(Bloomberg) — Alibaba Group Holding Ltd. sued two vendors it said used the company’s Taobao website to sell counterfeit Swarovski watches, just weeks after the site was labeled a haven for knockoffs by U.S. regulators.
The lawsuit is the first legal action taken by an e-commerce site in China against sellers of counterfeit goods and Alibaba seeks 1.4 million yuan ($200 million) in damages, the company said Wednesday in a statement. The case filed with the Shenzhen Longgang District People’s Court is part of Alibaba’s larger efforts to root out counterfeit goods on its shopping sites. The company said it intends to take similar legal action against other vendors.
“We want to mete out to counterfeiters the punishment they deserve in order to protect brand owners,” Zheng Junfang, chief platform governance officer of Alibaba Group, said in the statement. “We will bring the full force of the law to bear on these counterfeiters so as to deter others from engaging in this crime wherever they are.”
Alibaba shares rose 2 per cent to $90.36 at 2:27 p.m. in New York. The stock gained 9 per cent in the 12 months through Tuesday’s close.
Despite Alibaba’s effort to rid its sites of fake goods, the U.S. Office of the Trade Representative last month named Taobao a “notorious” market, citing an unacceptably high level of reported counterfeiting and piracy. Alibaba said it has tightened policies against copyright infringement and made it easier for brands to request fakes be removed. It took down 380 million product listings and closed about 180,000 stores on its Taobao platform in the 12 months to August, the company said in a letter to the U.S. trade office.
The company was disappointed by the U.S. decision, arguing that it has worked diligently to combat fakes. The notorious market listing harms Alibaba’s ability to expand overseas, where it needs to build relationships with retailers, brands and entertainment companies.
Amazon Inc. has also stepped up efforts to fight counterfeit goods to boost credibility. In November, Seattle-based Amazon filed two lawsuits against vendors allegedly selling fake items through its online marketplace. The lawsuit detailed how Amazon is trying to fight counterfeits, which includes spending “tens of millions” of dollars each year on technology to detect bad actors and potentially fake products.
Similar to Amazon, Alibaba said it’s using technology such as machine learning and data analysis to identify and take down fakes. The company said it detected a Taobao merchant suspected of selling counterfeit goods and provided the information to the Shenzhen Luohu District police, who raided the seller on Aug. 10 and confiscated more than 125 counterfeit Swarovski watches. Another fake Swarovski seller on Taobao was found during the process.
Last month, Alibaba sued Shatui, which allegedly links merchants with people willing to falsify purchases and write positive comments that can drive up sellers’ rankings on Alibaba.
The company said that from April to July last year it provided leads to Chinese authorities on counterfeiting that helped seize fake goods valued at more than 1.4 billion yuan, spur the arrest of 332 suspects and shut down 417 production lines.
|© Brent Lewin/Bloomberg|
Alibaba sues sellers of counterfeit goods after it was blacklisted by the US
Alibaba (NYSE: BABA) is taking the fight to sellers of counterfeit goods and, for the first time, suing two merchants on one of its e-commerce platforms – just days after it was blacklisted by the U.S. government for hosting fake items.
The Chinese firm filed a lawsuit against two sellers of fake Swarovski watches on its eBay-like Taobao platform with the Shenzhen Longgang District People's Court, claiming 1.4 million yuan ($201,482) in damages.
While it may not seem like a large amount for a company like Alibaba but the company is hoping to stop others from hosting dodgy items.
"We want to mete out to counterfeiters the punishment they deserve in order to protect brand owners. We will bring the full force of the law to bear on these counterfeiters so as to deter others from engaging in this crime wherever they are," said Zheng Junfang, chief platform governance officer at Alibaba Group, said in a press release on Wednesday.
Shenzhen Luohu District police raided the seller on August 10, 2016 and confiscated over 125 counterfeit Swarovski watches, valuing nearly 2 million yuan, Alibaba said. Another fake Swarovski seller on Taobao was also found relating to the case during the raid.
It's the first time Alibaba – or any e-commerce site in China – has taken legal action against its sellers and comes amid increasing criticism of the company's alleged inability to tackle counterfeits. The U.S. Office of the Trade Representative added Taobao to its "notorious markets" list after it was taken off in 2012.
"The Taobao 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," the USTR report in December said.
At the time, Alibaba said in a statement that it was "disappointed" by the move, claiming that in 2016 alone it had "proactively removed more than double the number of infringing product listings than in 2015".
The company has been taking steps to deal with the fake goods issue. It employs 2,000 permanent staff and 5,000 volunteers to help find counterfeit goods. Alibaba also uses data and artificial intelligence to root out fake items. Its algorithms monitor hundreds of data points such as price and transaction records of sellers to root out illegitimate products. The e-commerce giant said it was able to scan images and logos and find mismatches between the text of a listing and the accompanying photo. For example, a name brand watch might be listed for one price, but the image might show a lower figure.
In 2015, Alibaba said it spent 150 million yuan to test-buy suspected counterfeit goods from vendors on its shopping sites, as another way to find fake goods.
Alibaba is not the only e-commerce site battling with counterfeit items. U.S. rival Amazon (NASDAQ: AMZN) has a similar problem. CNBC reported last year an influx of fake goods on its marketplace. At the time, Amazon declined to provide a comment to CNBC. The issue surfaced again last week when the founder of rap group Run-DMC sued Amazon and Walmart for $50 million, claiming that it was selling products that infringed their trademark.
But like Alibaba, Amazon has also recently taken a hardline approach. The technology giant filed lawsuits in November against two vendors to deter other people form listing fake goods.