French luxury group Kering and Alibaba Group have come to what they call “a groundbreaking agreement” to cooperate in their efforts to protect intellectual property and take joint enforcement actions online and offline. The announcement, which comes by way of a glowing joint statement from Alibaba and Kering, is the result of a battle that has forced the parties in and out of court for the past several years after Kering filed two back to back lawsuits against the Chinese e-commerce giant over the enormous amount of fake goods on its platform.
Not One But Two Cases
You may recall that in May 2015, Kering filed suit against Alibaba on behalf of Balenciaga, Bottega Veneta, Gucci, and other brands under its ownership umbrella, alleging that the Chinese online shopping giant knowingly made it possible for counterfeiters to sell their products throughout the world.
But before that, in July 2014, Kering filed suit against Alibaba, a separate suit but almost identical in which Kering claimed Alibaba was complicit in the sale of fake handbags, watches and other items on its marketplace sites in a manner that constitutes “racketeering," a term most frequently associated with organized crime.
The parties managed to settle their first suit out of court in August 2014 - long before trial - with Alibaba insisting that it was enforcing a “zero tolerance policy” towards fakes and agreeing to team up with Kering in an effort to keep counterfeit goods of Kering-owned brands off Alibaba's platform.
Shortly thereafter, Alibaba was at it again. According to Kering, the Chinese giant was failing to hold up its end of the deal and so, the luxury conglomerate filed another suit in May 2015. A year later, U.S. District Judge Kevin Castel in Manhattan dismissed Kering's claims that Alibaba was involved in racketeering, saying Kering's complaint failed to allege facts that could sustain those claims.
As of this week, the parties have moved to settle the second lawsuit (a move that Alibaba chairman Jack Ma swore off in late 2015 just as the parties agreed to enter into mediation in connection with the suit), which Kering calls “a milestone in both parties’ investment and efforts to protect brands’ intellectual property rights.”
As part of the settlement, “the companies have established a joint task force with the purpose of collaborating fully, exchanging useful information, and working closely with law enforcement bodies to take appropriate action against infringers of Kering’s brands identified with Alibaba’s advanced technology capabilities."
Kering has thereby agreed to voluntarily dismiss the lawsuit filed against Alibaba, although not "with prejudice," meaning that it could very well go for a third try of the parties' settlement plays out in a similar manner as before. Note: There has been no mention of what the financial component of the settlement entails, although there certainly is a sizable damages amount being paid from Alibaba to Kering.
Do remember: The lawsuit initially sought to block Alibaba from offering or facilitating the sale of counterfeit products and asked for unspecified damages that could include $2 per counterfeit item under a statutory regime.
The parties released an almost suspiciously kindly-worded joint statement on Thursday, saying: "This agreement reflects the parties’ firm belief that taking proactive measures and using advanced technology will help law enforcement bodies and other relevant authorities address the challenges of intellectual property infringement."
Will the Settlement Stick?
As for whether the settlement will stick this time, it is definitely more likely. Unlike the first time around, when the two parties fashioned a settlement plan and dismissed the lawsuit within a month of it being filed, Kering and Alibaba have spent significantly more time fighting and then presumably working to come up with a solution, which bodes well - at least in theory - for the viability of their partnership.
Moreover, if we look to Louis Vuitton's parent company LVMH, the odds of a lasting solution are increased. Despite filing suits against individual Alibaba users in the past, LVMH entered into something of a similar initiative with the Chinese e-commerce giant.
Not only have the parties co-existed at least somewhat peacefully since then (the Alibaba platforms are rife with counterfeits of LVMH-owned brands), they have since joined in the “Alibaba Big Data Anticounterfeiting Alliance," an initiative that was launched in January 2017 and is aimed cracking down on the sale of fake goods on the Alibaba platforms.
It is worth noting that there has been little talk - and virtually no publicly available reports from Alibaba, LVMH or any of the 19 brand, trade association, intellectual property expert and regulator participants - in regards to the status of that initiative and any potential progress being made. This is interesting, as Alibaba has frequently taken to its own news site Alizila to boast about steps taken and any accomplishments in the realm of fighting counterfeits.
Add to that the fact that chairman Jack Ma has publicly praised counterfeits in the past, saying (and then swearing off his statement): “The problem is the fake products today are of better quality and better price than the real names. They are exactly the [same] factories, exactly the same raw materials but they do not use the names.”
In that same setting, he further 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. Pair this with the revenue that Alibaba captures in connection with the sale of counterfeit goods by third parties on its platforms and the reality becomes a bit dubious.
Still yet, the Kering, Alibaba settlement coincides with reports from the White House that Donald Trump is readying to respond to what he considers unfair trade practices being utilized by China, including its sale of most of the world's counterfeit goods. And after all, Alibaba’s TaoBao platform was highlighted in the Office of the United States Trade Representative's 2016 “Special 301” Out-of-Cycle Review of Notorious Markets report, an annual list that details which entities are most egregiously abusing the intellectual property rights of others' on a worldwide basis.
* The case is Gucci America Inc et al v. Alibaba Group Holdings Ltd et al, No. 15-03784 (SDNY).