If you run an e-commerce operation you know: counterfeits can be a problem. And U.S. sellers and buyers are suffering the consequences. In this post, we’ll discuss the current state of “product knockoff” affairs — specifically the “Alibaba counterfeits” issue — and then offer a few ideas on how to ebb the rising knockoff tide.

The Global Counterfeit Conundrum

Alibaba: A Collection Of Retail Sites

What, exactly, is Alibaba? An online company based in China, think of Alibaba as eBay, Amazon, and ThomasNet all rolled into one. Broadly speaking, Alibaba consists of three main parts:

• A manufacturers marketplace where people can find assembly plants and people to make products;
• Taobao — a cross between eBay and Amazon; and
• Tiān Māo (“Sky Cat”) — an online retail portal that caters to a higher-end clientele.

Alibaba’s Rising Star

An international online retail force, China’s Alibaba is reportedly worth $260 billion — and climbing. The Asian e-commerce hub, having masterfully positioned itself on the global stage, is quickly amassing the power to create — and disrupt — market niches.

Knockoff Central

If you’re dealing with Alibaba counterfeits, you’re not alone. Everyone seems to be feeling the pinch — from large luxury conglomerates to single-person startups.

So, what are some common scenarios?

Massively Reduced Knockoffs

Example: Vintage Industrial, a Phoenix furniture company that employs a couple of dozen people and crafts handmade tables starting at $5,295, is now competing with manufacturers in China who are selling its exact designs for a mere $24.

Supply Chain Leaks Result In Knockoffs

Example: A jewelry maker’s plans were stolen after she went on a supply trip to China. Now, her one-of-a-kind designs are being mass produced and sold at a much lower price point around the world and online.

Bespoke Clothing Mass Produced

Example: A two-person U.S. clothier, which sewed items by hand, found identical copies of its fashions for sale on an Australian retail website. After inquiring, the designer learned that her clothes were mass-produced in Asia and sold in stores around the world.

Stolen Pictures

Product photos are another hot commodity on Alibaba — and counterfeiters regularly abscond with manufacturers’ marketing materials. Not only do swindlers swipe designs, but they also run off with promotional content.

How can you, a product seller or marketer, stop fraudsters? There’s no silver bullet. However, formally registering intellectual property can help in certain circumstances.

Why Is It So Difficult To Shake Counterfeiters On Alibaba?

You may be thinking: Why don’t business owners inform Alibaba of the knockoff problem? Well, here are some hurdles.

• Paperwork Pile Up: As one Alibaba counterfeit victim explained, the paperwork required to formally launch a counterfeit claim on the platform is prohibitively time intensive, to the point where it’s nearly impossible for smaller companies to accomplish.
• Scouring The Site: Since the problem is so pervasive, to effectively catch counterfeiters, companies must spend hours scouring Alibaba’s multiple sites– and most people simply don’t have the resources to indulge in the practice.
• Unpredictable Reporting Functionality: When asked, Alibaba spokespeople have explained that the company scans 10 million images a day and has removed nearly 400 million suspect product listings over the past year. But, if you ask entrepreneurs under product attack, they’ll probably explain that Alibaba’s counterfeit reporting functionality is spotty.

Jack Ma’s Promise To Help “Make America Great Again”

Several months back, when President Trump was still PEOTUS, he met with Jack Ma — Alibaba’s founder. When the pair emerged from behind closed doors, Ma was pledging to create one million American jobs. No, his company wasn’t hiring a million American workers, but he vowed to help stateside sellers break into the rapidly expanding Chinese e-commerce milieu.

Considering Counterfeit Problems, Is It Wise For U.S. Businesses To Enter Into The Chinese Market?

But a question looms: With the current counterfeiting climate, can U.S. brands effectively launch recognition in overseas markets — especially if their products are used “as reference” for knockoff goods sold at a fraction of the cost?

Take Vintage Industrial, the Arizona-based furniture maker. Its custom-made tables start at $5,295, but a Chinese manufacturer copied the company’s designs, had them mass produced, and is now selling them for $24 a pop.

Not only is rampant counterfeiting plaguing honest sellers, but the United States Trade Representative’s office recently slung Alibaba’s Taobao on the Notorious Markets List — a directory of marketplaces — both online and off — known for trafficking in pirated and counterfeited goods.

One of the reasons Taobao landed on the list is because the USTR believes that “smaller firms have a harder time qualifying for Alibaba’s streamlined program for removing fakes [and] often encounter more bureaucracy and longer response times than larger ones.” Alibaba insists the accusation is “false,” but a spokesperson acquiesced that “there are places that our system can be improved to make them more effective, efficient, and user-friendly.”

Who Is To Blame: Alibaba v. Chinese Government

Who takes responsibility for the counterfeit outbreak? As you may have already suspected, Alibaba thinks that the “primary responsibility of protecting brands rests with the brand itself.” Additionally and controversially, the company’s founder, Jack Ma, famously placed blame on the Chinese government.

As far as Chinese officials are concerned, however, they think Alibaba could do more to thwart fraudsters.

Why Isn’t The Chinese Government Taking A Harder Stand On Counterfeiters?

You may be reading this and wondering: Why doesn’t the Chinese government take a harsher stance when it comes to intellectual property infringement — especially since the nation is notoriously strict when it comes to other Internet laws?

In a word: Growth.

Believe it or not, the United States Patent and Trademark Office didn’t come along until 1975. In fact, the 1790 U.S. Copyright Act expressly permitted the copying of foreign works. Why? Because when you’re a young country — or a nation in the midst of an expansion spurt (like today’s China) — reproducing foreign goods is an efficient way to spark a national economy. Think of it this way: After the Revolutionary War, many an American fortune was made recreating British products. And now, as the Chinese economy grows, a similar phenomenon is playing out.

What Can U.S. Businesses Do To Battle Alibaba Counterfeits?

Unfortunately, there’s no magic to keep product thieves at bay. However, you can do things that will throw fraudsters off your scent.

• Vet your supply chain, thoroughly. The most common way for product plans to land in the wrong hands is via a leaking supply chain link. So, before you sign contracts or otherwise enter into agreements with overseas manufacturers, vet like your business depends on it — because it may!
• Use U.S. manufacturers. Yes, it may be a bit more expensive, but by using stateside fabricators, not only are you helping to support our national economy, but you’re giving yourself an added layer of intellectual property protection. Looking for a U.S. manufacturer? Try ThomasNet.com.
• Become A Job Creator. Calculate how much you’re losing to counterfeit activities. Then talk to an e-commerce consultant about how much it would cost to either a) hire an inside person who is responsible for monitoring and handling online counterfeit issues or b) work with an e-commerce lawyer who can step in on your behalf when fraudsters rear their larcenous heads.

Connect With An E-Commerce Consultant

Aaron Kelly, Raees Mohammad, and Daniel Warner are Kelly / Warner Law. A decidedly tech-friendly firm, their team works with countless online sellers and marketers — both domestically and internationally.

The Kelly / Warner team solves counterfeiting problems, sets up business structures, secures intellectual property registrations, and does just about anything an online business could need…legally speaking, of course.

To read more about other e-commerce issues, please head to the online retail section of the website. If you have questions for Aaron, Raees, or Dan, get in touch today.