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China’s New IP E-Commerce Law Could Change a lot for Amazon

For quite some time now, Amazon has been on the receiving end of a relentless drubbing, deserved or not, over how it handles the counterfeit products that pollute its enormously popular e-commerce platform. That just might change, thanks to new e-commerce regulations in China that penalize digital platforms for lackluster enforcement regarding knockoff goods.

Starting Jan. 1, 2019, e-commerce platform providers operating in China will be equally accountable along with the actual intellectual property (IP) infringer when inauthentic goods are discovered mingled with verifiable product on their marketplaces.

The new law has consumer rights and protection at its core: commonly faked products like infant formula, diapers, milk powder pose health and safety risks to unsuspecting buyers, and the Chinese government has decided that it’s time for the platforms that enable these knockoffs—unwittingly or otherwise—to feel the hit on their pocketbooks, too.

Alibaba operates China’s largest online marketplaces in Taobao and Tmall, and last year took a significant proactive step toward addressing frauds and fakes by upgrading its Intellectual Property Protection (IPP) Platform. Those changes in August 2017 saw 96 percent of new claims cases by brand and IP owners resolved with 24 hours, Alibaba said. It also led the company to shut down 83 percent of the implicated listings.

The Hangzhou-headquartered company credits sophisticated algorithms and data modeling for automating much of the complaint processing, analysis and product verification, thus enabling swift action on the majority of questionable product pages. Alibaba added new technology that lets the IPP platform recognize trademark awards in multiple languages.

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“Our enhanced platform, along with significant progress in other important initiatives all showcase the industry best practices Alibaba is creating for the benefit of all our stakeholders,” Jessie Zheng, Alibaba’s chief platform governance officer, said when announcing the platform enhancements to 180 brand representatives gathered for its Brand Rights Holders Day in Beijing.

Alibaba’s leadership in the anti-counterfeiting fight has led high-profile executives like Nick Hayek, CEO of Swiss watchmaker Swatch, to tell CNBC in April that Amazon’s efforts to fight fakes are a far cry from where the Chinese are—and where the Seattle-based e-tailer should be, given its rarefied status among American tech and retail companies.

Amazon, for its part, opened the Brand Registry in May 2017 that lets brand IP owners list their trademarks with the e-commerce platform and ferret out potential infringers. Countering the Swatch CEO’s remarks, an Amazon spokesperson told CNBC, “Brands in Brand Registry, on average, report 99 percent fewer suspected infringements compared with before the launch of Brand Registry, and Amazon took action on 93 percent of all notices of potential infringement received from Brand Registry within four hours.”

Brands like women’s wear retailer Chico’s openly admit that partnering directly with Amazon affords greater brand protection than not having that one-on-one relationship, according to senior vice president of business development George Z. Nahra.

“Amazon will help you reactively, not proactively, manage counterfeiters,” Nahra said in July. “They will give you tools. They can be good partners. You still have to monitor the site—they’re not going to do that for you.”

These efforts by Amazon, however commendable, still fall far short of the requirements under the new Chinese law. Financial repercussions could effectively light a fire under the company’s tail and be the wake-up called for it to step up efforts to rid its platform of inauthentic product.

On the other hand, Amazon’s business in China is dwarfed by Alibaba and JD.com, which together control roughly two-thirds of the online shopping market. The Wall Street Journal reported that Amazon held just 1.3 percent Chinese market share in 2016, which marked a decline from 2 percent in 2011. Given its struggles in that highly competitive market, will it be moved to take action on counterfeits or accept fines as a cost of doing business? If so, will it apply any newfound tactics for the Chinese market to its much bigger stateside operation where a rampant counterfeiting problem could be holding back its efforts to court luxury brands?

The American e-commerce market leader might be more concerned about other provisions in the new law that forbid e-commerce players from deleting negative reviews, doling out penalties of up to 500,000 renminbi ($73,000).

Amazon came under fire when the Wall Street Journal reported in September that poorly compensated employees took bribes in exchange for squelching reviews that damaged a brand’s reputation. Review tampering is big business as online marketplaces like Amazon wield outsize influence over consumer sentiment and opinion. Nearly half of all product searches in the U.S. start on Amazon, exposing millions of impressionable prospects to reviews, fake and legitimate, that are significant in driving conversions.