Alibaba’s massive IP protection challenge

Alibaba is tightening the screws on fake goods being sold on its e-commerce platforms, but can it really stay a step ahead of counterfeiters?

CKGSB Knowledge

[Photograph by Chuck Coker under Creative Commons]

By: David Friesen

Alibaba, China’s largest e-commerce firm, recently smashed global records for its ‘Single’s Day’ promotion on November 11, 2015, selling $14.3 billion worth of merchandise in just 24 hours. This is the equivalent to 120,000 orders placed every minute, covering both online spaces such as Taobao and Tmall as well as 180,000 brick and mortar sites across 330 cities in China.

The numbers are truly staggering, but they also show a problem with the sheer scale of selling—how to ensure the quality, and in fact authenticity, of goods. This is particularly pertinent given the internet behemoth’s desire to expand beyond China and establish itself as a truly global brand in the market. This is why intellectual property (IP) protection has been at the forefront of Alibaba’s strategy over the last few years, with even further developments this year to ensure domestic and foreign businesses, as well as giving consumers peace of mind that the products they order are legitimate.

Pressure for Change

If you wind back just a few years, most consumers familiar with Taobao or other such sites would see the ‘Wild West’ nature of the platform. Just as eBay before it in the West, the ease with which people could sell counterfeit goods and profit was almost ubiquitous. For a fledgling company, the demands of tracking and checking so many items proved extremely difficult for Alibaba—scaling up in this way is never easy.

Since its IPO, however, Alibaba is in a much stronger position to police its platforms as it develops its business strategies, but also vulnerable as it sees pressure from companies to ensure IP protection, knowing that its credibility is integral to future success. It realizes the value of protecting its own IP, and in turn the IP of companies that have their products on their e-commerce platforms. It has also come under pressure from the State Administration of Industry & Commerce (SAIC) back in April, with data from the SAIC suggesting 63% of listed brand goods on the site are not genuine. In 2014 the administrative authorities handled 67,500 trademark infringement cases with a value of Renminbi (RMB) 100 million, destroyed 1,007 infringing sites and had 2,800 cases against bad faith trademark filings. A new trademark law also came into effect in May 2014, with far harsher penalties for repeated infringements. Alibaba has been in the spotlight and could no longer, even if allegedly, turn a ‘blind eye’ to counterfeits. (Raconteur.net IP publication, September 2015)

Alibaba has been hit with a number of lawsuits, all of which it appears to be fighting—examples include French luxury group Kering SA, holding company owner of brands such as Alexander McQueen, Balenciaga, Brioni, Gucci, Puma and Volcom, saying that AliExpress “knowingly provides a marketplace for merchants engaged in the sale of the counterfeit products.” And September saw a filing by the US Chamber of Commerce with the US Trade Representative over China’s compliance with World Trade Organization commitments, citing AliExpress as a source of concern.

It’s not just legal pressure that has shaped Alibaba’s efforts in recent months, however. The shift is also in line with government anti-graft measures, but also consumer pressure in China where more demanding buyers really want the genuine article rather than the fake, no matter the price differential

“Certainly changes in Chinese trademark law and practice, which now specifically holds e-commerce sites liable for trademark infringement, have been a significant factor inducing Alibaba to beef up its IP protection protocols. But Alibaba is also responding to other forms of external pressure,” says Matthew Dresden, Attorney at Harris Moure, who has a focus on international and China law, particularly in technology and IP.

A Strengthened Strategy

Such pressure, combined with the desire to be more globally competitive, has seen Alibaba switch up its commitment to IP protection. The most recent of these changes came in December, naming Matthew Bassiur as Head of Global Intellectual Property Enforcement. Bassiur used to work for Apple and was the architect of the company’s anti-counterfeit program. Bassiur will head up a team to push efforts in the fight against international counterfeiting, working with brands and retail partners to make sure only genuine products end up on the firm’s various platforms.

“Matthew’s appointment is the latest step in Alibaba Group’s comprehensive and industry-leading efforts to fight counterfeits,” said Jack Ma, Executive Chairman of Alibaba Group, on the announcement of the appointment.

This is the most recent in a long line of 2015 improvements in Alibaba’s IP protection strategy. It has also implemented a ‘good faith takedown’ mechanism in its TaoProtect program on Taobao, so infringement claims from trusted sources can be processed more quickly without advanced substantiation.

The English version of TaoProtect has also been released, making it easier to report merchants for English-speaking users across the Taobao and Tmall platforms. This is in addition to the Blue Stars Program, a scan code solution allowing merchants to track products as an anti-counterfeit measure.

These changes have led to a number of significant deals with foreign firms to remove infringers and guarantee product authenticity. For example, March saw Irdeto, a digital platform security solutions provider, partnering with Alibaba Group to identify and take down over 5,000 online advertisements for pirate devices from 71 manufacturers and suppliers on Alibaba.com, and previously in January Alibaba signed a Memorandum of Understanding with Microsoft to enhance protection of Microsoft's IPR on Taobao and Tmall. (From Alibaba Group 2015 IPR Factsheet)

However, there is still a feeling that firms need to make sure they take the necessary steps themselves in order to protect their IP at source. “For international companies targeting China, I would advise that China trademark protection is first-come-first-serve. You should file in China and subscribe to regular watch services to ensure that your brands won’t be taken by third parties within the country. I know that China is one of the Top 5 countries of bad faith registrations. We have to act quickly, file in China as the tier one jurisdiction when the trademark is ready, engage local attorneys or agents to watch, and enforce our rights whenever necessary,” said Karen Law, Senior Legal Counsel IP of Alibaba in an interview with Leaders League.

The UK and China—Copyright Cooperation

One particularly good example of the expanded commitment to IP protection is the range of deals signed between Alibaba and the UK. With many UK firms such as Unilever, Dyson and Burberry critical of the way in which IP infringements have been handled, there has been recent progress to address the problems and reassure companies.

The China-Britain Business Council and Alibaba signed a Memorandum of Understanding last year, and has continued to develop the initial three-year deal with further close cooperation—a promotion in August this year saw 20 British brands participate in an exclusive UK flash-sale on Alibaba’s group-buying site Juhuasuan. British participants took a total of RMB 6 million over three days traffic to their online stores in China.

“The agreement has ensured British companies achieve the best outcomes from Alibaba's IP protection systems. It is estimated that these measures have helped to remove around £8 million worth of counterfeit versions of British goods,” said Baroness Neville-Rolfe, Intellectual Property Minister, at the recent UK-China IP Symposium in London.

Tom Duke, the UK's Intellectual Property Attaché at the British Embassy in Beijing, outlines the agreement and how it is helping to further build UK company confidence in the Alibaba’s online platforms. “The broad framework is that it sets up a series of regular roundtable meetings between the Alibaba Group Internet Security Division in Hangzhou and British companies from similar industries or with similar problems and can raise these directly and discuss solutions directly with the Alibaba team.”

He continues: “There have been a number of intermediate milestones achieved where enhanced IP protection was achieved either for individual companies or industries. But one thing we're very keen on now is learning from these successes and incorporating them into business as usual so there is a systemic improvement in the level of IP protection across the Alibaba platforms.”

Future Challenges

It is this desire for further improvement that is perhaps most crucial, however. Despite the certain progress achieved and greater engagement with both companies and consumers, Alibaba still has much room for improvement.

“It wanted to be removed from the US Trade Representative's (USTR) annual ‘Notorious Markets List’, and it was, but not without controversy. There's been quite a bit of mixed sentiment about whether this was appropriate or just the result of good lobbying. Alibaba came close to being put back on the list… USTR recently put out a statement saying that it wouldn't return Alibaba to the list this year but will be watching Alibaba closely because it received so many complaints about Alibaba's anti-infringement platform being too slow, difficult to use and opaque,” says Matthew Dresden.

Tom Duke concurs: “[They need to have] more streamlined notice and takedown procedures. It's important that these are responsive, efficient and user-friendly in order that the infringing products can be kept off the sites.”

Dresden believes it is a case of more diligence and even greater resources needed. “[The] counterfeiters aren't standing still either—they are changing the way they market and describe their goods as a direct reaction to Alibaba's takedown efforts.”

And he offers some advice for how Alibaba can potentially proceed as it looks to further its IP protection efforts: “US companies like Amazon, eBay and YouTube have also had to address the issue of how to identify and takedown infringing material. I would look at what they did and whether those efforts would make sense for Alibaba.”

It can be argued, as mentioned in the improvements to takedown procedures, that Alibaba is starting to do this. Wragge Lawrence Graham & Co LLP, a law firm with a presence in China that previously was involved in representing companies such as Dyson in China IP cases, has seen some improvements in recent times.

There has been a focus on improving the takedown procedure for IP rights other than trademarks. Alibaba has launched several projects to reflect this in the area of design patents and have begun to co-operate with Zhejiang IPO’s IP Research & Service Centre for more complex cases. On the trademark side, the introduction of the good-faith takedown mechanism could also be useful for IP rights holders,” says Alice Li, Senior Associate at Wragge Lawrence Graham & Co LLP’s China Office.

Despite this, however, challenges remain, not least in the role firms can play to increase the speed of reform. Companies such as Dyson, Pearson, Rouse, Penguin Random House and Unilever regularly engage in debates and roundtables with Alibaba, but getting these firms to publicly comment on where infringements are still occurring can be tricky. More than a dozen major firms were contacted for this article, but almost all were reluctant to go on record to provide constructive perspective on where Alibaba can still continue to improve its IP efforts. It seems for now that collaboration with legal representatives and private meetings to further iron out problems are likely to be the way forward at this time.

“Whilst undoubtedly Alibaba is striving to improve its take down procedures there is still too many infringements occurring. In particular, issues still need to be addressed for patent in infringements—especially utility and invention patents which remain difficult for rights holders,” says Jamie Rowlands, Partner and Chief Representative Official at the China Office of Wragge Lawrence Graham & Co LLP.

[This article has been reproduced with permission from CKGSB Knowledge, the online research journal of the Cheung Kong Graduate School of Business (CKGSB), China's leading independent business school. For more articles on China business strategy, please visit CKGSB Knowledge.]

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CKGSB Knowledge

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CKGSB Knowledge (knowledge.ckgsb.edu.cn) is the online publication of the Cheung Kong Graduate School of Business (CKGSB), China's first faculty-governed independent business school. Headquartered in Beijing, and with campuses in Shanghai and Shenzhen, and offices in London, Hong Kong and New York, CKGSB has a finger on China's pulse as well as a good understanding of global business trends, and China's role on the global stage. CKGSB Knowledge features articles, videos and interviews on the intricacies of doing business in China, local competition, the evolution of "Made in China", policy issues, the globalization of Chinese multinationals and foreign multinationals' strategy and operations in China. It also features interviews with influential thought leaders and CEOs on trending topics and stories of global significance.

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