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U.S. Issues Special Review of Global Markets Engaging in IPR Infringement

USTR released on 25 April the results of its Special 301 out-of-cycle review of notorious markets for 2018, which identifies 33 on-line markets and 25 physical markets around the world that reportedly engage in and facilitate substantial copyright piracy and trademark counterfeiting. USTR claims that counterfeiting harms the U.S. and world economies because an estimated 2.5 percent, or nearly half a trillion dollars’ worth, of global imports are counterfeit and pirated products.

According to USTR, this list does not constitute an exhaustive list of all markets reported to deal in pirated or counterfeit goods around the world; rather, it is meant to highlight prominent and illustrative examples of such markets. USTR adds that inclusion on the Notorious Markets List does not constitute a legal finding of a violation of law or the U.S. government’s analysis of the general IPR protection and enforcement climate in the country or economy concerned, which is presented in the annual Special 301 report. One of the goals of the list, according to USTR, is to motivate appropriate action by the private sector and governments to reduce piracy and counterfeiting.

USTR listed DHgate.com, pinduoduo.com and taobao.com as mainland China-based on-line markets.  DHgate is described as a business-to-business e-commerce platform that features over 40 million product listings from small- and medium-sized businesses. The report observes that the International Anti-Counterfeiting Coalition reported concerns about the high volume of sales of counterfeit goods on DHgate. The trade association stated that DHgate.com refuses to provide information about confirmed counterfeit sellers, asserting privacy-related concerns. DHgate stated in its rebuttal submission that its seller registration process requires certification of the seller’s ID or business licence and that sellers be checked against a historical “questionable seller” database. It further claimed that IP complaints had declined by 38 percent in the past year and said that it had addressed the concerns of the previous year’s nominators by blocking all sales of published material from its platform and improving its screening tools. This site also argued that it removes listings for 97 percent of IP complaints with a one-working-day processing time for over 90 percent of takedowns. Despite all of these actions, USTR urged DHgate.com to continue to work closely with IP rights holders to combat counterfeits.

USTR added pinduoduo.com to the 2019 list, describing it as the third largest e-commerce platform in mainland China by number of users. U.S. authorities believe pinduoduo.com relies on a catalogue of “improbably low-priced goods” to attract customers and draws its main user base from provincial towns and the countryside. Many of these shoppers may be aware that the products on pinduoduo.com may be counterfeit but are nevertheless attracted to the low-priced goods, in particular “Shanzhai” products, also known as “parasite brands.” These products imitate a legitimate brand by taking advantage of loopholes in mainland Chinese trademark law, and brand owners reported an increase in consumer complaints after “Shanzhai” versions of their products were listed on pinduoduo.com. Several brands also issued public notices to warn consumers that the products listed under their brand names on pinduoduo.com are counterfeits.

Following intense public scrutiny after pinduoduo.com’s listing on the NASDAQ stock exchange in July 2018, the site reportedly took down listings of counterfeit products, announced an effort to co-operate with brands to launch “flagship stores” with legitimate products on its platform, and invested in artificial intelligence tools to police the platform automatically for counterfeit products. However, the accounts of flagship stores are reportedly not always controlled by the brand owners themselves but often by third parties, while counterfeit and pirated products ostensibly remain widely available on the platform. USTR encouraged pinduoduo.com to take additional measures to curb the sale of counterfeit products from its platform.

Mainland China’s largest e-commerce platform, taobao.com, is owned and operated by Alibaba. While USTR acknowledged that Alibaba has taken “some steps to curb the offer and sale of infringing products,” serious concerns remain about the company’s responsiveness to smaller firms and others whose rights have been infringed. In its submission, Alibaba described efforts taken to improve enforcement but USTR repeated its recommended actions from the previous list and will continue to monitor taobao.com for evidence of whether the new enforcement changes are effective.

USTR also highlighted the use of certain apps and developer add-ons (TVPLUS, TVBROWSER AND KUAIKAN) that are reportedly operated by related companies in mainland China to provide users around the world with unauthorised streaming of television, live sports and content protected by copyright and related rights.

Both pinduoduo and Alibaba issued statements to Reuters objecting to their inclusion in the list of notorious markets. A pinduoduo spokeswoman called counterfeit goods “an industry-wide problem” and said that “to ensure a world-class shopping experience for our consumers, we have introduced one of the strictest penalties for counterfeit merchants in our industry in China, collaborated closely with law enforcement and employed technologies to proactively take down suspicious products.” Brion Tingler, head of external affairs for Alibaba, said the company’s practices are considered “best-in-class” by industry members. “In fact, zero industry associations called for our inclusion in the report this year. We will continue to wage this fight against counterfeiters”, he noted.

USTR’s review of notorious markets also outlined concerns with physical (non-on-line) markets. The agency acknowledged that some markets in mainland China – particularly in larger cities – have adopted policies to limit the sale of counterfeit merchandise but still argued that “enforcement remains inconsistent.” In terms of specific physical markets of concern, USTR listed the Silk Market (Beijing); Huaqiangbei Electronics Markets and Luohu Commercial City (both in Shenzhen, Guangdong Province); Jinlongpan Foreign Trade Garment Market, Zhanxi Lu Garment Wholesale Market and Yulong Garment Wholesale Market (all in Guangzhou, Guangdong Province); and Wu’ai Market (Shenyang, Liaoning Province). The report also indicated that counterfeit goods are widely available in the International Centre for Boundary Cooperation, a foreign-trade zone on the border between mainland China and Kazakhstan where IP enforcement is hampered by the lack of customs officials.

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