The shopkeeper caused "reputational damage" to Taobao by selling counterfeit versions of Royal Canin kitten food, the court found.
The court Shanghai ordered the shopkeeper to pay 120,000 yuan ($17,780) in damages. Taobao had sought damages of 2.76 million yuan ($409,000).
Alibaba had worked with Mars, the owner of the brand, to investigate the counterfeiting and charge Yao, it said.
In January Alibaba sued two vendors who sold fake Swarovski watches on Taobao in what it said was the first instance of an e-commerce platform taking a counterfeiter to court in China.
"Winning the first lawsuit [against Yao] has made Alibaba more confident in our crackdown on counterfeit merchants," said Alibaba's chief platform governance officer Jessie Junfang Zheng.
"We plan to put all the proceeds we receive [from lawsuits] to a special fund dedicated to protecting and compensating our consumers," she said.
Technology expert Paul Haswell of Pinsent Masons, the law firm behind Out-Law.com said: "While this is just the very tip of the iceberg for Alibaba’s count against counterfeiters, it is nevertheless a very significant step not just in combating the sale of counterfeit goods on the Taobao platform, but also showing the world that Alibaba is committed to preventing the sale of fake goods via its platforms. Building confidence in Alibaba amongst both international brands and international consumers is important to Alibaba’s plans to take on markets outside of mainland China, and winning the fight against fakes is vital to this."
Alibaba founder Jack Ma wrote an open letter to the Chinese government in March asking it to treat counterfeiting as seriously as it does drunk driving. The lack of deterrents to creating fake goods is stunting China's innovation, hurting its reputation and threatening the country's future, he said.
Alibaba announced a Big Data Anti-Counterfeiting Alliance in January with international brands including Louis Vuitton, Samsung and Mars, aiming to use technology to fight counterfeiting.
The alliance has around 20 members and will "bring together industry and technical know-how" to help keep fake products off of Alibaba's e-commerce platforms, the company said.
Alibaba appointed anti-counterfeiting expert Matthew Bassiur at the end of 2015 to lead a team working with international brands and retail partners, industry associations, government regulators and law enforcement organisations to fight counterfeiting.
Bassiur joined from Pfizer where he oversaw counterfeiting operations, Alibaba said. He previously worked for Apple as senior director for IPR enforcement, and as a federal prosecutor in the computer crime and intellectual property section of the US Department of Justice.