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USTR Seeks Comments on Notorious Foreign Markets

September 20, 2013. The Office of the U.S. Trade Representative (OUSTR) published a notice in the Federal Register (FR) that requests comments to assist it in preparing a report on the internet and physical notorious markets that exist outside the US and that may be included in the OUSTR's 2013 Notorious Markets List.

This FR notice states that "Notorious markets are those where counterfeit trademark or pirated copyright products are prevalent to such a degree that the market exemplifies the problem of marketplaces that deal in infringing goods and help sustain global piracy and counterfeiting."

The OUSTR released its last report [9 pages in PDF] titled "Out-of-Cycle Review of Notorious Markets" on December 13, 2012. See, story titled "OUSTR Releases 2012 Notorious Markets Report" in TLJ Daily E-Mail Alert No. 2,492, December 17, 2012.

The OUSTR released its previous notorious markets report on December 20, 2011. See, report [6 pages in PDF] titled "Out-of-Cycle Review of Notorious Markets", and story titled "OUSTR Releases Notorious Markets Report" in TLJ Daily E-Mail Alert No. 2,321, December 21, 2011.

The deadline to submit comments is October 25, 2013. The original notice in the FR (Vol. 78, No. 183, September 20, 2013, at Pages 57924-57925) sets October 11 as the deadline. The OUSTR issued a release on September 23, extending the deadline to October 25. Comments must be in English. The docket number is USTR-2013-0030.

Stanford McCoy, the Assistant USTR for Intellectual Property and Innovation, is once again in charge of this proceeding.

This FR notice does not ask for comment on, or even reference, any particular online online or physical markets.

Alibaba and Taobao. One key question for the OUSTR is whether or not to include Taobao on the notorious markets list. It is a consumer to consumer online marketplace owned by the Alibaba Group that operates in the People's Republic of China (PRC) in Chinese language. It is similar to eBay.

The 2011 report included Taobao on the list. (It first appeared on the list in 2008.) That report stated that "Several commenters reported that pirated and counterfeit goods continue to be widely available on China-based Taobao. While stakeholders report that Taobao continues to make significant efforts to address the problem, they recognize that much remains to be done. Taobao was recently listed as one of the top 16 most visited sites in the world, and one of the top three most visited sites in China, according to rankings published at Alexa.com."

The 2012 report removed Taobao from the list. That report stated that "Taobao has been removed from the 2012 List because it has undertaken notable efforts over the past year to work with rightholders directly or through their industry associations to clean up its site."

It added that "In order to stay off the list in the future, we urge Taobao to further streamline procedures for submitting and responding to notifications to decrease the time required for taking down listings of counterfeit and pirated goods and to continue its efforts to work with and achieve a satisfactory outcome with U.S. rights holders and industry associations (for example in the apparel and footwear and software industries), as well as U.S. based small and medium sized enterprises (SMEs) and we ask these industries to report back expeditiously on the status of these efforts." (Parentheses in original.)

Alibaba is currently privately held. However, it has announced that it will issue an initial public offering (IPO) of securities. Recent news reports state that it will not list with the Hong Kong exchange, and that it may list with the New York Stock Exchange (NYSE). Facebook, which issued it IPO in May of 2012, is listed with the Nasdaq.

Alibaba also operates an online payment platform named Alipay that is similar to PayPal. There is both a Chinese language version, and an international version in English. Alibaba also operates a set of online business to business trading platforms, a cloud computing platform, a search engine (eTao), and other businesses.

In 2012, the Alibaba Group submitted a comment [29 pages in PDF, redacted] to the OUSTR in which it argued that Taobao has worked with rights holders, has substantially improved its intellectual property protection program, and will continue to work with stakeholders and further improve its systems.

Alibaba was represented in the OUSTR's 2012 proceeding by James Mendenhall, an attorney in the Washington DC office of the law firm of Sidley Austin. He worked in the OUSTR during the Bush administration, including as General Counsel. John Spelich signed the comment.

On August 15, 2013 Alibaba announced in a release that it entered into an agreement with the International Anti Counterfeiting Coalition (IACC) that creates "a framework for collaboration to address sales of counterfeit goods online".

In 2012, the Business Software Alliance (BSA) criticized Taobao and Alibaba in its comment [8 pages in PDF]. It wrote that "While we are beginning to see some signs of progress, it is still the case that sale of unauthorized software and keys remain extremely popular and ubiquitous on the website."

It added that "we remain firmly of the view that the Taobao website needs to adopt more effective and transparent measures to allow right holders to secure the removal of infringing materials listed on its platform. The takedown process currently available to rights holders is not efficient or consistently applied, and therefore lacks any meaningful deterrence value."

The BSA also wrote that Taobao needs to "establish appropriate procedures for dealing with repeat offenders".

Section 301 and Notorious Markets. The OUSTR notorious markets report is part of the Special 301 process. Section 301 is the statutory means by which the U.S. asserts its international trade rights, including its rights under World Trade Organization (WTO) agreements. In particular, under the "Special 301" provisions of the Trade Act of 1974, the OUSTR identifies trading partners that deny adequate and effective protection of intellectual property or deny fair and equitable market access to U.S. artists and industries that rely upon intellectual property protection. See, 19 U.S.C. 2242.

Section 2242 contains no reference to the identification of notorious web sites, or notorious markets. Rather, it requires the OUSTR to identify "foreign countries". The OUSTR must identify, for example, countries that "deny adequate and effective protection of intellectual property rights, or ... deny fair and equitable market access to United States persons that rely upon intellectual property protection".

Beginning in 2006, the OUSTR included sections on notorious markets in its annual Special 301 reports. In 2010, the OUSTR announced that it would also produce stand alone notorious markets reports. See, story titled "OUSTR Announces Separate Notorious Markets Process" in TLJ Daily E-Mail Alert No. 2,138, October 4, 2010. The OUSTR released its first notorious markets report in February of 2011.

Information Sought by OUSTR. The FR notice states that "comments should be as detailed as possible and should clearly identify the reason or reasons why the nature or scope of activity associated with the identified market or markets exemplify the problem of marketplaces that deal in infringing goods and help sustain global piracy and counterfeiting."

It continues that "Potentially helpful information could include: location; principal owners/operators (if known); types of products sold, distributed, or otherwise made available; information on the volume of Internet traffic associated with a Web site (such as a recent Alexa ranking); any known civil or criminal enforcement activity against the market; other efforts to remove/limit infringing materials (e.g., a Web site's responsiveness to requests to remove or disable access to allegedly infringing material); and any other relevant information, including with respect to positive progress made by operators of the market in addressing infringing activity. Any comments that include quantitative loss claims should be accompanied by the methodology used in calculating such estimated losses."

(Published in TLJ Daily E-Mail Alert No. 2,606, September 27, 2013.)