5 Things to Know About Luxury Brands' Lawsuit Against Alibaba

A Paris-based group of luxury goods makers that include Gucci, Balenciaga and Yves Saint Laurent has sued Alibaba in a U.S. federal court. The Kering group accuses the Chinese e-commerce giant of facilitating and encouraging the sale of counterfeit products bearing its brands.

Here are five things to know about the lawsuit.

#1: The Lawsuit Covers a Wide Range of Merchandise

The lawsuit describes an array of counterfeit luxury goods allegedly sold on Alibaba’s platforms. Among them: fake Gucci “diaper bag totes” offered by a seller on Alibaba.com for $2-$5 apiece—for a minimum order of 2,000 units. Authentic versions retail for $795 in Gucci stores.

#2: Defendants Named in the Lawsuit Include Alibaba’s Payment Affiliate

Besides Alibaba’s marketplace businesses — Alibaba.com and Taobao.com — the lawsuit also names as a defendant Alibaba’s Internet payments affiliate, Alipay.com. Alipay processes its payments in a way similar to how PayPal handles transactions for eBay. The lawsuit alleges that Alipay has “actual knowledge that it is providing payment processing services to merchants selling Counterfeit Products.” Alipay belongs to Ant Financial, a firm that isn’t directly owned by Alibaba but is effectively controlled by Alibaba executives and is planning an initial public offering next year or in 2017.

#3: Lawsuit Cites Fakes Exported Out of China on Alibaba’s Platforms

Investigators hired by the plaintiffs bought counterfeit goods such as fake YSL T-shirts through AliExpress.com, Alibaba’s international shopping site, and had the items shipped to New York. The lawsuit points out that when a user types “Gucci” into AliExpress.com’s search engine, the platform will suggest keywords such as “cucci,” “guchi bags,” and other similar misspellings. The lawsuit alleges that Alibaba makes money from selling such keywords designed to drive traffic to merchants selling counterfeit goods.

#4: Lawsuit Says Alibaba Is Too Lenient on Counterfeiters

The lawsuit alleges that Alibaba’s measures to monitor and punish merchants for selling counterfeit goods are ineffective. It criticizes Alibaba’s “three strikes” policy on Alibaba.com and AliExpress.com, in which merchants receive first a warning, then a removal of all product listings and finally a ban from the site on the third strike.

#5: Alibaba Says Lawsuit is 'Wasteful,' Will Fight

In its response to the lawsuit, Alibaba said it works to help protect brands’ intellectual property and has a strong track record of doing so. It says it spent more than 1 billion yuan ($160.7 million) in 2013 and 2014 to battle intellectual property infringement and “enhance consumer protection.”

“Unfortunately, Kering Group has chosen the path of wasteful litigation instead of the path of constructive cooperation. We believe this complaint has no basis and we will fight it vigorously,” a spokesman said.

–Gillian Wong. Follow her on Twitter at @gillianwong.