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.

Consumers

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions