Alibaba, The IACC And The International Counterfeiting Conundrum

Counterfeiting on the consumer side is basically pretty low impact. It is mostly something one encounters in the form of an off-designer handbag or wristwatch here or there. However, unless a consumer happens to be looking at a particularly convincing fake and debating the relative merits of a $15 investment the odds are, in any given moment, the average consumer just isn’t thinking about counterfeit retail.

But given that by some estimates counterfeit goods were a $1.7 trillion industry around the world, on the business side you can be pretty certain that counterfeit goods are more than just an occasional passing occurrence. And this is an area where the effect of the problem is far from evenly distributed across retail as a category, since all goods are far from created equal in the eyes of those who make their living on knock-offs.

There is, simply stated, no knock-off Old Navy out there, because cheap goods are not a reasonable thing to counterfeit. You can’t massively underprice that which sold for $6 in-store. But high-end goods that trade on superior craftsmanship, the finest quality materials and a label that is trademark protected to say “this bag is extremely expensive and ipso facto stylish” are beloved of counterfeiters. Sure, the craftsmanship might not be quite so fine, the material somewhat less than the finest on the market, and the label and branding marks just ever so slightly askew, but the reality is, that while some people can spot a fake from far off, the vast majority of people just aren’t looking that closely.

That means for brands like Tiffany, Gucci and Michael Kors, fending off the army of counterfeiters is a big and important part of the brand protection business, and thrown elbows are par for the course. Last fall, Tiffany took on Costco over the latter’s sale of “Tiffany engagement rings” that came complete with pretty robin’s egg blue boxes, and an eventual lawsuit from Tiffany & Co. with the corresponding notice that at no time did the luxury jeweler ever consider selling engagement rings at the nation’s lead purveyors of bulk, wholesale items for middle class consumers. A judge sided with Tiffany that their name in the case of jewelry was not a general description of a type of thing (i.e. a Tiffany lamp), but instead an implication that the jeweler had something to do with the ring.

Brands have absolutely zero sense of humor about their branding, and luxury brands are particularly unlikely to chuckle at seeing knock-offs of their goods on shelves where they aren’t supposed to be, at prices that make a mockery of the concept of high-end.

And taken through that rather serious lens, the recent explosion over at the International AntiCounterfeiting Coalition over Alibaba is actually not all that surprising, except perhaps in the degree to which it has become a very public fistfight.

The short version of the story is that Alibaba was recently extended membership in the IACC and Jack Ma was even extended the opportunity to offer a keynote address at their upcoming annual conference. Big luxury brands — Gucci, Michael Kors and Tiffany, most notably — flipped out, noting that Alibaba’s Tmall is essentially the marketplace equivalent of Disney World for China’s army of counterfeiting professionals. This in turn caused the IACC to rescind Alibaba’s invitation to join, which in turn caused Jack Ma to back out of the IACC speech and issue some strongly worded criticisms.

If you happen to be able to read Chinese, the English language versions were a bit more mild.

The longer story? Well …

Why The Brands Bailed

The dust-up officially kicked off a little over a week ago, when Gucci and Michael Kors started up the very public exodus-revolt.

Michael Kors and Gucci America jointly walked on the International AntiCounterfeiting Coalition, noting that Alibaba’s very existence is a risk to their brands’ identities. The keynote speakership was reportedly the last straw for Michael Kors, which referred to Alibaba as “our most dangerous and damaging adversary” last month when it announced its decision to quit the IACC.

Gucci, notably, is currently suing Alibaba in New York’s courts over counterfeiting across the Alibaba platform. Ma has said his firm would rather fight the case out in court and lose than settle at the cost of its dignity. The brands are in mediation and the suit is ongoing.

A few days later, Tiffany joined the party. In an email to the International AntiCounterfeiting Coalition on Wednesday, Tiffany & Co. said it was stepping off the board and withdrawing from the Washington, D.C.-based coalition as a member. The letter, reviewed by The Wall Street Journal, didn’t cite a reason for the departure.

IACC has since noted its plans to “review all of our policies and procedures to confirm that they meet the highest standards and that our corporate governance fits the size and scope of the IACC we have become.”

At that point they have offered no direct quote on the recent spate of resignations, other than to note that Tiffany is part of the board that voted unanimously for Alibaba’s admission — further affirming that it “stands by its decision.”

However, that resolution did not end up being quite so permanent.

Alibaba Uninvited

While initially determined to keep Alibaba on the IACC, after a few days, the board was singing a slightly different tune.

As a result of concerns raised by members, IACC is putting on hold the new membership classification to allow “further discussion and consideration,” according to a letter from the IACC board. Wish.com and The RealReal, two other eCommerce members under the new classification, were also suspended.

The plot further thickened with reports that Alibaba’s withdrawal of membership after less than a month came along with the reveal that prior to the group being allowed to join conflicts of interest involving President Bob Barchiesi were not communicated to directors. The failure to inform was reportedly due to a “weakness in our corporate governance procedures.” Barchiesi reportedly held Alibaba stock, had close ties to a company executive and had used family members to help run the coalition.

The IACC board affirms that Barchiesi disclosed his financial transactions and relationships, but that “certain aspects” of his “disclosed conflicts” were left out.

The group said it’s hiring an independent firm to review its corporate governance.

“My investments are completely independent from my work in anti-counterfeiting,” Barchiesi wrote in an email forwarded by an IACC representative to Bloomberg News. “The stock represents a small percentage of my investment portfolio. I also have shares in companies that happen to be a member of the IACC.”

What’s Next

Alibaba spokeswoman Jennifer Kuperman said the company will continue to work with the group to fight counterfeits whether it is a member or not, and will expedite efforts to remove products identified as fake.

“The only way to solve the complex, industrywide issue of counterfeiting is through strong industry collaboration, and we believe that intermediaries, like Alibaba, must be an integral part of the solution,” she noted.

However, given that Alibaba is no longer welcome in the IACC as a member, it seems Jack Ma will not be making an appearance at their conference as a keynote speaker after all.  Alibaba Group President Michael Evans will speak at the conference in Orlando, Florida, instead.

And though the response in the English-speaking press was pretty genial, the Chinese language version of the story was less so.

“No organization should be controlled by internal political struggles, and no organization should be kidnapped by the personal interests of some individual enterprises,” the Chinese language statement for media said.

“In fact, Alibaba has become the most important and advanced anti-counterfeiting force worldwide. Today, the counterfeits groups may be afraid of the police the most, but what they hate the most is actually Alibaba,” it added.

Which means that while for now the issue has been stifled, it seems like it is far from over.

As the news of Alibaba’s ejection from the D.C. IACC was announced Friday, Jack Ma was reportedly eating lunch at the White House with President Barack Obama. His site reaches more than 400 million online shoppers in China, mostly through its Tmall and Taobao sites.

Alibaba isn’t going anywhere, and whether or not brands want to sit with them, they are increasingly going to need a seat at the table.