How China’s Alibaba won and lost a ‘friend’ in Washington

Lobbying group reverses its position

SHANGHAI, May 27, (AP): In 2011, a respected anti-counterfeiting coalition in Washington escalated its fight against the Chinese e-commerce giant Alibaba, saying its websites served as a 24-hour market “for counterfeiters and pirates” and should be blacklisted.

Fast forward to 2016. The same lobbying group, the International Anti-Counterfeiting Coalition, reversed its position. Alibaba had become “one of our strongest partners.” The group welcomed Alibaba as a member and invited its celebrated founder, Jack Ma, to be the keynote speaker at its spring conference in Orlando, Florida.

This is the tale of how one of China’s corporate giants won — and ultimately lost — a friend in Washington, using legal methods long deployed by corporate America: money and influence. But those timehonored tools weren’t enough to defuse the deep loathing that has greeted one of communist China’s greatest capitalist success stories.

Alibaba is at the forefront of China’s rise on the global stage, and the anxiety and suspicion that have greeted the company abroad are, to some extent, anxiety and suspicion about China itself. A month after it became the first e-commerce company to join the anti-counterfeiting coalition, Alibaba got kicked out.

An Associated Press analysis of public filings shows that the coalition’s public comments shifted from criticism to praise as the personal and financial ties between Alibaba and the group deepened, even as other industry associations — and the US and Chinese governments — continued to take a harder line. A probe by the US Securities and Exchange Commission into Alibaba’s accounting practices and sales data, disclosed this week, has raised further questions about how the company does business.

How Alibaba fares in Washington could help shape the global fight against counterfeiting and impact the expansion of one of China’s most prominent companies.

Believe

Those who believe Alibaba intentionally profits from the sale of fakes fear the company could lobby its way out of having to make meaningful changes in the way it polices its platforms. That, critics say, would be a boon for the multibillion-dollar counterfeiting industry, which costs US companies money, can imperil consumers’ safety, and feeds an underground money-laundering industry for criminal syndicates.

Alibaba was one of the first Chinese companies to play politics seriously inside the beltway, and may not have realized how even the smallest misstep can backfire, said Sean Miner, China program manager for the Peterson Institute for International Economics.

“Chinese firms are going to have a bigger spotlight on them,” he said. Miner said that as Alibaba tries to expand its global reach, “their reputation has preceded them . ... Some Americans might think, ‘Why don’t you go home and fix the problems first?’”

Alibaba began 17 years ago in the modest living room of a gutsy man with a history of failure. Jack Ma struggled in school, and even Kentucky Fried Chicken refused to hire him.

Today, Alibaba is a $15.7 billion e-commerce ecosystem that supports the livelihoods of tens of millions of merchants. Some 423 million shoppers last fiscal year picked through the billion listings that Alibaba’s platforms host on any given day.

Alibaba doesn’t sell any merchandise. It merely facilitates transactions, deriving much of its revenue from advertising. Alibaba’s core is Taobao, a Chinese consumer-to-consumer platform much like eBay, only bigger. The company also operates Tmall, which offers merchants, including Nike and Macy’s, official storefronts to consumers in China. Two export platforms, Alibaba and AliExpress, connect businesses in China with buyers around the world.

Critics, among them some top brands and intellectual property lawyers, say Alibaba’s ecosystem has proven remarkably conducive to counterfeiting. They feared Alibaba’s inclusion in the anti-counterfeiting coalition would lend it undeserved credibility. In US court filings, Gucci America and other brands belonging to France’s Kering Group have accused Alibaba of knowingly profiting from the sale of fakes — a charge Alibaba has dismissed as “wasteful litigation.”

Alibaba and its advocates argue that the only way to fight counterfeiting is to fight together. The company says it works diligently to improve its systems, and that it proactively took down 120 million listings of suspicious products on Taobao last year.

Still, it remains relatively easy to find knock-offs. Chat with a vendor on Taobao and the price of a Louis Vuitton Rivoli handbag listed at 15,200 yuan ($2,318) may magically drop to 980 yuan ($150). And despite the company’s repeated admonitions that it stands with brands in the global fight against fakes, skepticism reigns.

After Robert Barchiesi, a grufftalking former New York cop, took over the anti-counterfeiting coalition in 2008, the group took a hard line, singling out Alibaba and Taobao for facilitating the large-scale sale of fakes.

The US Trade Representative listened, and placed Taobao on a blacklist of markets notorious for sales of fakes in 2008.

Alibaba responded by ramping up its game in Washington. In 2012, Alibaba’s spending on lobbying shot up from $100,000 a year to $461,000, and has remained fairly steady ever since, according to Opensecrets.org.

Hires

Among its lobbyists was James Mendenhall, former general counsel for the US Trade Representative. Mendenhall was part of a string of high-profile hires Alibaba would make, including a former chief of staff for the US Treasury and a former White House staffer who went on to GE Capital. In April, Alibaba announced a further expansion of its government affairs office in Washington, with three new hires with experience in the White House, the Commerce Department, Congress and several blue-chip US companies.

The anti-counterfeiting coalition told the trade representative in 2012 that Taobao topped its list of concerns. “Advertisements for fakes of IACC member brands are often in the thousands and even millions,” the coalition wrote.

By the end of 2012, Alibaba was off the notorious markets list anyway. The US Trade Representative commended Taobao for its “notable efforts” to work with rights-holders.

The next year, the coalition signed an agreement with Taobao to expedite the removal of counterfeit goods through a pilot program it called MarketSafe. The coalition charged its members $12,500 last year to participate, on top of annual dues as high as $8,400.

The coalition had found a way to monetize brands’ frustration with Alibaba’s take-down procedures. It was also starting to look like a family business. Barchiesi’s daughter-inlaw, Kathryn Barchiesi, provided “investigative support” for MarketSafe. The coalition says the program is not profitable, but those fees helped the IACC more than double revenues, to $2.6 million, under Robert Barchiesi’s leadership.

In 2011, a fresh-faced man named Matthew Bassiur hired Barchiesi’s son, Robert Barchiesi II, to work as an investigator at Apple. Two years later, Bassiur was on the board of a foundation that awarded a private company run by Barchiesi’s other son, James Barchiesi, a contract for “fiscal and operational management.”

The coalition paid companies belonging to James Barchiesi nearly $150,000 from 2012 to 2014 for accounting, advertising and rent. The coalition says those contracts were market-rate or better.

Offering

Five weeks before Alibaba’s 2014 public offering on the New York Stock Exchange, Barchiesi went on CNBC and deflected attention from Alibaba, saying counterfeiting on Alibaba’s sites was a “microcosm of a bigger problem.” He praised the company for working “in good faith” with the coalition.

What Barchiesi didn’t say is that he too would buy shares in Alibaba Group Holding Ltd.

He bought shares on that first wild day of trading, at $91 each, according to the coalition, which also says his holdings represent a “small percentage” of his portfolio. Alibaba’s new shares shot up 38 percent in one day. It was the largest IPO in history, catapulting Ma to near-mythic status.

Meanwhile, the American Apparel & Footwear Association, which represents over 1,000 brands, urged US authorities to put Taobao back on the counterfeiting blacklist.

It asked the Securities and Exchange Commission and the US Trade Representative for help with “rampant proliferation” of counterfeit goods on Taobao, which it said had been getting worse. “The slow pace has convinced us that Alibaba is either not capable of or interested in addressing the problem,” the group concluded.

Brands were quietly dropping off the membership roster of the International Anti-Counterfeiting Coalition. LVMH holding, Tory Burch, Hunter Boots, Columbia Sportswear, Cath Kidston, Sony Corp. and Lucasfilm all vanished between October and March.