USTR Notorious Markets: Online Ads Still Funding IP Infringement; Alibaba Fires Back

The Office of the United States Trade Representative today released its annual list of the worst outlaw online and physical markets around the world, citing a range of major sources of problems in every part of the world. The list this year highlights new technologies, identifies online advertising as a large revenue source for counterfeiters, and includes Chinese online market Taobao, owned by internet giant Alibaba, for the second year in a row, leading the company to claim bias and politics are at play.

The 8th annual report, available here [pdf], follows past style, highlighting the positive along with the negative, and making disclaimers that it is only a sampling of some of the problem areas, with no legal effect. It is the result of a process that began in August, including comments and rebuttals.

This year’s 25 listed online bad guys are from Russia, Ukraine and China especially but are from all over, including France, Brazil, Pakistan, Sweden, India, Switzerland, Bosnia and Herzegovina, and some that seem to be in many countries or are hard to pin down to any particular country.

The 18 physical markets also are located in all types of countries. China led the way with six named marketplaces, and the others were in: Argentina, Canada, India, Indonesia, Italy, Mexico, Paraguay, Spain, Turkey, the United Arab Emirates and Vietnam. It appeared to be a first for US neighbour Canada, but a US officials told reporters that there was no special signficance, as markets are mentioned wherever they occur. Also notable, the official said, is this year there are two e-commerce markets, including one in India.

Asked on a call with the press by Intellectual Property Watch how the report reflects the first year of the Trump administration, a USTR official said it is along the lines of past reports, but pointed to the statement issued by US Trade Representative Robert Lighthizer stressing strong enforcement, something that has been highlighted by the President.

“Marketplaces worldwide that contribute to illicit trade cause severe harm to the American economy, innovation, and workers,” Lighthizer said. “The Trump Administration is committed to holding intellectual property right violators accountable and intensifying efforts to combat counterfeiting and piracy.”

This year’s report highlights the rise of “illicit streaming devices,” which it defines as piracy using the combination of media boxes, set-top boxes, or other devices with piracy applications (apps) that allow users to stream, download, or otherwise access unauthorized content from the Internet.

Symbolic and Hard to Kill

As an indication of a measure of futility or the power of consumer interest in accessing content freely, the list still includes the Pirate Bay, and a Vkonktakte derivative called vk.com. Both of these sites have been celebrated by the US rights industries for their closure in the past, only to reappear in other forms. The Pirate Bay is listed by USTR as “formerly registered at the following domains: .SE, .VG, .GL, .IS, .SX, .AC, .PE, .GY, .GS, .AM, .LA, .GD, .MN, .VG, .FM, .SH, .MU, .TW, and .MS,” which refer to country-code internet domains around the world.

“Despite enforcement actions around the world and drawn-out legal battles against its operators, The Pirate Bay is of symbolic importance as one of the longest-running and most vocal torrent sites of admittedly illegal downloads of movies, television, music, and other copyrighted content,” the report said. “The site is in the top 100 most popular sites worldwide, is available in 35 languages and celebrated its 10-year anniversary by releasing the PirateBrowser, a portable web browser with preset bookmarks to BitTorrent websites.”
The 35-page report lists a number of positive developments, including discontinuance for various reasons of the scurrilous list of Sharebeast, youtube-mp3.org, Nanjing Imperiosus Technology Co., Putlocker, and Extratorrent.

Asked on the press call whether the Trump administration might resort to blocking websites to fight the problem, USTR officials said they were not aware of any steps of that nature.

Online Advertising: Revenue-Generator for Infringement

But it still finds lots to be concerned about, for instance, advertising. “According to an independent review of the top 5000 IP Infringing URLs in the United States, EU, and Australia, about 25-30% of advertising on websites posing an IP risk are from major brands,” the report says. “One advertising network based in Canada, WWWPromoter, is reportedly the fastest growing ad network among infringing sites and provides services to notorious markets listed below, including primewire.ag and 123movies.to. The report details many enforcement actions taken against infringing markets around the world. USTR does not have a dollar value related to the losses due to advertising, a USTR official told reporters.

The report notes that some illegal online sites surreptitiously install malware on visitors’ computers.

USTR notes that the list “does not constitute a legal finding of a violation or an analysis of the general IP protection and enforcement environment in any affiliated country or economy.” It also is “not an exhaustive inventory,” it said.

“Bias and Politics”: Alibaba Pushes Back

One of the biggest markets is China’s household name Taobao.com, created and owned by Alibaba, China’s largest mobile commerce destination and China’s third-largest site. The USTR report devoted some 3 pages to the company. Alibaba in particular did not take its return to the list lightly, claiming its return to the list for a second year is not about IP protection but is politically driven.

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The company issued a statement circulated to the USTR press list during today’s press call, leading one journalist to demand a response from USTR officials on the call. USTR countered the Alibaba assertion.

“As a result of the rise of trade protectionism, Alibaba has been turned into a scapegoat by the USTR to win points in a highly-politicized environment and their actions should be recognized for what they are,” the Alibaba statement said. “The USTR’s actions made it clear that the Notorious Markets List, which only targets non-US marketplaces, is not about intellectual property protection, but just another instrument to achieve the US Government’s geopolitical objectives.”

“Alibaba reiterates our point of view: we will continue to strengthen our IP protection system with world leading technology and a collaborative approach with brands and other stakeholders,” it said. “Our efforts and results speak for themselves: over 100,000 brands, including 75% of the world’s most valuable consumer brands, do business on our platform.”

The company later provided a link (here) to statistics showing its leadership in intellectual property protection, such as that it took down 28 times more listings on its own initiative than it was asked to do by rights holders, and that 98 percent of those were taken down before a single sale occurred. It also pointed to efforts it has made to make it easier for rights holders to notify the company of infringing material for takedown, including a new system for small and medium enterprises (SMEs).

And the company provided a more in-depth response from the President of Alibaba Group, Michael Evans, calling the Notorious Markets list a “deeply flawed, biased and politicized process.”

“[I]t’s clear that no matter how much action we take and progress we make, the USTR is not actually interested in seeing tangible results,” Evans said. “Therefore, our inclusion on its list is not an accurate representation of Alibaba’s results in protecting brands and IP, and we have no other choice but to conclude that this is a deeply flawed, biased and politicized process.”

“The deep irony is that, while the Notorious Markets process is supposed to be a tool to incentivize IP enforcement, today’s decision removes that incentive by proving that USTR’s decisions are no longer driven by the strength of a company’s IP protection system,” he said.

US Industry Happy

Meanwhile, some US industry groups issued statements praising the report.

International Intellectual Property Alliance’s (IIPA is the umbrella group for a range of rights-owning industry groups such as movies, music, publishing and software) Counsel Eric J. Schwartz commented, “We commend USTR and all who worked in the inter‐agency process for their outstanding work in identifying notorious markets for copyright piracy and for identifying Illicit Streaming Device (ISD) piracy, recognized in the report as an unfortunate emerging trend in digital copyright infringement of audiovisual programs, as well as highlighting the problem of stream-ripping services.”

“The process of identifying specific online and physical illegal markets is a vital tool to help rights holders in their quest to develop legal services and markets for the ultimate benefit of consumers worldwide,” Schwartz added. “Ridding marketplaces of blatant infringers allows greater access to legal content, including literary works, music, movies and TV programming, video games, software, and other products and services, all of which are available now for consumers, in more formats than at any time in history. The Notorious Markets list also helps foreign governments identify online piracy operations with connections to their jurisdictions and guides the U.S. government in engaging our trading partners in cooperative efforts to open their markets to licensed distribution of U.S. creative materials.”

Rick Helfenbein, president and CEO of the American Apparel & Footwear Association, said in a statement: “The Out-of-Cycle Review of Notorious Markets is an important tool in the fight to protect intellectual property. By identifying marketplaces that promote the sale of counterfeit products, we are all able to prioritize areas of risk for governments, law enforcement, and brands to better monitor and combat IP infringement. This report also provides consumers with information on marketplaces that are selling fake products that oftentimes do not meet safety and other standards.”

Background on Notorious Markets report

Below is some background on the Notorious Markets report, reprinted from the USTR press release today:

“USTR first identified notorious markets in the Special 301 Report in 2006. Since February 2011, USTR has published annually the Notorious Markets List separately from the Special 301 Report, pursuant to an “Out-of-Cycle Review of Notorious Markets,” to increase public awareness and help market operators and governments prioritize IPR enforcement efforts that protect American businesses and their workers.

The Out-of-Cycle Review of Notorious Markets identifies particularly notable online and physical markets that facilitate unfair competition with U.S. products. The report does not constitute an exhaustive list of all markets reported to deal in pirated or counterfeit goods around the world, nor does it reflect findings of legal violations or the U.S. Government’s analysis of the general IPR protection and enforcement climate in the country concerned. Such analysis is contained in the annual Special 301 Report issued at the end of April each year.

This announcement concludes the 2017 Out-of-Cycle Review of Notorious Markets, which USTR initiated on August 16, 2017, through publication in the Federal Register of a request for public comments. The U.S. government agencies represented on the USTR-chaired Special 301 Subcommittee of the Trade Policy Staff Committee (TPSC) developed the Notorious Markets List based primarily on information received in response to the Federal Register request. The request for comments and the public’s responses is online at www.regulations.gov, Docket number USTR-2017-0015. Information about Special 301, the TPSC process, and other trade issues is available at www.ustr.gov.”