When I was in college, I spent several summers interning in the nation’s capital. Those summers were notable for several reasons. Of course, working in the office of a United States Senator—even if only answering phones—was a unique and memorable experience. But my favorite part about spending time in Washington, D.C.? The secret backdoor shops in Georgetown that sold, shall we say, non-authentic but very convincing replicas of designer handbags.
Remember the Louis Vuitton Cherry Blossom Pochette? Or the Isabella Fiore Seven Year Itch Bag?
Yes, I purchased replicas of both of those then-trendy bags for probably no more than $30 each. I’m sure I still have them buried in a closet somewhere. At the time, it seemed harmless. But more than a decade later, luxury brands continue fighting to eradicate those types of replicas—or, to use the less flattering description, counterfeits—from the market.
Kering SA, the French luxury goods holding company that owns brands such as Gucci, Balenciaga, Saint Laurent Paris, Alexander McQueen, and Stella McCartney, filed a lawsuit against Alibaba Group Holding Ltd. and its various subsidiaries claiming that Alibaba allows merchants to sell cheap counterfeit versions of the luxury brands’ goods on its website. China-based Alibaba, an online bazaar five times the size of eBay, is the world’s largest online retailer.
The case, filed in the Southern District of New York, marks the second time in the past 18 months that Kering has sued Alibaba. In July 2014, the holding company and its subsidiaries filed a similar lawsuit against Alibaba and some of the independent merchants who were allegedly selling counterfeit products on the Alibaba website. That case resulted in restraining orders and default judgments against the merchants, but the claims against Alibaba were dismissed.
The most recent case targets only Alibaba and its subsidiaries and alleges trademark infringement, trademark counterfeiting, contributory trademark infringement and trademark counterfeiting, false representations, and trademark dilution under the Lanham Act, as well as RICO violations and state law claims. Specifically, Kering alleges, among other things, that Alibaba (a) knowingly allows merchants to use its website to sell counterfeit products; (b) sells trademarked names as keywords to its merchants (thereby increasing the merchant’s internet traffic when a user searches for the keyword); and (c) facilitates counterfeit sales by offering online marketing, financing, shipping, payment processing, and/or escrow services to its merchants.
Alibaba responded by filing a motion to dismiss the RICO allegations under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state claim. The filing also asserts that the Second Circuit does not hold online retailers such as Alibaba liable for trademark infringement under similar circumstances. Citing Tiffany (NJ) Inc. v. eBay, Inc., 600 F.3d 93 (2d Cir. 2009), Alibaba argues that online retailers are not liable for infringing products sold on their websites simply because they may have a general awareness of infringing activity. Alibaba asserts that it has “demonstrated a commitment to combatting counterfeiting on its platforms, and it is confident that once the facts are elicited, it will prevail under the Tiffany standard.”
In September, United States District Judge Kevin Castel ordered the parties to mediate the dispute; but recent comments from Alibaba’s founder threatened to derail the process. In an article published on November 4, 2015, Jack Ma, founder and executive chairman of Alibaba, told Forbes Magazine that he would rather lose than settle the lawsuit. However, in an order dated November 9, 2015, Judge Castel “strongly recommend[ed]” that the parties continue to mediate, noting that “public positions and positions in confidential talks have been known to vary.”
In a letter to the court dated November 10, 2015, counsel for Alibaba stated that Ma’s comments to Forbes were made prior to the judge’s order to mediate. Both sides have embraced the judge’s recommendation and agreed to continue to mediate the case.
As for me, I offer my apology to the fashion industry for any contribution I may have made to the counterfeit handbag market all those years ago. With all due respect to Mr. Ma, I would rather apologize than risk the wrath of Gucci.
For more information, see Gucci America Inc., et al. v. Alibaba Group Holding Ltd., et al., Case Number 15-cv-03784, In the United States District Court for the Southern District of New York.