The IP dilemma of Tmall

2012/5/31By Doris Li, China IP,[Patent]

In recent years, the B2C market in China has expanded rapidly, accompanied by the emergence of intense industry competition. This competition has brought with it low-quality and low-cost as well as the uneven product quality and service levels, according to industry insiders. Alibaba announced a new portal for the previous Taobao Mall with new regulations and a new name, which separated the new Tmall from the Taobao Marketplace completely. It seemed that Taobao intended to change the “rules of the game.” However, it is still uncertain whether Tmall will prevent IP infringements in face of the IP problems that have accumulated over the years since the opening of Taobao.
 
There is no argument that the e-commerce operators are bearing heavier responsibilities with the development of online shopping market. It has become increasingly important for e-commerce platforms, especially the B2C platforms, to protect the interests of consumers, so as to ensure the quality of online goods and keep away from the intellectual property litigations.
 
Taobao: Working Hard as Always
More than 10 years have passed after Alibaba’s foundation. The past decade has also turned out to be a period of rapid development for China’s e-commerce. In May 2003, Alibaba invested 100 million yuan and built the personal online trading platform—Taobao. Though intellectual property issues have accompanied its development, this platform cultivated 117 “Taobao” brands with high recognition, including Mbaobao, 7GEGE, Bioliving, Gainreel, Piaopiaolong, etc... The network sales platform brings in a large amount of customers, which is admired by traditional brand operators.
 
At the same time, however, Taobao is periodically faced with complaints by customers and right. It has become a hotbed for infringing goods and the target of public criticism. The U.S. Trade Representative’s Office even listed Taobao in one of the world’s leading “Notorious Market” because of the sale of pirated or counterfeit goods.
 
In fact, Taobao was fighting against “fake” products throughout 2011. It did not hesitate to invest 200 million yuan for consumer protection. It has adopted many measures including automatic troubleshooting, manual investigation as well as consumer reporting to combat counterfeiting. It also announced its agreement to cooperate with nine ministries to further combat IP infringement and the sales of fake and shoddy goods.
 
On October 10th, four months its after separation from Taobao, Tmall announced a plan to upgrade the business management system, which showed "zero tolerance” for fake and shoddy goods. Under the policy an online store will be immediately closed and its cash deposit will also be deducted if it is caught selling counterfeit goods. Moreover, consumers will receive compensation which is five times the total cost of the purchase. Jack Ma wants to shed the label of “Notorious Market” and to reshape the image into a boutique online shop for Tmall.
 
Tmall: Haunted by Intellectual Property Disputes
However, Tmall is still not trustworthy in the eyes of consumers. Jack Ma claimed that the rise of fee threshold was designed to ensure the product quality in Tmall. With these words still echoing in consumers’ ears, it was found that Tmall operators sold 1,500 fake Casio watches via the group purchase platform with the total value up to 900,000 yuan.
 
Though Tmall has been spun off from Taobao Marketplace and operates independently, IP infringement has always been the soft underbelly for this B2C platform. With regards to the different natures of B2C and C2C platforms, Tmall needs to assume a greater share of the responsibility after its establishment. Right holders also tend to “speak” to Tmall directly.
 
In 2011, an eye-catching case was raised by Guangzhou Fangnai Gar ments Co., Ltd. (Fangnai) against Tmall for selling fake products. The plaintiff claimed that a Tmall stores named “Jiaoguiren Flagship Store” was selling fake products labeled “Fangnai.” The shop, according to the rules of Tmall, was authorized to sell the products with its own trademark only.
 
“Tmall promises to sell ‘authentic brand with a guarantee’ on its portal page and charges each shop 10,000 yuan as deposit every year for the certification mark. Moreover, Tmall collects 6,000 yuan per year as an annual fee and 3-5% from every transaction as processing fee.” Yang Yonghua, General Manager of Fangnai’s e-commerce department, said that Taobao should take joint liability as a co-defendant.
 
Taobao argued that it did not release false information and did not directly implement of any infringement. Also, it had deleted the web pages of the first defendant and fulfilled its remedial obligations. Therefore, Tmall contented it did not indirectly infringe the Fangnai trademark.
 
In the Casio case above, consumers also mentioned the “Genuine Guarantee” issue. During the group purchase activity, Casio watches with the original price of 2,282 yuan were sold at 599 yuan. Under the temptation of the low price and “Genuine Guarantee,” customers purchased all of the 1,500 watches within a few hours. However, Tmall later confirmed that the Casio watches sold out were all fake.
 
However, buyers pointed out that the activity organizer advertised itself as the “Genuine Armani Sales Champion Shop,” “Certified Store of Taobao Global,” “Top 100 China Online Integrity Brands” and “Sponsor of Taobao Gold Coins.” It also owned the certification mark of “Genuine Guarantee,” which means that the store had been certified and checked by Tmall.
 
It is said that after the incident, Tmall failed to compensate as much as three times of the original purchase price as promised, but only paid twice the price as compensation. The shop selling the fakes was also shut down.
 
However, similar cases continue to occur. Will Tmall be exempted from liability for infringement by compensating customers and removing of infringing stores?
 
Experts pointed out that Tmall and the group purchase platform should bear two kinds of civil liability in this case: first, liability to consumers based on the Consumer Law; second, tort liability to Casio based on the Trademark Law and Tort Law. These two responsibilities go hand in hand and shall not substitute each other because of the different objects and legal relations. That is to say, if Casio claims trademark infringement, Tmall will not be exempted from Casio’s claim by compensating consumers. As a certified B2C platform, Tmall sold fake goods openly, which should be deemed as infringement.
 
Obviously, since it has been turned into a B2C platform, Tmall has a clearer role and more specified responsibilities when its online stores are selling fake products.
 
IP Protection: Tmall Still Has Difficulties
Why is Tmall involved in repeated infringements? China IP sent a reporter to interview the Vice President of the Legal Department of Alibaba Group Yu Siying. She talked about Taobao’s “grievance:” “It is believed that IP disputes in e-commerce process are caused by lax oversight of the e-commerce operating platform. In fact, supervision and management by e-commerce operating platform is still not enough to avoid the occurrence of such disputes. It requires the common efforts of the community.”
 
Since 2010, Taobao has not been fully protected by the “safe harbor” principle. Alibaba also pays more attention to intellectual property protection issues due to its experience with joint liabilities in related litigations. However, the expanding market makes it impossible for Taobao to consolidate every single IP protection measure into a single foolproof system. “This market is expanding too fast. We have to check about 50,000- 100,000 products links every week. We need to recruit staff, who must be trained and be very careful before making the decision in deleting the false links. Thus, there will inevitably be some delay in time. We are also making improvements, but it’s too difficult for Taobao to accurately identify and identify the fake sales from such a wide variety of goods.” said Yu Siying.
 
Taobao, though having a specialized product quality management team, still cannot solve many of the practical problems all on its own. Yu Siying took the book sale as an example. If Taobao makes a price as the criteria to determine whether the book is genuine or not, sellers of used books and second-hand books will suffer from the criteria. In addition, we also hope to keep contact with the right holders to let them determine the authenticity and provide proof of infringement. For luxury goods, such as watches and internationally renowned bags, it is also unreasonable to make price the guideline, because some sellers may bypass the price threshold through technical means.
 
Yu Siying said: “In fact, we are making progress every year. Every small step of progress means a huge systematic transformation and affects a large number of sellers. All of the procedures, including the infringement complaint, feedback confirmation, deletion and punishment, cannot be achieved overnight. Thus, I think the law is a basic principle, while what we do now reach an ethical level which is much better than the bottom line required by law.” Yu Siying stressed, “Taobao processes 5,000,000-7,000,000 transactions per day. I cannot guarantee that no infringing good appears in these transactions, but I must say that we have been trying hard to build an IP protection network.”
 
Future: Can New Regulations “Save” Taobao?
In face of these disputes, Jack Ma is also eager to solve the IP problems. When Tmall is trapped in a controversy for playing the leading role, Jack Ma talked about the Tmall event again at the Digital Leaders Forum held by the Wall Street Journal, saying that Alibaba never shrinks back in front of IP disputes, but Alibaba shall work together with all the business operators. The solutions proposed by Tmall are apparently hidden in its new regulations.
 
The independence of Tmall shows that Alibaba has high expectations for its efforts in protecting intellectual property. It has made it clear in its business invitation criteria that Tmall is different from Taobao Marketplace. The business invitation criteria can be found on the Internet: to be a flagship store, the business operator must have its own brand (with R or TM trademark) or obtain the exclusive authorization from the rights holders; for franchise store, the operator must obtain authorization documents from the brand holders (with R or TM trademark); for specialty store, the operator may run two or more brands under the same category (with R or TM trademark) but it can only apply for one store in this category. In addition, Tmall has special provisions on brand imitation. Brands that are the same with or similar to existing brands, channels, businesses or category, that contain “net” or “network goods” at the end of trademark, that include industry titles, general names, celebrity names or place names, shall not be sold in Tmall.
 
Besides, the Tmall rules divide the violation acts into general violations and serious violations. These are the quality management standards and requirements for Tmall sellers. The store will be shut down and deleted immediately if found selling fake products. Yu Siying stressed: “Since it is impossible for Taobao to verify every item sold by each merchant, Tmall raised the cash deposit for stores settled in 2012 and increased the penalties and compensation standards to improve the self-discipline of business operators.”
 
Analysts said this move has elevated the tort threshold to some extent. The high costs make it difficult for small and medium-sized sellers to survive in Tmall and they can only return to Taobao Marketplace. In the fierce competition, Tmall will be dependent on brand dealers, licensees and large network sellers. The main body of IP infringement is often small and weak businesses in small and medium-sized online transactions. The high costs of Tmall will push small and medium-sized sellers back to Taobao fair, which would take away a large part of the IP “dirt” and be favorable for the purification of the Tmall platform.
 
Sellers and brand distributors in Tmall lay more emphasis on brand licensing in order to emphasize their genuine guarantee. Some of them even advertise as possessing an “exclusive license” and “the only official flagship store” to attract consumers’ attention and win buyers’ trust. The Tmall store of the famous Chinese cosmetic brand Inoherb shows its “network sales authorization” of the year status on its portal page.
 
However, it is noteworthy that although Tmall raises the threshold, the platform model has no significant difference compared with Taobao fair because they both adopt the seller uploading approach. This model allows the seller to control whether the infringing products will be shown at its home page. Therefore, Tmall also faces the confusion of Taobao Marketplace. Yu Siying told China IP: “Tmall and Taobao Marketplace use the same information uploading model. As long as the merchandise is not sold by Taobao, there may be risk of infringement. However, Tmall’s charging standard and severe penalties will help to suppress infringing acts to a very small extent. Tmall will urge shop operators to strengthen self-discipline, respect for their own credit and respect their customers.” Yu Siying believes that e-commerce is just a link in the entire chain. In this industrial chain, the factors including the right holders, structure of the entire legal system, the sellers’ awareness of intellectual property law and the management of the information market are all closely interlinked.
 
So far, have the new regulations of Tmall achieved its goal? Can the “Genuine Guarantee” win the trust of consumers? Maybe it is still premature to talk about these issues. However, there is no doubt that consumers are paying more and more attention on the quality of goods, instead of choosing the fake products with lower prices. For Tmall, the key to great progress lies in the measures to resolve intellectual property problems and to seize the hearts of consumers in the intense B2C market.
 
(Translated by Li Guanqun)
 

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