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China to Penalise Sellers of Fake Goods on Chinese E-Commerce Platforms

Chinese e-commerce companies will soon have another strong reason to remove counterfeit or fake goods on their websites quickly.

China's State Administration for Market Regulation building. Credit: N509FZ | Wikimedia Commons

China's State Administration for Market Regulation plans to penalise e-commerce companies that break intellectual property (IP) laws with the revision of the country's e-commerce law.

The draft for the law's revised version was opened for public review on 31 August 2021. Should it pass public scrutiny and be enacted, e-commerce companies that violate IP laws will be unable to continue their online operations until the violation is addressed. However, companies that fail to address severe violations will find their license revoked.

The revision is likely to have a significant impact on China's many e-commerce companies, especially those with a history of selling counterfeit goods like Alibaba Group Holding Ltd. and Pinduoduo Inc. The two aforementioned companies have been on the United States Trade Representative's (USTR) list of notorious markets for selling IP infringing products since 2018 with their respective e-commerce sites, Taobao and Pinduoduo.

Alibaba Group's headquarters in Hangzhou, China. Credit: Thomas Lombard | HASSELL

Alibaba Group's Taobao has been on the USTR's list since 2010, a time when it was among the five most visited sites in China. Pinduoduo, meanwhile, joined the list in 2018 due to the number of counterfeit goods or "parasite brands" being sold on its website. While both Alibaba and Pinduoduo were noted by the USTR to have taken measures against counterfeit goods on their respective websites, they were deemed insufficient to address the problem entirely.

The US is not the only one who has noticed Pinduoduo's IP violations. A Bloomberg report mentioned that the company is also the subject of hundreds of legal challenges in China due to copyright infringement or trademark registrations.

Alibaba Group founder Jack Ma previously commented in 2016 that the problem with counterfeit items is that they are becoming better than the original item. He also added that the reason that companies are suffering is not because of fake products, but because of factories becoming savvier over the years by selling their own products based on the items they manufacture.

"[It's] the exact factories, the exact raw materials, but they do not use [the genuine article's] names," Jack Ma said.

A set of underwear made to imitate Calvin Klein's. Credit: Fred Dufour/AFP/Getty Images

Vincent Wenxiong Yao of the University of Arkansas at Little Rock seems to agree with Jack Ma's statement. In his paper titled, "An Economic Analysis of Counterfeit Goods: the Case of China", Yao argued that advancements in technology have made it possible for counterfeiters to at least come close to the quality of the genuine article. This then created a demand for such items due to people's willingness to compromise to get an item of lesser value for a lesser cost as long as the item is a counterfeit of some brand.

Hema Vithlani of the International Chamber of Commerce Counterfeiting Intelligence Bureau wrote similar findings on her report for the Industry Division of the Organisation for Economic Co-operation and Development's Directorate for Science, Technology and Industry entitled, "The Economic Impact of Counterfeiting". Her findings also agree with Jack Ma's comment on counterfeits, citing increased international trade and share of products that are attractive to copy as one of the high-level factors that contribute to the counterfeiting industry, along with technological advancements.

To counteract the counterfeiters, Daniel C Fleming concluded that western companies must ensure that the technology involved in creating a product will not be handed to a manufacturing company. In his research paper entitled, "Introduction to the Problem: The City of Yiwu and Counterfeiting", Fleming suggests that western companies grant a license to a manufacturer to the required technology instead of outright transferring the technology to them, along with similar ideas.


Written by John Paul Joaquin

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