Caixin
May 03, 2019 11:00 AM
TECH TALK

Alibaba Destined for Eternal Inclusion on Anti-Piracy List?

Once a pirate, always a pirate?

That’s the question that seems to be dogging e-commerce giant Alibaba these days. Last week the U.S. published its latest annual list of “Notorious Markets” for trafficking in pirated goods, and Alibaba was named and shamed for a third consecutive year. Alibaba smartly issued a muted response, which I’ll detail shortly, in contrast to more vocal opposition in past years that only seemed to draw more attention to the issue.

There’s no question that this particular list has become highly politicized these last few years. It once lived in relative obscurity, attempting to shame a wide range of locally popular but otherwise obscure Napster-esque marketplaces that facilitated trade in knockoffs. But as China’s economy has become a major global force and Alibaba one of the world’s biggest internet companies, many have started asking if China shouldn’t do more to stamp out this kind of problem.

As a result, the list now gets much more scrutiny, or at least the Chinese companies that land on it do. In addition to Alibaba, this year’s list also included a first-time appearance for Pinduoduo, a company that has risen from relative obscurity to become China’s third-largest e-commerce firm by peddling hugely discounted products to shoppers from China’s smaller cities and countryside. Pinduoduo made more positive headlines last July when it raised a tidy $1.6 billion in one of New York’s biggest initial public offerings of the year.

It’s clear from all the noise that some intense lobbying goes on behind the scenes with this list, both by Alibaba and the companies that suffer reputational and monetary damage each year when their pirated goods are traded as the real thing. It’s also clear that Alibaba and Pinduoduo are taking their responsibilities in this area quite seriously, and have taken extensive measures to try and eradicate piracy from their sites.

So the bigger question becomes: Will Alibaba ever be able to satisfy the U.S. that it has taken sufficient steps to tackle the problem to get its name removed from the list? I’ll leave everyone in suspense on that matter for the moment and give my view at the bottom of this column. But first let’s zoom out and take a bigger look at the piracy issue in China, and what role the country’s internet giants play.

Anyone who visited China in the 1990s and onward knows the country was famous for its pirated goods, including everything from knockoff luxury bags to pirated VCDs in the earlier days and later DVDs. Western industry associations, mostly representing apparel-makers and Hollywood, regularly complained about the problem, and Beijing occasionally gave lip service to cracking down.

Beijing became more active in trying to crack down after the turn of the millennium, especially in big cities. During my tenure in Shanghai from 2005 to 2006, I remember the steady closure of shops peddling pirated DVDs. Today it’s actually far more difficult to find such wares in major cities like Beijing and Shanghai, though they still do exist.

Enter ‘Notorious Markets’

Against that backdrop, the “Notorious Markets” list became a sort of reminder of China’s relative disregard for intellectual property protection. Alibaba certainly wasn’t the only company to appear on the list. Others that have appeared and later got removed included search giant Baidu, as well as smaller rival Sohu, owner of the lesser-known Sogou search engine. Baidu’s inclusion was linked to a music-swapping service it offered that looked very similar to Napster.

Alibaba, or more specifically the company’s flea market-like Taobao online marketplace, was actually included on the “Notorious Markets” list in that earlier wave of listings. It appeared on the list in 2011, but was removed the next year after the list’s compiler, the U.S. Trade Representative’s office, lauded the company for its efforts to tackle the problem.

That seemed to be the end of the story until 2015, when suddenly the issue splashed back into the public domain after Alibaba’s record-breaking New York IPO a year earlier. Not long after that IPO, Alibaba came under fire not from Washington but Beijing, which chastised the company after conducting a field test that showed a big volume of goods traded on Taobao were fakes.

Whereas China can conduct such field tests with relative ease, the U.S. appears to rely more heavily on input from industry participants in compiling its lists. That’s not difficult to understand due to the USTR’s own lack of resources. Such practice also gives both sides of the argument a reasonable chance to make their cases.

In that regards, it’s noteworthy that Alibaba pointed out in its statement this year that “zero industry associations called for our inclusion in the report this year.” Instead, it’s the smaller brands that lack such representation that appear to have lingering complaints. In a nod to that fact, the USTR actually commended both Alibaba and Pinduoduo for their efforts to date, but pointed out that many small- and medium-sized enterprises were still complaining in Alibaba’s case.

All that brings us back to the original question that I raised earlier, namely whether Alibaba will ever be removed from this list or if it’s destined to stay “notorious” forever. Of course I’m being slightly facetious, since forever is a long time and Alibaba certainly seems to be closing in on its desired goal by quelling opposition from major trade groups.

Cracking down on the pirates that prey on smaller brands could be slightly more problematic, since the number is much larger and many such brands may not be well known to Alibaba. But this is a company that’s clearly becoming quite skilled at using technology and experience to tackle this kind of problem when it sets its mind to it. Accordingly, I would expect Alibaba will finally get its name removed from the list within two years at most, and wouldn’t at all be surprised to see its name removed from the next edition of “Notorious Markets.”

Doug Young has lived in Greater China for two decades, including a 10-year stint at Reuters, where he led China corporate news coverage. Send your questions or comments to DougYoung@caixin.com

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