When buying goods from overseas suppliers through online marketplaces like Alibaba.com, the risk of fraud is a small but quite real. And when a fraud does occur, it’s not unusual for the victim to blame the marketplace in which the scam took place. Blaming the scammer might seem more appropriate. But seeking retribution from online thieves is generally futile, since they scurry down dark hidey-holes after making their scores and moreover their business model does not include returning ill-gotten gains to those they have cheated.
No, when fraud is committed, it is often the online marketplace that is the focus of victim’s ire. But is a commercial e-commerce website like Alibaba.com, which is an open marketing platform for thousands of companies all over the world, actually responsible for the misdeeds of its users? A U.S. District Court judge recently ruled that it is not, at least in one casein whichAlibaba.com was cleared of liability for the sale of counterfeit products by a Chinese supplier using the website.
In Englert v.Alibaba.comHong Kong Ltd., heard in the U.S. state of Missouri, an American buyer sued Alibaba.com for fraud or “negligent misrepresentation” because one of the site’s China-based Gold Suppliers sold him counterfeit goods. The buyer never received the merchandise he ordered— which apparently included fake pills and other products forboosting male sexual performance identified in court documents as ExtenZe male enhancement, Vimax and VigRX Plus—because they were seized before delivery by U.S. customs officials.
The buyer alleged that Alibaba.com’s representation on its website that “Gold Suppliers are verified by third parties” was misleading because it indicated the seller and the seller’s products were legitimate. To become Gold Suppliers, companies are subject to a basic background checks by Alibaba and by independent verification companies confirming they hold businesses licenses and provide valid contact information on their online storefronts.
Judge Rodney W. Sippel dismissed the lawsuit, ruling that while Alibaba.com verified the Gold Supplier, this did not mean that the website was standing behind the seller’s products. In fact, Alibaba.com’s transaction services agreement specifically disclaims the website’s liability for any losses suffered by buyers who rely on misleading product information provided by members. The buyer’s argument that “the legitimacy of a seller must be the same as the legitimacy of a seller’s products ‚Ķ is contrary to not only the plain language of the website itself, but also the realities of e-commerce,” Sippel wrote in his order dismissing the case.
What should Alibaba.com buyers in the U.S. make of this? For one thing, the decision should help to clarify the legal responsibilities of online marketplaces. By allowing third-party suppliers to post product listings, the website operator is not indicating any and all of the products being sold are legitimate. Buyers should proceed with caution when they don’t know the seller they are dealing with.
It’s worth noting that Alibaba.com has in the last several years takenmajor steps to fight fraud and to improve the quality of suppliers using the site. Two years ago, the website started a special fund, called the Fair Play Fund, to provide partial compensation to fraud victims, even though the company has no legal obligation to do so. Alibaba.com routinely evicts suppliers who receive fraud complaints and takes down listings for products that turn out to be counterfeits. Alibaba.com has even shifted its business strategy, sacrificing higher membership growth rates in exchange for improving the quality of its suppliers, a move that is curtailing short-term revenue but is seen as crucial to the company’s long-term success.
