Alibaba stumps up $250m to settle counterfeit listing claims

A long-running legal action against Alibaba alleging that it failed to disclose meetings with the Chinese government about counterfeits on its platforms before going public in 2014 has been resolved.

The Chinese online retailer said in an SEC filing that the settlement of the lawsuit “does not constitute an admission or finding that the claims asserted had any merit” and will “bring to an end all pending securities litigation against the company.”

The case revolved around Alibaba’s $25bn initial public offering (IPO). Two months prior to the IPO, the company had a meeting with China’s State Administration for Industry and Commerce (SAIC), which threatened it with big fines if it didn’t crack down on the counterfeits on its sites.

Claiming that Alibaba should have made that public ahead of its IPO, several class action lawsuits were launched that were consolidated into a single Federal Action suit in 2015. In June 2016, the US District Court in Manhattan dismissed the claims with the conclusion that Alibaba had been transparent in its IPO material regarding regulatory risks, but that verdict was appealed by the plaintiffs.

The move followed the publication of an SAIC report that claimed less than 40 per cent of the goods sold on Alibaba’s Taobao platform were genuine, that sparked a fall in the Chinese company’s Nasdaq-listed shares below its $68 opening price. At the time of writing shares in the company were trading at around $189.

Alibaba has consistently claimed that the SAIC document had no legal basis and was removed from its website within a day of being published. In the interim it has implemented a number of measures to try to reduce the presence of fake listings, including working much more closely with brand owners via its Alibaba Anti-Counterfeiting Alliance (AACA) on takedowns and enforcement operations.

That hasn’t stopped Taobao being listed in the US Trade Representatives (USTR) latest Notorious Markets list of online markets which it says are routinely violating intellectual property (IP) rights.

In the latest version of the document published on April 25, the USTR says: “Although Alibaba has taken some steps to curb the offer and sale of infringing products, right holders, particularly SMEs [small and medium-sized enterprises], continue to report high volumes of infringing products and problems with using takedown procedures.”

Among the problems cited are burdensome enrolment processes for Alibaba’s Good Faith programme “that reduces the evidentiary burden for takedown requests.”