Alibaba and U.S. Copyrights

In recent news a Chinese e-commerce powerhouse, Alibaba, has been relevant for a number of reasons but notably for its vendors blatant copyright infringement. In this blog, I will go over what Alibaba encompasses, China's copyright laws in general, and a prominent legal case involving Alibaba and copyright infringement in the United States.

What is Alibaba?

Alibaba is a Chinese based Internet conglomerate with the majority of its roots in website marketplaces acting as a middleman, (think eBay or Amazon). It is ranked 4th in world  just ahead of Facebook and just behind Microsoft. During its Initial Public Offering (IPO) in the United States, it raised $25 billion in capital, which is the highest to date and which nearly doubled Facebook's IPO of $16 billion.

Alibaba has built an interesting financial situation due to its unique business approach. Instead of charging fees for listings from sellers in its marketplaces' it makes most of its revenue from sellers paying for advertising and transaction fees.  These fees are on average $0.40 USD cost per click (CPC), which is steep compared to Facebook's CPC at $0.27 USD, with this revenue going directly to Taobao's “Diamond Space” real-time bidding system for advertising. Because of these fees, Alibaba earns much less revenue than its competitors Amazon and Google.

Yet even so, Alibaba's net income has been growing and they are making enormous profits. Most of this is due to its marketplaces' customer base, which is the largest in the world dwarfing its competition, the like of JD.com, a company modeled after Amazon.com .

What are Alibabas' Marketplaces?

Taobao and Tmall are Alibaba's two largest e-commerce marketplaces, and this is where the issue of copyright infringement comes into play. Taobao alone is home to over 7 million merchants with most of their products being manufactured in Chinese factories.

Just about anything and everything is sold over the website from clothes and cosmetics to a rentable boyfriend (yes, you can rent a boyfriend for approximately $264 US Dollars) and an odd array of punishment tools which some could say are in the realm of “adult entertainment” while others would consider cruel and unusual punishment. How does a company of such large size operating on an internet-only sales channel keep their sellers and buyers happy?

The answer comes in a two- fold system aimed at keeping their customers safe and guarantee a genuine product. One is their payment tool “AliPay.” which holds customer money in escrow to help avoid scams. Another is “AliProtect” which is used on the legal side of the company to help with Intellectual Property issues.

How China gets around U.S. Copyright Laws:

Alibaba and its network of online marketplaces are consistently under fire by U.S. companies for violating U.S. copyright law involving products listed for sale on the Alibaba site. What is easily forgotten is that Alibaba (much like eBay) does not sell its own products, instead, it has millions of merchants selling products on their website, and some of these merchants blatantly disregard U,S, copyright law or may have no understanding of it.. For this reason, fakes, bootleg copies, and knockoff products are easily found everywhere on the site, notably in the clothing and accessories departments but also elsewhere.

China is a signer to both the Berne Convention and the Agreement of Trade-Related Aspects of International Intellectual Property Rights (TRIPS), which generally prohibits copyright infringement, yet it is still understood by many to be incredibly easy to find hundreds if not thousands of examples of products being sold that may violate the intellectual property of third parties.

Many Chinese manufacturers pride themselves on taking an existing product format and incorporating “new” elements transforming it into a “new” product. Keep in mind how I have used quotes around “new” since in the greater reality there is little to no differences being made in regard to changing the underlying intellectual property.

Now our firm is not a licensed Chinese law firm nor do we pretend to know the ins and outs of Chinese law, but generally speaking it appears: Under Article 2 of China's Copyright Law, there appear to be 12 exceptions to unauthorized use of IP they are as follows:

1. personal use;
2. “appropriate” quotation in order to introduce, comment on, or explain;
3. media use to report current events;
4. republishing or rebroadcasting of another media entity's story;
5. publishing or broadcasting a public speech;
6. translation or reproduction of a scientific work solely for use in teaching or research;
7. use by a government entity “to a justifiable extent for the purpose of fulfilling its official duties”;
8. reproduction of a work in its collections by a library, museum, etc. for display or preservation purposes;
9. a free live performance;
10. copying, drawing, photographing or video-recording a public artwork;
11. translation of a Chinese citizen's work from Mandarin into a Chinese minority language, for distribution in China; and
12. transliteration of a published work into braille for publication.

These 12 exceptions are interestingly similar to US “fair use” stipulations that allow for unlicensed use of copyrighted material within certain circumstances that we have talked about in other blogs, videos, and podcasts.

Many of the knock-offs available for purchase on Taobao.com would likely claim one of these 12 exceptions to avoid legal backlash. Global brands, many times in the garments and fashion industry but encompassing thousands of industries, have to fight these sellers in a semi-broken system.

Why is Copyright enforcement so challenging?

The legal system in China has been aging poorly especially with regard to copyright and intellectual property. Most of China's current Copyright Law is focused on the right of reproduction and the right of distribution. The Internet has made it increasingly harder to find violators and easier to distribute goods that infringe on the intellectual property rights of third parties.

Frequently the powers of enforcement are less than what the right holders attempt to protect. Meaning that a rights holder wants to keep everything they own or be fairly compensated for their works, yet enforcement of such rights can be challenging or non-existent, especially in international cases.

With the inherent anonymity of the Internet, finding rights violators can be a difficult task.  People can hide behind anonymous screen names.  Even where a wrongdoer can he found, the IP rights holder still has to find out the identity of the infringer, and this may mean they have to resort to going through the Internet Service Provider (ISP) to unmask the individual infringer.  In some cases an IP rights holder may need to submit a “take-down” notice to pull down the infringing item, or if a lawsuit is required, a Plaintiff may have to issue a subpoena on the ISP to get the name of the subscriber of the internet account (but this may or may not be the actual infringer).

Alibaba has taken their own steps to avoid IP infringement using its Intellectual Property Protection System, which they call “AliProtect.”

AliProtect consists of multiple functions all aimed at easing the process, included in these functions is complaint processing, proactive management, government collaboration, brands cooperation, and awareness raising. It's estimated that Alibaba spends around 100 Million Yuan annually on its AliProtect system fighting and protecting claims. Even with this in place, it is still challenging to bring to justice all the copyright infringers and bootleggers. Many times, filing multiple complaints with AliProtect can be the best path for seeking to remove the infringing listing.

Notable Copyright and IP cases involving Alibaba:

Keck v. Alibaba.com, Inc.

This case involves a relatively prominent artist by the name of Michel Keck who filed a class action lawsuit against the Alibaba Group for allowing multiple vendors on its' e-commerce marketplaces to violate copyright laws involving the plaintiff's artworks. The class consists of owners of U.S. copyrights involving pictorial, graphic, or visual works who own the copyright to at least one such work that has been or is replicated or displayed on Aliababa.com, AliExpress, or Taobao and offered for sale without permission from the owner.

The court documents list more than 70 stores on Alibaba's websites selling Keck's artworks under hundreds of listings and offering to sell thousands of copies of any one of the artist's works, usually at a much cheaper rate than Keck would ever allow.

A number of retailers around the world have bought unauthorized works and resold them. Keck also had made claims that repeated efforts were made to have the postings removed by Alibaba under their  “fight for the little guy, small business and their customers” slogan, which was not upheld.

Conclusion

For most people dealing with copyright disputes across international borders is not only challenging but also incredibly time-consuming. Knockoff products can infiltrate any market from a smaller scale artist to large international companies and as described above, the little guy can win. The key to success is diligence and a good lawyer.  If you received a legal demand letter, cease and desist, notice of subpoena or a federal copyright lawsuit, contact us to discuss your case at (877) 276-508.