Alibaba Breaks New Legal Ground in China, Sues Alleged Counterfeit Sellers

Alibaba Group said Wednesday it is suing two vendors using the company’s Taobao online-shopping website to sell fake Swarovski watches, the first-ever instance of an e-commerce platform taking a counterfeiter to court in China.

Alibaba, the world’s largest e-commerce company, lodged a case in the Shenzhen Longgang People’s District Court against sellers Liu Huajun and Wang Shenyi, seeking RMB 1.4 million ($201,320) for “violation of contract and goodwill.”

“Selling counterfeits not only violates our service agreement, it also infringes on the intellectual property rights of the brand owner, puts inferior products in the hands of consumers and ruins the hard-earned trust and reputation Alibaba has with our customers,” said Jessie Zheng, Alibaba Group’s chief platform governance officer.

Zheng, who was recently recognized by the Chinese government for her anti-counterfeiting efforts at Alibaba, warned that the company plans to take more online vendors trafficking in counterfeits to court. She said the Chinese e-commerce platform operator has added litigation to its IPR enforcement toolbox, hoping jail sentences and crippling fines will remove any incentive for counterfeit sellers to try again.

In the Shenzhen case, Alibaba used a combination of “mystery shopping”—surreptitious purchases of suspected fake merchandise—and big data to identify counterfeit Swarovski products and locate the sellers in Shenzhen.

Data analysis indicated the e-store, registered on Taobao in November 2015, was likely selling counterfeit products. Alibaba verified this by acquiring product samples from the storefront, then had Swarovski examine the quality, workmanship and packaging of samples purchased from the Taobao storefront to confirm the watches were fake.

Swarovski said in a statement it is committed to protecting its brand and consumers from fraudulent selling activity and lauded Alibaba’s efforts to protect brands and its platforms’ integrity.

“Swarovski has cooperated with Alibaba on cases against sellers who are offering Swarovski counterfeits on Alibaba platforms and applauds any steps Alibaba takes to discourage counterfeiters from selling on Alibaba platforms,” the company said.

On Aug. 10, 2016, police in Shenzhen’s Luohu District, using information provided by Alibaba, seized 125 fake Swarovski watches and two counterfeit Swarovski official seals, with an estimated total value of RMB 200 million ($28.7 million).

The court case follows a larger anti-counterfeit crackdown Alibaba conducted in conjunction with police in Zhejiang Province last year. Called “Cloud Sword,” authorities acting on intelligence and leads provided by Alibaba between April and July shut down 417 production lines, arrested 332 suspects and seized fake goods valued at RMB 1.43 billion ($205 million).

The litigation also comes shortly after the United States Trade Representative added Alibaba Group’s Taobao Marketplace to its “notorious markets” list in late December, four years after removing the giant shopping site from the list of IPR-infringing marketplaces. Alibaba executives say the decision was driven by politics in a U.S. election year, citing the company’s growing track record for anti-counterfeit work and its multifaceted approach to finding and removing listings for fakes from its shopping websites. Efforts included RMB 150 million ($21.6 million) in spending in 2015 to test-buy suspected counterfeit goods from independent vendors operating on Alibaba shopping websites.

Alibaba said it has over 2,000 fulltime employees responsible for combating counterfeits. The company also works closely with 5,000 volunteers who actively root out fakes.

However, the company has stressed that there is no one-size-fits-all solution in the world’s largest marketplace.

“We take a holistic and technology-driven approach to IPR-enforcement,” said Matthew Bassiur, Alibaba’s head of global intellectual property enforcement. “Big data analytics enhance our ability to identify and pursue counterfeiters and make it increasingly difficult for these illicit sellers to hide in the shadows.”