China: Protecting Against Online Counterfeiting

Last Updated: 28 January 2014
Article by Paolo Beconcini

Owners have to protect their brands. Nowhere is that more evident than online and in international marketplaces available on the Web. As an example, Taobao is a Chinese language Web site for online shopping founded by Alibaba Group in 2003, which has become, by far, the largest e- commerce platform in the world, and thus a very appetizing market for counterfeiters. Similar to eBay, it has more than 60 million visitors daily, sells 48,000 goods each minute, and had a C2C turnover of over US$163 billion in 2012. As a consequence, it has become the object of attack for foreign brand owners who are fighting an ongoing battle with counterfeiters and who have invested heavily in attempts to curb the illegal transactions of counterfeits on Web sites such as Taobao.

Counterfeit Shops Closed Daily

Hundreds of Taobao shops handling counterfeit goods are closed daily, but it is a losing battle. Each time one is shut down, more pop up to take over the business. The perception among IP owners is that monitoring these sites and shutting down their counterfeit shops is a waste of resources. Furthermore, it is difficult for a brand owner to actually assess if any damage at all has been done to an infringer by shutting down its online window. Frustration is the inevitable outcome. It begs the question of whether the actions IP owners take with respect to shutting these operations down are really working in the long term to achieve their IP management goals.

The frustration of IP owners towards Taobao leads often to a misperception. Taobao is accused of illegal handling and intentionally profiting from counterfeit business. In reality, Taobao is very committed to IP protection. The company has internal regulations and ethical guidelines that are in place to monitor, prevent, and remove infringements. Nonetheless, in the field of brand protection, Taobao evokes a negative reaction. The reality is that Taobao is willing and ready to shut down e-stores as soon as an IP owner provides objective evidence of the infringement. Indeed, Taobao launched an intellectual property rights (IPR) protection online system in 2011. As rights holders, brand owners can register all their trademarks, patents, and copyrights there. After being checked by Taobao, the right owner can file a complaint against suspected infringing links to remove the illegal pages. Also, when an operator or an e-shop owner receives a certain amount of complaints, he or she will be forced out and will not be able to open e-shops in Taobao again. Understanding and using Taobao is a lesson right owners must learn to improve their company's brand protection strategy in China.

Closure Is not a Deterrent

When it comes to counterfeiters, shutting down Web shops typically only impacts traders temporarily, as manufacturers and masterminds of counterfeit rings may in fact use many distribution channels. Additionally, a new link can be quickly re-established by using a new account and contacts. In practice, shutting down e-shops may, at most, lead to a very temporary slowdown of infringing activities. The shutdown almost certainly will not be a deterrent to infringers to stop counterfeiting nor will it result in a direct hit at the core structure of the counterfeit organization. For instance, if we rank trademark enforcement activities based on the deterrent value they have on an infringing ring, shutting down a Web based trader shop does not rank among the first and most incisive actions. If the success and effectiveness of the enforcement action is not realistically measured according to these factors, it is evident that a brand owner will be easily and quickly frustrated.

Collecting Information

Using an IP management program that consists of isolated enforcement activity will lead to frustration, misperceptions, and, ultimately, to ineffective enforcement and improper use of the possibilities offered by Taobao in the fight against counterfeiting. Based on our experience, Web sites such as these should not be seen as an enforcement target, but rather as an investigative tool. The availability of Taobao to cooperate should not be used only to shut down e-shops, but to collect more information. This, in our opinion, gives IP owners a source of information on the infringement trends of their brands. It can provide important information about counterfeiting, distribution channel control, and even act as a test for checking the popularity of certain brands over others, thus helping manage supply chain and marketing.

Investigative Tool

If sites such as Taobao are seen more as an investigative tool and a source of information rather than as infringers, new brand protection strategies can be planned to exploit this tool. Information collected on these sites could be the perfect start to investigations aimed at finding not only the trader behind the e-shop, but also the factories and syndicate behind the trader. When, for instance, traders handling high volumes of fakes are found, the IP holder should refrain from asking the site owner to delete that e-shop. Rather, the owner should subject the target to further investigation and IPR enforcement by raids or civil lawsuit. By routinely shutting down the page (and this is what normally happens), the brand owner deprives himself of the chance to hit a larger counterfeiting organization. In a comprehensive brand protection management strategy, such action would be an obvious mistake.

Police Raid

That IPR enforcement can be successful is shown in some recent cases. In March 2013 the Chinese police in Nanjing, attracted by several complaints by consumers investigated a shop on Taobao selling a certain NUTRILITE protein powder. Afterwards, the brand owner AMWAY purchased and tested some samples, and it was confirmed that the protein powder was fake. The police raided the premises and during the police action, more than 170,000 cans of fake AMWAY products were seized, with value for more than RMB140 million (about US$22 million). In March 2013, the Economic Investigation Department of Qingpu District Public Security Branch of Shanghai City seized more than 20,000 cosmetics of different western brands in a private house, valued at more than RMB10 million (about US$1.6 million). Eight suspects were arrested.

Changing Perspective

The examples above illustrate our recommended approach to infringement found on international Web sites such as Taobao. Brand owners in these cases have used Taobao not as the enforcement target but as a source of information and an investigative starting point. A change of perspective in this way can get to the root of the actual counterfeiting problem and is far more effective than the more common strategy of merely shutting down trading e-shops.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Paolo Beconcini
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