US “Notorious Markets” Listed Company Seeks $15 Billion IPO
Danger Lurks In Dark Web Corners
Los Angeles, CA, April 7, 2014 – Alibaba’s widely anticipated $15 billion IPO raises red flags about long-term consumer and economic consequences. Alibaba subsidiary Taobao.com was removed just last year from the US Government’s “Notorious Markets” Report 1 which identifies select online and physical marketplaces that reportedly engage in and facilitate substantial piracy and counterfeiting.
The International Chamber of Commerce (ICC) 2 estimates that the counterfeit product industry will product $1.7 trillion (yes, trillion) in counterfeit goods in 2015. These counterfeit products, the majority made in China, will find their way to unsuspecting consumers. Consumers will still be suspect of Rolex watches, designer handbags and fashion clothing, but will they even consider the 250,000 counterfeit auto air-bags in US cars that don’t work, inert fire extinguishers, fake diabetes test kits and 500,000 installed counterfeit commercial aircraft parts? 3
Most consumers will just be separated from their money, receiving a poor quality look-a-like fake product or inert pharmaceutical with little recourse against the seller. However, some consumers will be injured, some will die.
US Customs will seize approximately $1.3 billion (about 1%) of these counterfeit goods originating overseas by inspecting some of the 60,000 cargo containers arriving daily in the US, and monitoring an avalanche of mail. Most counterfeits mailed from China will escape Customs scrutiny and move on to online namesake websites touting authenticity, or e-commerce websites like eBay and Amazon where dishonest sellers list counterfeit products as “authentic” or “100% genuine”. Some will be returned to retail stores for a refund or exchange, and the counterfeit item returned to the retail shelf.
Now, an old hand in the counterfeit product distribution channel is about to become a giant global presence. While relatively unknown in the US, China based Alibaba is preparing a $15 billion US Initial Public Stock Offering (IPO) that will solicit un-informed US and international investors to invest in their e-commerce empire, regardless of its dubious history of facilitating counterfeit product distribution.
With $240 billion of merchandise traded on Alibaba websites last year, Alibaba is the world’s largest e-commerce company. Alibaba conducts more business than Amazon (AMZN) and eBay (EBAY) combined, and accounts for over half of all parcels shipped in China. One of Alibaba’s main subsidiaries4, Taobao.com, claims over a billion products listed – but touts diligence in removing 87 million listings (8%) of potentially counterfeit products.5 “Still, little or no sleuthing is required to find counterfeit product listings on Alibaba.com, AliExpress.com and TaoBao.com websites despite claims of increased site policing. Well-known US brands still have hundreds to thousands of counterfeit copies of their goods offered online,” says Craig Crosby, publisher of the popular consumer protection website The Counterfeit Report ®.
A 2007 MIT study 6 identified between 15 and 20 percent of all products made in China as counterfeit, and e-commerce websites are an ideal path to distribute them globally. For years, unscrupulous and dishonest people used the China websites as an easy source to obtain counterfeit products. The re-sale technique is the same and simple; consumers shopping for "a good internet deal" on eBay and Amazon see listings displaying the manufacturer's (stock) advertising (or catalog) product photo of authentic everyday products; fragrances, phone chargers, sporting goods, DVD’s, batteries and much, much more. However, what unsuspecting consumers may receive is a deceptively crafted counterfeit; specifically designed, manufactured and packaged to deceive them – and they are.
Both eBay and Amazon have policies prohibiting counterfeit products, but manufacturers and industry experts complain that little is done to curb sales of counterfeit goods, and unfortunately the counterfeit sales continue. The US Circuit Court recently ruled in favor of the e-commerce web giants, largely insulating them from liability by ruling that manufacturers are responsible for policing and verifying the authenticity of their own products -- an impossible task considering many listings use (albeit copyrighted) photos of their authentic products.
Alibaba’s Intellectual Property Rights (IPR) Protection Policy makes it ridiculously simple for counterfeit listings to continue;
“4. If the member objects to the removal of the alleged infringing product listing, the member may submit to us an appropriate counter-notice to dispute the claim. Upon receipt of such counter-notice, we may resume the member’s listing unless we receive notice from you that an action has been filed against the member in a court of competent jurisdiction for infringement of your intellectual property rights”. 7
US manufacturers have not been reserved in their comments on the e-commerce giant:
Beachbody, the publisher of the popular Insanity workout DVD’s makes it clear:
“ 99.9% of the Beachbody products being offered on iOffer, Alibaba, Aliexpress, Taobao, Tradetang, “Used” on Amazon, eBay, Craigslist are counterfeit.” 8
Sporting Goods Manufacturer -- Browning : “As nearly as we can tell, every Browning knife on this website is counterfeit. Do your due diligence and make sure before you buy. Beware!” -- Browning website. 9
750,000 US Jobs and $250 billion a year is lost to counterfeit products, according to an outdated Senate Subcommittee on Commerce report, and the ICC says 2.5 million jobs globally. Yet, the danger of counterfeiting goes beyond mere financial harm and theft. Organized crime and terrorist groups use the sale of counterfeit goods to raise money for illegal activities and violence. The risk associated with the IPO Alibaba isn’t clear, but Alibaba’s dark history and shady trade practices identify certain risks that unsuspecting or ignorant American investors may not even notice, the SEC should take action against, and the US economy can’t shoulder.
Alibaba’s IPO will be a big deal, and buyer beware; the back door to China counterfeits has been open for years, but embracing this IPO and injecting $15 billion of investor capital will open the floodgates.
Footnotes:
1 The Office of the United States Trade Representative (USTR) ”Notorious Markets” report identifies select online and physical marketplaces that reportedly engage in and facilitate substantial piracy and counterfeiting. The Notorious Markets List identifies particular online and physical marketplaces in which pirated or counterfeit goods are reportedly available, but is not intended to be an exhaustive listing of all notorious markets around the world. Rather, the List highlights some of the most prominent examples reported to USTR.
2 The International Chamber of Commerce (ICC) is the largest, most representative business organization in the world. Its hundreds of thousands of member companies in over 180 countries have interests spanning every sector of private enterprise.
3 Federal Aviation Administration (FAA)
4 Alibaba Group is a holding company with nine major subsidiaries – Alibaba.com, Taobao Marketplace, Tmall, eTao, Alibaba Cloud Computing, Juhuasuan, 1688.com, AliExpress.com and Alipay.
5 http://washpost.bloomberg.com/Story?docId=1376-N2KG956JTSF301-2UUPCEVU9OV17OCBU4HKJ6KO2R
6 http://web.mit.edu/cis/fpi_china.html
7 http://www.alibaba.com/help/safety_security/policies_rules/ipr/002.html
8 http://beachbodypiracy.wordpress.com/2013/01/23/beachbody-anti-piracy-enforcement/
9 http://www.browning.com/library/infonews/detail.asp?id=554
Website: www.TheCounterfeitReport.com
Facebook: https://www.facebook.com/pages/The-Counterfeit-Report/131568053660579
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