Alibaba Took Down 90 Million Fake Products Ahead of Its IPO

By Lulu Yilun Chen  

Photographer: Nelson Ching/Bloomberg

Employees work at Alibaba.com Ltd.'s headquarters in Hangzhou, Zhejiang Province, China.

Alibaba Group Holding Ltd. (BABA), which faced scrutiny for selling counterfeit goods on its websites, said it removed 90 million listings that may have breached intellectual-property rights.
The fake product listings were taken down across Alibaba’s e-commerce platforms through September this year, Chief Risk Officer Polo Shao said at a press conference in Hangzhou today. Alibaba, which raised a record $25 billion in an initial public offering in September, said it spent $160.7 million from the beginning of 2013 through last month to block counterfeit products and boost consumer protection.
The strategy is part of Alibaba’s plan to build its reputation now that the company is larger in market value than General Electric Co. (GE) and Procter & Gamble Co. (PG) Controlling the sales of fake and pirated goods will be crucial in maintaining
credibility with investors and limiting risks of lawsuits.
“Selling counterfeits has been one of the key criticisms that Alibaba has faced,” said Vanessa Zeng, an analyst at Forrester Research Inc. (FORR) in Beijing. “Even though the company’s shares have done well, it doesn’t mean that Alibaba isn’t aware of the risks down the road.”
China’s largest e-commerce company, based in Hangzhou, has gained 60 percent since its IPO, compared with a 0.9 percent decline in the NYSE Composite Index.

Blocking Fakes

Alibaba’s efforts to fight copyright infringement are part of a larger legal issue in China. The country is host to a number of markets known for “prominent and extensive availability of counterfeit merchandise,” the Office of the U.S. Trade Representative said in a February report. It cited Beijing’s Silk Market and Guangdong’s Zengcheng International Jeans Market, where vendors set up stalls, as examples.
“The fact that Alibaba has a system set up to raise complaints about counterfeit products is an improvement compared with the other on-the-ground shops,” Zeng said.
Alibaba’s most popular platforms are Taobao and Tmall.com, which connects consumers to retail brands. The platforms don’t sell merchandise themselves and make most of their sales from commissions and advertising.
To safeguard against infringements, vendors are required to make deposits with Alibaba to ensure their products are genuine, allowing buyers and sellers to rate each other and helping consumers get refunds.
The company had penalized 131,000 sellers, as of Sept. 30. And its cooperation with Chinese law enforcement agencies in more than 1,000 counterfeiting cases this year led to the arrests of 400 suspects, the company said.
Alibaba was removed from the U.S. government’s Notorious Markets list in 2012. To help get off that list, Alibaba hired James Mendenhall, a former general counsel for the USTR under President George W. Bush, to aid lobbying in Washington and help in talks with the music and movie industries, Alibaba said then.