Alibaba must face lawsuit in US over counterfeit Squishmallows

By Jonathan Stempel

NEW YORK (Reuters) – A U.S. judge on Wednesday rejected Alibaba (NYSE:)’s bid to dismiss a lawsuit over the alleged sale by various merchants of counterfeit versions of the popular children’s toy Squishmallows on its online platforms.

U.S. District Judge Jesse Furman in Manhattan said Kelly Toys, whose parent Jazwares is owned by billionaire Warren Buffett’s Berkshire Hathaway (NYSE:), plausibly alleged that Alibaba knew about and contributed to the merchants’ infringement of its copyrights and trademarks.

Kelly Toys said the sale of counterfeits on Alibaba has persisted despite six earlier lawsuits to stop it, with Alibaba ignoring its own “three-strike” policies and awarding some infringing merchants “Gold Supplier” and “Verified” status.

Alibaba and lawyers for the Chinese e-commerce company did not immediately respond to requests for comment. Furman did not rule on the lawsuit’s merits.

Kelly Toys had in November 2022 sued about 90 merchants it accused of selling counterfeit Squishmallows, and obtained an injunction two months later. It added Alibaba as a defendant in March.

In seeking a dismissal, Alibaba said Kelly Toys failed to allege it had any involvement in infringements, and was trying to improperly shift the burden of policing its intellectual property by requiring “draconian” measures against sellers.

Jazwares bought a majority stake in Kelly Toys in April 2020. Berkshire bought Jazwares’ parent, the insurance holding company Alleghany (NYSE:), in October 2022. Revenue at Jazwares totaled $847 million in the first nine months of 2023.

The case is Kelly Toys Holdings LLC v 19885566 Store et al, U.S. District Court, Southern District of New York, No. 22-09384.