For first time, Alibaba sues Taobao merchants over fakes

Dive Brief:

In a statement emailed Wednesday to Retail Dive, Alibaba Group said it has filed a lawsuit against two watch sellers on its Taobao marketplace, alleging sales of fake Swarovski watches and claiming RMB 1.4 million (about $2 million U.S.) in damages for “contract and goodwill violations.”
It’s the first legal action taken by Alibaba to combat fake merchandise sold across its platform, and on Wednesday the Chinese e-commerce giant vowed to take additional steps, saying it has “already compiled a list of counterfeiters against whom it will take similar actions.”
United States Trade Representative Michael Froman last month relisted Taobao on its roster of so-called Notorious Markets for 2016.

Dive Insight:

When the USTR office announced it would return Alibaba’s Taobao marketplace to its list of Notorious Markets due to “the large volume of allegedly counterfeit and pirated goods available and the challenges right holders experience in removing and preventing illicit sales and offers of such goods,” Alibaba officials reacted with disappointment and said the move runs counter to its actual efforts to stymie counterfeit sales.

Alibaba Group president Michael Evans went so far as to assign political motivations to the USTR’s move following President-elect Donald Trump's criticisms of China over currency manipulation and other matters. “Unfortunately, the USTR’s decision leads us to question whether the USTR acted based on the actual facts or was influenced by the current political climate,” Evans told Retail Dive in a statement last month regarding the announcement. “Nevertheless, the decision sends the wrong message and is inconsistent with the effective collaborative approach we have taken with brands and governments around the world in our fight against counterfeiting.”

Evans and others have also touted Alibaba's anti-counterfeit measures, including its “big data” tech operations, and said those efforts played a significant role in the company’s investigation into the fake Swarovski watch sellers.

“With the help of big-data technology, Alibaba’s platform governance team detected a Taobao merchant suspected of selling fake Swarovski watches,” according to Wednesday's press release. “The team then initiated its ‘test-buy purchase program’ to buy a Swarovski watch, which was later confirmed by the right holder Swarovski to be a counterfeit.”

Alibaba provided that evidence to the Shenzhen Luohu District police, which raided the suspected Taobao seller on Aug. 10 and confiscated more than 125 counterfeit Swarovski watches, valued at nearly RMB 2 million. In the midst of that case, another fake-Swarovski Taobao seller was discovered, the company said.

"We take a holistic and technology-driven approach to [intellectual property rights] enforcement," Matthew Bassiur, Alibaba's head of global intellectual property enforcement, said in a statement emailed to Retail Dive. "Big-data analytics enhance our ability to identify and pursue counterfeiters, and make it increasingly difficult for these illicit sellers to hide in the shadows."

In 2015, Alibaba spent more than RMB 150 million (about $21.6 million U.S.) on its test-buy purchase program to spot check products on its platforms, and that Platform Governance Department now has a roster of some 7,000 employees and volunteers dedicated to uncovering sales of fakes, the company said. “We want to mete out to counterfeiters the punishment they deserve in order to protect brand owners,” Alibaba chief platform governance officer Zheng Junfang said. “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.”

Alibaba must continue to amp up its anti-counterfeiting measures if it hopes to get Taobao off the USTR’s list and, perhaps even more important, win back the trust of brands. Last year several brands complained that counterfeits remain rife on Alibaba's sites, and that Alibaba’s systems to lodge complaints are cumbersome and ineffective. Global trade groups also lobbied the USTR to return Alibaba to the Notorious Markets List.