In House - The FindLaw Corporate Counsel Blog

Online Counterfeits Put E-Commerce Companies at Risk

When you buy a "designer" bag out of the back of a van, you probably realize it's a knockoff. That might not be the case when you purchase a similar bag online, where counterfeit goods can proliferate without the buyer being able to check every monogram, button and zipper to see if the item is the real deal, or just a rip-off.

For companies involved in online markets and e-commerce, and their legal departments, counterfeit goods can cause major headaches. Take Alibaba for example. The enormous Chinese e-commerce company is currently being sued by Kering SA, the enormous French luxury brand company behind Gucci, Yves Saint Laurent and Balenciaga, which alleges Alibaba knowingly traffics in counterfeit goods.

Fake Products, Real Lawsuit

Kering claims that Alibaba knowingly encourages, assists and profits from the sale of counterfeits on its e-commerce platforms. According to the complaint, bags claiming to be Gucci can be purchased on Alibaba's site for as low as two bucks, while the real deal sells for around $800 and up. Alibaba's search algorithms send consumers directly to illegal products, according to the suit, meaning that it's not just a passive online platform. For its part, Alibaba has stated that all the accusations are meritless.

This is the second time Kering has sued Alibaba for trafficking in bootlegged goods. The luxury goods company sued Alibaba nine months ago, but stopped the litigation after the two agreed to work together to eliminate counterfeits. Those efforts might not have been enough for Kering, but the company is working with a 40 other brands, including Nike and Adidas, to counter fake products. According to a statement, they've penalized over 40,000 sellers.

Regulators, and Investors, Are Taking Note

Regulators are also putting increased pressure on online marketplaces like Alibaba, according to Bloomberg. Like Kering, regulators are focusing in on the same of counterfeit goods, as well as other violations. Chinese authorities arrested almost 60,000 people and seized over 9,000 tons of counterfeit goods in 2013 and are increasingly concerned about online fakes as well.

Fake goods might not just get online marketplaces in trouble with brands and regulators, however. Alibaba is currently facing a class action suit for securities violations related to counterfeit goods. That suit alleges that the company failed to disclose meetings with regulators over counterfeit goods, thereby giving a false impression of the financial risks facing the retailer.

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