Gucci v. Alibaba: A Balanced Approach to Secondary Liability for E-Commerce Platforms

42 Pages·2016·0.49 MB·English

by  Esther A. Zuccaro

NORTH CAROLINA JOURNAL OF
LAW & TECHNOLOGY
Volume 17
Article 5
Issue 5Online Issue
5-1-2016
Gucci v. Alibaba: A Balanced Approach to
Secondary Liability for E-Commerce Platforms
Esther A. Zuccaro
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Esther A. Zuccaro,Gucci v. Alibaba: A Balanced Approach to Secondary Liability for E-Commerce Platforms, 17N.C. J.L. & Tech.On.
144 (2016).
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NORTH CAROLINA JOURNAL OF LAW & TECHNOLOGY
17 N.C. J.L. & TECH. ON. 144 (2016)
GUCCI V. ALIBABA: A BALANCED APPROACH TO SECONDARY
LIABILITY FOR E-COMMERCE PLATFORMS
Esther A. Zuccaro*
This Recent Development discusses the future of secondary
liability for e-commerce platforms whose users sell counterfeit
goods in the wake of the ongoing Gucci v. Alibaba litigation.
Should the plaintiffs prevail, e-commerce platforms will be held
accountable to cooperate with brand owners by removing
infringing listings in a timely fashion and sanctioning users who
sell counterfeits in an effective manner, resulting in a more brand-
protective environment than that under the current Tiffany v. eBay
standard. Such a result will compel e-commerce platforms to share
the burden of policing counterfeiters with trademark owners,
working together to combat trademark infringement. Not only will
this be a more effective means of discouraging appropriation, but
it will also reinforce public policy goals and ultimately benefit
trademark owners, e-commerce platforms, and consumers.
I. INTRODUCTION
What qualifies an item as “luxury”? The concept of luxury
“can be as subjective and elusive as it is obvious.”1 High price,
non-essential nature, indulgence, provenance, craftsmanship,
exclusivity, and experience can all be indicators of luxury.2 This
allure attracts consumers to pay top dollar for extravagant and
often unnecessary items.3 Indeed, reputation is a critical component
of luxury; one that is not easily created.4

* J.D. Candidate, University of North Carolina School of Law, 2016.
1 Tom Teicholz, Cult of Luxury: Who Makes High-End Goods and How We
Recognize It, FORBES (Feb. 5, 2015, 7:56 PM), http://www.forbes.com/sites/
tomteicholz/2015/02/05/cult-of-luxury-what-it-is-who-makes-it-and-how-we-
recognize-it/.
2 Id.
3 Tom Teicholz, Cult of Luxury: Craftsmanship, Scarcity, and the Hermès
Brand, FORBES (Mar. 12, 2015, 5:31 PM), http://www.forbes.com/sites/
144
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A Balanced Approach to Secondary Liability
Trademarks are powerful tools for luxury brands, as they
denote the “status, quality, and price of the brand’s goods.”5
Accordingly, trademarks convey a notion of the brand’s reputation,
undoubtedly a product of the goodwill and quality of the brand’s
goods or services.6 To protect such reputation, luxury brands spend
hundreds of millions of dollars to combat counterfeiting.7 At first
glance, counterfeits or knockoffs may resemble luxury goods;
however they are often made of poor quality materials, lacking the
attention to detail and high standard of craftsmanship for which
luxury brands are known.8 Counterfeiting threatens a brand’s very
livelihood in that consumers may confuse knockoff products with
the genuine articles and conclude that the brand’s luxury items are
of inferior quality and not worth the high price.9
The scope of global counterfeiting efforts is vast and often
considered the “single greatest threat to brand owners.”10 In 2014,
the U.S. Border Patrol confiscated knockoff goods at the border
that would have been valued at $1.2 billion dollars, had they been
genuine pieces.11 Throughout the world, it is estimated that $1.8

tomteicholz/2015/03/12/cult-of-luxury-craftmanship-scarcity-and-the-hermes-
brand/.
4 Tom Teicholz, Cult of Luxury: Dolce, Gabbana And The Importance Of A
Good Reputation, FORBES (Mar. 20, 2015, 2:34 AM), http://www.forbes.com/
sites/tomteicholz/2015/03/20/cult-of-luxury-dolce-gabbana-and-the-importance-
of-a-good-reputation/.
5 See Kurt M. Saunders & Gerlinde Berger-Walliser, The Liability of Online
Markets for Counterfeit Goods: A Comparative Analysis of Secondary
Trademark Infringement in the United States and Europe, 32 NW. J. INT’L L. &
BUS. 37, 38 (2011).
6 See id.
7 French Conglomerate LVMH Has Built its Name on Luxury, THE FASHION
LAW (September 1, 2015), http://www.thefashionlaw.com/home/french-
conglomerate-lvmh-has-built-its-name-on-luxury.
8 Saunders & Berger-Walliser, supra note 5, at 38.
9 Id.
10 See First Amended Complaint at 42, Gucci Am. Inc. v. Alibaba Grp.
Holding Ltd., No. 15-cv-03784 (S.D.N.Y. 2015).
11 Counterfeit.com, THE ECONOMIST (Aug. 1, 2015),
http://www.economist.com/news/business/21660111-makers-expensive-bags-
clothes-and-watches-are-fighting-fakery-courts-battle.
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A Balanced Approach to Secondary Liability
trillion dollars in knockoffs are sold every year.12 Counterfeited
items include watches, jewelry, handbags, wallets, clothing,
pharmaceuticals, personal care items, footwear, and consumer
electronics.13 With the advance of new technology, counterfeiting
has become an even larger, more complex threat to brands. In
recent years, with the rise of e-commerce platforms and online
stores, the Internet has redefined the shopping experience. What
was once an activity requiring customers to dress in their finery
and travel downtown has now been reduced to a few clicks of a
mouse. The sheer breadth of items available for purchase online
has grown exponentially as well.14 Online auction websites such as
eBay allow anyone to relatively anonymously sell items on such
platforms.15 With the creation of e-commerce platforms and online
boutiques, online shoppers can buy anything from a two dollar
toothbrush to a two thousand dollar handbag. However, such
convenience comes at a price: instances of trademark infringement
and counterfeiting have become more prevalent with the popularity
of e-commerce websites.16 Online shopping permits consumers to
buy and sell counterfeits from the comfort of their living rooms,
eliminating “dark alleys and basements from the buying
equation.”17 E-commerce marketplaces can provide a successful
setting for counterfeiters: low operating costs to sell on websites,

12 Id.
13 Id.
14 What is Taobao?, WALL STREET JOURNAL (May 28, 2014),
http://www.wsj.com/video/what-is-taobao/69BD4B54-0417-4075-A54D-5FC89
5B5B3F3.html; Paul Grey, How Many (More) Products Does Amazon Sell?,
EXPORT X (August 14, 2014), http://export-x.com/2014/08/14/many-products-
amazon-sell-2/. For instance, over 800 million products are available on
Alibaba’s Chinese e-commerce platform Taobao at any time. It is estimated that
Amazon sells over 250 million products in America alone. Id.
15 EBAY, What We Do, https://www.ebayinc.com/our-company/who-we-are/
(last visited October 29, 2015) (“Whether you are buying new or used, plain or
luxurious, commonplace or rare, trendy or one-of-a-kind – if it exists in the
world, it probably is for sale on eBay.”).
16 See Saunders & Berger-Walliser, supra note 5, at 38.
17 Maura Kutner, The Fight Against Fakes Online, HARPER’S BAZAAR (Dec.
14, 2010), http://www.harpersbazaar.com/fashion/trends/a622/fight-against-
fakes-online-0111/.
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A Balanced Approach to Secondary Liability
less risk of legal action, and the ability to easily open another store,
should one be shut down.18
Accordingly, e-commerce platforms and Internet operators
have been sued by luxury brands over counterfeits sold by users,
both in the United States and in Europe.19 Trademark owners have
asserted that online marketplaces should be held liable for their
users’ illegal activity because they allow the sale of counterfeits
through their websites.20 Courts have determined the outcome of
such cases based on the requisite level of knowledge e-commerce
platforms possess of their users’ illicit acts.21 The current landscape
of contributory liability law in the United States under the Tiffany
standard22 protects the e-commerce platform, not the trademark
owner, to the detriment of public policy concerns.23 However, an
ongoing lawsuit, Gucci v. Alibaba,24 carries the potential to shift
the standard to one, which, should the plaintiffs prevail, is more

18 Second Amended Complaint at 47, Gucci Am. Inc. v. Alibaba Grp. Holding
Ltd., No. 15-cv-03784 (S.D.N.Y. 2015).
19 See Tiffany (NJ) v. eBay Inc., 600 F.3d 93 (2d. Cir. 2010); Louis Vuitton
Malletier, S.A. v. Akanoc Solutions, Inc., 658 F.3d 936 (9th Cir. 2011); Perfect
10, Inc. v. Visa Intern. Service Ass’n, 494 F.3d 788 (9th Cir. 2007); L’Oreal SA
v. eBay Int’l AG [2009] EWHC 1094 (Eng.).
20 See Tiffany, 600 F.3d at 106 (“Tiffany urged that eBay be held
contributorially liable on the basis that despite that knowledge, it continued to
make its services available to infringing sellers.”)
21 See id. at 107. (“[T]he district court concluded that for Tiffany to establish
eBay’s contributory liability, Tiffany would have to show that eBay ‘knew or
had reason to know of specific instances of actual infringement’ beyond those
that it addressed upon learning of them.”)
22 Id.
23 Id. at 109 (internal citations omitted). The court held:
Tiffany and its amici express their concern that if eBay is not held
liable except when specific counterfeit listings are brought to its
attention, eBay will have no incentive to root out such listings from its
website. They argue that this will effectively require Tiffany and
similarly situated retailers to police eBay’s website – and many others
like it ‘24 hours a day, and 365 days a year.’ They urge that this is a
burden that most mark holders cannot afford to bear.
Id.
24 Gucci Am. Inc. v. Alibaba Grp. Holding Ltd., No. 15-cv-03784 (S.D.N.Y.
2015).
17 N.C. J.L. & TECH. ON. 144, 148

A Balanced Approach to Secondary Liability
brand protective.25 A verdict for the plaintiffs would safeguard
brands against counterfeiters imposing upon the brands’ good will
and esteemed reputation, and restore confidence in consumers that
what they purchase online is legitimate.
This Recent Development will proceed in five parts: Part II
will introduce the Alibaba marketplace’s history of counterfeiting
issues and the Gucci complaint; Part III will provide an overview
of secondary liability for trademark infringement in the United
States under the Tiffany standard; Part IV will apply the Tiffany
standard to the Gucci complaint and argue why the Plaintiff’s
secondary liability argument should prevail; and Part V will
conclude.
II. INTRODUCING ALIBABA’S HISTORY OF COUNTERFEITING
ISSUES AND THE GUCCI COMPLAINT
A. The Alibaba Group
Founded sixteen years ago, Alibaba is China’s largest e-
commerce company, utilized in eighty percent of online Chinese
commerce.26 Alibaba is a network of interconnected products and
services,27 constituting an all-in-one e-commerce marketplace,

25 Currently, in the interest of pursuing mediation, the Plaintiffs have entered a
Notice of Voluntary Dismissal without Prejudice against four of the eleven
Alibaba Defendants: Alibaba.com Investment Holding Limited; Alibaba.com
Investment Limited; Alibaba.com, Inc.; and Taobao Holding, Ltd. The Plaintiffs
are not pursuing mediation with respect to the thirty-one merchant defendants.
In the event that mediation fails, this prospectus will still be valid. See
Stipulation and Notice of Voluntary Dismissal Without Prejudice Against
Certain Defendants, Gucci Am. Inc. v. Alibaba Grp. Holding Ltd., No. 15-cv-
03784 (S.D.N.Y. 2015).
26 Sarah Gray, Why a company you’ve never heard of is about to take over the
world, SALON (Sept. 18, 2014 11:05 AM), http://www.salon.com/2014/09/18/
why_a_company_youve_never_heard_of_is_about_to_take_over_the_world/.
For an introduction to the Alibaba Group, see Alibaba Grp. Holding Ltd.
Registration Statement (Form F-1) 1-6 (May 6, 2014) [hereinafter Registration
Statement].
27 What is Alibaba?, WALL STREET JOURNAL, http://projects.wsj.com/
alibaba/?mod=e2tw.
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A Balanced Approach to Secondary Liability
bank, and search engine.28 Alibaba offers services on its platforms
conceptualized as a mix of eBay’s user-generated listings29 and
Amazon’s wide product availability,30 with additional features such
as product search functions and online payment systems, similar to
those of Google31 and PayPal.32 The Alibaba company offers three
main e-commerce websites: Taobao, Tmall, and Alibaba.com.33
Taobao is Alibaba’s largest business, on which vendors may list
items free of charge, but pay for services such as advertising so
that their products stand out.34 Similar to Google, Alibaba makes
money by selling advertising and search placement to Taobao
vendors.35 Tmall is a more upscale e-commerce website on which
large brands such as Nike or Proctor and Gamble pay a hefty fee to
list their products.36 Alibaba also obtains commission from the

28 Id.
29 eBay is an online auction website that provides a platform for users to buy
and sell goods. EBAY, What is Ebay?, http://pages.ebay.co.uk/help/
account/questions/about-ebay.html (last visited November 19, 2015). See also
eBay, supra note 15.
30 Amazon is an e-commerce platform where customers “can find and
discover virtually anything they want to buy online,” offering “low prices, vast
selection, and convenience.” AMAZON, Overview, http://phx.corporate-ir.net/
phoenix.zhtml?c=176060&p=irol-mediaKit (last visited November 19, 2015).
31 Google offers various technologies such as a search engine, email service,
Internet browser, advertising programs, and cloud computing tools. See
GOOGLE, Our products and services, https://www.google.com/intl/en/about/
company/products/ (last visited November 19, 2015).
32 “Paypal is a service that enables you to pay, send money, and accept
payments without revealing your financial details.” PAYPAL, Checkout with
PayPal – Faster. Safer. Easier., https://www.paypal.com/webapps/mpp/paypal-
popup (last visited November 19, 2015). See also Gray, supra note 26.
33 Wall Street Journal, supra note 27. “The Alibaba Defendants have created
an online global marketplace on their websites Alibaba.com, AliExpress.com
and Taobao.com (collectively, the ‘Alibaba Marketplaces’) for the sale of
wholesale and retail products originating from China.” Second Amended
Complaint at 3, Gucci Am. V. Alibaba Grp. Holding Ltd., No. 15-cv-03784
(S.D.N.Y. 2015).
34 Wall Street Journal, supra note 27.
35 Alibaba is not the Amazon of China, CNN MONEY (HONG KONG) (Sept. 16,
2014), http://money.cnn.com/2014/09/15/investing/alibaba-amazon-china/
index.html?iid=EL.
36 Wall Street Journal, supra note 27.
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A Balanced Approach to Secondary Liability
retail brands who sell their goods on Tmall.37 Alibaba.com
connects Chinese companies with exporters throughout the world.38
Alibaba’s latest venture involved offering over $3.5 billion dollars
for ownership of Youku Tudou, the Chinese equivilant of Youtube,
investing in China’s rapidly growing digital media market.39
Alibaba is arguably the world’s largest e-commerce company,
as it hosts millions of merchants and businesses and boasts
hundreds of millions of users throughout its three principal
websites: Taobao, Tmall, and Alibaba.com.40 According to lead
founder and executive chairman Jack Ma,41 the company also
employs a so-called Internet “ecosystem,” which permits
consumers to shift between Alibaba’s e-commerce platforms and
mobile apps.42 These apps allow users to perform a myriad of
activities beyond the realm of online shopping, from hailing a taxi
to investing in a money market fund.43
Although the average American consumer has likely never
heard of the company,44 Alibaba handles more business than any
other e-commerce company in the world.45 Alibaba is not only
home of the largest online clothing marketplace,46 it is the most
frequented e-commerce destination in the world.47 In 2013, it

37 CNN Money, supra note 35.
38 Chris Wright, So What Exactly Is Alibaba?, FORBES (Sept. 16, 2014),
http://www.forbes.com/sites/chriswright/2014/09/16/so-what-exactly-is-alibaba/.
39 Alibaba offers $3.6 billion to buy China’s ‘Youtube’, CNN MONEY
(LONDON) (Oct. 16, 2015), http://money.cnn.com/2015/10/16/technology/
alibaba-youku-tudou-video/index.html.
40 Wright, supra note 38.
41 ALIBABA GROUP, Leadership, http://www.alibabagroup.com/en/about/leadership
(last visited November 19, 2015).
42 CNN Money, supra note 35.
43 Id.
44 See Gray, supra note 26.
45 Wall Street Journal, supra note 27.
46 Gregory Babcock, Alibaba Is the Biggest Online Clothing Marketplace in
the World, and Is Full of Fake Yeezys, Givency, and Everything Else, COMPLEX
(Sept. 23, 2014), http://www.complex.com/style/2014/09/a-sample-of-fake-
products-on-alibaba/.
47 Wall Street Journal, supra note 27; See Paul Mozur and Juro Osawa,
Alibaba 11.11 Shopping Festival Breaks Record, WALL STREET JOURNAL (Nov.
11, 2013), http://www.wsj.com/news/articles/SB1000142405270230464410457
17 N.C. J.L. & TECH. ON. 144, 151

A Balanced Approach to Secondary Liability
boasted $248 billion dollars in total transactions, a figure greater
than eBay and Amazon’s sales combined.48 In 2015, Alibaba.com
alone boasted 350 million active buyers and more than $12 billion
dollars in earnings.49 On the Chinese equivalent of Black Friday in
2013, Alibaba’s sales totaled $5.75 billion dollars, a figure three
times larger than that Americans spent on all United States online
shopping websites during both Thanksgiving and Black Friday.50
Such large sales are attributable in part to the sheer volume of
Chinese Internet users and the popularity of online shopping in
China.51 There are an estimated 500 million Internet users in China,
compared to the United States population of about 330 million
people.52 Moreover, unlike in the United States, many large cities
in China do not offer shopping malls or large retail centers,
resulting in Chinese residents turning to shopping online for their
retail needs.53 Alibaba’s business thrives on the lack of brick and
mortar stores in China, a hallmark of American shopping.54 Jack
Ma explained, “E-Commerce in the U.S. is like a dessert... It’s just
supplementary to your own business. In China, because the
infrastructure of commerce is [so] bad, e-commerce becomes the
main course.”55

9191590951567808. China is considered the world’s fastest growing e-
commerce market; it is estimated that China’s e-commerce market will reach
$713 billion by the year 2017.
48 Wall Street Journal, supra note 27.
49 See Second Amended Complaint, supra note 18, at 47–48.
50 See Nicholas Carlson, A Single Chinese Company Dwarfed All Of
America’s Black Friday And Thanksgiving Online Sales In One Day, BUSINESS
INSIDER (Dec. 3, 2013), http://www.businessinsider.com/alibaba-dwarfs-
americas-black-friday-2013-12#!KcRrH. Singles Day is the Chinese equivalent
of Black Friday, celebrated every year on November 11, in celebration of single
individuals. Alibaba specifically chose 11/11 as Singles Day because the date is
entirely comprised of ones.
51 See Carlson, supra note 50.
52 Id.
53 Id.
54 Registration Statement, supra note 26, at Table of Contents. As of 2013,
China’s retail space per capita totaled 0.6 square meters, compared with 2.6
square meters in the United States, 1.3 square meters in the United Kingdom,
1.3 square meters in Japan, and 1.5 square meters in Germany.
55 CNN Money, supra note 35.
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A Balanced Approach to Secondary Liability
However Alibaba is not merely the Chinese equivalent of
American e-commerce platforms such as eBay or Amazon.56 More
precisely, it is a combination of Amazon, eBay, and Google,
offering platforms in “e-commerce, logistics, cloud computing,
digital marketing[,] and mobile Internet services.”57 Ma even
rejects the notion that it is an e-commerce company,58 insisting that
Alibaba assists others to execute e-commerce, and does not sell
goods.59 Essentially, Ma emphasized that Alibaba works to connect
buyers and sellers, but Alibaba itself is not a seller.60
Alibaba boasted the largest initial public offering (“IPO”) to
date, with a closing value of $25 billion dollars and company value
of $231 billion dollars.61 According to its IPO filing, Alibaba’s
international strategy focuses on connecting Chinese merchants
and manufacturers with worldwide businesses and consumers.62 In
creating Alibaba, Ma, a former English teacher, aimed from the
very start to compete against Silicon Valley instead of other
Chinese companies, and has been compared to the Steve Jobs or
Bill Gates of China.63 After Alibaba’s IPO, Ma became the

56 See id.
57 China’s Alibaba files for landmark IPO, CNN MONEY (NEW YORK) (MAY
7, 2014), http://money.cnn.com/2014/05/06/investing/alibaba-ipo/index.html;
ALIBABA GROUP, Dear Fellow Shareholder, http://ar.alibabagroup.com/2015/
letter2.html (last visited November 19, 2015).
58 Interestingly, in its F-1 SEC Filing, Alibaba introduces its company and
websites by purporting, “Alibaba is synonymous with e-commerce in China.”
Registration Statement, supra note 26, at Table of Contents.
59 CNN Money, supra note 35.
60 Id.
61 Telis Demos & Juro Osawa, Alibaba Debut Makes a Splash, WALL STREET
JOURNAL (Updated Sept. 19, 2014, 8:28PM), http://www.wsj.com/articles/
alibaba-shares-trade-higher-in-ipo-1411142120.
62 Lulu Yilun Chen, Alibaba Taps Chinese Diaspora as Global Amazon
Battle, BLOOMBERG (Sept. 10, 2014), http://www.bloomberg.com/news/articles/
2014-09-11/alibaba-taps-chinese-diaspora-as-global-amazon-battle. Jack Ma
chose the name ‘Alibaba’ because it could be readily pronounced in nearly any
language, indicative of his global aspirations. See Kevin Chan, Alibaba’s IPO
Caps a Success Tale for Jack Ma, INC (Sept. 19, 2014), http://www.inc.com/
associated-press/alibaba-founder-success-tale.html.
63 E.g., Kelvin Chan, Alibaba’s IPO Caps a Success Tale for Jack Ma, INC
(Sept. 19, 2014), http://www.inc.com/associated-press/alibaba-founder-success-