MANHATTAN (CN) - Chinese e-commerce giant Alibaba makes billions of dollars by helping "an army of counterfeiters" sell fake products, Gucci, Balenciaga, Yves St. Laurent and others claim in Federal Court.
Gucci et al. filed the 147-page lawsuit under seal on July 10; it was unsealed on July 24.
Alibaba Group Holding and nine Alibaba affiliates are the lead defendants, among them Taobao Holding, which is owned by Alibaba. Also sued are 19 other online merchants based in China and Hong Kong.
Founded by entrepreneur Jack Ma 15 years ago, Alibaba provides online platforms for the sale and purchase of products. With websites that shift more goods than eBay and Amazon combined, Alibaba has announced a U.S. stock listing that could be the world's biggest technology company IPO, according to Reuters.
The plaintiffs, which include Bottega Veneta, claim that Alibaba and its cohorts "facilitate and encourage the sale of an enormous number of counterfeit products."
"The Internet has opened the door for unauthorized merchants to reach a wide range of consumers in their efforts to sell counterfeit versions of the plaintiffs' products, which bear the plaintiffs' marks even though they are not manufactured, licensed, or approved by plaintiffs ('counterfeit products')," the complaint states. "To ensure that consumers make the association between the counterfeit products and the plaintiffs' products from which they were copied, the sellers of such products not only copy the designs, patterns, and color schemes associated with plaintiffs' products, but also expressly use plaintiffs' marks in their advertising and marketing and on the counterfeit products themselves."
Gucci claims Alibaba encourages the online merchants' infringement by providing a marketplace for the counterfeit goods, as well as support services.
"The Alibaba defendants have created an online global marketplace on their websites Alibaba.com, AliExpress.com and Taobao.com (collectively, the 'Alibaba marketplaces') for the sale of wholesale and retail products originating from China," the lawsuit states. "The Alibaba defendants facilitate and encourage the sale of an enormous number of counterfeit products through their self-described 'ecosystem,' which provides manufacturers, sellers, and buyers of counterfeit goods with a marketplace for such goods, and provides online marketing, credit card processing, financing, and shipping services that effectuate the sale of the counterfeit products.
"The Alibaba defendants, a single business unit comprising the subsidiaries and related companies operating several wholesale and retail global online marketplaces and various ancillary services, knowingly make it possible for an army of counterfeiters to sell their illegal wares throughout the world, including the United States, and are compensated by the counterfeiters for enabling the illegal sale of counterfeit products."
Gucci claims Alibaba provides the marketplace, advertising and support services for sale of counterfeit goods. Beside offering credit card processing and shipping services, Alibaba helps sellers identify and buy keywords that attract customers looking for legitimate luxury brand products, according to the complaint.
Gucci claims Alibaba, its affiliates and the online merchants make billions of dollars from the sale of counterfeit products through the Alibaba websites.
The defendants made $8.4 billion in the year ending March 31, 2014, with a net income of $3.7 billion, according to the complaint. Alibaba's revenue comes mainly from online marketing services, subscription and membership fees, loan fees, and the sale of keywords to merchants on its marketplaces.
Alibaba has received numerous complaints about the sale of counterfeit products on its platforms, and has been subject to investigations, but it has done little to stop counterfeiters from selling their merchandise, according to the lawsuit.
Although Alibaba purports to monitor and block sellers of counterfeit products, it refuses to ban such merchants permanently or prevent them from offering counterfeit goods for sale, the plaintiffs claim.
In its May IPO filing, Alibaba Group Holding Ltd. acknowledged it could be exposed to lawsuits.
"Although we have adopted measures to verify the authenticity of products sold on our marketplaces and minimize potential infringement of third-party intellectual property rights ... these measures may not always be successful," it stated. "We may be subject to allegations and lawsuits claiming that items listed on our marketplaces are pirated, counterfeit or illegal."
Alibaba said the perception that its sites are cluttered with counterfeit items could hurt its ability to win customers, investors and U.S. retail partners, according to the IPO filing.
Alibaba offered to remove listings of counterfeits from its online shopping sites for brands whose owners buy their own stores on its sites, according to The Wall Street Journal.
"Alibaba has promised that once they open their own stores, it will purge goods sold on (Alibaba site) Tmall by retailers not authorized by the brands or do more to fight fakes on Taobao, Alibaba's huge online bazaar," the Journal reported.
Gucci and co-plaintiffs seek an injunction and punitive damages for trademark infringement, unfair competition and RICO violations.
One of the co-plaintiffs, Kering, apparently dropped its claims against Alibaba on July 24.
"Kering and Alibaba have agreed to work together in good faith through the normal business process on ways to enhance intellectual property protection in a manner that can further reduce counterfeiting of Kering brands and ensures a healthy and vibrant e-commerce ecosystem for consumers, merchants, and brand-owners alike," according to a joint statement that publicists for Alibaba sent Courthouse News on Wednesday.
Robert Weigel with Gibson, Dunn & Crutcher filed the complaint for the plaintiffs.