Alibaba Calls for Stricter Laws to Help Curb Widespread Counterfeiting

Alibaba is calling for "tougher laws, stricter enforcement and stiffer penalties to crack down on purveyors of counterfeit goods in China." In an appeal from the Chinese e-commerce company made public at a press conference at its headquarters in Hangzhou on Monday, Alibaba said China’s “ambiguous counterfeiting laws” were hampering authorities’ ability to build legal cases against counterfeiters, resulting in a low conviction rate that is “the fundamental reason for the inefficiency in combating counterfeiting and protecting intellectual property.”

“Current regulations are no longer able to cope with the need to fight counterfeiting,” according to the company’s public appeal, which is published in full below. “Criminals can escape any legal consequence, leaving law enforcement agents and consumers feeling helpless, and society bearing the damage.” The company urged authorities to strengthen laws, boost enforcement and impose more punitive penalties to deter counterfeiters.

Alibaba has long faced criticism - particularly in the U.S. and among luxury brand owners - over the sale of counterfeits by independent vendors on its e-commerce marketplaces, which boast some 1.5 billion product listings at any given time. For instance, the Chinese giant has consistently been included on the Office of the United States Trade Representative's “Special 301” Out-of-Cycle Review of Notorious Markets list. The yearly report details the entities that are most egregiously abusing the intellectual property rights of others around world.

Alibaba sends a different message, though. “Alibaba Group is itself a victim of counterfeiting,” the note says. “The manufacturing industry and business environment of China suffers even more. Counterfeiting is damaging, not only to consumers and legitimate merchants, but also to innovation and the long-term economic development of our nation, hindering China’s growth as a responsible economic power.”

According to Alibaba’s news site, Alizila, “To maintain the trust of consumers and legitimate merchants selling on its platforms, the company has been waging an escalating war to control the problem, employing a range of tactics to combat fakes and put counterfeiters out of business. Alibaba screens and monitors product listings using manpower and advanced search, image-recognition and big-data technology. The company also works with authorities in China to track down the source of counterfeits and prosecute offenders. Recently, Alibaba has also used China’s courts to cause pain for fake-goods sellers.”

Pro-Counterfeits?

Alibaba’s push for increased penalties for counterfeit sellers comes on the heels of a June 2016 statement from chairman Jack Ma seemingly praising counterfeit goods. Many counterfeit goods are now of better quality than the genuine articles, Ma said in comments that infuriated luxury goods makers, which have long-accused the Chinese e-commerce group of profiting from the sale of knock-offs.

“The problem is the fake products today are of better quality and better price than the real names,” he said during a speech in June at Alibaba’s headquarters in Hangzhou. “They are exactly the [same] factories, exactly the same raw materials but they do not use the names." He continued: "It’s not the fake products, its not the IP that is destroying [brands]. It’s the new business model that’s revolutionised the whole world,” said Mr Ma."

As reported by the Financial Times, the remarks were an apparent riposte to longstanding criticism that Alibaba has tolerated the sale of counterfeit goods on platforms such as Taobao. Ma called on brands to accept that the “way of doing business has [been] changed” by the internet, creating new opportunities for Chinese factories that have traditionally supplied the likes of Apple and Louis Vuitton.

In response to Ma's comments, LVMH Moët Hennessy Louis Vuitton - parent company to Louis Vuitton, Givenchy, Celine, and Marc Jacobs, among others - which filed a counterfeit suit against Alibaba in 2015, declined to comment on Ma’s remarks. (More recently, Louis Vuitton filed suit against individual sellers in Beijing in connection with the sale of counterfeit goods on TaoBao, one of Alibaba’s e-commerce marketplaces). 

Similarly, Kering, the Paris-based luxury conglomerate that owns Gucci, Bottega Veneta and Saint Laurent, which has filed two separate counterfeiting suits against Alibaba, similarly opted not to comment.  

Alibaba's Call for Stricter Laws

Alibaba Group’s public appeal, circulated Monday reads as follows:

In the ongoing war against counterfeiting, society is currently faced with an impasse. In Alibaba Group’s view, progress against this illegal activity is negligible because the costs and risks of producing and selling counterfeits are too low. The only way out of this is to impose tougher criminal sanctions on every individual involved in the chain of operation. Only by doing this, can China’s manufacturing industry return to the path of originality and innovation that ultimately leads to sustainable development.

In 2016, our Platform Governance Department identified and handled 4,495 leads related to counterfeiting. Each involved a value of goods exceeding the statutory minimum of RMB 50,000 for criminal investigation. Of these, law-enforcement departments followed up 1,184 leads, which led to just 33 convictions, according to public information, representing a conviction rate of only 0.7%.

Alibaba came up with the 4,495 leads via proactive big-data screening by its Platform Governance team, brand owners’ reports, consumer complaints and random checks. But law-enforcement agencies often found it difficult to classify and quantify incidences of counterfeiting and also had difficulties building legal cases due to ambiguous counterfeiting laws. As a result, public security agents were only able to build 469 cases from 1,184 leads.

The extremely low conviction rate is the fundamental reason for the inefficiency in combating counterfeiting and protecting intellectual property. Current regulations are no longer able to cope with the need to fight counterfeiting. Criminals can escape any legal consequence, leaving law-enforcement agencies and consumers feeling helpless and society bearing the damage. 

Alibaba established its own 2,000-member-strong anti-counterfeiting force and has invested over RMB 1 billion each year to proactively combat counterfeiting with the most advanced technology and data models. For the 12 months ended August 2016, Alibaba took down 380 million product listings and shut down 180,000 Taobao stores and 675 operators as a result of its anti-counterfeiting action. As a private enterprise, Alibaba has no law-enforcement power. We can only uncover irregularities, take down the product listings, report the cases to the regulators and wait for law enforcement to handle the cases.

We do our best to stop counterfeit goods from landing on our platform but cannot entirely stop them from proliferating offline and moving to other platforms. We identify and handle irregularities according to the highest standard of platform-management rules, but cannot impose penalties on the criminals.

Alibaba Group is itself a victim of counterfeiting. The manufacturing industry and business environment of China suffers even more. Counterfeiting is damaging, not only to consumers and legitimate merchants, but also to innovation and the long-term economic development of our nation, hindering China’s growth as a responsible economic power.

We therefore call for further development of our laws and regulations, stricter law enforcement and harsher punishments to strengthen the efforts to combat counterfeiting. Counterfeiters are our arch-enemy and we will stop at nothing to fight them.

The criminalization of drunk driving once delivered a clear message to society that violators will have to face serious consequences for their actions. Such a message served as a deterrent. We hope our society can reach a consensus to collectively increase the resources and efforts towards combating counterfeiting to no lesser extent than was done with drunk driving. To stamp out counterfeiting in China, all of us should play our part.

Enlightenment-era criminologist Cesare Beccaria once said, “crimes are more effectually prevented by the certainty of punishment.”

There is no way to root out counterfeiting with a conviction rate of 0.7%. Only through stricter law enforcement and appropriate punitive measures can we stop criminals from evading responsibility for their actions. Only when counterfeiters get the punishment they deserve will the interests of consumers be properly protected.