27 Feb
2015

Inside track: Alibaba

No Chinese company attracted greater international attention last year than Alibaba Group, thanks to its record-smashing listing on the NYSE. World Trademark Review sat down with Karen Law in Hong Kong to discuss the brands, the float and the ongoing fight against fakes

Many people know that Alibaba Group was founded in Jack Ma’s Hangzhou apartment 16 years ago; far fewer know the origin of the brand. Ma says that he was sitting in a coffee shop in San Francisco when the name ‘Alibaba’ struck him as the perfect moniker for a business. He ran into the street asking passers-by whether they recognised it and quickly realised that he had stumbled onto something special. Not only was ‘Alibaba’ familiar to people of all backgrounds, but the first thing it brought to mind was a phrase that summed up the very effect that Ma was hoping to have on the Chinese internet space: “Open Sesame.”

Today, the Alibaba Group dominates online retail in China, claiming an estimated 80% share of the country’s e-commerce market. Its sales portals span the business-to-business (Alibaba.com, 1688.com), business-to-consumer (Tmall.com, AliExpress), consumer-to-consumer (Taobao.com) and group buying (Juhuasuan.com) spaces. Other key services include cloud computing and online payment (Alipay). Though the company is heavily China focused, its flagship brand – familiar to trademark practitioners for years now – is rapidly gaining traction in the West. This is largely down to Alibaba’s record $25 billion listing on the New York Stock Exchange, which has thrust the company and its celebrated founder into the media spotlight.

To understand the importance of intellectual property to Alibaba, one need look no further than the “Risk Factors” section of its prospectus. The very first entry, customarily reserved for the biggest risk to investors, reads in part: “We have established a strong brand name and reputation for our ecosystem in China. Any loss of trust in our platform could harm the value of our brand and result in buyers and sellers ceasing to transact business in our marketplaces.” Further down, another risk: “We may be subject to allegations and lawsuits claiming that items listed in our marketplaces are pirated, counterfeit or illegal.” There are subsequent cautions about negative publicity, the uncertainty of China’s legal system and the possibility that the group’s intellectual property might not be adequately protected.

One of the people who worry most about these particular risks is Karen Law, Alibaba’s senior legal counsel, intellectual property. In the three years leading up to the listing, a big part of her job was getting the company’s IP house in order in advance of what turned out to be a historic day on Wall Street (perhaps ironic for a lawyer who says that she chose IP practice in part to steer clear of the high-stress IPO work she had experienced as a young trainee).

First off was the task of ensuring that internal IP assets were well managed. With the Alibaba Group comprising more than 10 major businesses and various related holding companies, affiliates and investments, custody of its estimated 9,800 trademarks was something of a tangle. “We spent two or three years tidying up what we have, consolidating ownership, developing strategies,” says Law. On top of all the internal cross-licensing, the team also rushed to apply for various new marks and other rights in advance of the float. And the pace of mergers and acquisitions never slowed, continually adding new assets into the mix.

Just as challenging was the due diligence and IP clearance work that had to be completed across the entire corporate structure. Software was a particularly sticky area; in certain parts of the company the status of software was uncertain because there had been no formal process for ensuring its compliance. “In China, people don’t always know that if I buy a genuine copy of software, I may only use it for myself; or that there’s a difference between home use and commercial use,” says Law. “So last year I did a lot to coach people internally and standardise the entire group practice of purchasing and using software.”

But despite all the hard work that went into it, the listing marked a starting point, not an end. “I once thought, ‘When the IPO is over life, will be easier,’” Law recalls. But that wasn’t the case: “We’re no longer just a Chinese or an Asian company now; we’re an international company. People know us and will be monitoring us, so the standard is much, much higher. How can we, as an IP team, cope with that standard, which is rising every day? This is the task that we have to work very hard at on a daily basis: making sure we find out and solve problems right away.”

The personal dimension

Karen_Law_HR.jpg

What is the most challenging aspect of your job?

Liaising with a variety of people, both inside and outside the company. One of my jobs is to do business development networking with external people, including officials. For someone who wasn’t born and raised in China, it’s challenging. But it’s also a good way for the team and me to grow and gain recognition.

What is the most rewarding aspect?

The fact that I now have a big team and, through networking with lots of people, I have good friends in the industry – whether they’re brand owners or officials. That’s something rewarding; and if I were not working at Alibaba, I would not have the opportunity to meet so many people. Some of them become close friends.

Who or what has been the greatest influence on your career?

I am not really sure. I am a Catholic, so I always think that God has a plan. I seldom think that your bosses will have influence on your career, because I always think that God will send you a message, whether it’s through your prayers or finding someone to talk to in order to make sure that you’re on the right track. So I don’t think any individual. And for me, a boss is a boss – it’s not necessary for a boss to be a mentor.

If you weren’t a lawyer, what career path would you choose?

If not law, I think I would be working on technical things. At Alibaba, I work a lot on domains, websites, technologies… So I think I would be someone on a technical team working on compliance, domain names, how websites can be secured, internet safety and so on. Also investment – something I work on here when we help the investment team. Investment is fun, because you’re looking at a company and you can see lots of potential risks, values and rewards. I like challenges and risk taking.

What hobbies do you have outside of work?

I do lots of pro-bono charitable work. I like school management a lot. I’m a board member of several schools in Hong Kong. I think that school kids are our future, so unless we make sure they are good, we can’t make sure we have good leaders. I have believed in the Catholic religion since I was a child and I think it’s very important to contribute and serve.

What is your favourite holiday destination?

I always holiday in Tokyo. People say that I always go to Japan because it’s near to Hong Kong. I don’t like long-haul flights. Tokyo takes four to five hours, so it’s manageable and there’s no big time difference. I’ve just gone to New York for the Christmas holidays and people kept trying to wake me up at midnight for conference calls, so I try to avoid going somewhere with a big time difference because of work. I don’t know why, but the work here at Alibaba has made me so committed. The commitment is really that great, I check emails on holiday at all hours, going back to the hotel several times a day to reply to emails. But it’s something that I love to do and contribute – that’s why I have that level of commitment.

What is your favourite time of year in Hong Kong?

In Hong Kong, my favourite season is Chinese New Year, because everything is totally different and it’s unique to China.

If you could retire anywhere in the world, where would you choose?

If I retired, I would go to Los Angeles, where I have some relatives and friends. LA is a place which I think is for fun, but not really a place for work. While I’m still working, I can’t afford to; it’s just not suitable for me, in terms of lifestyle and speed… and the shops close at 7:00pm or 8:00pm. It’s very different from Hong Kong.

If you could go back in time and give advice to your 18-year-old self, what would it be?

I would have no great advice to give myself. I was not a hardworking student in law school; I spent more time playing sports for my university hall, participating in debating and choir competitions, than I did going to lessons. I wouldn’t say work harder or spend more time studying, because God has a plan.

What advice would you give to someone starting a career in IP?

Some people who start in IP think that we like stability, we like filing trademark applications all day. The reason I chose IP, to be very honest, was because I wanted to stay away from M&A and IPOs; when I was a trainee I worked on IPOs and in the worst cases I wouldn’t sleep for four nights. I told myself, ‘I can’t be like this’, so I chose IP. But I found that IP is not so stable; and if someone is starting out, he or she should not expect a stable life, because IP can be very challenging. IP also requires you to be very creative. If you just want to do trademark registrations and not get involved with all the business aspects, I think life would be very boring. But IP is very meaningful.

Present at the creation

Law joined Alibaba Group in March 2009, just a couple months shy of its 10th anniversary – although in IP terms, the company was very much still in start-up mode. In fact, there was no IP department as such, just a small patent team made up of patent attorneys and paralegals in Hangzhou. When Law first arrived in the Hong Kong office, her remit covered only trademark matters outside the company’s dominant market, China; but that was soon to change. “There was a growing awareness that intellectual property should be managed globally,” she explains. By her third month on the job, Law had taken charge of the worldwide trademark portfolio and today she heads up the team that oversees all non-patent intellectual property.

Functioning as the sole trademark specialist in a large and growing Chinese corporate was not without its challenges. Then again, that was one reason why Law could not resist making the move from the Hong Kong office of US firm Troutman Sanders. “You could say there were lots of uncertainties,” she says, “but going in-house was a way of taking a risk – a good chance to grow as a specialist from both legal and business perspectives.” The learning opportunities started from day one, when Law found that virtually all of her meetings and conference calls were conducted in Mandarin – a language that she did not speak. Born, raised and educated in Cantonese and English-speaking Hong Kong, Law knew that mastering this new dialect would be key to finding her way in the new role. She immersed herself in Mandarin-language television programmes and popular music, a course of study that she says has paid handsome dividends, particularly on her visits to headquarters.

But language was far from the only cultural barrier that Law was to encounter in her new workplace. Alibaba had thus far grown up without a robust in-house IP function, and its internal operations reflected an acute lack of awareness about how to protect the company’s own rights and respect those of others. “We did a lot of coaching on what you should and shouldn’t do,” Law recalls. She recounts a typical admonishment: “Instead of using an image without authorisation, try to create one on your own. If you do, the design department should inform legal, because we can help you package it into something (an intangible asset) that’s valuable to the company and the team.”

Law knew that changing certain entrenched practices would require strong working relationships with every business unit and at every level. She emphasised the fact that her team was not out to find fault or hurt the bottom line, but rather to protect the company’s own interests: “We are serving the rest of the business, rather than monitoring them. When you are lending a helping hand, people are more willing to ask you for meetings and copy you in on everything... They are not afraid of you.” The mission required a lot of travel to Hangzhou to build trust. “Casual chatting, networking, drinks and meals are all things that we had to spend time and effort on;” but at the same time “you have to be very tough in a Chinese company to let them know how important intellectual property is,” she continues.

Then there were the organisational hurdles that came with setting up a new unit within the business: “Being a standalone department means that you have to build everything up yourself without many resources at all. As you would expect, there were no policies or templates, even for trademark applications and agreements. I had to make use of what I had learned in private practice and create bilingual new templates for everything.”

The extent of these tasks saw Law’s team grow steadily on both sides of the border. Today it numbers 12 professionals – seven in Hong Kong and five in Hangzhou. In a matter of months it will also expand to Beijing and Guangzhou, where the company has recently acquired new subsidiaries. Together, the units look after all of Alibaba Group’s non-patent IP assets, including trademarks, copyrights, designs and domains. Primarily responsible for applications, rights enforcement and IP transactions, the group also works closely with the company’s litigators and the business units that handle IP rights complaints about Alibaba’s platforms.

As her team has grown over the past six years, says Law, awareness of intellectual property within Alibaba group has improved dramatically: “Alibaba treats IP as fundamental, a very core asset of the company. Without IP, there is nothing valuable here.” But Law is quick to point out that the change in culture is not just down to her and her staff; the whole legal team and the highest reaches of management remain important allies in helping to raise IP awareness across the group.

China’s cutting edge

With about 9,800 marks in 150 jurisdictions and 4,800 domains to oversee, the trademark unit at Alibaba Group has plenty of everyday portfolio management to keep it busy. But Law stresses that the team does much more than what she terms “passive work” and is intimately involved in a range of business transactions. In this respect, she suggests that Alibaba is at the cutting edge of trademark practice in China. “IP teams in Chinese companies tend to be very small and more traditional,” she points out. “They will file the registration for a new brand, but won’t go that far into thinking about how legal should work on that brand’s reputation.” At Alibaba, obtaining the registration is only the beginning: “We try to turn it into a value-added thing for the business. How can we do something that makes the business more valuable, more user friendly, more unique?”

If the trademark team is uniquely business focused for this market, Law says that is just a reaction to Chinese corporate culture: “Chinese companies have what we call a KPI [key performance indicator] preference – they want to generate lots of revenue and don’t care so much about other things. But you have to give them opportunities and reminders that intellectual property can be something that helps you to bump up your KPI. That doesn’t just mean training sessions!” she hastens to add. “People don’t want to attend training.”

Rather, says Law, it is important to sell the IP department as much more than just a cost centre: “If you are passive, business teams will think you just sit there and spend money. We are trying to change this mindset by actively participating in new product launches, new investments and company restructurings.”

Law explains how trademark licensing can help the bottom line: “For Tmall and Taobao, we have lots of trademark and copyright assets. But we don’t have much of a marketing budget. So I can work with Tmall and Taobao merchants and give them a short-term licence to use our mark in promotions – not just on the Web, but on signboards and in print ads. It helps our brand to get more exposure.” Such deals might not come with a fee, but they represent money saved on advertising. So far, they have been mostly inked in China, but the company hopes that they can help to boost its profile as it expands abroad too: “For Alipay, we have lots of new markets all around the world and we will always think of whether local partners can help us to promote the brand through licensing or resource sharing.”

Sometimes even disputes over marks can lead to fruitful cooperation. Such was the case when a Taiwanese company in the food and beverage sector [Alibaba preferred that we not name the company, as the deal is not yet final] asked it to cease using certain trademarks. “We helped to convert this dispute into business collaboration,” explains Law. “After negotiations lasting five or six years, we can coexist.” What’s more: “We are working together in various fields. We are helping their e-commerce operations, while they are helping us to promote food safety – an issue that our chairman is very concerned about.”

We are concerned about brand dilution and the fact that if we don’t take action at a certain time, our silence may imply consent

Masters of their domains

As you would expect of an internet-based company, domains are at the very heart of Alibaba’s IP protection strategy. “We treat domains as something that’s not just technical, but also legal,” says Law. “They are part of our brand and a brand is more than just trademarks, so we treat them as very important assets.” She insists that an e-commerce company simply cannot afford to be conservative when it comes to its web addresses; even the temporary loss of a domain could have a substantial impact on traffic and revenues.

A key aspect of this aggressive philosophy is a zero-tolerance approach to cybersquatting: “We do a lot of disputes with squatters. Of course, we want to get back the domains, but we also want to send the message that Alibaba will protect its brand by all means. This is unusual for Chinese companies, because they are usually happy just to have a ‘.com’ or ‘.cn’, so they are fine with other parties getting a ‘.net’ or ‘.uk’. We don’t think that way because we are concerned about brand dilution and the fact that if we don’t take action at a certain time, our silence may imply consent.”

Predictably, generic top-level domains (gTLDs) are another area where Alibaba is ahead of the regional curve. “We have been looking at the issue since 2010,” says Law. “Asian companies are not paying attention to it and Chinese companies are even worse. When ICANN opened up the registration period in 2012, we filed for four of them [‘.Alibaba’, ‘.Alipay’, ‘.Taobao’ and ‘.Tmall’].” At present, she suggests, the expense of the new gTLDs is precluding greater participation in this part of the world: “Conservative companies won’t do it. They’ll say, ‘It’s a lot of money – why not just sit and wait?’ But I think sometimes we need to be more innovative. Luckily, my team has the resources and support from a big legal department, so that’s why we can manage to do this.”

Of course, domains are just one way in which other traders may seek to take advantage of Alibaba’s goodwill. Law says that she is increasingly pursuing sites that copy the design and layout of various Alibaba web properties. “We are exploring and trying to put together possible actions for this sort of enforcement. We also spend quite a lot of time on copyrights,” including images, graphics and software codes. Just as companies such as Apple have recently sought to protect the designs of their physical retail stores, Alibaba wants to ensure that the look and feel of its markets remains exclusive.

One thousand and one fights

But perhaps the most vexing question that the entire Alibaba Group faces is how best to protect the brands of other companies. Because its platforms facilitate a vast number of transactions, but do not warehouse or otherwise take possession of any physical goods themselves, policing the quality and IP compliance of listed goods is a herculean task. To give some idea of the scale of this enterprise, Alibaba has reported that in the 23 months from January 2013 to November 2014, it removed over 9 million suspect listings in a $161 million effort.

While Law’s team is primarily the custodian of the Alibaba brands, it also provides support to the anti-counterfeiting team, which includes a recently established taskforce some 300 strong. After all, third-party IP rights protection is one of the biggest issues affecting Alibaba’s own brand identity. “Alibaba is only 15 years old, but our founders have a motto that Alibaba will remain a company for at least 102 years,” says Law. “That means we should still have a long way to go and improve. So I appreciate all the brand owners who come to us and talk about the complaint handling process. We don’t treat that process as a hurdle to prevent people from complaining, but as a tool that everyone should be able to use – not just lawyers”.

As Alibaba’s IPO prospectus acknowledges, in the past some brand owners have filed suit against it due to the presence of counterfeit items on its platforms. Others have taken a more collaborative approach, sometimes after initially pursuing litigation. “When big brands like Microsoft or LV come here and talk to us about cooperating on measures that can solve these kinds of issues, we always welcome it,” says Law. “We spend so much effort trying to get win/win decisions. That’s our way of doing business and it’s something which is very meaningful.”

A few weeks after our interview with Law, the counterfeiting conundrum caused a publicity storm when a State Administration for Industry and Commerce (SAIC) white paper blasted Taobao for lax enforcement, revealing that in a recent study of five Chinese retail portals, Taobao had fared worst, with an authenticity rate of 37.25%. Alibaba rejected the study’s findings, accusing the SAIC of bias and misconduct and questioning the methodology and sample size. The scathing criticism from both sides was unusual in a market where big business and government usually strive to maintain a harmonious public relationship. As the story was still unfolding at the time of writing, Law was unable to comment further.

Taking up the banner

The dust-up with the SAIC has put the Chinese e-commerce sector squarely in the spotlight, and – like it or not – Alibaba is the industry’s public face. Law says that the company does feel a certain responsibility as China’s highest-profile e-tailer, and observes that both Alibaba and the wider Chinese market have made dramatic strides over the course of her career. Corporate IP practices have become increasingly sophisticated, she suggests, especially the handling of disputes. And while there will always be bad-faith actors around, significant progress has been made. This is the narrative that Law is keen to spread at international conferences, together with the message that, ultimately, transnational cooperation – not conflict – is the key to further improvements.

Trademarking a holiday?

There is no question what the most important day of the year is for Alibaba Group: November 11, a sales holiday known as ‘Singles Day’ or ‘Double Eleven’ in China. An e-commerce festival characterised by deep discounts and soaring sales volumes – analogous to Cyber Monday in the United States – it seems to shatter its own revenue records every year. In 2014 Alibaba Group recorded one-day sales of $9.3 billion.

The holiday started as a sort of ‘Valentine’s day for singles’ among Nanjing University students in the mid-1990s. Over time it grew into a national phenomenon – but it was not until Alibaba’s first 11/11 megasale in 2009 that Singles Day became inextricably linked with e-commerce. More recently, sites including Alibaba’s Tmall and Taobao began terming the holiday ‘shuangshiyi’ or ‘Double Eleven’, perhaps to broaden its appeal beyond young lonely hearts.

This set the stage for one of Alibaba Group’s biggest trademark-related controversies, when it came to light shortly before this year’s Singles Day that Alibaba had trademarked the phrase ‘Double Eleven’. Rival JD.com cried foul, revealing that Alibaba had asked media outlets not to carry promotions for its competitors containing the term ‘Double Eleven’. Finally, just five days before 11/11, Alibaba CEO Jonathan Lu said in an open letter that “Double Eleven has never belonged to Alibaba… [It] has always been a festival open to all”, signalling that his company would not seek to enforce its right to the term.

Senior legal counsel, intellectual property Karen Law explains: “Our first rationale for getting a trademark was, ‘We don’t want other people to try to get it in bad faith.’ China’s system is first come, first served; and when you launch something, if you don’t protect yourself, people will make a bad-faith application which will hurt good-faith traders.” As to the company’s intentions, she says: “At the time, it wasn’t really clear in our minds whether we could use it exclusively or whether we would open it up to general users. But my mind-set was always, ‘I don’t want bad-faith people to register.’”

Law acknowledges that certain more conservative minds in the company wanted to prevent other companies from using the term. But she sums up the current policy as follows: “This brand is for the whole Chinese people, the whole market; that’s what our senior management have said. We are not trying to use it exclusively – it’s open for genuine well-meaning traders, even for competitors.”

“I think there is still a lot of East-West misunderstanding,” she says. “Whenever there’s an issue, people think, ‘Oh, you Chinese people are intentionally doing something which is bad.’ But I think we have to recognise that the level of knowledge specific to IP is not so good in China. The concepts of IP protection come from the West; we can only make China better if we educate and coach more.” Law is likewise an active participant in local industry events, striving to promote awareness among smaller Chinese companies and highlighting the importance of intellectual property to economic growth. “I don’t think it’s much use if only Alibaba grows to an international standard,” she says. “But if more Chinese companies can recognise the value of intellectual property, we can do more to combat counterfeiting and the whole of China will be better off.”

So what advice has Law for domestic companies that are just beginning to establish their IP functions? “Try to be innovative. Don’t be conservative. You have to be open-minded to things like domain management, gTLDs.” To become a powerhouse like Alibaba, she says, you need to be among the first to embrace novel ideas: “If you wait, you will start to realise it’s too late.” Law recognises that Alibaba is lucky to have ample financial resources, and that more cost-conscious Chinese companies may consider a robust IP team a luxury which they cannot yet afford. “Yes, this is an investment and there is a risk,” she acknowledges. “But sometimes risks can become a success.”

Meanwhile, the biggest challenge for Law’s team in the year ahead will be assimilating Alibaba’s recent acquisitions. The company went on something of a shopping spree in 2014, splashing out across a wide range of industries. Most of the new acquisitions are Chinese companies: “Their standards will be very different in terms of brand protection, enforcement and software licensing.” The IP team will be working to bring them up to speed, which will involve adding professionals in Beijing and Guangzhou. The next six months will also see the launch of new gTLDs, including a ‘.xin’ address that will go live in the third quarter (‘xin’ is a Chinese word meaning ‘trust’).

This will doubtless be a task equal to the challenges of the last few years. But it is one that Law relishes, thanks to the strength of her belief in the group’s brand and mission. ‘Alibaba’ may be a name with an ancient story behind it, she says, but it represents something new, not traditional. The first thing Law wants people to think when they see the Alibaba brand is, “It makes things easier” – like the proverbial “Open Sesame”. “With all of these brands, we are trying to say that something small can be magical, bringing people significant improvement in quality of life.” If hundreds of millions of Chinese can harness the potential of the Internet for personal trading, she suggests, they can gain access to safer and higher-quality products, from household goods to food. This is the mission, the “miracle” that attracted her to Alibaba – “We can change the PRC economy, and we can change the world.”

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