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Alibaba faces probe by SEC over counterfeits

February 16, 2015

The e-commerce site is being investigated by the US Securities and Exchange Commission (SEC) over counterfeit sales on its webshops.Alibaba

Securing Industry reported on the announcement of the probe by the SEC as part of an “ongoing controversy” concerning the site’s hosting of companies selling counterfeit products, sparked by a “war of words” between it and China’s State Administration for Industry and Commerce (SAIC).

The SAIC wants more information from Alibaba about “its dealings with the Chinese government” in terms of sales of counterfeits, though both “promised to collaborate on tackling the problem last month”. Alibaba is also facing “shareholder lawsuits in the USA”, with the SAIC dispute centring on one platform – Taobao – which the department published a white paper about last month, finding that “less than 40 percent” of the goods sold on the site were genuine.

The white paper contained a survey conducted last year between August and October, and the findings “prompted an angry response” from the company’s CEO Joe Tsai during a third quarter results meeting, questioning the findings and the “manner in which it was released”. Alibaba is also facing other questions from investors of “misleading them” after it didn’t reveal the SAIC had been questioning it before its initial public offering (IPO) on the New York Stock Exchange last September.

The company reported last year that it was working to remove counterfeit electronics from its sites, and that it had spent $160.7 million (€131.8 million) tackling the counterfeit issue, with a report earlier this year noting that it had joined the China Anti-Infringement and Anti-Counterfeiting Innovation Strategic Alliance.

Tsai stated to investors that “we believe this report was flawed and was based on arbitrary methodology, and we gave our views to the SAIC”, adding that Alibaba felt that “being singled out […] was so unfair that it had felt compelled to make a formal complaint […] the issues of counterfeiting and IT protection are a part of the problems in a growing economy today, whether it is online or offline”.

Moreover, Alibaba notes that the use of technology “to analyse and track infringing products”, alongside identifying “hotspots for counterfeit distribution and sales” have formed part of its work against counterfeits, as well as “periodic checks on goods sold” by third parties. It has also claimed to have cooperated with law enforcement on over 1,000 cases, which have resulted in 400 arrests and closures of 200 retail stores, factories or warehouses involved in counterfeiting.

The company also concluded that the SEC letter announcing the probe “states it should in no way be construed as Alibaba […] having done anything wrong or there having been any violation of securities law”. The Chinese government announced at the same time that it would “increase monitoring of online retailers” to help stop counterfeiting, with the General Administration of Quality Supervision, Inspection and Quarantine (GAQSIQ) to provide training and assistance.

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