E-COMMERCE: Alibaba Stays Off US Piracy List, Warned to Improve

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Bottom line: Alibaba is the biggest winner by keeping its name off an annual US piracy list, but the victory is only partial due to a strong warning in the report to improve its anti-piracy efforts.

US warns Alibaba to step up anti-piracy actions

After months of behind-the-scenes lobbying in Washington, e-commerce giant Alibaba (NYSE: BABA) has managed to keep its name from reappearing on an annual US list of “notorious” global markets for piracy  that has just been published. But the victory is really only partial, since the US Trade Representative’s (USTR) office has devoted quite a lot of space to Alibaba in the latest edition of its Notorious Markets report, expressing its concerns about the rate of trafficking in pirated goods on some of Alibaba’s sites.

This long-awaited decision appears to be a compromise, aimed at appeasing some groups that wanted to see Alibaba’s name reappear on the list, including the American Apparel & Footwear Association, which issued several strongly-worded statements on the matter. The matter put the USTR in an awkward position, because it had previously removed Alibaba’s name from the list in 2012, only to see Alibaba strongly criticized for continued rampant piracy by Beijing early this year.

The USTR appears to be doing a few favors for Alibaba in its decision, which is probably the work of a team of powerful lobbyists the company assembled to make its case in Washington. The announcement came out after markets closed, and also just a week before the Christmas holiday when many people leave on vacation and trading is often quite thin and the mood upbeat.

Many traders are also fixated on the Fed’s decision a day earlier to raise interest rates, meaning fewer will pay attention to this news. We’ll have to wait until Friday in New York to see how Alibaba’s stock finally reacts to this decision, which looks like a partial victory that also includes a major warning. The company’s stock was down marginally in after-hours trade after the decision came out, providing an initial indication that investors may not be so concerned.

The latest edition of the Notorious Markets list didn’t include any Chinese websites, which is a victory for Beijing’s bigger efforts to tackle piracy. But it did include a couple of famous offline physical markets, one in Beijing and the other in Shanghai. (USTR announcement; English article) While Alibaba stayed off the list, it got a much lengthier discussion in the introduction than any other online or offline market named in the report.

Failure to Follow Up

The report says that Alibaba was noted for piracy as early as 2008, and was removed from the Notorious list in 2012 in recognition of its efforts to stamp out the problem. The report also notes that in 2013 Alibaba assured companies whose trademarks were being infringed that it would continue to tackle the problem. The implication, of course, is that the USTR accepted Alibaba’s promise without really following up to see if it was keeping its pledge.

The report then goes on to cite the Chinese government report that was critical of Alibaba earlier this year, and adds that the USTR is “increasingly concerned by rights holders’ reports that Alibaba Group’s enforcement program is too slow, difficult to use, and lacks transparency.” It closes that section of the report by saying Alibaba’s name hasn’t been returned to this year’s Notorious list, but that it encourages the company to keep working to improve its performance.

The American Apparel & Footwear Association, which was one of Alibaba’s most vocal critics, hailed the report as a loud warning to Alibaba, and indicated it intends to keep up pressure on the company to clean up its sites. (AAFA statement) On the whole it does appear like Alibaba is the biggest victor in this battle by keeping its name off the list, though it’s win was hardly decisive. But at the very least, it now has at least another year to become more aggressive in its anti-piracy battle before the next showdown with Washington.

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