How Alibaba won – and lost – a friend in Washington
In 2012, Alibaba's lobbying expenditures shot up from $100,000 a year to $461,000, and has remained fairly steady since
In 2011, a respected anti-counterfeiting coalition in Washington escalated its fight against the Chinese e-commerce giant Alibaba, saying that its websites served as a 24-hour market "for counterfeiters and pirates" and should be blacklisted.
Fast forward to 2016. That lobbying group, the International Anti-Counterfeiting Coalition, called Alibaba "one of our strongest partners," welcomed it as a member and invited its founder, Jack Ma, to speak at its spring conference.
Alibaba won — and ultimately lost— a friend in Washington using legal methods long deployed by corporate America: money and influence. A month after it became the first e-commerce company to join the IACC, Alibaba got kicked out.
An Associated Press analysis of public filings shows that as personal and financial ties between Alibaba and the coalition deepened, the group's public comments shifted from criticism to praise, even as others — including the U.S. and Chinese governments — took a harder line.
Those who believe Alibaba intentionally profits from the sale of fakes fear the company could lobby its way out of having to make meaningful changes. That, critics say, would benefit the multibillion-dollar counterfeiting industry, which costs U.S. companies money, can imperil consumers' safety and feeds an underground money-laundering industry. Alibaba is at the forefront of China's rise on the global stage, and the anxiety and suspicion that have greeted the company abroad are, to some extent, anxiety and suspicion about China itself.
Alibaba was among the first Chinese companies to play politics seriously inside the beltway, and may not have realized how even the smallest misstep can backfire, said Sean Miner, China program manager for the Peterson Institute for International Economics.
"Their reputation has preceded them," he said. "Some Americans might think, 'Why don't you go home and fix the problems first?'"
When Robert Barchiesi, a gruff-talking former New York cop, took over the IACC, the coalition singled out Alibaba and its Taobao platform for facilitating the large-scale sale of fakes. The U.S. Trade Representative placed Taobao on a blacklist in 2008.
Alibaba ramped up its game in Washington. In 2012, Alibaba's lobbying expenditures shot up from $100,000 a year to $461,000, and has remained fairly steady since, according to Opensecrets.org. It has hired several well-connected people, including a former general counsel for the U.S. Trade Representative and a former White House senior director for intellectual property enforcement coordination.
"Alibaba has engaged in a thoughtful, customer-focused dialogue with policy makers," said Eric Pelletier, head of international government affairs for Alibaba Group.
By the end of 2012, Alibaba was off the notorious markets list. The U.S. Trade Representative commended Taobao for its "notable efforts" to work with rights-holders.
Alibaba says the positive developments in Washington reflected its measures to address counterfeiting.
"Alibaba has created extensive anti-counterfeiting efforts including working with many industry groups and government agencies," Alibaba spokesman Bob Christie said in an email. He cited a program the company developed with the IACC.
In 2013, the coalition signed an agreement with Alibaba to expedite removal of counterfeit goods through a program called MarketSafe. The coalition charged its members $12,500 last year to participate.
The coalition had found a way to monetize brands' frustration with Alibaba's take-down procedures. Barchiesi's daughter-in-law, Kathryn Barchiesi, provided "investigative support" for MarketSafe. The coalition says the program is not profitable, but those fees helped the IACC more than double revenues, to $2.6 million, during Robert Barchiesi's tenure.
Five weeks before Alibaba's 2014 public offering on the New York Stock Exchange, Barchiesi went on CNBC and deflected attention from Alibaba, saying counterfeiting on Alibaba's sites was a "microcosm of a bigger problem." He praised the company for working "in good faith" with the coalition.
What Barchiesi didn't say is that he too would buy shares in Alibaba Group Holding Ltd.
He bought shares on that first wild day of trading, at $91 each, according to the coalition, which says his holdings represent a "small percentage" of his portfolio. Alibaba's shares shot up 38 percent in one day. It was the largest IPO in history, catapulting Ma to near-mythic status.
By 2015, the coalition had stopped complaining about Alibaba to U.S. officials, focusing instead on the "true cooperation and partnership" they enjoyed through MarketSafe. But neither the U.S. nor China was convinced the company had turned a corner.
In January 2015, Chinese regulators published a report stating that just 37 percent of the goods purchased on Taobao were genuine. Alibaba disputed the accuracy of the report, which disappeared from the Chinese internet.
Meanwhile, the American Apparel & Footwear Association, which represents over 1,000 brands, urged U.S. authorities to put Taobao back on the counterfeiting blacklist. "The slow pace has convinced us that Alibaba is either not capable of or interested in addressing the problem," the group told U.S. authorities.
In December, the U.S. Trade Representative reported that Alibaba's platforms had been "widely criticized" for selling large quantities of counterfeit goods. It urged Alibaba to "enhance cooperation."
The next month, Matthew Bassiur, a longtime friend of Barchiesi's with deep ties to the coalition, started work as Alibaba's chief of global intellectual property enforcement.
The coalition continued to praise Alibaba to U.S. officials and in April welcomed the company as its first e-commerce member.
Members revolted. Michael Kors and Gucci America quit in noisy protest. Tiffany left soon after, citing governance issues.
The coalition suspended Alibaba's membership category the same day the AP published an investigation revealing Barchiesi's Alibaba stock ownership. The coalition's board vowed to commission an independent review.
Ma's keynote speech at the coalition's conference was called off; Alibaba's president spoke instead.
But Ma came to America anyway, and left no doubt that despite its public relations debacle, Alibaba has succeeded in making inroads with Washington.
Reporters spotted him leaving the White House in a crush of black umbrellas last week after a quiet lunch with President Barack Obama.
He pronounced the meeting "very good," ducked in a waiting car and was gone.