The Office of the United States Trade Representative (USTR) publishes a notorious market report every year. The report will identify markets around the world that sell counterfeit goods that harm U.S. intellectual property owners. Over the years, the report has focused on well-known physical markets, such as the silk market in Beijing, various electronic markets in Shenzhen, and China’s Yiwu International Commodity City. There are also notorious markets in other parts of the world, from Greenhills in Manila to Petaling in Kuala Lumpur to Dubrovka in Moscow.
In recent years, the analysis has increased its focus on the online marketplace. The USTR report features a number of major pirated content sites, such as movie streaming site Fmovies, digital pirated book site Libgen, music ripping site MP3juices, game hacking site MPGH, and Rapidgator, one of the world’s largest file-sharing sites. It even mentions support sites, such as Israel’s RevenueHits, one of the most popular and largest ad revenue generators for pirate sites.
And it also highlighted the e-commerce market—particularly those platforms that sell a lot of counterfeit and shoddy goods. The 2021 Notorious Markets list was announced in February 2022. After a quick scan of the list, relevant brand owners can get useful information on the sale of counterfeit and substandard goods across Asia. The platforms on the list are platforms that allegedly participate in, facilitate, or turn a blind eye to or benefit from serious piracy or counterfeiting.
It should be added that the European Commission has also issued a similar report. The report is expected in the fourth quarter of 2022. The last report was published in 2020, and public comment on the next report has begun. It is in great agreement with the recently released USTR 2021 report.
The largest e-commerce markets in Asia for selling counterfeit and shoddy goods are as follows:
AliExpress is Alibaba’s international B2C sales platform. Although recognized as having a wide range of intellectual property protection tools, the large number of products listed allows traders (mostly carrier wholesalers) to promote and ship large quantities of counterfeit and substandard goods around the world. Despite Alibaba’s efforts, lax merchant scrutiny and lenient penalties do not act as a deterrent.
DHgate (Dunhuang.com) is a B2B cross-border e-commerce platform that can easily complete large orders of counterfeit and shoddy goods. Dunhuang.com claims to be improving, but the intellectual property owner points out that poor seller vetting, ineffective proactive anti-counterfeiting processes, and a lack of transparency have led to huge sales of counterfeit and shoddy products.
Pinduoduo, a “social commerce” app, is also the second largest e-commerce platform in China. Intellectual property owners have complained of delays and poor transparency in takedowns, increasingly cumbersome and expensive processes, lax seller vetting, less collaboration through their Brand Cares program, and little follow-up on offline enforcement. Because the platform can only be used on mobile phones and is in Chinese, it is difficult for overseas rights holders to monitor.
Taobao, a subsidiary of Alibaba, is a huge B2C platform in China. While it may have the best anti-counterfeiting features and processes on Alibaba, it is still a major source of counterfeit and shoddy goods. Recent stricter takedown rules have freed intellectual property owners, but counterfeit products are as ubiquitous as ever.
WeChat, an instant messaging app, has gradually become a way to sell counterfeit and shoddy goods through pictures and links to purchase information, live sales, Moments, channel functions and other communication tools. Through this platform, a large number of counterfeit and shoddy goods are sold through official account information pages, mini programs and private messages. WeChat offers integrated features such as product catalogs, shopping carts, and payment processing. Intellectual property owners have complained about insufficient review of official accounts and mini-programs and unfulfilled documentation requirements. The inability of IP owners to search for IP infringements, low penalties, and lack of support for offline cases were also mentioned.
Bukalapak in Indonesia is a platform with a large collection of counterfeit branded products, often publicly labelled as “replicas”. Bukalapak has improved on takedowns and cooperation with IP owners, but there are still many problems. For example, merchant review is not strict: merchants are allowed to use multiple accounts and involved merchants can re-register, there is no active anti-counterfeiting process, notification/removal is slow, opaque, inefficient, and follow-up actions against infringers are limited.
Tokopedia, Indonesia’s largest e-commerce marketplace, is plagued by the availability of counterfeit and substandard goods. Recent improvements to the notification and takedown system and the promotion of participation of IP owners have been somewhat effective, but the problem remains serious. Delisting is too slow and lacks transparency, merchant scrutiny is lax and penalties are too light to act as a deterrent.
Shopee is the leading e-commerce platform in Southeast Asia, headquartered in Singapore and listed on the New York Stock Exchange, but operates several semi-independent national websites around the world. In Southeast Asia, many Shopee sites have poor and slow notification and delisting procedures. Merchants are not reviewed strictly, sellers generally repeat listings, and penalties are not deterrent. For some of Shopee’s national sites, poor cooperation with Shopee by IP owners in their own investigation of infringing Shopee merchants is a major challenge.
For IP owners, Chinese platforms remain the biggest and most serious IP problem. This phenomenon is not surprising, considering that a high percentage of the world’s counterfeit and substandard goods are made in China (typically estimated to account for more than 75% of the world’s counterfeit and substandard goods). E-commerce makes it easier to trace the origin of counterfeit and shoddy goods. It can reach consumers directly through AliExpress, or through AliExpress and Dunhuang.com in batches. Platform-funded logistics and supply chain distribution systems mean customs have little chance of stopping goods as they move around the world.
In 2021, AliExpress launched a new logistics system that provides 10-day delivery services through smart warehouses in China that provide sellers with pre-stocked products and overseas warehouses that shorten delivery times. Increased shipping costs and congestion while shipping, as well as customer demand for faster transit times, have led to an increase in airfreight distribution of small batches, especially for smaller and lighter items such as clothing, luxury goods, jewelry, and small electronics that are often counterfeited . AliExpress alone has 80 weekly charter flights between China and Europe. This creates difficulties for customs inspections, as many small packages need to be checked against the database, and they are sent with various shipments with increasing frequency. In practice, only a small percentage of shipments are flagged as at risk of intellectual property infringement and inspected by customs. According to China Customs data, demands by intellectual property holders to export more work from customs have reached unprecedented levels; the number of rights (mainly trademarks) registered with China Customs has risen to 72,328, an annual growth rate of 16% .
Recent policy changes on Alibaba and other platforms in China have added a burden to rights holders who need to “prove” that sellers are selling fake and shoddy goods. The reason for this policy is partly because the platform is worried about being sued by the seller. For example, in cases where the infringement on the page is not obvious, they may request a notarized inspection of the item to prove that the seller is indeed selling a fake. Malicious counterclaims and false authorization documents from sellers are not uncommon, and China’s recent E-Commerce Law has left rights holders with no choice but to allow goods to be put back on shelves, or to sue or seek administrative sanctions. For many rights holders, it is indeed unfeasible to complete these claims every time an infringement is found on the platform.
In China today, claims for infringing takedowns are not very effective because takedowns only affect individual infringing products, and sellers can continue to sell other products. Alibaba’s “three strikes and out” strategy and other platforms’ point deduction systems didn’t work, as sellers found workarounds such as proactively removing products and then relisting them to avoid penalties. The “three strikes” requirement on Alibaba’s platform is limited to a fixed time period, and the penalty points are reset every year, which means that sellers are rarely banned. And when necessary, they often create new accounts or switch platforms with different IDs.
There is no doubt that the largest foreign platform is in Indonesia, after all, this is the largest consumer market in Southeast Asia. The U.S. Trade Representative (USTR) made it clear that there are worrying online markets for counterfeit goods in other countries, as well as weak e-commerce market regulations. But it’s not all bad news. For example, the report mentions the Philippines signing memorandums of understanding (MOUs) with brand owners and e-commerce platforms to improve notification and takedown procedures, and to use feedback mechanisms to help coordinate the fight against online counterfeiting.
Another clear conclusion that has been widely circulated in China/Indonesia is how Indonesian e-commerce sourcing fakes from China (bulk from the Dunhuang platform or small quantities from AliExpress) and then without any customs interception , imported fake goods to Indonesia through large logistics facilities. According to reports from the intellectual property owners, the counterfeit goods found in almost every Indonesian case came from China. Considering that the size of Indonesia’s e-commerce market has reached tens of billions of dollars today, it would not be surprising if the size of the country’s e-commerce counterfeit market exceeds one billion US dollars. Because government authorities have taken little enforcement action, a large number of businesses have profited enormously from this illegal activity.
The growth of fake sales in social commerce is a clear new trend of e-commerce infringement. Including social media platforms that offer a comprehensive marketplace (for example, Facebook was not mentioned in the report, but is also a source of fakes in the Philippines). Another trend is to hide sales links, where sellers of counterfeit and shoddy goods advertise products on social media or image hosting platforms, using images with links to files and purchase information (such as contacting sellers on WhatsApp or WeChat via a link) , then pay with PayPal or TransferWise).
Strategies for IP Owners
So what should intellectual property owners do about this phenomenon? First, they must participate in the local online marketplace. Join all IP owner programs across platforms, but setting up authentication systems and notification and takedown processes is time-consuming. Some international notification delisting companies can help in this regard, but due to language, identification and other reasons, few agencies can cover all platforms. Participating in local platforms is therefore a very critical step. Marketplaces need to withstand pressure from IP owners to improve processes, transparency, auditing and collaboration.
Second, a better regulatory system is needed. Each country has adopted different ISP liability regimes, so when there is a “safe haven” in some countries, it means a lack of transparency. For example, three parallel systems in Indonesia have led to legal confusion. The European Union Free Trade Area (EU FTA) requires a complete network provider liability regime, but in Southeast Asia (SEA) only Vietnam and Singapore have implemented such trade agreements. ASEAN (ASEAN) has begun to pay attention to this regional issue, but the progress is slow. In addition to laws, some coercive measures are required. There are two options. For example, despite repeated references in the report, there is a widespread and obvious problem of counterfeiting, and intellectual property owners must either apply for an injunction, or government authorities must resort to administrative remedies (such as unannounced censorship), targeting merchants with false information, using Multiple identities and try to avoid capture.
The scrutiny of online marketplace merchants around the world is weak. This means that you can obtain the identity information of the seller just like in the retail industry. But most merchants hide behind fake identities, insufficient documentary evidence or even fake profiles. And most marketplaces make it easy for them to hide their identities. Marketplaces should pursue positive business interests for consumers and encourage good behavior by offering discounts to certified sellers.
Numerous organisations, such as the ASEAN-EU Business Council, have called for the signing of the ASEAN Memorandum of Understanding to combat counterfeit and pirated products. The memorandum will be created based on the memorandums from Thailand and the Philippines to provide a code of conduct for online marketplaces, brand owners and governments.
The general framework and detailed information on customs activities still needs to be improved. Currently, many Southeast Asian countries, with the exception of Thailand, are doing little to stop the flood of fakes from entering the market. One, all major markets require efficient entry procedures. Second, specific improvement measures are required for small areas. If it can simplify procedures and deter illegal shipments, ASEAN’s low-cost cargo shipment scheme is recommended to stem the influx of fake goods. China needs to implement specific improvements to increase the seizure rate of registered brands to achieve good results.
The ultimate big goal is for online marketplaces to take on most of the responsibility for proactively monitoring and deregistering trademarks. The Indonesian company Tokopedia claims to be developing a forward-looking system for this. Alibaba claims that its artificial intelligence, based on a variety of tools, can block a large number of advertisements, but it is still not enough to resist millions of fakes.
Demonstrating the true deterrent power of online marketplace penalties is a key missing link, seldom completely excluding merchants. There has been a marked increase in offline criminal proceedings initiated or jointly initiated by the marketplace (currently so rare as to make no sense). The result has always tended to keep merchants trading rather than stop counterfeiting.
The business challenge is that intellectual property owners are currently competing for resources in the online marketplace. The marketplace wants to allow merchants to freely trade any commodity (no matter how they describe it). Intellectual property owners are demanding that they invest a portion of their billions in meaningful monitoring, censorship, deportation, investigation and enforcement programs.
The problem is very serious. Thousands or even millions of fakes are being sold on Asian e-commerce platforms every day. Blocking 1% of them means platforms are handling tens of thousands of cases every day. Most platforms don’t even reach that number in a year. Some Shopee sites can take weeks to block just a few ads.
The IP industry has a lot of work to do. Industry lobbying (such as the International Trademark Association (INTA), local chambers of commerce and business groups), the publication of similar reports by the EU and USTR, and the cooperation of IP holders with platforms and governments will all determine the speed of resolution.
Nick Redfearn is the head of Rouse’s global executive program.
James Godefroy is a consultant for Rouse China’s executive project.