Having shattered global records, e-commerce Alibaba has stolen the global spotlight with its massive amount of moved goods. David Ho, Alibaba Group’s legal counsel based in Hong Kong, speaks to the challenges and opportunities of intellectual property protection for one of the world’s most talked about companies
By Liana Cafolla
Just about everything to do with Alibaba Group – the largest e-commerce business in China – seems recordbreaking. Its much-heralded initial public offering on the New York Stock Exchange in September 2014 set a record as the world’s biggest IPO when it raised $25 billion, surpassing the previous record holder, Agricultural Bank of China, which pulled in $21billion in 2010.
In market share terms, Alibaba is a giant that is reckoned to account for 80 percent of China’s e-commerce market. Its sales on last year’s Singles Day – a super sales day invented by the company which falls on November 11 –topped $9 billion, up from the $5.9 billion achieved in 2013, making it the world’s biggest sales event.
With trading volumes of this size, it should perhaps come as no surprise that when the company has a problem – in this case, intellectual property protection – it will be on a similarly large scale.
“IP is an important issue for us to manage on our e-commerce platforms,” said the group’s legal counsel, David Ho. “It’s one of the bigger challenges we have.”
Ho made the comment following his presentation to AmCham members last month on the topic of Alibaba Group’s intellectual property initiatives from an e-commerce perspective. During the talk, he made no bones about the size of the challenge confronting the company, which he says is partly a reflection of the huge popularity of the Alibaba’s e-commerce platforms.
“We face very unique legal and practical challenges in terms of IP protection because of the huge number of goods on our platform,” he said. “At any given time, there are approximately 110 million product listings on Taobao.com alone. On Singles Day last year, Taobao platform did over 100 million RMB in transactions just in the first 55 seconds. It ended up the day with 57 billion in transactions in that single day. So we deal with huge volumes, obviously.”
Alibaba Group was founded in 1999 by Jack Ma, a former English teacher from Hangzhou in China, where the company is still headquartered. The group operates a range of Internet based retail and wholesale trading businesses, as well as an online payments business – Alipay, which is a separate company from the Alibaba Group – and cloud computing and entertainment services.
The group’s now has four main e-commerce platforms. The first company to be set up, in 1999, was Alibaba.com, a B2B English-language platform, which has since been joined by AliExpress.com, an international shopping site that connects consumers to manufacturers and wholesalers in China. Taobao.com – a C2C business platform – and Tmall.com – a B2C site – are both Chinese language-platforms that cater mainly to the Chinese domestic market.
The key difference between the English and Chinese sites is their regulatory systems. The two English-language platforms adhere mainly to international “western-centric” standards while the two Chinese-language sites comply with Chinese standards “to a very large extent,” explains Ho.
Because of the huge volumes and range of goods on offer on its platforms, the group is trying to rise to the challenge of establishing an IP protection system that is both systematic and “massively scaleable”, while at the same time setting up tailor-made and direct communication between the company and individual rights holders.
“We understand an automated and systematic approach to things will create frustrations to individual rights-holders because obviously rights-holders have unique problems, each of their own,” says Ho. “Cooperation is not just a good practice for us, but a necessity for us.”
Alibaba’s IP protection system has developed and continues to evolve based on rights-holders’ feedback, he says. Four protection programs are currently in place, two of which were launched on 1 April .
Alibaba’s original notice-andtakedown system is linked to a progressive disciplinary system, with penalty points accumulating against sellers found to be selling counterfeit items. At the first penalty level, sellers who infringe on IP get six points as a warning, rising to 40 points, at which stage their account is terminated.
“Over the years, we have received mixed feedback from rights holders,” says Ho. “Some rights-holders have been frustrated with repeat infringements.”
In response, a ‘3-strikes’ program was introduced in 2014 against serious and blatant infringement. “It is aimed at sellers of merchandise that is clearly counterfeit and merchants who deliberately create product listings to circumvent automated and human detection,” explains Ho.
Sellers who infringe an identical IP rights three times are terminated immediately, without the use of the point accumulation system. On the first offence, infringers receive a warning letter. On the second offence, their product listings are restricted, and if they offend again, their account is terminated.
Taking into account Alibaba’s dominance of China’s e-commerce market, the threat of termination can constitute a severe blow to companies, says Ho, especially for many Chinese SMEs who operate only on Alibaba sites.
The first of the two latest initiatives is a good-faith takedown system for Taobao, which was developed following feedback from rights-holders. To balance their needs with the need to maintain a fair operating environment, the system introduces a five-tier takedown system: good faith – normal – poor – bad faith – unclassified, and allows for rights-holders to move up and down the tiers according to their past performance.
“If the rights-holder has a good track record of past takedown requests, then rights-holder will be placed in the first top tier of the system,” explains Ho. “If that rights-holder is to submit a takedown request on Taobao, we will remove product listings based on good faith, just as we do on Alibaba.com and Aliexpress.com. For the other rights holders which have a traditionally good and average rate of success on Taobao.com, they can also expect their processing time to be reduced to within seven days.”
The second new initiative is a 4-strikes policy, which differs from the 3-strikes program by covering infringements of different IP rights.
“You don’t need an identical IP infringement,” says Ho. “If a particular seller infringes any IP four times, then that particular seller will be terminated. It can remove repeat infringing sellers more effectively.”
Once terminated, it is not easy for a company to simply change its name and set up again to avoid losing its business.
“It depends on which platform – for example, on Taobao and Tmall, it’s quite difficult to get back in because you need an Alipay account which is linked to the national ID of the seller,” Ho says.
On the two international platforms, the company carries out onsite checks against some of the names, he adds.
Consumers who are sold counterfeit goods on Taobao can submit an online complaint to the company’s consumer protection program, which Ho calls “fairly robust.” Successful complainants are compensated with three times the purchase amount.
As well as working through its penalty systems and resolving problems directly with rights-holders, Alibaba carries out millions of anonymous test purchases each year and sends the products bought to rights-holders for authentication.
The group also cooperates with government agencies including the Consumer Product Safety Commission (CPSC), China’s State General Administration of Press, Publication, Radio, Film and Television (GAPP), and the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), as well as with trade associations such as the Motion Picture Association of America (MPAA), the International Anti-counterfeiting Coalition (IACC), and the Quality Brands Protection Committee (QBPC).
Speaking after his presentation, Ho says that resolving Alibaba’s IP challenge will be a process that will have to continue in tandem with progress in China’s IP protection path, adding that the history of intellectual property is China is relatively new.
“About 36 years ago, China did not have an IP system, and over the past 36 years they have caught up in terms of regulations and legislations,” he notes. “Especially after getting into Weibo, China did modernize the legal system very rapidly, which means today China has a largely functioning and very robust IP legal machine. But of course, China being a developing country, the IP problem is part of the many problems to overcome as a society. I think Alibaba and our e-commerce platforms constitute a major part of China’s e-commerce, so as a result we are a reflection, essentially, of China’s e-commerce as a whole. That’s why our IP problems reflect China’s IP problems.”