The Office of the United States Trade Representative (“USTR”) released its 2016 “Special 301” Out-of-Cycle Review of Notorious Markets report on Wednesday, detailing which entities are most egregiously abusing the intellectual property rights of others' on a worldwide basis. This yearly report is the result of a review of the state of intellectual property rights protection and enforcement around world, and it is especially relevant in fashion law because it specifies sellers, nearly all of which are consumer-facing, that raise concerns due to their intellectual property practices.
A number of the usual suspects - both physical and online entities - that have made the list in the past for piracy, counterfeiting, ineffective systems for protecting against unfair commercial use of U.S. IP rights, etc., are included the latest edition of the list. These include The Pirate Bay, vk.com, Putlocker, and ExtraTorrent, among others.
The USTR notes that "in addition to facilitating intellectual property rights infringement, these sites may lack safeguards for consumer privacy, security, and safety. Some sites reportedly actively and surreptitiously install malware on users’ computers, commit advertisement fraud, and enable phishing scams that steal personal information, all to increase their unlawful profits."
TaoBao, "An Important Concern"
Alibaba’s TaoBao was highlighted as particularly problematic this year. According to the report, "The Taobao.com e-commerce platform is an important concern due to the large volume of allegedly counterfeit and pirated goods available and the challenges right holders experience in removing and preventing illicit sales and offers of such goods."
While inclusion on the USTR's list does not carry any direct penalties, it is a blow to Alibaba's efforts to shed perceptions its websites are riddled with fakes - a key to gaining a bigger international customer base and taking market share from global competitors, such as eBay and Amazon.com.
The report continues on to note: "While recent steps [by Alibaba] set positive expectations for the future, current levels of reported counterfeiting and piracy are unacceptably high. Not only do counterfeit and pirated goods pose a grave economic threat to U.S. creative and innovative industries, undermining the Chinese and global market for legitimate U.S. products, substandard counterfeits such as auto parts pose a potential public health threat to unsuspecting consumers. One large motor vehicle manufacturer reported that at least 95 percent of the merchandise bearing its company’s brand names and trademarks found on Alibaba platforms is sus- pected to be counterfeit."
Other former inclusions, such as KAT (Kickass Torrents), which "was allegedly one of the most popular and lucrative illegal piracy sites in the world until it was taken down by a U.S. law enforcement action in cooperation with foreign law enforcement agencies," no longer appear on the list due to improvements or permanent closures.
The Importance of IP
“Tens of millions of American jobs and several trillion dollars of our gross domestic product rely on American creative and innovative industries,” said Ambassador Michael From an on Wednesday in connection with the release of the report. “The marketplaces, tactics, and schemes that undermine and threaten America’s creative industries change quickly and require our constant attention. Our Notorious Markets List highlights key examples of online and physical markets all over the world that are linked to significant infringement of American businesses’ intellectual property rights. The 2016 List takes stock of emerging infringement models and adds stream-ripping sites and piracy apps to the list of the most damaging digital marketplaces.”
“This Notorious Markets List illustrates the seriousness of copyright piracy and trademark counterfeiting in online marketplaces,” said Froman. “The 2016 List underscores the need for accountable governments everywhere to take on these forms of piracy and counterfeiting at every stage of the global supply chain to prevent final products that put health and safety of end-consumers at risk.”
Michael Evans, president of Alibaba Group, similarly released a statement in connection with the report. Evans stated: "We are very disappointed by the USTR’s decision to include Taobao on its “notorious markets” list, which ignores the real work Alibaba has done against counterfeiters. In 2016 alone, we proactively removed more than double the number of infringing product listings than in 2015. It is therefore unreasonable for the USTR to have concluded that Alibaba is less effective in anti-counterfeiting than when it reviewed our efforts in 2015 and when it removed us from its list four years ago.
Our results speak for themselves. Unfortunately, the USTR’s decision leads us to question whether the USTR acted based on the actual facts or was influenced by the current political climate. Nevertheless, the decision sends the wrong message and is inconsistent with the effective collaborative approach we have taken with brands and governments around the world in our fight against counterfeiting.
The more than 100,000 brands that operate on Alibaba’s marketplaces cannot all be wrong – they are a clear demonstration of the trust that rights holders place in Alibaba. We are very proud of our highly robust anti-counterfeiting programs and believe we have dedicated far more personnel, financial resources and advanced technologies toward protecting intellectual property than any other e-commerce company. Despite this counterproductive action by the USTR, we remain fully committed to protecting the IP of rights holders, both through significant proactive measures and working with brand owners, to combat counterfeiting online and offline."