Chinese e-Retailer Alibaba Still on US Trade Rep’s Watchlist

Alibaba.com, the massively successful internet retailer that made Chinese billionaire Jack Ma rich enough to buy such frivolities as the ailing South China Morning Post as a present for Beijing authorities, remains just a step away from again landing on the US Trade Representative’s 2015 “Review of Notorious Markets” blacklist for not being stringent enough in keeping counterfeit and pirated goods off its markets.

In its 30-page report, published this month, the trade office said it is increasingly concerned about intellectual property infringement about Alibaba.com, the business-to-business website, and Taobao Marketplace, both of which made the piracy blacklist in 2008. Alibaba was removed in 2011, followed by Taobao in 2012 after both promised they would work with legitimate sellers to clean up the sites.

Internet marketing in China – dominated by Alibaba – has taken off beyond the wildest dreams of its owner, although there seems to be plenty of room for the 40 thieves, the tale from the Arabian Nights from which Ma took the name of his gold pile.

On Nov. 11, for instance, Chinese shoppers spent nearly US$8 billion in 10 hours on Alibaba’s “Singles Day,” the Internet shopping day that Ma invented to mimic the US’s Cyber Monday. By comparison, five days of shopping in the US between Thanksgiving on Nov. 26 and Dec. 1 – Cyber Monday – sales were US$5.56 billion, according to the analytics firm comScore.

How much landing on the Notorious Markets list would cost Alibaba is uncertain, since it draws by far the largest percentage of its online customers from China’s 668 million Internet users – an online population twice the size of the entire 320 million of the United States. But its market capitalization has fallen by US$50 billion in 2015 on the threat of being blacklisted.

Ma and other Alibaba officials said they are determined to cooperate with US.authorities. On Dec. 21, the internet giant announced it had hired Matthew Bassiur, a former counterfeit investigator for Apple, as its head of global intellectual property enforcement, leading a team to work with regulators, law enforcement and retail partners in the attempt to block counterfeiters.

But with 9 million businesses online, policing them in a country that supplies some 70 percent of the world’s counterfeit consumer goods is enormously difficult. Ma himself says the problem is one of deep concern as an impediment to his being taken seriously by western consumers.

During the 2013 Notorious Markets review, according to the US Trade Office report, “Taobao provided assurances that it would continue to work with all relevant stakeholders to address remaining issues raised by software, publishing, and apparel and footwear companies, many of which are small and medium-sized enterprises with limited enforcement resources.”

In 2014, Alibaba Group, which comprises eight companies, told the USTR that the company had removed millions of listings for counterfeit and pirated products manufactured in China that were offered for sale and export both on its own and pursuant to the notice and takedown process.

In January 2015, Alibaba and Taobao caught the attention of the State Administration for Industry and Commerce, which issued a White Paper in which it identified the website as a target in three of the top 10 cases named by the National Copyright Administration of China in its 2014 “Sword Net Action Campaign.”

Despite the Alibaba Group’s efforts, brand owners continue to report that Alibaba platforms, particularly Taobao, are used to sell large quantities of counterfeit goods, according to the USTR report. As an indication of what Alibaba’s enforcers are up against, according to the report, counterfeiters use social media and email campaigns to drive traffic to their online shop windows. They bury trademark references in lengthy product descriptions, remove logos and trademarks on otherwise recognizable products, blur the trademark from original copyrighted images or use creative angles to showcase infringing products without running afoul of strictly-construed trademark policies.

Retail, luxury brands, electronics, and pharmaceuticals are among the worst-affected sectors. For example, an investment in the trafficking of counterfeit pharmaceuticals can generate a return 10 to 25 times higher than the same investment in drug trafficking, the report said. Distribution of counterfeits purchased online from standalone websites and large e-commerce platforms also presents enforcement challenges for rights holders and governments.

Instead of shipping a container of counterfeits, today’s Internet-facilitated counterfeiters can ship infringing articles one at a time, decreasing the risk of customs detection and minimizing their losses if the shipment is seized. Seizure statistics from U.S. and European customs authorities in the United States and European Union confirm the surge of small consignment shipments. Counterfeiters are also attempting to evade enforcement by shipping trademarked packaging, holograms, and labels separately from the products for later downstream assembly.

Alibaba says that it has added new enforcement features since the 2014 List including a good-faith product takedown procedure, a three-and four-strikes penalty system, and an English-language version of the TaoProtect portal to register intellectual property rights and submit takedown requests.

“Some rights holders also report good working relationships and cooperation with Alibaba Group’s enforcement teams,” the report noted. “However, it is unclear what effect these procedures are having on the overall prevalence of counterfeit goods on the Alibaba platforms, particularly Taobao. Furthermore, submissions this year from trademark holders in several industries do not report improvement of the underlying problem.”

The trade representative’s office found that Alibaba’s enforcement program is “too slow, difficult to use, and lacks transparency.”

The trade office said it wouldn’t re-list Taobao or Alibaba at this time “but it encourages the company to enhance cooperation with all stakeholders to address ongoing complaints. Given the size and the scale of Alibaba’s platforms, stronger and more efficient systems for addressing right holders’ concerns should be undertaken without delay.

“Such steps should include (1) simplifying Taobao’s processes for rights holders to register and request enforcement action, (2) making Taobao’s good faith takedown procedures generally available, and (3) reducing Taobao’s timelines for takedowns and issuing penalties for counterfeit sellers. USTR will continue to monitor the situation in the coming year for evidence of whether the new enforcement changes are demonstrably effective in addressing ongoing concerns.”