Luxury Retailers Fight Counterfeiting on Alibaba – the World’s Largest eCommerce Site

The September IPO of Chinese eCommerce network Alibaba was heralded with great fanfare. Western retailers saw exceptional promise – the ability to sell their goods directly to China’s burgeoning middle class.  Unfortunately, that promise comes with a cautionary warning as allegations of counterfeit goods on the Alibaba website surface in the news.

Let’s rewind a few months back to early July 2014.  Italian luxury label Gucci, and Paris-based Kering SA, which owns the major luxury brands Yves Saint Laurent, Bottega Veneta, and Balenciaga, filed a complaint in federal court in New York against Alibaba Holding Group, Ltd., alleging that the ecommerce site was allowing “an army of counterfeiters to sell their illegal wares throughout the world.”

The luxury brands alleged that not only was Alibaba turning a blind eye to the widespread sale of knockoff bags and accessories on its member sites, it was, in fact, turning massive profits from those sales.   The complaint, which is in excess of a 140 pages, alleges that Alibaba was assisting merchants in selling the counterfeit goods.  The activity referenced in the complaint included selling the use of trademarked keywords, such as, “GUCCI”, to counterfeit merchants to allow them to obtain preferred search placement, and the offering of alternate search terms in order to direct users to counterfeit products.  For example, the complaint alleges that a user typing in the search term GUCCI is offered search terms such as ‘cucci’, ‘guchi’ and ‘guchi bags’, which direct users to merchants selling counterfeit products.  This is but one of a myriad of affirmative actions allegedly taken by Alibaba to assist the counterfeiters.  In addition to any alleged activities by Alibaba, the complaint also alleges that some of the merchants were so bold as to even tout the fact that the products were ‘replicas’ or ‘as good as the original.’

Then, just two weeks later, in what might be considered a surprising turn of events, and in advance of the IPO, the lawsuit was withdrawn without prejudice.  The Wall Street Journal reported that Alibaba and Gucci issued a joint press release saying that the parties had begun “constructive dialogue.” As the details have not been made public, it is unknown what caused the luxury brands to dismiss this lawsuit, especially given the overwhelming allegations of blatant and coordinated infringements. Although purely speculation, Alibaba may have made promises to curtail activities that were viewed as vicarious infringements to address an issue that might have negatively affected their IPO.

However, despite the dismissal of the lawsuit, Alibaba still appears to be incurring the ire of western companies as a result of its activities.  In a recent article, the New York Times reported that American sneaker manufacturer New Balance had initial success selling its genuine goods on Alibaba site Tmall, which contributed to soaring demand in China for the popular running shoes.   However, as with other brand owners, New Balance complained that it began experiencing increasing problems controlling counterfeits on the Alibaba network of sites.  According to the New York Times, “Alibaba does not make it easy for New Balance to remove counterfeits from its sites.” Indeed, despite the hundreds of thousands of counterfeit New Balance products available on the sites, the site required the company to identify each problematic listing.  Said a New Balance representative, “Alibaba knows this remains a huge issue.”

Since the IPO,  a quick search for GUCCI on Alibaba.com still returns listings of what might be counterfeiters, and offerings of alternate search terms, including ‘cucci’, ‘guchi’ and ‘guchi bags’.  Whether Alibaba curbs activities that have been the subject of numerous complaints by western companies remains to be seen, as does whether a new infringement suit is brought by other brand owners, like New Balance, or whether Gucci et al., refiles its suit.  In any event, as the Chinese market for western products continues to grow, it is clear that much will need to change before sites like Alibaba will no longer be the target of claims that they provide assistance to counterfeiters.

Attorney Anna M. Vradenburgh counsels and represents clients facing trademark, copyright, patent and other intellectual property issues, providing expert advice regarding intellectual property protection, exploitation and rights enforcement.

Ms. Vradenburgh can be contacted at :

The Eclipse Group

6345 Balboa Blvd, Suite 325,

Encino, California 91316

(818) 488-8146

www.EclipseGrp.com

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