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April, 2018

Taobao uses litigation to fight counterfeiters

Original article: Sina

Taobao, China's largest online consumer-to-consumer marketplace, is increasingly using litigation to punish counterfeiters. On March 29, Taobao filed a civil lawsuit in a Shenzhen court against three defendants which it alleges violated terms of their service agreement with Taobao by selling counterfeit goods - notably Swarovski watches - on its marketplace. Taobao is asking for RMB 3.21 million in damages. The defendants did not appear in court and were declared absent. 

Analysis:

If Alibaba is sincere about reducing counterfeiting in China, litigation can be helpful - provided that the legal system punishes the guilty parties appropriately. In this case, evidence gathered by Taobao's anti-counterfeiting team shows the three defendants sold fake goods on its marketplace from 2013-2016, with total sales of RMB 773,000. When police raided one of the counterfeiters' apartments in August 2016, they seized 125 fake Swarovski watches. 


In March 2017, a Shenzhen court found three defendants guilty of selling counterfeit goods and violating registered trademarks. One of them, surnamed Liu, received a three-year suspended prison sentence. The other, surnamed Chen, received a one-year suspended prison sentence. The report does not specify if the third defendant (surnamed Wang) was given a prison sentence. The court also ordered the three defendants to compensate the plaintiff for losses of RMB 480,000, RMB 920,000 and RMB 1.57 million. 


Taobao's attorney told Xinhua News that the company has a sound legal basis for pursuing the civil litigation against the defendants. Citing the “Taobao Service Agreement” signed between Taobao and the sellers (required for them to operate a store on the platform), the attorney pointed out that the agreement stipulates goods and services sold on Taobao must not infringe on others' intellectual property, including, but not limited to, registered trademarks. If a Taobao user's behavior causes the company to suffer losses, which include its own direct economic losses, goodwill losses and legal fees, the losses must be compensated, the attorney explained. Since the defendants violated the terms of the contract they signed with Taobao as well as China's Trademark Law, they caused damage to the goodwill of Taobao, the attorney added. 


For Taobao, reducing counterfeiting is ultimately good for business, the attorney told Xinhua. He pointed out that he submitted a report from Carnegie Mellon University as evidence to the court. That report finds that every time a fake or quality dispute occurs on an e-commerce platform, consumers' consumption on the e-commerce platform drops fourfold.  


Wei Zhi, a legal expert at Alibaba, was quoted by dzwww.com (a Shandong Province-based news site) as saying that Taobao's lawsuit has been filed not to extract compensation from the defendants but to send a message that the company will not tolerate counterfeiting. Taobao hopes that other victims of counterfeiters will be encouraged to use the legal system against trademark infringers, Wei added.

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