Alibaba may face trouble in US as fakes abound

A cyclist rides past a signboard of Alibaba Group in Hangzhou city, East China's Zhejiang province, June 25, 2014. [Photo/IC]

Alibaba Group Holding Ltd risks being blacklisted in the United Stated after a clothing trade group filed a complaint against the company alleging that the e-commerce giant has tolerated the sale of counterfeit and pirated goods on its Taobao platform.

The American Apparel and Footwear Association has asked the Office of the US Trade Representative and the Securities and Exchange Commission to add Taobao to the Notorious Market list, an official report that identifies Internet marketplaces dealing in infringing goods.

The USTR removed Alibaba from the blacklist in 2012. But the AAFA said that the addition of Taobao in this year's list could put pressure on the company to take more effective measures to tackle fakes on its websites.

Local media reported that the association, which represents more than 1,000 brands in the US, noted that the significant presence of counterfeit products on Taobao has resulted in millions of dollars of lost sales, reputational damage, legal costs and "exhaustion of internal resources" in the US apparel and footwear industry.

The AAFA was not available for comment.

Alibaba has defended itself against the accusations and stressed that the company has made great efforts to curb counterfeit goods on its platform.

An Alibaba spokeswoman said: "We work closely with our government partners, brands and industry associations to tackle this issue at its source."

As part of a plan to eliminate fake goods on Taobao, Alibaba has conducted random checks, used data-mining technology and offered an online complaint forum.

Despite these efforts, it is possible that investors in Alibaba could see the complaints as a negative indicator that the company is not taking the right measures to eradicate the problem.

Neil Flynn, portfolio manager at Alcuin Asset Management, said: "This incident certainly has the potential to negatively affect Alibaba's share price in the short term, because these will be the same firms that directly sell to Chinese consumers through Alibaba's Tmall."