The pressure is mounting on Alibaba, which is now fighting its growing counterfeit war on a new front – against luxury goods giant Kering in Manhattan federal court.
The courthouse is just blocks from where Alibaba’s Jack Ma rang the opening bell on the New York Stock Exchange in September to celebrate the company’s record-breaking $25 billion initial public offering — a lucrative move that raised the Chinese digital marketplace’s profile and put a target on its back.
The latest lawsuit is not the first time Kering and Alibaba have tangled in court. The Paris-based parent to luxury brands such as Gucci, Balenciaga, Bottega Veneta and Saint Laurent sued Alibaba in July alleging various trademark violations, unfair competition and racketeering. But the two sides decided quickly to try to bury the hatchet and, according to a statement from Kering at the time, agreed to “work together in good faith through the normal business process on ways to enhance intellectual property protection in a manner that can further reduce counterfeiting of Kering brands.”
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That “good faith” has fallen short and Kering refiled the case last week, underscoring its sweeping allegations that Alibaba not only provides a venue for counterfeiters to hawk their wares, but helps them market and distribute fakes, laundering the illicit gains along the way.
That’s a blow for Alibaba, which has come under fire from everybody from the American Apparel & Footwear Association to U.S. regulators for piracy. Last month, U.S. trade officials said that while Chinese authorities have cracked down on counterfeiting, they need to do more to stop the sale of fakes on Alibaba’s Taobao marketplace.
Robert Christie, a spokesman for Alibaba, said: “We continue to work in partnership with numerous brands to help them protect their intellectual property, and we have a strong track record of doing so. Unfortunately, Kering Group has chosen the path of wasteful litigation instead of the path of constructive cooperation. We believe this complaint has no basis and we will fight it vigorously.”
Kerring said it “maintains the highest standards of sustainability and quality and takes the protection of its world-famous brands very seriously. It takes equally seriously its obligation to protect its customers from being defrauded by counterfeiters selling goods of inferior quality. This lawsuit is part of Kering’s ongoing global effort to maintain its customers’ trust in its genuine products and to continue to develop the creative works and talents in its brands.”
Shaun Rein, managing director of the Shanghai-based consultancy China Market Research, said other brands might follow Kering’s lead.
“Alibaba is a big target right now,” Rein said. “They made so much money with their IPO and are so high-profile. It is easy for luxury companies to take aim and try to get a little bit of money.”
Rein said the issue of counterfeit products on Alibaba platforms is “an endemic problem.”
“They are trying to crack down, but at the same time, it is almost impossible,” he said. “They are not policing strongly enough and that is one of the concerns with revenues going forward.”
Concerns about counterfeit items are also spilling over to Tmall, Alibaba’s online business-to-consumer marketplace on which a number of international brands, ranging from Adidas and Nike to Burberry and the Gap, have opened flagships.
“Consumers are really nervous about Tmall,” Rein said. “Alibaba is trying to grow so much, they are being less stringent on who is allowed to be on Tmall.”
Torsten Stocker, greater China partner at A.T. Kearney in Hong Kong, said Kering’s suit is notable in that it is addressing counterfeit products sold on Alibaba’s global business-to-business platforms. Alibaba has long been under fire for the alleged sale of counterfeit or grey market products to Chinese consumers on Taobao, the e-commerce company’s consumer-to-consumer marketplace.
“It actually suggests a problem that a lot of people know about but don’t talk about,” Stocker said. “That a lot of fakes are consumed outside of China rather than just on Taobao.”
Alibaba says that it has a “zero-tolerance policy” towards counterfeit goods sold on its platforms and has outlined the measures it has taken to fight counterfeits; however, most of those actions appear to be focused on sales to the domestic market rather than sales globally.
The company also said it invested over $160 million from the beginning of 2013 until November 2014 to deal with counterfeit products and enhance consumer protection. In addition, the firm hired 2,000 employees who form a counterfeit “task force” to monitor the sale of counterfeit products online. It is unclear whether those employees are responsible for monitoring Alibaba’s overseas sales.
The company has also outlined how it has worked with a number of local Chinese law enforcement agencies to bust merchants and factories selling fake goods.
In its suit, Kering maintains that the various parts of Alibaba “facilitate and encourage the sale of an enormous number of counterfeit products through their self-described ‘ecosystem,’ which provides manufacturers, sellers, and buyers of counterfeit goods with a marketplace for such goods, and provides online marketing, credit card processing, financing, and shipping services that effectuate the sale of the counterfeit products.”
Kering also charged that Alibaba uses its behavioral targeting data and analytics to help counterfeiters extend their businesses, while processing payments with its Alipay arm and providing logistics to ship the fakes once a sale is made.
The luxe company said Alibaba violated the Racketeer Influenced and Corrupt Organizations Act as “they engaged in acts that they knew would further the scheme to sell and profit from the sale of counterfeit goods.”
The Washington-based AAFA said the lawsuit highlights “the growing concern that there is a systematic problem of counterfeits on the Taobao Web site.”
“For years, our members have encountered counterfeits on the Taobao platform and while we’ve tried to work with Alibaba to develop a process to identify and take down counterfeits, the response by the company has been slow and sluggish,” the trade group said. “We’re not surprised to hear that others are experiencing the same problem. It’s a problem that Alibaba itself has acknowledged it wants to address, yet the issue persists.”