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18 May 2016Copyright

China focus: can a leopard change its spots?

At the end of June 2015, China had 668 million internet users, nearly half of the entire population, according to the China Internet Network Information Centre. So it’s no surprise that online sales are continuing to soar.

But as an ever-increasing amount of goods are bought and sold online, intellectual property infringement remains a very real and dangerous threat to brand owners.

Just 40% of goods sold online in China during 2014 were genuine, according to Chinese news agency Xinhua. While turnover of China’s online retail increased by 40% annually to around $442 billion, commerce authorities across the country received nearly 80,000 complaints concerning online orders.

Reading the IP news, it’s difficult to miss the plethora of infringement actions brought by global companies in the Chinese courts.

Earlier this year, Louis Vuitton announced it was seeking damages from three counterfeiters who sold fake fashion accessories on Taobao, the popular online shopping website and subsidiary of Alibaba Group.

A year earlier, Italian luxury brand Salvatore Ferragamo revealed it had prevented the sale of $7 million worth of counterfeit products from being sold online in Chinese marketplaces. As part of a joint campaign with Chinese authorities aimed at tackling counterfeiting, the company found 90,000 counterfeits sold across 350 websites. All the websites were shut down.

Government action

“It goes without saying that as internet sales continue to rapidly grow in China, problems with online infringement will also increase,” says Annie Tsoi, partner at law firm Deacons.

“The government has no choice but to put more resources into protecting online IP rights. The question is more about how many additional resources the government can put into this area.”

In November last year, the General Office of China’s State Council outlined an agenda aimed at tackling and reducing the infringement of IP rights online.

Among its aims are stronger regulation and legislation, improved collaboration between government departments and enhanced regional cooperation aimed at tackling cross-border sales of illicit goods.

The authorities are focusing on tackling products that may harm the public’s health and safety, such as the distribution of fake produce, medicine, cosmetics, medical equipment and electronics.

The state council explained that the strategy is part of a programme to “effectively stop IP infringements and prevalent counterfeiting products sold on the internet in around three years to help with a healthy and orderly development of e-commerce”.

Fabio Giacopello, partner at HFG Law & Intellectual Property, explains that e-commerce is a central priority for the Chinese government but that a “major obstacle to the development of the e-commerce market is the worry of Chinese consumers of buying fake goods”.

According to Giacopello, this is an even bigger concern when it comes to online sales, and although the government has attempted to curb the online infringement of IP rights, the results have not been encouraging so far.

Giacopello comments that he has not yet seen a reduction in counterfeiting and there has not been a big difference in anti-counterfeiting practices, particularly in the online field.

Tsoi is more confident about the potential success of the curbing of infringement, at least in certain areas. Deacons recently assisted a luxury brand owner in a matter which involved the unauthorised use of a client’s trademark on the internet by an infringer based in Guangzhou.

“In the past the Administration for Industry and Commerce (AIC) has generally been reluctant to take vigorous action,” says Tsoi.

"Of course Alibaba would like to sign more MOUs with luxury brands. The question is why would luxury brands want to enter into such a MOU with Alibaba?”

The law firm sought assistance from the specialised internet division within the Guangzhou AIC and action was taken immediately.

She adds: “Judging from this particular incident, it appears that there have been some changes in the AIC’s attitude towards cases of this nature.”

It’s currently unclear whether similar special divisions have also been set up in other provinces and how proactive they may be, according to Tsoi.

Alibaba in the spotlight

In January 2015 the State AIC (SAIC) issued a report on Alibaba, criticising the group’s efforts to combat the sale of counterfeit goods on its websites Taobao and Tmall.

This was a perceived turning point in the relationship between the Chinese government and Jack Ma, chairman of Alibaba.

Soon after the release of the report, Ma met the head of the SAIC, Zhang Mao. They agreed to work together to strengthen Alibaba’s protection against the sale of counterfeit goods and the SAIC removed the report from its website.

“On the surface, the report seemed to take IP infringement into serious consideration. But in reality, it seems to me that the real complaint was the fact that Ma chose to list his company in New York rather than Shanghai,” says Giacopello.

Despite the criticism levelled against it, Alibaba has made a number of efforts aimed at tackling these issues. The group survived the US Trade Representative’s 2015 “Notorious Markets” list, although concerns remain.

The review, which is a rundown of markets which allegedly facilitate copyright and trademark infringement that harms US businesses, confirmed that it was “increasingly concerned” about the company’s lack of effort to remove counterfeits from its websites.

It added: “Given the size and the scale of Alibaba’s platforms, stronger and more efficient systems for addressing right holders’ concerns should be undertaken without delay.”

A year earlier, it was reported that the company had spent more than $160 million on tackling counterfeits and enhancing consumer protection.

An army of watchers

The retail player has also employed a task force of more than 2,000 employees and 5,400 volunteers to scour and randomly inspect goods sold on Alibaba’s marketplaces every day.

Tsoi says: “Alibaba has done quite a lot in the last few years. They have recruited a number of specialists into the team to tackle online infringement.”

Among these specialists is Matthew Bassiur, who was appointed head of global IP enforcement in December last year. Before joining, he oversaw Pfizer’s anti-counterfeiting operations.

Alibaba says that Bassiur is leading a team that works with international brands and retail partners, industry associations, government regulators, law enforcement and other organisations to advance its anti-counterfeiting and IP rights protection efforts.

Is Alibaba making enough effort to protect brand owners?

In mid-2015 a group of luxury brands, which included Gucci, Yves Saint Laurent and Balenciaga, accused the online retailer of “wilfully” selling counterfeit items. The brands, all owned by Kering, filed a lawsuit at the US District Court for the Southern District of New York in May.

“Alibaba facilitates and encourages the sale of an enormous number of counterfeit products through its self-described ‘ecosystem’, which provides manufacturers, sellers, and buyers of counterfeit goods with a marketplace for such goods,” Kering argued.

Later in the year, the French company accepted the judge’s request that the parties try to resolve their differences through mediation, according to Reuters. This followed Ma’s statement that he would rather lose the case than settle.

“Certainly, from trademark owners’ point of view, there is always a lot more Alibaba can do in stopping online infringement,” adds Tsoi.

For the brand owners that are worried about infringement of their goods on the Alibaba marketplaces, there is the possibility of entering into a collaborative agreement with the company. This in effect creates a collaborative approach against counterfeiting between the two companies.

Microsoft entered into a memorandum of understanding (MOU) with Alibaba in January last year, an agreement the companies said would help consumers avoid counterfeit and unlicensed Microsoft products.

Additionally the companies explained that they would collaborate to raise awareness among consumers about the threats posed by counterfeit software and will work together to educate consumers.

“The possibility of signing a MOU with Alibaba is surely a welcome tool,” says Giacopello.

Previously, in 2013, Alibaba entered into a similar agreement with French fashion brand Louis Vuitton. In January this year, South Korean cosmetics company AmorePacific signed a MOU with the company.

“Of course Alibaba would like to sign more MOUs with luxury brands. The question is why would luxury brands want to enter into such a MOU with Alibaba?” asks Tsoi.

“Luxury brand owners are of the view that Alibaba has the responsibility in stopping online infringement,” she adds.

The question is what can brand owners do to protect their IP rights in China specifically?

“Unfortunately, there is no magic wand that brand owners can rely on to protect themselves from counterfeiting in China,” says Tsoi.

Tsoi advises brand owners to be persistent in their enforcement strategy. She believes this will send a strong message to infringers that trademark owners will not turn a blind eye to infringing activities.

She adds: “Infringers always look for easy money and will have their eyes on those who are less determined to say ‘no’ to infringement.”

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