INTERNET: US Trade Group Steps Up Alibaba Piracy Attack

Bottom line: A major US trade group’s new call for censure of Alibaba over piracy will bring more negative publicity, though the company’s name is unlikely to reappear on the next edition of Washington’s “notorious markets” list for trade in counterfeit goods.

Group says Taobao still plagued by fakes

A major US trade group that launched an assault on Alibaba (NYSE: BABA) earlier this year is ratcheting up the volume of its attack, calling for direct censure of the Chinese e-commerce giant for not doing enough to fight piracy. The American Apparel & Footwear Association (AAFA) was quite scathing in its earlier criticism of Alibaba back in July, blasting the company for its flawed approach and lack of transparency in tackling piracy on its Taobao C2C marketplace.

At the time of that critique the AAFA said it was sending a letter detailing its concerns to the US Trade Representative’s office, which compiles an annual list of “notorious markets” where piracy is rampant. Now the AAFA, which represents more than 1,000 American clothing and shoe makers, is being even more direct by specifically calling for Alibaba to be included on the next edition of the “notorious” list that is likely to be published in the next 2-3 months. (AAFA announcement; English article)

The AAFA’s latest attack comes as shares of the embattled Alibaba stage a modest rally, reversing a sell-off that saw them tumble to an all-time low late last month that was 15 percent below the company’s IPO price. Since hitting that low, the shares have actually rallied 15 percent and are now fast re-approaching the $68 price that shares sold for during the company’s record-breaking $25 billion IPO just over a year ago.

The AAFA’s latest announcement isn’t a huge surprise, since it comes less than 3 months after the group first expressed dissatisfaction in an unusually blunt attack. But this equally blunt follow-up does show the 2 sides were unable to resolve their differences, and that the AAFA now intends to lobby strongly for Alibaba’s inclusion on the new “notorious” list.

Alibaba and other Chinese Internet giants like Baidu (Nasdaq: BIDU) and Sohu (Nasdaq: SOHU) had been included on earlier versions of the list, but most managed to have their names removed over the last 3-4 years. Their success was partly the result of taking real steps to address the piracy issue. But equally important was the realization by all of these companies that they needed to hire strong lobbying teams to convince Washington and other major US industry groups that they were taking the issue seriously.

Synonymous with Counterfeits

The AAFA’s newest announcement calls the Taobao marketplace “synonymous with counterfeits” and notes that the site was only previously removed from the “notorious” list in 2012 on the condition that it improve its practices. The group notes that it has made efforts to work with Alibaba to address the issue but has been left dissatisfied with the results, prompting its call for the company’s re-inclusion on the next “notorious” list.

Alibaba countered the AAFA’s latest call by saying it remains ready to engage, but that the AAFA has refused to meet with it for months. Not surprisingly, Alibaba also reiterated its commitment to the fight against piracy.

The piracy flare-up around Taobao dates back to January, when one of China’s commerce regulators issued a report saying its own survey found that nearly two-thirds of the goods traded in the marketplace were fakes. The US issued its own latest edition of the “notorious” list a short time after that and Taobao’s name was absent. But it was also clear that the US list was largely finalized before the high-profile January spat between Alibaba and China’s State Administration for Industry and Commerce.

Alibaba is also being investigated by the US Securities and Exchange Commission (SEC) for failing to disclose the piracy issue at the time of its IPO, and the AAFA has also sent a letter to the SEC detailing its concerns on the issue. Alibaba is fighting a no-holds-barred battle behind the scenes to make sure its name doesn’t appear on the next “notorious” list, and also to get exonerated in the SEC probe. This latest assault by the AAFA shows the battle could be a tough one, though I expect that Alibaba’s team of heavy-hitting lobbyists probably stands a better than 50-50 chance of winning in both cases.

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