Pinduoduo Inc. (拼多多) is a social e-commerce start-up based in Shanghai. Pinduoduo offers to shoppers discounts on bulk orders; in fact, shoppers are encouraged to form “teams” with their social networking connections on WeChat and QQ to score bigger discounts. Pinduoduo filed its Initial Public Offering on Nasdaq (American stock exchange) on July 26; the IPO offered 85.6 million American depository shares at US $19. The opening price was US $26.5 per American depository shares, up nearly 40% from the issued price. Its massive IPO ranked alongside other Chinese e-commerce giants such as Alibaba Group Holding Ltd and JD.com Inc.
A week after Pinduoduo launched its initial public offer, the three-years old giant found itself implicated in a major controversy involving allegations of peddling fake merchandise and intellectual property infringements. The State Administration for Market Regulation is investigating the incorporation after media reports of third-party vendors, in which they ask to the Chinese company to stop selling counterfeits goods on its group-discounting marketplace; especially the Chinese company Skyworth Digital Holdings Ltd (创维) that, on July 28, issued an official statement requiring Pinduoduo to remove and to stop the sale of counterfeit Skyworth products on its platform with immediate effect.
Skyworth is a large-scale high-tech group company mainly engaged in research, development and manufacturing of such products as consumer electronics, display devices, digital set-top-box, security monitor, network communication, semi-conductor, refrigerator and washing machine, 3C digital, LED illumination, that was established in 1988 in Shenzhen High-tech Industrial Park known as innovative Silicon Valley, with over 35,000 employees. Skyworth started its official store on the platform on June 17. However, Skyworth withdrew all its products from Pinduoduo’s platform on July 26 (two prior days to issue the statement). According to Pinduoduo, the company did not receive any prior notice from the Chinese TV maker company before its statement denouncing Pinduoduo’s wrongdoings.
The moves of reports come after Pinduoduo raised US $1.63 billion in the second-biggest US listing by a Chinese firm, which valued the company at US $23.8 billion. Because of the move of reports since its flotation, the shares of the company has recently tumbled down by around 20% (on 8th of August the price of the shares is $20₁) after Chinese regulators launched a probe into allegations of counterfeit products and intellectual property infringements.
Pinduoduo defends against allegations of selling fake products claiming that its merchandisers use low prices to attract potential buyers. With regards to the accusations made by Daddy’s Choice (a diaper producing company) to Pinduoduo for selling its counterfeit products on its platform, the Shanghai-based start-up argues that Daddy’s Choice products do not have high revenues on the platform, as a result, the company sued Pinduoduo just to attract media attention to damage Pinduoduo’s reputation₂. Moreover, Pinduoduo argues that Daddy’s Choice company do not have the qualifications to determine the quality of products on the platform.
Pinduoduo also claimed that it is searching for cooperation with other business company to fight against fake and counterfeit items.
This deal is important because the e-commerce start-up, with almost 300 million active buyers and 1 million active merchants, has a reputation for selling cheap low-quality items and it led crackdowns on counterfeit products in the past. These prohibitions have caused outrage among the platforms merchants, who, at that time, have said the company’s assessment were unfair. Nevertheless, Pinduoduo is now involved in this dispute and it has to deal with the failure to remove the listings featuring counterfeit goods. The Chinese company now has to contrive a way to safeguard consumer’s rights and brand equity.
[Alibaba has also been fighting an anti-counterfeit campaign among criticism from companies and consumers groups. Although, the US Trade Representative put Alibaba’s Taobao platform on its blacklist for the second consecutive year over suspected counterfeits, a move the e-commerce firm said did not reflect its effort to protect IP.]
The low-end strategy of Pinduoduo has attracted plenty of critics, who claim that the platform is overwhelmed with counterfeit version of named-brand products. This controversy is raising a stern warning for another controversial e-commerce player: NetEase’s Yanxuan (网易严选). The company, in fact, could be watched by regulators in the next future. The company is known as a Chinese Internet technology company that provides online services; however, it owns two e-commerce platforms: Kaola（考拉）and Yanxuan（严选）. The first one focuses its attention on cross-border purchases, but it failed to gain notoriety in China’s crowed e-commerce market. Instead, the second one gained a remarkable success. The platform sells merchandise from Chinese suppliers of international brands and, like PDD, Yanxuan targets lower-income shoppers in lower-tier cities. Instead of selling brand-name products, Yanxuan sells unbranded “private label”, products that are purported to be identical to their counterparts. Critics claim that these goods are simply first-rate knockoffs and them can mislead consumers to believe they are buying authentic products: that is why Yanxuan, even though it has not been sued or investigated as PDD yet, will probably overwhelm by the investigative report of regulators₃.
NetEase’s decision to let an e-commerce marketplace for unbranded products flourish reflect an habit of turning a blind eye toward potential IP violations.
The development of a network that makes accessible any product to consumers is important, but as you see it must be guaranteed to them a greater transparency on the origin of these goods. As this area of e-commerce is constantly growing, it is essential to operate a selection to identify which are the platforms that effectively promote the quality of products and support the intellectual property rights.
So, in order to protect your intellectual property rights on those platforms, if you are facing with counterfeit products or infringing activities committed by the e-commerce websites, you have to keep in mind that you can not file for legal actions on your own, but you are required to address local specialized company that will help you to shut down illegal activities conducted by the e-shops, and will provide you the best service to keep your business continue to prosper.