Billion dollar Chinese e-commerce company probed for selling fake goods

Pinduoduo, the Chinese tech start-up that raised more than US$1.6 billion in an IPO last week, has quickly become the subject of investigation by China’s state market regulator, following various media reports alleging that the company’s e-commerce platform is awash with counterfeit and copycat products from electronic shavers to imported wines including lookalike Penfolds and Château Lafite Rothschild.

The State Administration for Market Regulation (SAMR) has called for the Shanghai Municipal Administration of Industry and Commerce and other relevant market regulators to investigate the company’s sale of counterfeit and lookalike products, Hong Kong’s SCMP has reported.

The quick response from the regulator comes at a time when China is looking to pass its first e-commerce law, which would hold online retailers accountable for the sale of fake goods on their platform. Currently only merchants caught selling fake goods are solely responsible.

Founded in 2015, Pinduoduo utilises a model that relies heavily on social media, and has quickly become China’s third biggest e-commerce service provider behind Alibaba and JD.com.

Last week, the company raised US$1.6 billion in an initial public offering (IPO) in the US, but the platform, mostly popular in China’s lower-tier cities and known for its massive discounts, has been accused by different companies of selling counterfeit goods.

Skyworth, the Chinese television manufacturer, has said it has found a large number of counterfeit Skyworth TVs on its website, while there are also TVs bearing the name of Xiaomi that has no connection with the Beijing-based smartphone producer Xiaomi.

A search by dbHK on Pinduoduo on wine rendered many results of wines that resemble the look of popular imported brands such as Penfolds and Château Lafite Rothschild.

Pictured on the left is a wine by first glance would be mistaken as Penfolds, but a closer look would show that the wine is actually ‘Benfords’, and instead of writing Bin 268 on the label, it was tweaked as ‘BF268’. Another lookalike Penfolds would be bottled as ‘Panfield Chris Bin 328’.

Chateau Earl de Lafils found on Pinduoduo

A search of Château Lafite Rothschild’s Chinese name ‘拉菲’ returned many wines such as ‘Carleleifeiye 2013 Grenache’, ‘Chateau Earl de Lafils’ and ‘Lafei Family’ all bearing the Chinese name.

In China, pursuing intellectual property (IP) rights involves lengthy time and money, but Penfolds is among one of the most vocal advocates for its trademark rights. The company secured the trademark rights to its Chinese transliterated name ‘Ben Fu’ (奔富) after years of court proceedings, and is taking another copycat, ‘Rush Rich’, to court in Australia.

Asked by dbHK about the challenges of intellectual rights protection in China, Anna Gibson, intellectual property director at Treasury Wine Estates, parent company of Penfolds, noted that brand owners in China can seek IP protection through administrative actions such as AIC raids led by administrations of industry and commerce departments or Customs interception, criminal actions and civil lawsuits.

“A comprehensive understanding of the Chinese IP enforcement system as well as a well-rounded strategy that protects your IP rights is likely to be the primary challenge and objective for any brand owner in China seeking to enable effective enforcement against counterfeiters,” she explained.

“In this regard, TWE has developed a comprehensive and proactive brand protection programme in China to protect its world renowned brands. This programme focuses on both online and offline enforcement and working in close collaboration with local authorities, online marketplaces and industry organisations, to effectively enforce against bad faith operators,” Gibson added.