seller in August and confiscated over 125 counterfeit Swarovski watches, valued at nearly 2 million renminbi, or $287,936.
“We want to mete out to counterfeiters the punishment they deserve in order to protect brand owners. We will bring the full force of the law to bear on these counterfeiters so as to deter others from engaging in this crime wherever they are,” said Zheng Junfang, Alibaba’s chief platform governance officer.
“The case isn’t based on copyright infringement, it’s about violation of contract and hurt to reputation, which is fine, there’s a legal right there,” said Joe Simone, director of SIPS, an intellectual property boutique consulting firm based in Hong Kong.
“It comes right on the heels of the USTR notorious markets listing and [Alibaba] aren’t just worried about keeping the U.S. government happy, but they are also worried about the Chinese government saying, ‘You aren’t doing enough, now you are upsetting the Americans,’” he added.
Last month, the U.S. Trade Representative’s Office relisted Alibaba’s Taobao site on its “Notorious Markets” list for 2016, four years after removing it, a move that was vigorously protested by Alibaba.
From a brand perspective, according to Patrice Nordey, chief executive officer of digital inception agency Velvet, this lawsuit represents concrete action on the part of Alibaba to fight counterfeits on its platforms, and is therefore good news.
“I feel quite positive about this development, and I have been skeptical in the past about Alibaba’s performance on counterfeits. This is proof that Alibaba is putting resources and money into this fight. They are sending a message to brands that they are acting, they are taking the lead,” Nordey said, adding that it should also go a long way towards reassuring brands that have been hesitant to join forces with Alibaba to date.
“One of the main issues for years for brands not joining Tmall is the difficulty cooperating with a company when the same company has a platform that is hurting your business. We all know how painful lawsuits can be. I think it should be well-received by the market and particularly well-received from the brand side,” he said.
Swarovski certainly welcomed the announcement that merchants selling counterfeit versions of their products would be targeted in what Alibaba claims will be the first of many similar legal actions.
“We take counterfeiting seriously and we have been steadily increasing our anticounterfeiting efforts worldwide. Swarovski has cooperated with Alibaba on cases against sellers who are offering Swarovski counterfeits on Alibaba platforms, and applauds any steps Alibaba takes to discourage counterfeiters from selling on Alibaba platforms,” Andrea Durnthaler, head of group public relations and corporate affairs at Swarovski, said.
According to Simone, a more effective way Alibaba can fight counterfeiters is by continuing its work in utilizing big data to assist local authorities in pursuing illegal activities.
“One thing Alibaba does is have a team that independently investigates counterfeiting and then brings the cases to the police and, more and more, co-ordinates with the I.P. owner too. This is exactly what needs to be done because the government isn’t doing this kind of proactive investigation,” he said.
Alibaba’s bot program scans product listings and analyzes online transactions on its platforms, processing 100 million pieces of data per second, and providing scans on more than 10 million product listings a day, Alibaba said.
Last year’s “Operation Cloud Sword” was the culmination of a four-month investigation that saw authorities act on intelligence and leads provided by Alibaba between April and July to shut down 417 production rackets, arrest 332 suspects and seize fake goods valued at 1.43 billion renminbi, or almost $208 million.
Though an Alibaba spokeswoman declined to share specific information about future legal actions, she told WWD there would be a multi-pronged legal approach to fighting counterfeit products moving forward.
“We are determined to fight counterfeiting through all means within the legal framework. Leveraging big data and advanced technologies, Alibaba actively assists law enforcement in offline investigations. Our assistance led to the closing of approximately 675 counterfeit operations in the 12 months ending August 2016, putting hundreds of criminal counterfeiters in jail,” she said. “We will bring the full force of the law to bear to deter counterfeiters from coming to our platforms.”