Chinese e-commerce giant Alibaba has claimed its intellectual property rights reporting system is being abused and inundated with false complaints of IP infringements.
According to the online marketplace, IP-protection agencies hired by global brands are filing false complaints about the presence of counterfeit goods on the platform, with the intention to "badger and blackmail merchants".
"The purpose of the IPR system is to protect innovation," said Chen Wenxuan, an Alibaba Group lawyer. "Yet deliberately abusing the system for malicious or false complaints is unlawful behaviour infringing the principles of integrity and justice and will cripple innovation, acting like sand in the gears."
Alibaba says it noted an excessive number of "spurious reports" being lodged in its IPR reporting system by "reputation protection" agencies in 2016. These agencies have become more common in China as brands look to protect their IP from the growth of counterfeiters in the country. While the vast majority operate legally, there are some that appear to abuse the system for gain.
According to Alibaba, spurious complaints last year affected more than a million legitimate Taobao merchants and more than six million products. The complaints accounted for 24 per cent of total complaints processed by Alibaba and included false allegations, forged documents and "trademark squatting" (where the trademark of an established brand has been registered by someone else in another region), and resulted in products being removed from the site and, in some cases, merchants being closed down.
Brands caught up on the con include Nike, social networking brand Weixin and internet services provider Tencent. The latter two were said to be subjected to harassment and blackmail from trademark squatting registration.
Alibaba says the victims of the scam complaints lost a total of 107 million yuan ($15.5m).
Alibaba has named one firm allegedly involved in the illicit activity as Hangzhou Wangwei Technology Ltd, claiming it is abusing the online store's intellectual property rights reporting system, and adding that it will no longer process claims lodged by the agency. Alibaba has also urged other vendors that use the agency to terminate their contracts with the firm.
An investigation by Alibaba's Platform Governance team alleges that Hangzhou Wangwei had filed complaints against thousands of merchants across its platforms, and covering products from women's apparel and sporting goods to cosmetics and household appliances. The team discovered that more than 60 per cent of the complaints had been withdrawn since 2015 following counter-appeals from merchants – a figure "well above the norm for platform complaints", the e-commerce company said.
Alibaba claims its evidence suggests the agency may have been working with clients to target competitors in a bid to shut down their channels and drive customers to other listings and to products with higher prices.
Alibaba, which said it will not tolerate price fixing, is continuing to identify other offenders and said it will consider legal action against culprits and repeat offenders if necessary.
In response to Alibaba's actions, Hangzhou Wangwei released a statement on its website, the Wall Street Journal reported. It denied the online store's accusations and said it only worked with global brands in the "strictest enforcement of legal and compliant intellectual property protection work".
The news of false IP infringement complaints provides something of a double whammy for genuine brands, who are being forced to fight counterfeiters on one side and now false allegations of IP infringement on the other, both from conmen who are looking to benefit from the brand's reputation.
The news also comes at a troubling time for Alibaba, which has faced very public criticism over the persistence of fakes on its platforms. Recently, the e-commerce giant has clamped down on counterfeits with a number of measures to alleviate concerns of brand holders and to highlight its commitment to protecting IP. But to reveal that one system used to protect IP is being abused with false IP complaints will be a concern for the online marketplace and undermines the firm's anti-counterfeiting efforts.