Notorious Markets, Alibaba and the JSP

alibabastock

At the end of 2016, a trio of reports are being released by the US government all of which reflect upon the IP environment in China

The first one to be released was the Joint Strategic Plan of the IP Enforcement Coordinator at the White House for the years 2017-2019 (released Dec. 12, 2016) (152 pp).  The second is the Notorious Markets Report of the US Trade Representative, was released yesterday, December 21, 2016 (22 pp).  A third report on China’s WTO compliance, hearings for which were held earlier in 2016.  This annual report is due shortly.  The last report focuses on WTO issues (including IP), while the first two focus on IP issues (including China).

The Joint Strategic Plan singles out China’s “weak protection of intellectual property” (p. 4), relying upon a variety of sources of data, including USTR reports, US Customs seizures, “massive online and physical markets” , business survey data, antitrust concerns, and other sources.    The report also notes China’s legislative efforts to reform its IP laws, the positive role of the National Leading Group, and the “welcome” development of the specialized IP court pilot project.   

The report also singles out US engagement with China on cyber theft as well as US efforts more generally to “mitigate the theft of US trade secrets.” As I have pointed out elsewhere, trade secret misappropriation is a complicated area, where civil, criminal and administrative remedies can be improved and there can be close links to industrial policy.

The Notorious Markets report has gotten the most attention because Alibaba’s Taobao has now been placed back on this list. Taobao is not the only market with a Chinese link.  Other sites included Gongchangcom, which reportedly sells counterfeits, including counterfeit security acts to attach to counterfeit merchandise; Nanjing Imperiosus Technology Co., Ltd (also operating as Domainerschoice.com), which provides services to illegal online pharmacies;  and several physical markets.  These markets include the Baiyun Leather Goods Market (Guangzhou), Jing Long Pan Foreign Trade Garment Market (Guangzhou), Chenghai District Market (Shantou), Wu Ai Market (Shenyang), Cheng Huang Cheng Intenraitonal Auto Parts Market (Beijing), and the Silk Market (in Beijing).

The reports notes that Alibaba’s leadership has underscored the efforts it is taking to address counterfeits but that Taobao “is an important concern due to the large volume of allegedly counterfeit and pirated goods available and the challenges right holders experience in removing and preventing illicit sales and offers of such goods.” Alibaba was previously on the notorious markets list four years ago. Taobao is among the 15 top sites globally, and among the top 5 in China and was the subject of numerous notorious market submissions by industry.  Some US companies had been questioning why Taobao had been dropped from the list (see my blog from a program at Cardozo law school).  Alibaba’s President, Michael Evans, in response to the relisting of Taobao, noted that the decision “leads us to question whether the USTR acted based on the actual facts or was influenced by the current political climate.”  A press release of the American Apparel and Footwear Association supporting USTR’s decision to list Taobao is found here.

The Notorious Markets Report was released in the afternoon of December 21, 2016; it remains to be seen how much affect (if any) the report has on shares being traded in the United States (see chart above).  Alibaba did overcome other counterfeiting-related legal hurdles this year.  Alibaba had been the subject of several US law suits involving its alleged involvement in counterfeiting activities. A racketeering claim was dismissed in August of this year.  In June of 2016, Alibaba reported that seven securities class actions law suits against Alibaba were dismissed that involved allegations that Alibaba failed to disclose a “white paper” issued by the State Administration for Industry and Commerce before its US public offering.  The white paper was reportedly critical of Alibaba’s IP protection policies.   Attached are two of the recent US court decisions involving the shareholder law suits.

These are personal, non-official opinions.

Anticounterfeiting Roundup

This is the fourth in a series on IP enforcement developments.  I previously blogged on judicial developments, online copyright, Customs enforcement, and now I am writing on anticounterfeiting, particularly trademark counterfeiting.

There has been much happening on anticounterfeiting in China the past several weeks, including the much-reported dramas of the annual meeting of the International Anticounterfeiting Coalition, with  Alibaba being denied membership­­­, US Ambassador Baucus speaking at the IACC annual meeting,  and Jack Ma meeting President Obama.  On top of this drama, there had also been data out of China from IP Week (April 26), as well as the availability of other reports, such as USTR’s Special 301 report, which also singled out China’s online environment.

There have also been several high profile cases, typically involving allegations of bad faith trademark acquisition.  One such case is the IPhone trademark dispute.  Another case that may be in the making between Under Armour and Uncle Martian.   These two disputes came on the backs of a hearing on the Michael Jorrdan / Qiaodan trademark dispute which was heard by the Supreme People’s Court on World IP Day, (April 26, 2016).

Despite the adverse publicity for China’s IP system, there is plenty of enforcement taking place.  Alibaba reported through news outlets that the company has identified 3,518 groups selling fake goods on its platforms in 2015. It helped the police seize counterfeit goods worth $125 million and nail 300 suspects.  In addition, surveys conducted by 91% of AmCham China respondents in a recent survey believed that that IPR enforcement had improved over the past five years, a view that was generally shared by USCBC [US-China Business Council] respondents (38% reported some improvement over the past year).

The sense of improvement may be due in part to the high level attention being given to long standing enforcement issues, particularly in the online environment.  Towards the end of April 2016, the State Council released the outline of the Outline for the Work Plan for 2016 for the National Anti-IP Infringement and Anti-Manufacturing and Sales of Substandard and Counterfeit Goods (April 19, 2006).  This Work Plan contains numerous provisions that address on-line and transborder enforcement.  The first action item in this plan is to “strengthen control of infringement in the online environment. (Sec. 1.1)”  Product sectors targeted include:  food and pharmaceuticals; agricultural chemicals, household electronics, building materials, car parts, and childrens’ toys.  Exports by post and express services are to be targeted.   The Work Plan notes that there will be a 12thSword Network” campaign against online copyright enforcement.  Cooperation with large online platforms is to be intensified, and supervision over them is to be strengthened.  An e-commerce law is to be drafted (Sec. 3.10).  International cooperation between law enforcement is also underscored (Sec. 7.26).

On May 4, SAIC announced its own on line enforcement campaign for 2016 (2016网络市场监管专项行动方)(May 4, 2016, for action until November).   The campaign calls for SAIC to take a leading role in “combatting online trademark infringement and other illegal activities. Each region’s AICs/ market supervision departments should intensify the legitimate rights and interests of the network of sale of counterfeit famous trademarks, should increase their efforts to deal with foreign trademarked goods, and safeguard the rights of consumers. They should investigate and punish the network abuse, fraudulent, counterfeit agricultural products of geographical indications.   As for large-scale, cross-border complaints by trademark rights holders and consumer complaints involving centralized network typical cases of trademark infringement and counterfeiting, SAIC shall strengthen its attack on the production, sales of registered trademarks and other aspects of the work of the whole manufacturing chain.”

The courts have also not been shy at tackling difficult issues.  One of the most important decisions affecting exports of counterfeit goods in 2015 was the PRETUL decision at the SPC (Nov. 16, 2015).  This case held that unauthorized use of a mark in China constitutes infringement only if it can serve as an indicator of source of a product or service in the Chinese market. In appropriate circumstances, export sales by an OEM may not constitute infringement of the Chinese rights owner rights.

I welcome your comments and corrections!