The battle against counterfeiting may be shifting from the courthouse to the C-suite.
Experts said Kering’s decision to drop its long-standing legal battle against Alibaba Group and join forces with the Chinese web giant to stamp out the sale of fake goods could set a trend, as more and more luxury brands move to sell their goods online in the world’s most advanced digital market.
The French luxury group has agreed to dismiss the lawsuit filed in 2014 against Alibaba and Alipay, an Ant Financial subsidiary, in the U.S. district court in New York, a case that had been closely watched for indications of how brand owners can defend themselves in the world of far-flung Internet marketplaces.
Kering has instead come to an agreement with Alibaba to “cooperate in their efforts to protect intellectual property and take joint enforcement actions online and offline against infringers in order to provide the best consumer experience and a trusted environment,” the two companies said Thursday.
They have set up a joint task force with the aim of exchanging information and working with law enforcement bodies to take action against “infringers of Kering’s brands identified with Alibaba’s advanced technology capabilities,” they added.
Kering does not directly sell any products on Alibaba’s platforms. The group has been making inroads into Chinese e-tailing in recent months, with the launch of Gucci’s e-commerce site in July, and Saint Laurent’s deal with Farfetch this week to sell its goods in China as part of a recent pact with e-commerce giant JD.com.
Vanessa Bouchara, founder and managing director of legal firm Cabinet Bouchara and an expert on intellectual property law, said companies were looking for ways to avoid costly and repetitive legal procedures. “A collaboration is always more profitable in the long term than isolated actions,” she said.
Bouchara noted that counterfeiting carries high costs not only in terms of lost revenue and jobs for the companies making the products, but also in terms of reputation, credibility and legal costs for the platforms selling them.
Imports of counterfeit and pirated goods were worth $461 billion in 2013, or around 2.5 percent of global imports, with U.S., Italian and French brands the hardest hit and many of the proceeds going to organized crime, according to a recent report by the OECD and the European Union’s Intellectual Property Office.
Most counterfeits originate in middle-income or emerging countries, with China the top producer, according to the study titled “Trade in Counterfeit and Pirated Goods: Mapping the Economic Impact.”
Spurred by legal action, platforms like Amazon and eBay have recently unveiled a series of fraud-fighting tools.
Christopher Buccafusco, a professor focused on intellectual property at Cardozo Law School in New York, said Internet-based businesses have been further put on guard by a recent ruling by Canada’s Supreme Court that ordered Google to delist from its global search index a company accused of counterfeiting.
“Here’s an opportunity for Alibaba to avoid the same sorts of risks by taking things out of the courts and moving them into boardroom-to-boardroom negotiation,” he said. “These sorts of things have been increasingly attempted in the context of motion pictures and music and other sorts of videos, where you see relationships between the content producers and the Internet service providers as a way of working together to short-circuit the risks of large-scale legal action.”
The counterfeits issue has been a thorn in the side of Jack Ma, executive chairman and the driving force behind Alibaba, which went global with a record-setting $25 billion initial public offering in 2014.
The e-commerce giant said earlier this year it was forming a 20-member alliance of companies to fight the sale of fake products. Alibaba said Louis Vuitton, Samsung, Swarovski, Mars and Huawei were members of the new group, dubbed the “Alibaba Big Data Anti-Counterfeiting Alliance.”
In an unprecedented move, it also filed a lawsuit against two merchants for allegedly selling fake Swarovski watches on its Taobao platform, after the Office of the United States Trade Representative last December relisted Taobao on its “Notorious Markets” index for 2016, four years after removing it.
Bouchara noted that public opinion has become increasingly sensitive to the importance of the global fight against counterfeiting.
“It’s in the interests of these platforms to put in place efficient methods to combat fakes, not just to avoid lawsuits from big groups, but also in terms of how they position themselves with regard to their customers, their credibility and the competition,” she said.
Kering, in turn, stands to benefit from reduced litigation expenses, lower monitoring costs and possibly data sharing that will allow it to see what is being made available via Alibaba and who are the listers, making it easier to bring to justice those responsible, Buccafusco said.
Yet it is unclear as yet where the balance of power will lie in the relationship, he added.
“One of the challenges here is figuring out the nature of the bargaining power between these two parties and the extent to which Alibaba will either, on the one hand, capitulate to all of Kering’s requests to basically take down anything it doesn’t like, or whether Alibaba will instead use some of its power to restrict what we might think of as Kering’s over-enforcement of its own trademarks and other design rights,” Buccafusco said.
Potential areas of disagreement include parodic goods — such as the spoof totes made by bag company My Other Bag — and items that have similar design styles to famous brands but don’t fall into the category of trademark infringing goods.
“Most of the marks are really aggressive, and it remains to be seen whether Alibaba will tolerate that sort of aggression,” Buccafusco said.
The pact also has consequences for those tracking intellectual property issues, such as academics and reporters. “When it happens in the courts, we see what’s going on, we see the rulings that get made and the petitions that come down. Now when it happens in the boardrooms of Kering and Alibaba, we don’t see what happens,” he remarked.