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Counterfeit Crackdown: Successes But New Worries

There is more collaborative enforcement against rising threats.

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WASHINGTON — Buoyed by alliances with industry and law enforcement, Immigration and Customs director John Morton said efforts to stifle counterfeit goods — a $600 billion challenge worldwide — are getting the needed muscle to be more effective.

“To successfully combat counterfeiting, which really has become an international criminal problem, we’re going to have to have a very strong partnership between industry and government,” Morton said in an interview at ICE headquarters here. “[The brands] understand the problem counterfeiting poses better than anyone else. They know their products well. They know how counterfeiters operate, who the counterfeiters are. Working together, we can have much greater success.”

Rising worry over the criminal connections of counterfeiters is giving added urgency to the efforts. Possible links between counterfeiting and terrorism are a major concern, said Morton, who wouldn’t discuss specifics.

“There is some evidence that the profits from counterfeiting can be diverted to more sinister activities,” he said. “We have moved from a world of criminal activity that was focused on an individual here or there to much more organized criminal counterfeiting. Whenever you start to talk about organized crime, it bleeds over into other things. It’s a real concern for us.”

At the WWD CEO Summit in November, New York City Police Commissioner Raymond Kelly said sales of some counterfeit goods go to Hezbollah, the Lebanon-based Islamist political and paramilitary organization.

In addition, ICE faces other challenges, including the online threat, Morton said. Before e-commerce technology was refined, if a criminal enterprise wanted to sell something that was worth $100, it would charge consumers $15 and the large price difference was a sure sign that something was fake. Now, Morton said, counterfeiters using Web sites set up to look like legitimate outlets can pretend to sell an item for $80 and consumers believe they’re buying the real thing at a reasonable discount. The Internet lends itself to a more sophisticated visual presentation of goods, sources said, compared with items sold on the street corner.

“The rise of the Internet as a marketplace has completely changed the face of counterfeiting,” Morton said. “The Internet has opened up a whole new frontier for counterfeiters.”

ICE is the primary agency conducting criminal investigations of intellectual property rights violations as the principal investigative arm of the Department of Homeland Security. Morton said the agency is having its most successful year regarding intellectual property enforcement, initiating more than 1,000 cases in the 2010 fiscal year, but declined to release statistics on seizures, arrests and raids until the end of the year. He attributed much of that success to a collaborative stance at the agency that extends through the federal government to the Department of Justice and the White House and into the business sectors that are most impacted, including luxury goods.

Previously, brands complained they were left largely on their own to combat fake goods through civil enforcement actions. Now, companies that have worked with ICE and the interagency Intellectual Property Rights Coordination Center that it manages said there is a new level of commitment from federal authorities. Executives responsible for enforcement programs at brands said they talk almost daily to agents working to combat counterfeiting.

On Wednesday, ICE announced the arrest and indictment of three people in Rockford, Ill., for trafficking in counterfeit goods, including fake Nike, Timberland, Ed Hardy, Louis Vuitton, Christian Audigier, Ralph Lauren, Gucci, Prada and Coach merchandise. The day before, the agency announced the seizure of $350,000 worth of fake Louis Vuitton, Gucci, Burberry, MAC, Versace, Ray-Ban and Rolex items from swap meets in Las Vegas.

A coordinated crackdown in Los Angeles in September resulted in 30 arrests and the seizure of millions of dollars of fake luxury goods. ICE and local law enforcement officials conducted three stings, netting $6 million in counterfeit jeans in one operation and $9.8 million in another. In August, an enforcement action in San Francisco broke up a major counterfeiting ring, resulting in the seizure of counterfeit goods valued at $100 million as well as 11 indictments. At the time, ICE called it the largest enforcement action against counterfeits on the West Coast.

Last March, federal officials broke up a multimillion-dollar counterfeiting ring with ties in Baltimore, New York, London, China and Malaysia. Nine people were charged with smuggling more than 630,000 counterfeit Gucci, Coach, Cartier and Nike items worth an estimated $33 million into the U.S. through the Port of Baltimore. In a related case, London officials arrested six people and seized 50,000 counterfeit Gucci, Ugg, Versace, Ralph Lauren and Nike items at 30 locations in and around the city. Three people charged in the U.S. case have pleaded guilty and each face a maximum sentence of 15 years in jail.

“There is a concerted effort at ICE to combat intellectual property theft,” Morton said. “It’s being done hand in hand with a push across the administration to the same aim.”

The federal cooperation extends to President Obama’s intellectual property rights coordinator, Victoria Espinel, the Justice Department under Attorney General Eric Holder, and the Department of Homeland Security, led by Secretary Janet Napolitano.

“As a brand owner, we’re encouraged and we hope that ICE and the other authorities continue to have a focus on IP rights for the companies,” said Leah Evert-Burks, director of brand protection for Deckers Outdoor Corp., which makes Uggs.

In a joint venture by the Departments of Homeland Security and Justice in November, called “In Our Sites 2,” federal agents seized 82 Web site domains for selling fake luxury goods. The sites were pedaling Louis Vuitton and Coach handbags, Rolex watches and other goods. The sites, registered in the U.S. but mostly operated from bases in China, bore names such as Realtimberland.com and Louisvuittonoutlet.

A banner was posted on all the infringing sites explaining to consumers that they were rogue domain names that the government had seized.

Nancy Axilrod, associate general counsel for Coach, said the company is pleased with the efforts undertaken by ICE and the Justice Department, particularly citing the work done to knock down the 82 Web sites.

In a ceremony at the National IPR Coordination Center last week, LVMH Moët Hennessy Louis Vuitton gave awards to several agents thanking them for the efforts to fight counterfeiting in “Operation In Our Sites 2.”

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