In the wake of the decision to put Alibaba’s Taobao on the ‘notorious markets’ list for the second year running, Rob Gymer looks at the current state of IP protection in the e-commerce world, and how CBBC is helping to effect change for the better
E-commerce is thriving globally with sales figures sky high and revenues growing fast; standing at US$1.86 trillion (£1.35 trillion) in 2016, the total value of online retail sales is expected to reach a staggering US$4.5 trillion (£3.25 trillion) by 2021. China’s e-commerce market in particular is seen as a potential goldmine, its total size roughly equal to that of the USA, Canada, UK, Germany, France and Japan put together. Even better news for UK companies is that a recent survey found that 87 percent of Chinese online consumers would like to buy from British brands. Such incredible growth of e-commerce brings with it a flood of opportunities. However, as the number of online sellers grows rapidly some fear these opportunities are being swept away in a sea of counterfeit goods.
Online marketplaces have been a boon to the counterfeiters since their earliest days. Criminals, like other entrepreneurs, were quick in capitalising on the internet’s potential for making tremendous profits. Counterfeits are an incredibly lucrative market; in 2016 the OECD estimated that trade related counterfeiting accounted for 2.5 percent of world trade or around $461 billion (£328 billion). Costs to legitimate business are difficult to measure, but they are certainly substantial. Away from the traditional e-commerce markets, sellers of counterfeit goods are increasingly utilising the massive potential of social media to hawk their products, most notably in China this is through WeChat.
Criticism of platforms
These concerns about Chinese e-commerce contributed to the recent decision of the United States Trade Representative (USTR) – a government body that works to advise and assist the President on trade policy – to put Taobao on the notorious markets list for the second year running. The USTR report criticised Alibaba for failing to establish independently verifiable metrics able to conclusively prove their anti-counterfeiting efforts were resulting in a decrease in the volume or prevalence of counterfeit goods. The USTR also perceived a disparity in the quality of enforcement provided to large companies and SMEs.
The listing provoked a fierce response from the e-commerce platform’s owner Alibaba, who asserted the decision was the result of a “deeply flawed, biased and politicized process.” China’s Ministry of Commerce also issued a condemnation of the USTR decision suggesting that their judgement “lacked conclusive proof and relevant supporting data.” Alibaba published a point-by-point rebuttal to the criticisms levied at them in the report, arguing that they have been an industry leader in brand protection efforts and have undertaken all the reforms that USTR requested of them in the previous year’s report.
Alibaba’s frustration is likely compounded by the fact that they are by no means unique in suffering from this problem, none of the e-commerce goliaths are immune from the scourge of counterfeits, and yet they are almost the only e-commerce site to appear on the list. Both Amazon and eBay have faced lawsuits for their perceived failure in preventing the sale of counterfeits, while Birkenstock chose to remove their goods from Amazon entirely. Social media companies have also come under scrutiny. WeChat has acknowledged there is “huge room for improvement” in this area. Meanwhile, UK Trading Standards have been highly critical of Facebook’s anti-counterfeiting efforts.
The OECD estimated that trade-related counterfeiting accounted for $461 billion of world trade
However, as noted in the USTR report, more complaints were received about Taobao than any other company, suggesting that their counterfeit problem is more serious than their competitors’. The number of sales on the site are astounding; in 2016 Taobao’s gross merchandise volume (GMV) – a measure of the value of goods sold through a marketplace – stood at $547 billion, compared to just $147 billion dollars for Amazon. Thus, the number of fakes found on Taobao and the subsequent damage done to businesses across the world is likely to greatly exceed that of any other platform.
Large platforms such as Alibaba employ a number of enforcement measures, both reactive and proactive. Reactive measures include takedown systems that allow rights holders and consumers to flag suspected counterfeit goods, which may result in the removal of listings as well as the blocking of the seller. Proactive measures, including the use of advanced text, price and image filters, are employed to obtain removals before counterfeiters are able to make a sale.
In addition to these measures, e-commerce companies have also taken actions offline to track and prosecute the counterfeiters. Both Alibaba and Amazon have pursued legal action against some of the worst offenders, while Alibaba has provided information to authorities that has resulted in arrests and closure of illicit manufacturing facilities. Jack Ma, the founder of Alibaba, has lobbied the government, writing an open letter to the National People’s Congress demanding tougher action against counterfeiters.
Since 2014 CBBC have provided a platform for rights holders to work more effectively with big platforms like Alibaba, JD.com, WeChat and others. “Collaboration is key.” Says Mick Ryan, Head of Business Environment and IP at CBBC. “Rights holders know their IP and when it’s infringed better than anyone, meanwhile the platforms hold all the data which shows who’s selling what to whom. Where all sides work to help each other, we’ve seen very positive outcomes from that approach.” Collaboration with Chinese law enforcement is also important, but only when very good information is provided will they take cases forward.
A further step in the right direction would be to establish industry-wide best practice, setting a benchmark that all legitimate e-commerce companies should aspire to meet. Given that all the major online retailers still receive numerous complaints about the inefficiency and usability of their takedown systems, perfecting these basic measures should be a priority. USTR’s suggestion to establish an independently verifiable metric so as to be able to clearly measure progress should also be a requirement of all online retail platforms.
Ultimately, there needs to be significant changes in the approach e-commerce companies take, moving away from shifting responsibility for chasing counterfeiters onto the rights holders, and instead, stepping up their own enforcement efforts. For many SMEs, the amount of resources required to constantly patrol these platforms is prohibitive, while e-commerce companies continue to profit from the sale of counterfeit goods. In the meantime, UK companies hope to see improved IP outcomes online, both in China and elsewhere, so that they may successfully ride the e-commerce wave.