More Counterfeit Woes for Alibaba

Alibaba Needs To Knock Off the Knockoffs

October 29, 2015, - Los Angeles, CA – Alibaba is again facing scrutiny for the proliferation of counterfeits on its websites. Alibaba and other e-Commerce sites facilitate the alarming growth of the counterfeit product industry, expected to top $1.7 trillion in 2015, earning it the top criminal enterprise spot. 

Alibaba is facing re-inclusion on the Office of the United States Trade Representative (USTR) annual list of the world's most "notorious markets" for sales of pirated and counterfeit goods, Alibaba was dropped from the 2013 USTR Notorious Market List just prior to its $26 billion IPO, but may soon be back.  Manufacturers and industry groups are critical of Alibaba’s efforts to keep counterfeits off its websites, and shareholders have taken notice – Alibaba (BABA) is 30% off its high.

Alibaba says it relies on brand owners to monitor its websites and report problem listings, a strategy that allows it to profit while waiting for manufacturers to catch-up. Manufacturers claim that products they don’t even make, but bearing their brand names are being sold, making monitoring almost impossible. If individual counterfeit listings are caught and removed, sellers simply relist.  

The American Apparel and Footwear Association (AAFA) pressed the USTR to re-instate Alibaba subsidiary Taobao on the blacklist due to Alibaba's "unwillingness to make serious reforms" and failure to address the organization's concerns.

The Trademark Working Group, which includes some Fortune 500 and other major brands, counts 70 companies including Levi's and Camper among its members, criticized Alibaba's processes for removing suspected listings of fakes.

A scathing report by the Chinese Government’s State Administration for Industry and Commerce (SAIC) accused Alibaba of selling fakes, allowing merchants to operate without required business licenses, running unauthorized stores that co-opt famous brands and allow inflated and false feedback. Alibaba employees took bribes, and the e-commerce giant didn’t fix flaws in customer feedback or internal credit-scoring systems, the report said. Alibaba and subsidiaries Taobao.com and AliExpress.com have a “credibility crisis” fueled by a failure to crack down on shady merchants, counterfeit goods, bribery and misleading promotions using its online malls, the Chinese government said.

US Federal Court Plaintiff Kering SA, whose brands include popular Gucci, Saint Laurent and Bottega Veneta products alleged;

"The Alibaba Defendants, 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.".   (The Federal Lawsuit 15-cv-03784, can be downloaded here)

Part of the ease with which counterfeit goods are bought and sold on e-commerce websites is that existing regulations don’t burden the websites with removing listings of counterfeit goods, and the lack of any penalties for the e-commerce sites. Ultimately, it’s the consumer that’s being duped out of billions.

Ironically, there is nothing proprietary or innovative about Alibaba, it’s just a copy of other e-commerce websites. Alibaba’s e-commerce websites benefit from higher transaction volume due to very poor intellectual property enforcement and government regulation for profitable counterfeit and infringing product listings on their websites.  

Consumers should look to buy brand-name products directly from the manufacturer or authorized retailers.