Online counterfeiting in China
With around 800 million product listings and 370 million users, Taobao is a gigantic online marketplace. Like a cross between eBay and Amazon, it is China’s leading consumer-toconsumer Internet market, allowing people to exchange goods at a fixed price or through auction. According to Alexa.com, it is the 14th most popular website in the world, nine places ahead of eBay.
Its commercial dominance in China may sound impressive, but not if you ask trademark owners. They say counterfeit goods are widely available on the site, as well as on its sister site Alibaba, a facilitator of business-to-business trading. The US government, which publishes the annual Notorious Markets list, said in 2011 that althoughTaobao has taken “significant” steps to address problems, “much work” remains to be done.
Taobao is just one source of online counterfeiting in China, but it epitomises a serious problem in the country. Time and time again, China is singled out—fairly or unfairly—for producing and selling large quantities of fake goods. In July 2012, the European Commission published a report showing that China was responsible for producing nearly 75 percent of the €1.3 billion ($1.6 billion) worth of counterfeit goods seized within EU borders.
Of these 91,000 seizures, which contained 115 million individual goods, nearly 63 percent came via post, indicating that Internet counterfeiting is the most prolific. In a similar report, published by US customs officials this year, China was again named as the chief culprit for counterfeiting, with a senior official saying a “significant” increase in seizures at mail and courier facilities reflected a rise in websites selling fake goods directly to consumers.
While the reports may have political undertones, their findings are largely supported by trademark practitioners. “Online counterfeiting is really bad in China,” says Annie Tsoi, partner at Deacons in Hong Kong.
She says it is enormously challenging to track the huge numbers of websites selling counterfeit goods, especially Taobao and Alibaba, which host millions of products. The more “proactive” brand owners pay specialist companies to monitor key words typed into search engines and on the Internet, in an attempt to dig out the suspected infringing items.
“But I have been told the end results are not very user-friendly because they are not really analysed by the service provider, as they do not know how to screen these results,” she says. “So you receive maybe 10,000 sighting reports every week, and the burden on the trademark owner becomes huge. You have paid companies to produce these reports but you don’t really have the manpower to go through them—it can be a total waste of money.”
On the other hand, Tsoi says she sympathises with the consultants because they are not trademark specialists; they are computer engineers. “They can’t really help the clients manage the screening process, but I truly believe extra steps will be developed soon, or perhaps there are people out there doing this already. Ideally, there would be a trademark professional in-house or the client would send someone in to train one of their people to do the screening.”
On Taobao, a brand owner’s first point of call is the site’s administrators. Keyword filters prevent sellers from listing banned items and price filters attempt to detect luxury goods offered for suspiciously low amounts. Next up are the company’s employees, who scan the site and manually take down listings that violate in-house policies.
The rest is up to brand owners. In a country of 1.3 billion people, almost half of whom are estimated to be Internet users, monitoring counterfeiting is a colossal challenge. Although trademark owners struggle to navigate China’s vast online network, they do find it easier to tell whether goods are fake or not. Most of the time, the price will tell. “Ifthe product is being sold for less than half of the original price, then 90 percent of the time—unless it is a used item—it is likely to be a fake,” says Tsoi.
Finding the felons
In the online world, where it is all too easy to disguise one’s identity, it can be impossible to locate these people. Counterfeiters typically use servers based in foreign countries to upload information about their goods, in a game of hide and seek that forces practitioners to try to outwit them by ordering goods online and tracing their owners.
Comparing this process to money laundering, Tsoi says the goods rarely travel directly from the source. “They travel through a number of places first—and this makes our lives difficult. We have tried to work out through the courier where the warehouse might be, but it can be difficult.”
Front men or front companies typically register the businesses that manufacture the goods, according to Douglas Clark, a barrister in Hong Kong who wrote a report entitled Fighting Counterfeiting in Asia. “This makes it difficult to identify the true players behind a counterfeit operation and make them liable for their infringing acts,” his paper says.
Like all good modern businesses, the counterfeiters use a ‘just in time’ system and do not usually keep track of stock. “They produce only according to orders, making it difficult to have large volumes of counterfeit products seized. If stock is kept, it is generally kept separate from manufacturing facilities in a secret location that is leased in the name of a front company and is difficult to link to the counterfeiter,” he says.
"Chinese tort law provides that if a webhost fails to remove a fraudelent website within a reasonable amount of time following a request, the webhost can be liable for infringement."
“More sophisticated counterfeiters will not produce products themselves. Instead, they use separate sub-contractors to make different parts of the counterfeit goods, which are then assembled by a further sub-contractor.”
Beating the counterfeiters becomes easier when brand owners chase websites purporting to be the real deal, says Ed Chatterton, partner at DLA Piper in Hong Kong. He says he has seen a significant increase in the number of these—typically, phishing—websites that purport to be from brand owners. He has successfully combated them by relying on Chinese tort law, which provides that if a webhost fails to remove a fraudulent website within a reasonable amount of time following a request, the webhost can be liable for infringement.
“But that doesn’t apply to something like Taobao, because it is an enormous site—you can’t just takeit down. The law is better suited to smaller sites, which are wholly fraudulent rather than sites selling a mixture of genuine and non-genuine goods.”
Taobao does offer a ‘notice and takedown’ procedure though. In 2011, it removed 63 million listings, up a staggering 49 million from the previous year.
However, these procedures can take up to several weeks to complete. “This slow speed makes it extremely difficult to combat sales of counterfeits on online marketplace websites because infringing products can continue to be sold in this period,” says Chatterton. “This kind of policing is ultimately reactive—we recommend that brand owners should try to use online sales to track down the source of the products supplying the retailer, rather than just attacking the online retailer,” he says.
Although both Taobao and Alibaba are improving their efforts to remove rogue retailers’ accounts, their administrators are dealing with hundreds of millions of listings. The procedures may not be wholly satisfactory from a brand owner’s point of view, but the sheer scale of the task can be overwhelming.
Against this daunting backdrop of counterfeiting, the Chinese government is increasingly on hand to help trademark owners. Since October 2010, it has spearheaded the ‘Special IPR Campaign’ to target a broad range of IP violations, including counterfeiting on the Internet. The initiative has especially targeted sites selling audio-visual products, electronic appliances, apparel, cosmetics, medicine and baby products.
During the campaign, the authorities have shut down numerous websites and online stores, and sites such as Taobao have worked in tandem with the government to detect the counterfeiters. In its Special 301 Report of 2011, the US government commended China’s improving enforcement efforts, and Chatterton says the perception among trademark owners is that the campaign itself has been “reasonably effective”.
But there is hope for brand owners, following the landmark decision in 2011 in the case of E-land v Taobao. South Korean clothes manufacturer E-land filed seven complaints with Taobao about goods sold on the site that infringed its trademarks. Despite deleting the infringing links, Taobao failed to take
