Michael Kors Latest to Take on Cybersquatters

The best scammers are using Twitter, Pinterest, Facebook and RSS Feeds to publicize their products, in a move that seems to legitimize what they are selling.

The courts are putting the digital world on notice when it comes to counterfeits.

This story first appeared in the June 29, 2012 issue of WWD.  Subscribe Today.

Social media sites, search engines, ad-word providers and even blogs are increasingly being held accountable for hosting domain names selling counterfeit goods, following a string of high-profile judgments in favor of some of fashion’s most prominent brands.

The most splashy victories came this spring when both Hermès International and Burberry Ltd. won separate $100 million judgments against networks of cybersquatters. The latest, a $2.4 million win Thursday for Michael Kors LLC, is further evidence of the emerging trend in fashion law.

“Basically, as these cases have progressed, the defendants are consistently not cooperating with the courts. The courts have found that they are not participating in the process in any way,” said Joseph Gioconda, whose namesake firm is responsible for delivering victories in all three cases.

Gioconda, who tried the cases in New York federal court, explained that implicating search engines like Google and Yahoo, and social media sites such as Twitter and Facebook, is just one more way that brands can stem Internet counterfeiting. The rulings in the three cases meant that these sites are now responsible for getting rid of any counterfeit site found on their platforms and for delisting any infringing domain names from their Web searches.

The unyielding nature of Internet counterfeiting, which is often referred to as “Whac-A-Mole,” is nearly impossible to eradicate altogether. When one Web site is shut down, a slew of new ones tend to appear. As a result, trying to track down the responsible parties is extremely difficult. For brands to collect monetary judgments, they have looked to third-party payment processors like PayPal Inc. to fork over any assets frozen from the illegal transaction.

That is why the somewhat small $2.4 million judgment in the Michael Kors case is not what’s important.

“The damages award is largely a symbolic gesture,” Gioconda said, explaining that any brand is “lucky” if it can collect a million dollars.

In the Kors case, presiding Judge Shira Scheindlin, whose name has been in the news recently after she ruled in favor of Gucci America Inc. against Guess Inc. in a trademark infringement case last month, likely made monetary award based on her assessment of the defendants’ profits, legal experts said.

Filed in November, the case pitted Michael Kors against 35 infringing Web sites, including MichaelKors-Outlet.net, CheapMichaelKorsOutlet.com and MichaelKorsSale.com, all of which sold handbags, shoes, wallets, belts, eyewear, watches and jewelry bearing the brand’s trademarks.

In many instances, the counterfeits were priced between $350 and $800, which is comparable to the price range of genuine Kors product. The similar pricing likely caused “consumer confusion,” which is key to proving trademark infringement. In addition to awarding damages, Kors scored a permanent injunction against the sites, as well as the ability to work with the court to disable offending Web sites that have subsequently been launched by the defendants.

Like the majority of brands that win cybersquatting cases, Kors will also be able to collect damages from PayPal and other third-party payment processors.

While that may seem like a tertiary victory, lawyers agreed that by putting the onus on third parties like PayPal, counterfeiters are being forced to change their habits.

“The whole goal of the third-party payment processor is to get the PayPals and the credit card companies to the point where they won’t allow a counterfeiter to use their services to process transactions. So where do they go?” said Gibney Anthony & Flaherty partner Brian Brokate, who is an expert in anti-counterfeiting law.

According to Brokate, there’s a movement of counterfeiters “reverting” to using old payment methods such as bank transfers or Western Union, which is a sort of mini-victory, as most consumers won’t wire money to China.

At the same time, counterfeiters are developing more complex selling strategies. The best scammers are moving beyond creating a Web site or hawking their goods on eBay or Alibaba. Instead they are using Twitter, Pinterest, Facebook and RSS Feeds to publicize their products, in a move that also seems to legitimize what they are selling. Some are even creating style blogs and selling goods on those sites, a trend that is in full swing in the digital space.

By curating a sort of lifestyle brand, albeit a counterfeit one, these cybersquatters are “creating a veneer of legitimacy,” which is harder to dismantle in its entirety, said Gioconda, in explaining why he has chosen to implicate third parties.

Whether brands will be more effective in diminishing the numbers of their foes is yet to be seen, but the Kors ruling, taken in conjunction with the Hermès and Burberry ones, signals an evolution in how courts are slowly changing to adapt to counterfeiting today. Still, it’s a tough fight.

“The more stuff counterfeiters can throw up on the Web, the harder it is for the brand owner. They have more resources, more people and more time,” Gioconda offered. “The brand owner is in a very difficult position. It gets to the point where they throw up their hands and want to give up, but they can’t do that.”