Some of China’s top platforms are fueling a torrent of fake goods.
The Office of the U.S. Trade Representative (USTR) on Thursday released the findings of its 2021 Review of Notorious Markets for Counterfeiting and Piracy that includes identifying for the first time AliExpress and the WeChat e-commerce ecosystem, two significant China-based online markets that reportedly facilitate substantial trademark counterfeiting.
The Notorious Markets List, which highlights online and physical markets that reportedly engage in or facilitate substantial trademark counterfeiting or copyright piracy, identifies 42 online markets and 35 physical markets that are said to engage in or facilitate substantial trademark counterfeiting or copyright piracy. China-based online markets Baidu Wangpan, DHGate, Pinduoduo and Taobao continue to be listed, as well as nine physical markets located within China that are known for the manufacture, distribution and sale of counterfeit goods.
AliExpress is a business-to-consumer e-commerce platform that connects China-based sellers with buyers around the world. USTR said that sellers on AliExpress provide wholesale offerings and order fulfillment services for dropshipping retailers that do not maintain their own inventory.
AliExpress is owned by Alibaba and shares certain anti-counterfeiting tools and systems with other Alibaba platforms. As a whole, Alibaba is known for having “some of the best anti-counterfeiting processes and systems in the e-commerce industry,” USTR said, having much-improved communication with right holders, including micro-, small- and medium-sized enterprises on their IP protection and enforcement issues, and for providing significant support for offline investigations and enforcement actions against the companies that manufacture and distribute counterfeit goods.
Although these efforts are laudable, this year, right holders have noted a significant increase in counterfeit goods being offered for sale on AliExpress, including goods that are blatantly advertised as counterfeit and goods that are falsely advertised as genuine,” the report said. “Right holders also report a vast increase in the number of sellers offering counterfeit goods. Alibaba notes that AliExpress sellers must provide a business license in order to sell on the platform, but these sellers apparently are not sufficiently vetted to ensure that they will not be selling counterfeit goods.”
Another key concern of right holders, USTR noted, is that known sellers of counterfeit goods on AliExpress remain prevalent, purportedly due in part to the lenient seller penalty system and a removal process that does not deter sellers from continuing to offer counterfeit goods.
WeChat, along with Weixin, the China-facing version of WeChat, are reportedly viewed as one of the largest platforms for counterfeit goods in China, USTR said. WeChat reported over 1.2 billion active users around the world in 2021 and describes itself as a “social communication tool and information publishing platform,” the report noted.
“Of particular concern, however, is the e-commerce ecosystem that seamlessly functions within the overall WeChat platform and facilitates the distribution and sale of counterfeit products,” USTR said. “For example, sellers of counterfeit goods are allegedly directing potential buyers to their counterfeit product offerings by advertising on WeChat through livestreams, the Moments feature, the Channels feature and other communication portals that are available to all users such as scanning of QR codes at physical stores. The counterfeit goods can then be seamlessly purchased on the profile page of an Official Account46 or through a Mini Program.47 Official Account pages and Mini Programs can provide the integrated product catalog, shopping cart, and payment processing features of traditional ecommerce platforms.”
Right holders identify weaknesses in WeChat’s seller vetting as a significant reason for the high volume of counterfeit goods on the platform, according to the report. WeChat noted that applicants for an Official Account should submit their trademark registration and business certificate information, and Mini Program applicants must submit similar authentication documentation.
“Right holders, however, assert that the required information and WeChat’s verification of this information is lacking such that counterfeiters are able to easily set up their own Official Accounts and Mini Programs,” said the report. “Right holders also identify instances where WeChat reinstated sellers who provided clearly fraudulent documentation to demonstrate the authenticity of the goods offered for sale. Once sellers of counterfeit goods are allowed onto the WeChat platform, the ability for brands to find and take down listings of counterfeit goods has been described as ineffective.”
USTR said China continues to be the No. 1 source of counterfeit products in the world. Counterfeit and pirated goods from China, together with transshipped goods from China to Hong Kong, accounted for 83 percent of the value and 79 percent of the volume of counterfeit and pirated goods seized by U.S. Customs and Border Protection (CBP) in 2020.
“Although foot traffic has declined at some Chinese physical markets as a result of the growth in counterfeit sales online, sellers of counterfeit merchandise now often use their brick-and-mortar storefronts as points of contact for customers and for fulfillment of online sales,” the report said. “Consequently, major notorious markets remain key centers for counterfeit sales in China’s biggest cities. Although raids and seizures have occurred at some of these markets, sellers have shifted tactics such as maintaining less inventory on site and offering a larger range of counterfeit products online.”
USTR note that many of the markets included on this year’s list were repeat offenders, underscoring the ineffectiveness of enforcement efforts to date. USTR said it encourages China to adopt and expand the scope of robust enforcement actions to more effectively combat the widespread sale of counterfeit products within its borders, with a special focus on the following key markets.
“The global trade in counterfeit and pirated goods undermines critical U.S. innovation and creativity and harms American workers,” Tai said. “This illicit trade also increases the vulnerability of workers involved in the manufacturing of counterfeit goods to exploitative labor practices, and the counterfeit goods can pose significant risks to the health and safety of consumers and workers around the world.”
USTR said since the release of the 2020 Notorious Markets List, there have been notable efforts to address the widespread availability of counterfeit and pirated goods in some online and physical markets.
“This past year, the world continued to adjust to the COVID-19 pandemic,” USTR said. “Government restrictions on tourism and movement resulted in some markets known for openly selling counterfeit goods, such as MBK Shopping Mall, Patpong Street Market and Soi Nana in Thailand, reportedly having no, or very few, of the problematic stores open. Some shops have adapted, however, with sellers of counterfeit goods transitioning from physical stores to e-commerce platforms and using the physical storefronts to facilitate the fulfillment of online sales. Online sellers of counterfeit goods have also increased efforts to evade the anti-counterfeiting processes and systems established by governments and e-commerce platforms by, for example, using social media advertisements and influencers, hidden links, and drop shipping schemes.”
The report noted that governments have also resumed enforcement efforts to combat sources of the global trade in counterfeit goods, citing examples such as the United Arab Emirates’ Ajman Department of Economic Development performing multiple inspections and seizures of counterfeit goods at the Ajman China Mall, which was listed as a notorious market for several years and is now essentially free of counterfeit goods, and in Brazil, São Paulo authorities re-arrested the operators of a factory where manufacturing, packaging and distribution of counterfeit perfumes took place, and seized over 2.5 million counterfeit units.
“Unsafe counterfeits lurk everywhere we turn, including a number of trusted, and emerging, e-commerce platforms,” Steve Lamar, president of the American Apparel & Footwear Association (AAFA), said. “Year over year, we are pleased that USTR and other U.S. government agencies involved in the preparation of this report raise red flags about the venues where counterfeits are flourishing internationally and online.”
Lamar said while USTR listed many key notorious markets recommended by AAFA in its submission made in October, “the report missed the opportunity to hold certain major platforms accountable where the sale, and promotion, of counterfeits continues to proliferate and target unknowing American consumers.”
In the submission, AAFA highlighted industry concerns with Facebook’s platforms, including not only Facebook but also Instagram, which it said “are being used by counterfeiters to advertise and sell fake goods.”
Lamar noted that over the past two years, Americans have poured extra confidence into e-commerce by ordering online from home to conserve time and protect themselves from possible Covid-19 exposures. Online shopping is up 42 percent since 2020, he said, and while AAFA members “go to great lengths to ensure the safety and quality of products wherever they are sold, counterfeiters do just the opposite–they make the most goods at the cheapest price, to return the highest profit possible without regard to consumer safety or consequence.”
“AAFA is dedicated to defending American intellectual property, American jobs, consumers and workers around the globe,” Lamar added. “The annual review of Notorious Markets by the Office of the United States Trade Representative is a critical and effective tool in the U.S. government’s toolkit to address the sale of counterfeits. This is why AAFA is also calling on Congress to pass both the bicameral, bipartisan SHOP SAFE Act and INFORM Consumers Act, both of which are part of the House America COMPETES Act.”
USTR first identified notorious markets in the Special 301 Report in 2006. Since February 2011, USTR has published annually the Notorious Markets List separately from the Special 301 Report, to increase public awareness and help market operators and governments prioritize intellectual property enforcement efforts that protect American businesses and their workers.