U.S. Lauds Taobao Fight Against Fakes

A drive to cut down on the sale of counterfeit goods on Taobao, China’s largest online marketplace, has been singled out as a model for other Chinese Internet companies to follow in a key report by the U.S.

In its 2011 Special 301 Report, an annual review of intellectual property rights (IPR) issues worldwide, the Office of the United States Trade Representative said that Internet piracy in China “continues to be a source of concern and injury” to copyright holders and that e-commerce site operators should “follow Taobao’s lead” by cooperating with law enforcement authorities to help contain the problem.

The sale of fake goods online has been booming globally along with the rapid growth of e-commerce. In March, the USTR identified more than 30 Internet sites as well as physical venues as “notorious markets” that support the illegal sale and distribution of fake and pirated goods, among them Taobao and Baidu, China’s dominant Internet search engine.

The USTR has long complained of rampant piracy in China as well as government complacency in enforcement of IPR laws. But the report noted some “positive developments” in the last year. Some of the country’s largest Internet portals have started actively monitoring their sites for ads for counterfeit goods, according to the report. A campaign by the Chinese government to step up IPR enforcement nationwide appears to be doing some good since it was launched in October. As a result of the government crackdown, several websites selling illegal counterfeits have been shut down, including qishi.com and 5474.com, whose operators were arrested, fined up to $228,000 and sentenced to prison terms ranging from three to five years, said the USTR.

The report also praised a new initiative by Taobao, which hosts millions of small Chinese vendors on its website, to curb counterfeits by providing leads to Chinese police. In March, Taobao said it was working with 89 international brands (including Louis Vuitton, Gucci, Chanel, Apple, Estee Lauder, Samsung, Panasonic and Swarovski) on an anti-counterfeit operation to purge the site of fakes and bring the most egregious infringement cases to the attention of law enforcement. “In this connection, the fashion industry reports that it has been approached by Chinese enforcement authorities seeking information to support criminal prosecutions against online traders caught with large quantities of counterfeit products in their warehouses,” the report stated. The USTR “urges other online platforms, especially those cited in the “Notorious Markets” report, to follow Taobao’s lead to increase cooperation with Chinese police and U.S. rights holders.”

By working with Taobao, multinational companies stand a better chance of making headway against counterfeiters. Online sales leave a digital trail that often leads back to the factories that make the merchandise. Getting China’s police to help in shutting down those factories and punishing producers is the ultimate goal of brand owners, who want to snuff out the supply of fakes at the source.

John Spelich, a spokesman for Alibaba Group, Taobao’s Hangzhou-based parent company, said the shout-out from the U.S. government was gratifying. “We appreciate the USTR’s acknowledgment of our ongoing efforts to work with brand owners in protecting their intellectual property rights,” he said. Prior to the effort launched in March, Taobao had already implemented a range of strategies to protect intellectual property rights. More than 14 million listings for IP-infringing goods were removed from the site last year, and 590,000 registered Taobao sellers were penalized for selling fake goods. “We will continue to work closely with all stakeholders to further enhance the level of trust and integrity in our online marketplaces,” Spelich said.

The USTR report noted that other Chinese websites appeared to be taking IPR protection more seriously. Video websites Youku.com and Toudou.com recently entered licensing agreements with major U.S. studios to stream legitimate movies and TV programs, the report noted. Meanwhile, the USTR said it was “encouraged by media reports” that Baidu, which has been criticized for facilitating music piracy, will soon launch a licensed music search service and recently removed 2.8 million books and other content from an online library after Chinese authors complained it was distributing their works without permission.

But counterfeiters are persistent. The illicit business is highly profitable and, absent tough penalties and aggressive, ongoing enforcement, relatively low-risk. Although China is now requiring e-commerce sites to verify the identity of online vendors (by confirming they hold legitimate business licenses, for example) many counterfeit sellers, after being kicked off websites, simply re-post their fakes under another company name. “In China, although the largest Internet-based sales portals have responded to rights holders’ complaints of counterfeit and pirated product listings, and even though major online sellers and distributors seem to be making efforts to ensure that the content available on their websites is legal, more than 75 percent of illicit sellers have reportedly re-listed the infringing goods,” the USTR report stated.