Alibaba Cooperates With Kering After Fakes Suit Withdrawn

Alibaba Group Holding Ltd. (BABA), China’s biggest e-commerce company, is cooperating with Kering SA (KER) to stem the sale of fake products after the maker of Gucci withdrew a lawsuit that alleged Alibaba participated in violating trademarks.

The claims were withdrawn after dialog between the two companies, Alibaba spokeswoman Florence Shih said yesterday. The suit, filed in New York on July 9, said China’s biggest e-commerce company and affiliates made it possible to sell fakes throughout the world, according to court documents.

Counterfeits of Kering brands such as Yves Saint Laurent, Bottega Veneta and Balenciaga proliferate on the Internet shopping platforms of Alibaba, the Paris-based company said in its lawsuit. Alibaba, whose initial public offering may be the biggest in U.S. history, has been cracking down on fakes by banning listings that may breach intellectual property rules, forcing vendors to make deposits and using a ratings system.

“Kering and Alibaba have agreed to work together in good faith through the normal business process on ways to enhance intellectual property protection,” the companies said in separate e-mailed statements.

The lawsuit had also named several merchants that Kering said sold counterfeits of the French company’s brands, shipping some products to New York. One of them “openly sells wholesale quantities of obviously fake Gucci products,” even after being granted Gold Supplier and Assessed Supplier status by Alibaba, the court document said.

Diaper Tote

While Kering withdrew the suit against Alibaba, it’s continuing legal action against merchants named in the filing. The French company declined to comment beyond its statement.

A merchant sold bags with the Gucci logo for $2 to $5 each, with a minimum order of 2,000 items, and a maximum of 50,000 units a month, according to the lawsuit. The Gucci canvas diaper-bag tote that the item was supposed to replicate normally retails for $795.

Another merchant confirmed in an e-mail that it was selling a Gucci replica watch, according to the court filing.

“It’s not an easy thing to do, but I’m sure they can sort out some kind of algorithm, they could certainly check prices charged for certain products,” Mark Tanner, founder of China Skinny, a Shanghai-based research and marketing agency, said by phone yesterday. “If you weren’t able to buy fakes, the way China works someone else will come and fill that gap.”

It usually takes Alibaba as long as 5 working days to remove a product, according to the company. The perception that fakes are commonplace on its sites could damage its reputation, Alibaba said in its IPO filing with the Securities and Exchange Commission.

Notorious Markets

China is host to a number of markets known for counterfeit merchandise, the Office of the U.S. Trade Representative said in a February report. Authorities arrested 59,000 people and seized more than 9,000 tons of fake and shoddy products last year in cases worth 172.9 billion yuan ($28 billion), a Ministry of Public Security official also said Jan. 21.

Alibaba may be worth $187 billion, according to a survey of 11 analysts by Bloomberg in July. The IPO is set to eclipse Facebook Inc.’s as the biggest in the technology sector.

It may also be the biggest in U.S. history when it lists on the New York Stock Exchange as the company attracts investors keen to tap into the surging Chinese economy and the world’s biggest pool of Internet users. The July valuation of the company is triple the $62.5 billion analysts projected a year earlier amid surging earnings.

Hangzhou, China-based Alibaba was removed from the American government’s Notorious Markets list in 2012. The U.S. Trade Representative started naming Notorious Markets in 2006, highlighting online and physical businesses that allow or encourage counterfeit products and piracy.

Counterfeiting is “perhaps the single greatest threat to brand owners,” Kering said, citing reports filed before Congress that said it “costs U.S. businesses between $200 and $250 billion every year and results in 750,000 lost jobs.”

To contact the reporter on this story: Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net

To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net Frank Longid, Robert Fenner

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