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Alibaba defends itself against claims it allows sales of fake luxury goods

May 18, 2015 09:42 AM
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(Bloomberg)—Alibaba Group Holding Ltd., China’s largest e-commerce operator, said it will fight a new lawsuit claiming it facilitates the sale of counterfeit merchandise.

Kering SA said Alibaba profited from the sale of goods that infringe on its brands, including Gucci and Yves Saint Laurent, according to the suit filed Friday in the U.S. District Court in New York. The complaint “has no basis” and will be fought vigorously, Alibaba said in an email Monday.

The e-commerce operator is fending off a Kering lawsuit nine months after the luxury brand owner withdrew a similar complaint under an agreement to cooperate on fighting fakes. The new suit alleges Alibaba sites use algorithms that help customers find counterfeits to buy, highlighting the challenges in policing third-party sellers that have also drawn criticism from consumers, government watchdogs and investors.

“With every one of these lawsuits, it just shows that they need to review how they approach fakes and their algorithms,” said Mark Tanner, founder of Shanghai-based research and marketing agency China Skinny. “The government is also stepping up scrutiny.”

The company’s shares have slumped 15% this year after China’s consumer watchdog complained about fakes on Alibaba’s malls and investors filed a U.S. lawsuit accusing the company of making misleading statements in its initial public offering last year.

Class action

The class action complaint about IPO statements included claims that Alibaba failed to disclose meetings at which regulators said they were targeting the company for alleged sale of counterfeit goods and other violations, according to court documents.

Lawsuits are “one of the concerns, and we look at whether it will impact the financials,” said Victoria Mio, a fund manager at Robeco Hong Kong Ltd.

Shares of Alibaba closed at $88.46 Friday in New York. The stock has lost more than $75 billion of market value since its November peak amid concerns that sales growth is weak and allegations it isn’t stopping counterfeit goods sales.

“We continue to work in partnership with numerous brands to help them protect their intellectual property,” an Alibaba spokeswoman said in an emailed statement Monday. “Unfortunately, Kering Group has chosen the path of wasteful litigation instead of the path of constructive cooperation.”

In the latest suit, Kering, No. 145 in the Internet Retailer 2014 Europe 500 Guide, accuses Alibaba of knowingly encouraging, assisting and profiting from the sale of counterfeits.

Bags bearing Gucci’s trademark were being sold on an Alibaba platform by a vendor for as little as $2 apiece, compared with $795 for an authentic version, according to Kering’s latest complaint.

Online malls use formulas, or algorithms, and data on usage patterns to encourage purchases by estimating what customers browsing the sites want or might be interested in buying.

When a customer types in the word “replica” in the search bar on the Alibaba.com website, an algorithm displays the term “wristwatches” and directs the customer to merchants selling counterfeits, according to the suit.

‘Notorious’ markets

Chinese authorities have cracked down on fakes. They arrested 59,000 people and seized more than 9,000 tons of counterfeit and shoddy products in 2013 in cases worth 172.9 billion yuan ($28 billion), a Ministry of Public Security official said in January last year.

Alibaba was removed from the U.S. government’s notorious markets list in 2012. The roster was started in 2006 to highlight businesses that allow or encourage fakes and piracy.

Alibaba worked with 40 brands including Nike and Adidas from June to September last year to remove fake athletic shoes, watches and bags on the company’s largest retail platform Taobao Marketplace, the company said in an emailed statement on Monday. More than 40,000 sellers were penalized, according to the statement.

It usually takes Alibaba as long as five working days to remove a product, Alibaba said in August.

 

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