Counterfeiting

Alibaba and the Copyright Pirates


Jack Ma, chairman of Alibaba Group, is reaching out to companies that feel his sites tolerate piracy. Several U.S. trade groups have praised his recent efforts

Photograph by David Paul Morris/Bloomberg

Jack Ma, chairman of Alibaba Group, is reaching out to companies that feel his sites tolerate piracy. Several U.S. trade groups have praised his recent efforts

As one of the most successful entrepreneurs in China, Alibaba Group Chief Executive Officer Jack Ma has grown accustomed to hobnobbing with A-listers. Alibaba’s billionaire founder is friends with movie star Jet Li. Former President Bill Clinton, ex-California Governor Arnold Schwarzenegger, Starbucks (SBUX) CEO Howard Schultz, and New York Times columnist Thomas Friedman are among the big names he’s attracted to Alifest, the annual September celebration of all things Alibaba at the company’s headquarters in the eastern Chinese city of Hangzhou.

Unfortunately for Ma, the Obama administration isn’t as star-struck, lumping his company with an unsavory crowd of alleged copyright pirates in an annual list of “notorious markets” that the administration says enable theft of American intellectual property. Last year, the Office of the U.S. Trade Representative took Ma’s business-to-business marketplace, Alibaba.com, off the name-and-shame list but kept Taobao Marketplace, Ma’s online mall, on. It’s not hard to find knock-off products on the site. Even before the iPhone 5 has gone on sale in China, would-be shoppers on Taobao can find inexpensive dummy versions of Apple’s (AAPL) new phone, complete with the company logo on the back.

For Ma, Taobao’s notoriety is more than just an embarrassment. Chinese violation of foreign-owned trademarks and copyrights is one of the most persistent problems in the country’s business relationship with the U.S. and other countries, and Ma often gets an earful from Chinese government officials. Getting Taobao, China’s biggest e-commerce site, off the shame list is a major priority. Fighting piracy is “not only for the country, it’s for our company,” Ma said in an interview in June. “If we do not take down these false products, it’s going to destroy Taobao.”

To help solve the problem, Ma and his deputies are turning to James Mendenhall, an attorney in Washington who was the general counsel for the USTR during the George W. Bush administration and is now counsel at Sidley Austin, the Chicago law firm where Barack and Michelle Obama worked as young associates. Alibaba retained Mendenhall’s firm early this year to work with U.S. trade associations and companies worried about piracy on Taobao. While pledging to address their concerns, Mendenhall also stresses the need for patience. Ma and his team “have an enormous amount of commerce on their platform,” he says. “They are trying to come to grips with it.” Last year, Alibaba also hired the Duberstein Group, a lobbying firm founded by a chief of staff to President Ronald Reagan, Kenneth Duberstein.

Since retaining Sidley, the company has had several dozen meetings with U.S. government officials, trade organizations, and companies. “It became clear to us we needed to do quite a bit of listening,” says Alibaba spokesman John Spelich, who says the conversation focused on improving cooperation between security officials at Taobao and the marketers of U.S. brands. Mendenhall “was able to say to us, look, these are the kinds of things you need to think about starting to do,” says Spelich.

On Sept. 6, Taobao signed a tentative agreement with the trade organization representing the Hollywood studios. According to the deal, Alibaba will require all merchants who sell videos on Taobao’s online mall to have government-issued licenses; the two sides also agreed on steps to make it easier and faster to take violators offline. On Sept. 14, the Motion Picture Association of America sent a report to the USTR (which is due to come out with this year’s Notorious Markets list in December) praising Alibaba’s “significant progress” and adding, “we are optimistic that Taobao will continue to take the steps necessary” to address piracy.

The company got another boost on Sept. 20 when the International AntiCounterfeiting Coalition, a Washington-based trade group with members in the apparel, automotive, consumer goods, entertainment, and pharmaceuticals industries, among others, announced it had also reached a deal with Taobao and another Chinese online platform, DHgate. The companies agreed to cooperate on take-down procedures for pirated products.

While Mendenhall is hopeful Taobao won’t be on the USTR list in December, he says Alibaba knows there are more problems to address. One priority now is to reduce the amount of time it takes for Alibaba to investigate alleged violators once it receives a complaint. “It’s still a work in progress,” he says.

The bottom line: The Washington lawyer for Alibaba Group’s Jack Ma is listening to complaints but says change will take time.

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Einhorn is Asia regional editor in Bloomberg Businessweek’s Hong Kong bureau. Follow him on Twitter @BruceEinhorn.

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