Alibaba Group is a company that has flourished since its humble beginnings. Starting as a small operation, it is now a global powerhouse controlling various subsidiaries including Alibaba.com, Taobao.com, Alipay.com and China Yahoo!. Alibaba Group has captured the e-commerce market in China.

In a world on the brink of a new economic era, many global players are looking to China for salvation, whereas Alibaba Group has set its eye on the rest of the world. A company with those ambitions requires the support of dedicated employees, so the in-house legal team for the group and its subsidiaries is constantly evolving.

“I think our expertise and our size and coverage makes us unique among Chinese companies, and reflects the strength of our business and our business ambitions to grow domestically and internationally,” says Alibaba Group’s general counsel, Tim Steinert.

The team
Steinert came to Alibaba from the Hong Kong office of Freshfields Bruckhaus Deringer, where he spent seven years as a partner specialising in private M&A and securities. It was during the Alibaba.com IPO in 2007 where Freshfields was an adviser that he jumped from private practice to inhouse law.

Steinhert leads a legal team of over 50 people (32 who are lawyers) including specialists in M&A, IP, disputes, listing compliance, securities, financial services and commercial transactions. And it’s easy to see why Alibaba was keen to have Steinert at the helm. Fluent in Mandarin, he also has significant experience with legal transactions in Asia, having started his career in Beijing with Coudert Brothers in 1989.

Headquartered in Hangzhou, Alibaba now has around 17,000 employees, with only around 250 people based outside the mainland. “In the past, our business was more focused on China, but the legal issues we have been facing more recently have been increasingly international,” Steinert says.

Uncharted legal territory
As e-commerce companies, Alibaba. com and Taobao.com facilitate the relationship between buyers and sellers in an online marketplace. However, this creates situations where some sellers can offer products that may infringe on third-party IP rights. This model has created a new (and rapidly evolving) area of law around the enforcement of these types of commercial relationships.

It can be challenging to navigate through any legal framework, but especially so in China. “The internet business is relatively new and therefore the legal issues that arise are in some ways undeveloped,” Steinert says, pointing to privacy, online defamation and third-party IP rights as examples. In addition, lawyers for Alipay.com must also deal with the uncertainty of China’s regulations surrounding online payment and settlement, as there is currently no established framework regulating these transactions.

Steinert and Alibaba Group understand that regulations are currently being drafted in China. “The People’s Bank of China will be the regulator and the regulations will provide a licensing framework,” he says. Earlier this year, the group entered a strategic alliance with the Bank of China to collaborate on e-commerce initiatives, including online payment and the development of the Alipay smart card.

Despite the developing laws, the legal issues are not entirely foreign. “The laws in China may be different but the underlying principles of the law and the approach on issues in China are similar to the rest of the world,” says Steinert. “For instance, the obligation of the marketplace with respect to third-party IP in China is similar to that in the US and Europe,” Steinhert explains. It also helps that the in-house legal team has specialists in trademark, domain names and patents law.

M&A activity
Alibaba Group is pursuing expansion plans; creating Alibaba Strategic Investment, a team which functions very much like a venture capital fund.

The team identifies and invests in early-stage companies that may be of strategic benefit to the group or its subsidiaries, either through improving technology, people, products or markets.

In addition, the subsidiaries of Alibaba Group also pursue their own M&A strategies. “We have M&A specialists who can support our collective needs. An in-house M&A specialty is unique for companies in mainland China. We may also outsource some of the work, but we have people internally who can do it,” says Steinert.

Not every in-house legal team has M&A specialists but the Alibaba team has strong support from management. “Our management appreciates the value that having skilled lawyers inhouse brings,” Steinert says.

Outsourcing policies

Even though the legal team has strong in-house capabilities, Alibaba Group and its subsidiaries still seek assistance from external legal counsel when necessary, usually for particular transactions and specialist needs. To ensure it receives the highest quality support, the group invites law firms to pitch for the legal work when the need arises – rather than keeping a set panel of firms. “We look first and foremost to expertise; firm expertise and then team expertise. The team has to be able to meet our needs on a transaction,” says Steinert.

Legal expertise also has to be applied with a deep understanding of the internet business and of Alibaba Group. “Lower down the list are things like availability and their track record onshore or offshore. Of course, they have to speak Chinese for deals relating to China.” Steinert also identifies value-formoney as an important factor in selecting external legal counsel. “We expect that the firms will give us good value for the fees they charge. We are an intelligent user of external legal services,” he says. According to Steinert, the group sometimes works on an estimate basis, sometimes on a cap basis and sometimes on a non-cap basis.

Yet this does not mean that Alibaba looks for low-cost law firms – there is an understanding that quality legal work can be more expensive. “Logically, fixed-fees are only appropriate where you have an accurate idea of the volume of work. It’s not in anybody’s interest if the volume of work significantly exceeds the original calculation and the client insists the cap be maintained, because that is not good for the relationship and you may not get the quality of service that you deserve,” Steinert says.

He notes that PRC domestic law firms are more willing to work on a capped basis on a variety of transactions, including on litigation. “This is not as widely accepted outside China… International law firms are willing to cap in certain transactions but this cap is normally subject to a lot of assumptions.”

Expansion plans
The group’s business eye is set on a joint venture plan in India, as this is Alibaba. com’s largest supplier market after China. It saw 138% sales growth in India last year, with SME membership surpassing one million in June 2009. A new business unit – Alibaba Cloud Computing – is also being launched, to showcase computing, memory and network services, while providing another level of internet service for customers.

As the business expands so will the requirement for legal services. The in-house legal team is already looking to boost its depth and expertise. “As an international company, our legal department has to deal appropriately with laws in the jurisdictions where we are more active. So, as we expand internationally, I expect we will have to expand our legal department capabilities as well,” Steinert says.

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