The Chinese e-commerce giant is disappointed that its marketplace Taobao made its way to the U.S. blacklist along with such websites as the Pirate Bay and questions the reasons behind the government's decision.
Even though this is not the first time Alibaba (NYSE: Alibaba Group Holding [BABA]) appears on the "notorious markets" list of the U.S. Trade Representatives, the fact that it was listed there yet again miffed Alibaba's management. Yesterday, the American officials published their annual report that includes "online and physical marketplaces that reportedly engage in and facilitate substantial copyright piracy and trademark counterfeiting". For the companies to be listed in that report means putting their credibility in question in the eyes of both customers and investors.
Alibaba's famous consumer-to-consumer marketplace Taobao was included in this list in 2011 for the first time, before being removed the next year after the company had addressed the intellectual property rights concerns. Back then, Alibaba promised to take hold of the growing number of pirated and fake products sold on the website. Yet this year, the American Trade Representatives put the company back on the blacklist, citing numerous concerns of the U.S. and international right holders that "continue to report serious challenges" with the platform.
"The Taobao.com e-commerce platform is an important concern due to the large volumeof allegedly counterfeit and pirated goods available and the challenges right holders experiencein removing and preventing illicit sales and offers of such goods," the report said.
The report goes on to mention a big automaker that claimed that as much as 95% of all products sold under the brand's name on Taobao are "suspected to be counterfeit". According to the Trade Representatives, China's biggest online marketplace by gross merchandise volume is very inconsistent in handling the reports of intellectual property rights infringements coming from the right holders. They also claim that Alibaba provides no explanation on the decisions regarding satisfying takedown requests nor it translates the important communications from the Chinese language. On top of that, there is an ongoing issue with broken hyperlinks that impede the direct communication with Taobao sellers, they say.
"Not only do counterfeit and pirated goods pose a grave economic threat to U.S. creative and innovative industries, undermining the Chinese and global market for legitimate U.S. products, substandard counterfeits such as auto parts pose a potential public health threat to unsuspecting consumers," they continued.
Although the U.S. authorities mention that Alibaba made efforts to address the right holders' concerns over the last years, new accusations have been received by Alibaba's executives quite negatively. Alibaba Group President Michael Evans said that the company was "very disappointed" with USTR's decision because they simply ignored Alibaba's advancements in intellectual property rights protection:
"The decision ignores the real work Alibaba has done to protect IP rights holders and assist law enforcement to bring counterfeiters to justice. The more than 100,000 brands that operate on Alibaba’s marketplaces cannot all be wrong – they are a clear demonstration of the trust that rights holders place in us. We question whether the USTR acted based on the actual facts or was influenced by the current political climate," Evans said in the statement.
The Associated Press added that a number of the U.S. trade groups lobbied with the government to put Taobao, as one of the world's top 15 most visited websites, back on the blacklist. Bloomberg mentions that despite the "large volume" of counterfeit merchandise on the marketplace, Taobao's customer count is only growing. The number of the platform's customers has jumped from a little less than 370 million in the second quarter of 2015 to an eye-popping number of 440 million in the third quarter of 2016.
"Nevertheless, the decision sends the wrong message and is inconsistent with the effective collaborative approach we have taken with brands and governments around the world in our fight against counterfeiting," Evans continued.
CNBC adds that Alibaba, just as other 20 companies and websites included in the list, will not be subject to any direct penalties. Alibaba's shares are down about 1.36% on the news at the moment.
On top of that, the analysts say that the general outlook on BABA stock is not so cheerful at the moment. Seeking Alpha's analyst says that Alibaba is currently caught up in the middle of a "conflict" between high expectations of investors that got used to the company's double-digit growth rate and growing fears of the negative change in the trade relationships between the U.S. and China once Trump enters the office. A recent decline of MSCI China Index that coincided with BABA stock moving in a downward direction is not just a coincidence, adds the expert.
At the time of the growing uncertainty created by Trump's stance on China, investing in Alibaba equals investing in the growth of the Chinese economy for a lot of investors. So, until we get some clarity on this, many investors will choose to avoid additional volatility. Right now, Alibaba's stock is up approximately 10%, which doesn't reflect the rate of growth that comes from several growth catalyst like the best-ever sales of the last month's Single's Day. With the kind of business growth Alibaba is showing at the moment, its stock could be jumping much higher but instead it is caught up in the cloud of uncertainty, says the analyst. And yesterday's report of the USTR doesn't help to make the situation clearer for Alibaba.