In an ironic twist of events, ecommerce hub Alibaba is suing over alleged counterfeit goods (instead of being sued). But the suit has cynics wondering: Is this a toothless PR maneuver on Alibaba’s part; a tack to distract from its recent reputation setback? Let’s quickly review the case, and then…speculate.
Alibaba Is Suing Users Over Counterfeits, But Not Asking For Much In Damages
Who Is Alibaba Suing? Someone selling “Swarovski” (cough) watches on Alibaba.
How Did It All Go Down? “Data analytics” and covert purchases led Alibaba to the counterfeit lair. And in classic Chinese law enforcement style — (which is a close cousin to classic Crockett and Tubbs style) — police raided a Shenzhen warehouse, uncovering 125 knockoff watches. (Cue the Price Is Right WhompWaaaaa, right!? Only 125 watches? That’s not a raid; that’s Capone vault territory…but I digress.)
On What Grounds Is Alibaba Suing? The online retailer claims terms of service violations and intellectual property infringement.
How Much Does Alibaba Want? ¥1.4 million (yuan), which, at the time of this writing, converts to about $202,000 US
Is The Timing of This Alibaba Counterfeit Lawsuit Suspicious?
Did you know that the United States Trade Representative’s office chucked Alibaba onto the Notorious Markets List, a compendium of places around the world — both online and off — where counterfeiters gather to collect or sell their wares. So, at face value, the timing seems a tad suspicious.
But then again, maybe that’s rushing to an unfair conclusion. After all, several months ago, Alibaba super-sized its anti-counterfeit army. Its mission: Hunt fraudsters. So, all things considered, who’s to say we’re not witnessing a bit of bad — but ultimately coincidental — timing?
Ecommerce Lawyer On Alibaba’s Counterfeit Lawsuit: “Alibaba Has A Piracy Problem”
Ecommerce attorney Aaron Kelly acquiesced that Alibaba “has a piracy problem.” What can people do about it? “Like anything,” he reasoned, “investing in anti-counterfeit efforts will help. But we also have to be honest about the marketplace.” He clarified, “To be clear, I think both Alibaba and Amazon are important companies — and that’s not some obsequious hedging. They both provide robust platforms that make life easier for entrepreneurs. What could be better than that? But with any marketplace, barbarians are at the gate. And what some people forget — or maybe don’t even realize — is that counterfeiters make money for the ecom platforms too. Sometimes, they make more than the average ethical seller, because, well, as the old saying goes, unfortunately, crime can pay.”
“To be clear,” Kelly enthused, “I’m not endorsing unauthorized knockoffs; just pointing out the uneasy win-win relationship that can sometimes exist between successful counterfeiters and online retail platforms.”
So, is fighting knockoff artists a useless exercise? “No,” Kelly explained. “It’s possible to shake counterfeiters with a combination of social engineering, protective measures, and legal maneuverings. But there’s always a chance that a scammer you successfully shoo away will just move on to a more vulnerable target.”
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Apple sued online retailers after discovering that 90% of Amazon-purchased Apple power accessories were fakes.
The Amazon Apple Counterfeit Sting: Summary
Sting Operation: Apple employees hopped on Amazon and anonymously bought a bunch of product accessories (chargers, cables, etc.) bearing the “genuine Apple” label.
Sting Operation Findings: According to Apple, 90% of the purchased products were revealed as counterfeits.
Amazon’s Reaction: Apple informed Amazon of the situation, at which point Amazon speedily suspended associated seller accounts.
Apple’s Counterfeit Lawsuit: Apple filed a lawsuit against the counterfeit peddlers. MacRumors quotes:
“Over the last nine months, Apple, as part of its ongoing brand protection efforts, has purchased well over 100 iPhone devices, Apple power products, and Lightning cables sold as genuine by sellers on Amazon.com and delivered through Amazon’s ‘Fulfillment by Amazon’ program. Apple’s internal examination and testing for these products revealed almost 90 percent of these products are counterfeit.”
The Amazon Apple Counterfeit Sting: Legal Analysis
The Apple counterfeit incident has industry pundits chattering about two things:
- Is Amazon’s product vetting process any good? And,
- What are the dangers of counterfeit products?
What do we think?
Well, for starters, we’re not surprised. Last year, Chinese officials reported that a whopping two-thirds of Alibaba-bought goods are counterfeits. http://money.cnn.com/2015/01/28/technology/alibaba-china-counterfeit-crackdown/?iid=EL
Secondly, Amazon’s e-commerce operation is colossal. Of course ne’er-do-wells have crashed — and will continue to crash — the party. Besides, the second Amazon upgrades the locks, indefatigable malefactors burrow through tunnels. So, it’s probably fairer to examine the efficacy of Amazon’s response when alerted of wrongdoing, rather than cast aspersions about recidivism.
In this case, in keeping with the company’s “zero tolerance” counterfeit policy, Amazon seems to have quickly shuttered the fraudsters.
To answer the second question: “What are the dangers of counterfeit products?” It’s not just about profit concerns, it’s about consumer safety. As an Apple spokesperson explained, due to a dearth of testing on bogus products, they “pose a significant risk of overheating, fire, and electrical shock.”
Now ask yourself: Pay a few bucks more for the genuine article, or risk burning down the (literal) house?
Consult With An E-Commerce Attorney
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Jack Ma — Alibaba’s outspoken leader — has once again brandished a few controversial sound bites about counterfeit goods on the website. Will his loose lips sink private label ships? Let’s review the situation.
Alibaba: E-Commerce Sin City?
Let’s face it: Alibaba is the E-commerce World’s Las Vegas — entertainment is omnipresent, cheap deals abound, and shysters lurk.
In fact, on account of Alibaba’s ostensible “shyster problem,” not only is a cabal of luxury brands suing the website for intellectual property infringements, but the U.S. government is threatening to chuck Alibaba back on the “Notorious Markets” blacklist [link to another article on our site about it].
So, in the midst of all this counterfeit turmoil, what did Ma blurt out at a recent investor event? Like a publicity maestro, Ma punted some red meat to the media, and they rush returned with headlines like “Alibaba’s Jack Ma says fakes are better than originals” and “Alibaba’s Jack Ma: Fake Goods Are Better Than The Real Deal”.
What Did Jack Ma REALLY Say About Alibaba Counterfeit Goods?
Let’s, for a minute, peel back the click bait and ask ourselves: “Does Ma REALLY think $10 Rolexi from the CURB COLLECTION are better than real, Swiss-crafted Rolexi? Welllllllllll, it’s debatable. Here are some excerpts from Ma’s statement:
“The problem is the fake products today are of better quality and better price than the real names. They are [from] exactly the [same] factories, exactly the same raw materials but they do not use the names,”
“We have to protect [intellectual property], we have to do everything to stop the fake products, but OEMs are making better products at a better price…”
“Counterfeiting is not a quality problem; counterfeiting is an intellectual property problem”
“The way of doing business has changed for the brands. It’s not the fake products; it’s not the IP that is destroying them. It’s the new business model that’s revolutionized the whole world.”
So, it’s clear that Ma understands the importance of intellectual property rights and is willing to work on diminishing Alibaba counterfeit goods. In fact, he seems to think that updating intellectual property laws would be the most effective solution. (Many folks strongly disagree with him on this point.)
Made In The U.S.A. China
The Alibaba founder also explained that a lot of China’s manufacturers are growing increasingly frustrated with the current ecosystem. Apparently, in China, nationalistic concerns are butting heads with the expectations of a global marketplace.
Or, to put it more bluntly, a growing number of Chinese companies are starting to feel used; like they’re doing all the work, while foreign luxury brands are pocketing most of the money.
As a result, many Chinese factories are looking to cut out the luxury middle man and sell direct to western consumers via the Internet. In fact, Asian manufacturers have launched a PR campaign called “Zhongguozhizao” which means “Quality made in China.” Think of it as the Made in the USA’s close Asian cousin.
The Takeaway For Private Label Sellers
So, what does all this mean for stateside e-commerce entrepreneurs? Welp, it may be time to start thinking about stronger contracts, especially if you’re partnering with Chinese manufacturers. The best defense is a solid agreement. Make sure yours includes provisions about counterfeiting and other intellectual property stipulations.
More “Alibaba Counterfeit Goods” Legal Resources
Click here to read more about what a good manufacturing contract should contain. If you’re ready to speak with someone about firming up your business, to lessen the risk of a counterfeit ring attack, let’s talk.