China: E-Commerce Platforms As Nests For Counterfeiters

Last Updated: 5 August 2014

Article by Dr. Paolo Beconcini and Alessandra Moroni

After conquering Western countries as a quicker, more effective and convenient way of shopping, e-commerce has landed in China where it is undergoing an overwhelming development. Indeed, thanks to the continuing improvements in online credibility, payment services, express delivery, and to the efforts promoted by the 12th Five-Year Plan and aimed at increasing the contribution of e-commerce to the national economy, e-commerce is definitely becoming a key-player in enabling more and more transactions and purchases of goods to happen in the Chinese market. However, the growth of e-commerce is not unfollowed: in fact, along with it comes a renewed and sophisticated way for counterfeiters to enlarge their businesses.

From small shops selling fake goods in local markets to well-organized and branched companies carrying on counterfeiting activities worldwide: these are the new actors who distribute counterfeit goods through all the main online retailers despite the various provisions that, in China like in other countries, follow one another in the attempt to crack down one of the most problematic issues affecting fair trade. A recent example is given by the company Xiang Peng Heng, whose trafficking of fake goods has just been discovered. Active on many online retailer markets, from JuMei to Jingdong, from Amazon to Gome online, this company would provide the Chinese market with counterfeit luxury goods, claimed to originate from overseas famous brands, like Armani, Burberry, Prada, and others, by forging authenticity statements, making fake goods available online at quite low prices, pretending to offer after-sale customers service.

The referred case may be regarded as a piece of evidence showing the intensified dangers online counterfeiting can cause. In fact, counterfeiters may now be able to access a far wider market being their goods purchasable by any consumer using the internet and clicking the relevant link, which would both expose consumers to frequent risks of coming across poor-quality products, and exacerbate the violation of the rights of the actual owners of brands. Moreover, it would enhance to problem of successfully identifying counterfeiters, who could have their headquarters and factories scattered anywhere and whose localization would be thus more difficult to determine. Therefore, the Xiang Peng Heng case cannot but invite to reflect on the available means and the desirable strategies to resort to in order to react to the known, much discussed, but still present and persistent phenomenon of counterfeiting.

In the following paragraphs, the topic of online counterfeiting in China -with specific reference to fake luxury goods- will be analyzed. First, the subjects affected by counterfeiting activities will be briefly identified. Second, ways to take effective actions against counterfeiting will be hypothesized in the attempt to outline effective strategies aimed at contrasting such phenomenon.

A. Counterfeiting: a wider problematic issue than mere IPRs infringement

Counterfeiting immediately recalls violations of intellectual property rights, namely -where trade of luxury goods is concerned- violations of the rights of brand owners. However, brand owners are not the only ones affected by counterfeiting, which, indeed, impairs also the interests of consumers and, with specific regards to online counterfeiting, of online retailers themselves.

Brand owners

Brand owners are the direct victims of the commerce of fake goods. Indeed, when counterfeit products are made to circulate in the market, the rights of brand owners to exclusively exploit the built reputation of their brands and the gained loyalty of consumers are violated. This would not only limit the opportunities of right-holders to expand and increase their businesses, but it would possibly affect their reputation as well, being, usually, fake goods of a lower and poorer quality. Consequently, not only sales of the original and actual goods may diminish, but also rightful owners might be exposed to lawsuits because of products' malfunctioning.


Although at first sight fake products could appear tempting and attractive especially since they tend to be sold at lower and thus more affordable prices, in the long run counterfeit goods may damage consumers. And in fact, low-price items generally correspond to poor-quality products, which may not simply mean that the bought good would last for only a short period of time and then perish, but which could also lead to dangers suffered from deficiencies in manufacturing. In this regard, consumers would be certainly interested in making sure that the product they purchase is concretely the desired one.

Online retailers

Notwithstanding the rumors about online retailers taking advantage of and profiting from sales of fake goods on their platforms, counterfeiting is, on the contrary, to be regarded as a practice negatively impacting on their business. In fact, on the one hand, online service providers are to respect legal obligations with regards to the need to monitor sellers accessing their platforms and to the related need to remove any identified counterfeiter. Consequently, online retailers could be held liable were they found not to have successfully complied with the said rules and, hence, may have to respond to complaints and lawsuits both of brand owners (for not respecting their IPRs), and of consumers (for not adequately verifying the quality of the goods made available). On the other hand, online retailers would also want to fight counterfeiters for the obvious reason that being considered a "hub" of infringers would impair their ability to attract further clients, as well as investors and retail partners. Therefore, online retailers would be likely willing to contrast counterfeiters both for diminishing the risk of lawsuits, and for strengthening their attractiveness and thus expanding their business.

The above list of individuals who are deemed to suffer from the trade of fake goods aims at providing some evidence of the fact that many are the interests involved and to be protected when cases of counterfeiting occur. Opposing counterfeiting may not only mean protecting the private rights of brand owners, but it may also include ensuring an adequate protection of consumers, usually considered as the weaker party in commercial transactions, as well as providing solid and fair basis for the business of online retailers to develop and grow.

B. Taking action: hints for penetrating measures against counterfeiting

When the phenomenon of counterfeiting is analyzed from the perspective of either brand owners or consumers, the profile which may stand out more strongly is that of granting to the damaged subject an adequate compensation. It thus follows that the provisions scattered in various laws and other regulatory acts in China could be seen as positively achieving this goal. Indeed, they provide brand owners and consumers with the possibility to claim their rights not only before the actual counterfeiters, who could be difficult to identify, but also against the online retailers whose platforms have been used by the counterfeiters. However, online retailers' liability, while it might increase the chances of right-holders to obtain a satisfying compensation after a determined violation, may not eradicate counterfeiting since sellers of fake goods might manage to continue their activity elsewhere or under different names.

In the following paragraphs, the two mentioned aspects will be hence discussed. Firstly, the grounds upon which online retailers can be held liable and thus may be required to compensate victims of violating acts will be exposed. Secondly, a possible approach for a lasting strategy against online counterfeiters will be outlined.

Short-term: action against online retailers

According to Article 36 of China's Tort Law, internet service providers may be held jointly and severally liable were they informed by the victim or were they already aware that a user would use their platform to infringe the civil rights or interests of another party, and were they to fail to take adequate remedial measures. The present provision is then further enriched by a series of regulations subsequently issued either by the Ministry of Commerce (i.e. MOFCOM Announcements 21 and 18), or by the State Administration of Industry and Commerce (i.e. SAIC Order 49), or yet by the China E-Commerce Association (i.e. OTPS Standards).

The above mentioned rules would reiterate a few standards with which internet service providers, and thus online retailers, are to comply, standards which essentially aim at ensuring the greatest transparency of information of vendors operating through e-commerce platforms. Indeed, online retailers not only are required to implement a real name registration system and to authenticate the provided information for verification, but they are also deemed to actually examine the identity and status of online commodity vendors to check the legitimacy of their businesses as well as to establish an internal regulatory system to deal with complaints regarding IPRs infringements and counterfeiting. Were they unable to disclose complete contact information of vendors and were they not active in taking the necessary remedial measures, they could be held liable and thus they themselves may have to compensate the victims.

In light of the above, subjects damaged by counterfeiting could try to seek compensation by taking action against the online retailers whose platforms have been used for realizing the illegal activities. Similar actions could prove to be successful given also the stricter conditions that China's judicial practice appears to require in order to exempt internet service providers from liability. Certainly, this kind of strategy could be looked at quite favorably by brand owners: on the one hand, victims of counterfeiting would have a clear and known defendant (namely the online retailer), and their rights may not be frustrated by the impossibility of identifying and localizing the actual counterfeiter; on the other hand, also the execution of an obtained favorable decision may be more likely to happen since online retailers would be both more willing to comply with the judgment (so to be able to continue their business), and concretely able to pay the compensatory damages (possessing the needed resources) and to remove the infringing content (being the masters of the platforms).

Long-term: collaboration

Notwithstanding the advantages of the above presented strategy, the described approach may only manage to satisfy victims of counterfeiting in the short-term. Surely, brand owners whose goods have been counterfeited could receive immediate compensation and obtain the removal of the infringing content. However, counterfeiters tend to be savvy and persistent and, if one web-store is shut down, they would very likely open another one, probably using friends' or relatives' names, so that the "counterfeiters hunt" would need to restart. Moreover, compelling online retailers to take more incisive actions against counterfeiters may lead to the limited result to affect the businesses of the traders and not directly of the manufacturers of counterfeit goods who, maintaining their factories and products, could thus find new channels to introduce fake goods in the market.

Given the drawbacks deriving from a strategy exclusively aimed at obtaining immediate compensation for the damages suffered, different approaches may appear more suitable to effectively contrast counterfeiting. As stated in the previous section, numerous are the individuals affected by similar illegal activities: were brand owners, online retailers and consumers to cooperate in taking actions against counterfeiters, the latter could be more substantially dismantled. First, brand owners would of course be able to conduct specific and focused investigations to ensure that their rights are protected. Second, thanks to rigorous suppliers' review procedures, online retailers may manage to obtain detailed information about vendors, which could help discovering illegitimate businesses. Third, consumers might also contribute to the identification of distributors and producers of fake goods by catching relevant signals (such as suspicious low prices, unexpected poor-quality goods, absence or ineffective customers service, unusual invoices lacking of any reference to the claimed brand, etc.). The assembly of all these pieces of information may help outlining a more complete picture, useful for taking subsequent effective actions.

Having regards to what discussed above, it could be thus inferred that a collaborative, coordinate and joint action may constitute a means for obtaining more significant results in contrasting counterfeiting. Being the difficulty in gathering sufficient and appropriate information about counterfeiters the main obstacle in identifying and localizing them, combing separate pieces could help scratch a defined picture enabling more successful protective measures to be realized.

C. Conclusions

The growth of online counterfeiting, in China like elsewhere, creates serious concerns about which online operators do worry. After identifying the subjects impaired by this type of illegal activity and after exposing a few considerations with regards to the available strategies aimed at seeking protection against the sale of fake goods, the opportunity and necessity of a stronger collaboration between the affected individuals has been emphasized. Indeed, the struggle against counterfeiting would lead to more incisive results were it to be carried on by its victims in unison.

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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