A report released by the Chinese State Administration for Industry and Commerce (SAIC) in January confirmed what many fashion brands already knew: the Chinese e-commerce giant, Alibaba, was making too few efforts to combat the sale of counterfeit goods on its marketplace websites Taobao and T-mall. Alibaba was, the report alleged, turning a blind eye to the sale of counterfeit goods.

Yet the report appears to have taken Alibaba by surprise as, after years of being criticized for being an outlet for online fakes, it had already made significant efforts to combat the sale of counterfeit goods. These included employing a task force of over 2,000 employees and 5,400 volunteers to carry out daily online surveillance and random inspections of goods sold on Alibaba’s marketplaces. Late last year, it was reported that Alibaba had spent more than US$160 million trying to stop the sale of counterfeit goods on its websites. Yet, according to the report, this was not enough.

Two days after the release of the report, Alibaba executives met with SAIC officials to discuss how to move forward. During the meeting, Alibaba’s chairman (and Asia’s richest man) Jack Ma vowed to “actively co-operate with the government” and increase spending on anti-counterfeit activities to halt the sale of counterfeit goods on its marketplaces.

Following the report, Alibaba announced that it would step up its efforts to stop the sale of pirated goods by hiring 300 employees to form an “anti-counterfeit special operations battalion”. Yet, clearly, it will take a great deal more than an additional 300 people to keep Alibaba’s sites free from the sale of counterfeit goods. At this stage, it remains to be seen whether Alibaba will establish any further initiatives to combat the sale of fake goods on its marketplaces. Further pressure was then piled on Alibaba by a report by the US Trade Representative which said that, while it would keep Alibaba off its “notorious markets” list, it was concerned by the SAIC report and encouraged Alibaba to “continue to work with all stakeholders to address ongoing complaints”.

Unlike other marketplace platforms Taobao does not charge merchants with transaction fees. Over half of Alibaba’s revenues are generated through online advertising. For a business that generates over half of its revenue through online advertising, maintaining its credibility in the eyes of businesses and consumers alike should be a key priority if it wishes to expand its operations to a global market. If consumers are unable to trust that products they purchase on Alibaba’s marketplaces are the real deal, they may turn their attentions elsewhere, reducing the value of the available advertising space on its sites.

However, there appears to be a growing trend for Alibaba to shift the responsibility of monitoring the sale of counterfeit goods onto brand owners. Alibaba has publicly welcomed approaches from brand owners and industry associations with a view to protecting intellectual property rights and improving its takedown procedures and anti-counterfeiting measures. Earlier this year, Alibaba announced that a memorandum of understanding had been entered into with Louis Vuitton to halt the sale of counterfeit products on Alibaba’s marketplaces and to educate consumers about counterfeit goods. Under this partnership, it was agreed that Taobao would proactively take down listings of suspected counterfeit goods, and that Alibaba would implement measures to prevent sellers from listing fake items on its marketplaces.

Fashion brands can benefit from entering into such arrangements since they speed up the takedown process by removing the need for brand owners to monitor and report counterfeit listings, but it is highly likely that only the major international brands will be able to enter into similar collaborative agreements with Alibaba. For smaller fashion brands, Taobao has an online channel for overseas companies to file complaints about goods being sold on its marketplaces, allowing brand owners to issue takedown requests against infringing listings. However, filing a complaint is not a straightforward procedure: brand owners are required to submit documentation to support their complaint and merchants are able to issue counter-notices against the takedown requests. With all of these steps, taking down infringing listings becomes an arduous process, and many have found that goods that have been taken down often reappear as revised listings.

SAIC’s scathing report on Alibaba’s anti-counterfeiting efforts makes one thing clear: by publicly criticizing its biggest e-retailer, China’s regulators are looking to make a strong statement about the importance they place on protecting intellectual property and innovation.

Given the high demand for designer labels in China, the relative ease with which apparel and fashion accessories can be copied and the sheer scale of the problem facing Alibaba in policing Taobao and T-mall, it is not surprising that these marketplaces are a thorn in the side of many fashion brands. Regardless of the efforts made by Alibaba or by China’s regulators, this is a problem which is likely to continue for some time to come.