Brands Are Revolting Over Alibaba’s Membership in an Anti-Counterfeiting Group

May 13, 2016, 9:27 AM UTC
Alibaba Group Holdings Ltd. and Founder Jack Ma As Company Files for U.S. Initial Public Offering of E-Commerce Giant
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Ever since Alibaba gained acceptance into the respected Washington, D.C.-based International Anti-Counterfeiting Coalition last month, internal fireworks have been brewing.

First Gucci America and Michael Kors (KORS) quit the group, the latter calling Alibaba “our most dangerous and damaging adversary.”

Now the anti-counterfeiting group (IACC) with more than 250 members including Apple (AAPL) and Nike (NKE) is facing even more defections because of Alibaba’s acceptance, according to the Associated Press, which cited an anonymous email sent this week to the group’s board members. “The majority will not continue on as IACC members if you continue to allow membership to Alibaba,” the AP reported the email saying.

On Friday, the AP dropped another bombshell: IACC president Robert Barchiesi has owned Alibaba (BABA) stock since its 2014 IPO and “has close ties to a key Alibaba vice president,” potentially conflicting his role leading the coalition.

Alibaba, of course, runs Taobao, an eBay-like selling platform in China with 9 million small sellers. The degree of counterfeiting on the site is staggering: routine searches for brands pull up thousands of listings advertising prices so far below normal retail prices the products are obviously counterfeit, despite the often genuine photos accompanying them.

Alibaba has faced criticism from foreign governments, foreign brands, and even China’s own government over counterfeit items. The Chinese who shop for genuine brand goods online do not shop for them on Taobao.

The AP quoted a former IACC board member saying the anonymous email expressed sentiments shared by many people.

Alibaba’s counterfeits have captured an on-and-off-again focus in the U.S.

Back in 2012, the U.S. Office of the Trade Representative took Taobao off a blacklist of marketplaces known for counterfeits, which had included the site since 2008. Alibaba has since said it spends millions each year on anti-counterfeiting measures. It also hired a former Pfizer executive to oversee its anti-counterfeiting programs last December. Late last year, however, the same U.S. trade office issued a warning to Alibaba to upgrade its processes or—it intimated—risk going back on the “Notorious Markets List.”

It appears China’s government is paying attention to the trade group’s gripes. After AP broke news of the anonymous email, a story appeared yesterday on a site run by China’s propaganda department headlined, “Alibaba steps up fight on counterfeit luxury goods.” It detailed new Taobao requirements for luxury goods sellers, who starting May 20 must upload proof authenticating the goods. Sellers found to be hawking fraudulent goods cannot list the products and will potentially have their fund balances frozen, the story said. A company spokeswoman confirmed the new rules to Fortune on Thursday.

It may be too late for brands pulling out of the anti-counterfeiting coalition, however; they seem convinced Alibaba can’t eradicate fakes from Taobao anytime soon.