Seized watches imported with model numbers indicating they were fax machines. Watch faces like the one below are smuggled in with a decal covering the Cartier name.

IThe stakes — in billions of dollars — are getting higher as luxury goods companies battle against a tsunami of counterfeit goods from the Far East.



NEW YORK — “In one shot we took 550,000 watches,” said Harley Lewin, chairman of trademarks and global brand strategies for New York law firm Greenberg Traurig LLP, and one of Cartier’s weapons in the fight against counterfeiters. “Right now we have in excess of a million counterfeit watches in storage.”

Lewin’s youthful exuberance in recounting the haul, as if it happened just yesterday, is understandable. The task of prosecuting counterfeiters and those who sell counterfeit goods has long been a Sisyphean ordeal for luxury goods manufacturers. Companies have engaged in endless cycles of lawsuits that, even in the most open and shut cases, have taken years to work their way through the court system. The results have yielded largely hollow victories, with multimillion-dollar judgments issued against nameless defendants who disappeared into the ether.

Four years ago, Cartier’s legal team decided it was time to change strategies, opting to shift their focus from the fight against street vendors to the development of a more efficient system of identifying, prosecuting and dismantling international counterfeiting operations. For Lewin, large seizures of goods, more so than huge monetary awards, are proof the strategy is paying off in more tangible ways.

The fruits of Cartier’s labors can be seen in Cartier International et al v. Liu et al, a lawsuit filed by the luxury giant in Manhattan federal court more than two years ago that has already resulted in huge seizures of goods, jail time for at least one defendant and the award of millions in damages against named defendants.

In contrast, only six weeks ago, LVMH Moët Hennessy Louis Vuitton scored a victory against 29 unidentified Chinatown retailers selling counterfeit Louis Vuitton and Fendi merchandise. In that case, U.S. District Court Judge Thomas P. Griesa, who also happens to be presiding over Cartier v. Liu, ordered each retailer to pay $16 million in statutory damages. If all the counterfeiters are found, identified and forced to pay the damages — an unlikely scenario — LVMH could see a total award of $464 million.

But the stakes are getting ever higher as luxury goods companies battle against a tsunami of counterfeit goods from the Far East. As noted, industry experts in China believe there is little reduction in counterfeiting activity in the country despite its joining the World Trade Organization and the Chinese government saying it will crack down on counterfeiting. The activity is costing the industry billions in lost sales worldwide.

This story first appeared in the October 12, 2004 issue of WWD.  Subscribe Today.

Cartier’s new strategy is a three-pronged attack, starting with the companies that ship the goods. Stage two focuses on parsing information obtained from shipping operators to identify and move against counterfeit distributors. In stage three, Cartier seeks to hit counterfeiters where it really hurts — in their wallets — by identifying and closing off the channels by which they launder and obtain their cash.

Noticeably absent in this model is the prosecution of scores of street vendors, many of whom openly sell counterfeit luxury wares on the streets of Manhattan. Cartier’s lawyers no longer view street vendors as the front lines.

“We have never sued a retailer, not in the four years we’ve been working with Cartier,” said Lewin. “We think it’s a waste of time.” After all, Lewin pointed out, past efforts by companies to prosecute street vendors are anything but cost effective and clearly haven’t had the necessary impact, as any stroll through lower Manhattan’s Chinatown proves.

“Canal Street represents the tip of the Chinatown iceberg,” said Lewin.

Cartier needed a way to get to the Manhattan basements and Asian centers in Brooklyn, Staten Island, Queens and New Jersey where the counterfeit goods were being assembled and distributed.

“We decided the choke points to start with were the shipping entities,” said Lewin. “We felt distributors would keep documents. We found that storefront postal operations, sort of like a Mailboxes Etc., were choke points through which these goods traveled. They were sending, receiving, billing, getting paid and cashing checks. In one fell swoop we picked up 50,000 pieces of paper.”

Investigators began building a case, which enabled Cartier’s lawyers to be granted orders from the court allowing them to seize documents. With mountains of documents in hand, the legal team set out to develop a database that could be accessed by Cartier, its lawyers and investigators. “If the bad guys are coordinated, the good guys should be, too,” said Lewin. “We’ve become absolute sponges for information.”

Sifting through the documents and aliases ultimately helped lead to seizures of goods that were exponentially larger than most Canal Street raids.

The document trail has also yielded a detailed picture of how international counterfeit rings operate. In the current case of Cartier v. Liu, Cartier found that the counterfeiting of its watches involves Asian countries such as the Philippines, Singapore and China, each of which makes a separate part of the watch. Lewin said Vietnamese buy those goods in Hong Kong and front the money to have them shipped to their Vietnamese counterparts in the U.S. Trademarked faceplates, backplates and other logoed hardware are smuggled into the country separately.

The Chinese enter the picture when it is time to assemble the watches and distribute them among Canal Street and Internet vendors.

“Chinatown is a misnomer,” said Lewin. “It should be called Asiatown.”

Cartier’s investigations have found that it costs about $1.69 to bring a blank watch into the U.S. From there, trademarks, like the faceplate pictured, are added by workers, most of whom are illegal immigrants working in poor conditions for a meager wage. A completed watch is then wholesaled on Canal Street for between $20 and $50. By the time it makes it to the Internet the resale price ranges between $150 to $200.

Rather than go after every small-time independent Internet retailer, Cartier’s lawyers used the documents obtained from shipping companies to focus on those being supplied by Chinatown distributors. “When we move against these guys, we know they’re tied back [to Chinatown],” said Lewin. “We also move against them when they appear to be significant geographically,” said Lewin. Using its New York office as a base of operations, Greenberg Traurig lawyers have farmed out smaller cases against specific Internet retailers among its more than 20 offices across the country. Separate lawsuits, all connected to the Chinatown distribution system, are under way in California, Florida, Illinois, Massachusetts, New Jersey, North Carolina, Oregon, Rhode Island, Texas and Utah.

In Cartier v. Liu et al, Cartier’s lawyers are focused on chasing down the money.

Once again, the documents obtained from storefront shipping companies in the first stage were crucial, showing that those operations had not only shipped goods, but had also cashed checks for counterfeiters.

After that avenue for changing money was closed off, the counterfeiters proved to be as mobile as Canal Street vendors, quickly taking their money orders to what was referred to as “the Korean bank.” Cartier’s investigators weren’t far behind, tracking the counterfeiters to Victa Investment & Capital Corp., an alleged sewing machine repair shop on Manhattan’s west side.

According to court documents and testimony from Cartier lawyers and investigators, an individual named Soon J. Pyo, working in the back of the shop, accepted money orders from counterfeiters, deposited them into several accounts at Wachovia Bank and made regular cash withdrawals in the millions of dollars. The cash was then redistributed to the counterfeiters.

Some 60 boxes of evidence were seized under court order from the shop Aug. 18, according to court documents.

“If you look at [Mr. Pyo’s] documents, about every week he ordered a million dollars, or every other week he ordered a million dollars from Wachovia,” said Cartier lawyer Roxanne Elings during a Sept. 17 hearing before Judge Griesa. “[The money] is wired to Brinks. Brinks puts it in an armored truck and then it’s delivered.” Pyo then distributes the cash back to counterfeiters, said Elings.

Also among the items seized, said prosecutors, was a separate accounting book labeled “DF,” presumed to stand for “defendants.” In it were many of the named defendants in Cartier’s original October 2003 filing, who had apparently opened accounts with Pyo only two months later.

Cartier’s strategy is paying dividends in the courtroom as well. Rather than filing scores of individual lawsuits, the jeweler has relied on the documents to identify and add defendants on a rolling basis. In this manner the case is kept moving and has the added benefit of being kept under the jurisdiction of one judge. The judge’s familiarity with the history and intricacies of the case has been evident in comments from Griesa.

In an Aug. 30 hearing regarding a restraining order violation by Pyo, Griesa strongly rejected a suggestion by Pyo’s lawyer that the defendant had no knowledge that he was handling the money of counterfeiters. “Please, please, please. Look, people in this business know all the ropes. They know what they are doing and that is all there is to it,” said Griesa.

The judge offered more of the same to Pyo’s defense lawyers in a subsequent hearing. “There is a record involving these defendants, and I am speaking loosely and generally, of the most calculated deceptions, counterfeiting, plus every possible effort to conceal it,” said the judge.

Other trademark lawyers didn’t characterize Cartier and Traurig’s approach as revolutionary, saying obtaining documents was always a priority. But they gave Cartier and its lawyers credit for their level of persistence in identifying defendants.

A number of judgments have already been determined in the case. In April 2003, Griesa determined a group of defendants to be in contempt for violating a temporary restraining order and awarded damages of $4.8 million. Another defendant has already begun serving jail time.

More recently, on June 28, another group of defendants agreed to settle with Cartier for $1 million. Two more defendants settled on Sept. 14 for $150,000. According to Lewin, 12 more judgments are pending and that, when all is said and done the case could have 50 named defendants.

“We’ve put millions of dollars back in the hands of our clients,” said Lewin. “Nobody’s done that in this business.”

Editor’s note: This is the second in a two-part series looking at counterfeiting, particularly in China, and the actions being taken to reduce it. The first part ran in WWD Monday.

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