NetEase and Estee Lauder drop lawsuits as cross-border sales rise

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(Image credit: NetEase)

NetEase and Estee Lauder have decided to put an end to their legal disputes, a move that signals both sides are burying the hatchet with China’s flourishing cross-border e-commerce as a backdrop.

Kaola, NetEase’s cross-border e-commerce platform, has dropped a lawsuit it filed in June 2018 against China Consumer Association (CCA) and Estee Lauder for damaging its reputation. In an announcement released Friday via Weibo, Kaola pledged humility to regulatory oversight, as well as suggestions from stakeholders, from consumers to media.

The firm also announced that a lawsuit Estee Lauder filed for trademark infringement earlier this month against the Hangzhou-based e-commerce company had been dropped. The US cosmetics company in July 2017 sued Kaola for selling its MAC brand cosmetics without a license, and was asking RMB 1 million (around $150,000) in compensation for losses.

NetEase did not disclose specific reasons for withdrawing its lawsuit, and refused to comment on the possibility of collaboration between the two companies. Estee Lauder was not immediately available for comment.

“This might be the best outcome for both parties, settling the dispute in a peaceful way,” (our translation) Wang Jian, professor of University of International Business and Economics (UIBE) said when contacted by TechNode.

“Even if Estee Lauder Shanghai branch is granted exclusive license to sell products in China, it is disallowed to restrict other dealers from selling merchandise in the country,” Wang said in a blog (in Chinese). “Otherwise, it would violate the antitrust law as the monopoly should disrupt the market order and damage interests of consumers. There has been many lawsuits about intellectual property being misused as a a monopoly right, which is untenable in the Chinese market.”

Kaola’s statement is the latest in a series of twists and turns it has faced over the past year regarding accusations of selling counterfeit products. In a regulatory investigation launched in February 2018, NetEase was accused by both CCA and Estee Lauder of selling unauthentic skin care products on its platform.

NetEase later filed a lawsuit charging reputation damage against CCA and Estee Lauder, seeking RMB 21 million and a public apology. The Hangzhou-based e-commerce giant maintained that products were imported from reliable overseas channels, and how it imported and sold products to Chinese consumers were “completely” in accordance with the relevant national provisions in the country.

Despite the overall slowdown in the Chinese online retail sector, the cross-border e-commerce sector has been flourishing amid growing demand. Trade volumes reached RMB 9.1 trillion with a user base of more than 100 million in 2018, a 44% increase compared to the year prior, reported Renmin Daily citing market research firm iiMedia Research.

“Traditional companies have yet to adapt to the environment where the e-commerce distribution channels have been established. This may cause turmoil within the company and disputes among dealers. Estee Lauder should lower the prices in the offline market, while leveraging online trade channels to reduce the distribution costs,” Wang said.