Keeping It Real

The black market for faked goods is gargantuan, fueled by a thirst for discount luxury products from Third World countries.

NEW YORK — Whac-a-Mole, that’s how anti-counterfeiting experts describe their work. As soon as you thwack one culprit, another pops up somewhere else. “We shut down an operation in China almost every day,” says Stuart Lockyear, director of intellectual property at Burberry, “but they just come back.” But counterfeiting is no game. The black market for faked goods is gargantuan, fueled by an unslakeable thirst for discount luxury products from Third World countries, where labor standards are weak and intellectual property law is anemic. In the first half of this year alone, U.S. Customs seized $56 million dollars worth of footwear and apparel. And that’s just what they caught. 

The international and increasingly organized counterfeit trade means that apparel makers with brand appeal have to be global in their approach to fighting fake goods. Burberry spends millions of dollars annually staffing seven intellectual property lawyers in counterfeiting hot spots around the globe. Some of what they do falls into civil bureaucracy: filing injunctions against those infringing on their trademark and lobbying governments to pass stricter IP laws; but the bulk of their work reads like a Law & Order script: working with private investigators to stake out shipments of counterfeit goods, setting up sting operations with local officials and hauling the fake merch off in paddy wagons. 

Lacoste, whose instantly recognized crocodile has made it a favorite counterfeit, spent $5 million in lawyer fees last year, which funded the confiscation of 3 million units in 4,000 different actions. Some seizures were as large as 100,000 units. “There’s no doubt that the operations are bigger and more sophisticated,” says Philippe Lacoste, the grandson of the brand’s founder and the company’s current director of external relations. 

In New York City, a place known for a robust and flagrant counterfeit market, Barbara Kolsun, who heads up anti-counterfeit strategy for 7 For All Mankind, says any brand has to take a holistic approach. She vaunts both the seizure of faux 7s at a small Madison Avenue boutique and the recent federal amendment criminalizing counterfeit labels. Previously labels by themselves were not considered counterfeit and had to be affixed to a garment before being considered illegal. “The breadth and depth of the [counterfeit market] can be a shock at first,” says Kolsun, whose 15 years in anti-counterfeiting include stints at Kate Spade, Polo and Calvin Klein jeans. 

In a competitive marketplace, counterfeit is one area where rival brands work together. 7 shares private investigators with Abercrombie & Fitch and True Religion who, in this case, hold the common interest of getting forged apparel off the streets. “Counterfeiters generally fake more than one brand,” explains Kolsun. “It makes sense to share resources.” 

Similarly Burberry, whose iconic check pattern is often faked, has partnered with Louis Vuitton on a program that targets landlords renting to counterfeiters on New York City’s Canal Street, a notorious retail center for counterfeit goods. 

But to effectively stanch the flow of counterfeit goods, brands know they have to work up the supply chain—and, unfortunately, that chain often stretches back to China. The country accounted for 81 percent of the goods seized by U.S. Customs in the first half of this year. The second highest place of origin was Hong Kong, which generated only 5 percent over the same period. Apparel makers across the board say that, while China’s political will to stop the outflow of counterfeit goods has increased, the country is not doing enough. Lockyear says Burberry secures millions of counterfeit finished goods a year from the country, but has limited success shutting manufacturers down. 

Laws in China aren’t standardized, explains Lacoste, who said the company has had trouble enforcing policies set in Beijing. “We’ll find a factory making counterfeit Lacoste and won’t be able to shut it down,” he says. “At most there’s a fine and a promise not to fake the goods again.” But promises haven’t stopped the influx of phony Lacoste polo shirts, shoes and fragrance, around the world and particularly into the U.S. market, where the company has enjoyed a burst of popularity. 

A common complaint is that the threshold for prosecution in China is too high, allowing counterfeiters to ply their trade without repercussion. This past September, the World Trade Organization agreed to examine a U.S. complaint about China’s flimsy intellectual property protection. 

Counterfeit specialists say that most of the time it’s easy to tell fake goods from the real McCoy. Often counterfeiters will slap a logo onto any schlocky product, even if it doesn’t look like anything the brand produces. Burberry has confiscated merchandise it doesn’t even make, like a cell-phone skin in Burberry plaid. 

But Kolsun says some of the products are surprisingly good facsimiles. She sites a special edition of 7 jeans designed by Zac Posen that was heavily embroidered. “Good knockoffs were on the market within months,” she says. 

Burberry fakes are becoming so convincing that the company has had to employ “security measures that make a definite determination” between good and bad. Lockyear declined to discuss the measures, but many brands in the pharmaceutical and consumer goods industry use invisible bar codes or special scannable coatings to authenticate their products. Such methods work on the microscopic level and thus far are difficult if not impossible to duplicate. 

But the newest hotbed of counterfeit activity isn’t in industrial China or lower Manhattan. It’s as near as your PC. The Internet is an increasingly popular route to market, one—marked by many vendors selling small quantities of goods—that is difficult and time consuming to police. In particular, eBay has received heat for the way in which counterfeiters have used its platform to sell illegal goods. Kolsun’s staff trolls the site constantly and, through an eBay counterfeit program, shuts down an average of 5,000 auctions a month. That number is half of what it once was, but Kolsun says that counterfeiting on the Web in general is rampant. 

Lockyear agrees but says the Web has also made it easier to track offenders. “It’s easier to have people looking through eBay than sending them down the back streets of major cities,” he explains. Monitoring the site has also led to some big busts. A rogue eBay merchant in America was linked to a large distributor in Germany, one that had been under surveillance for two years. The link helped German authorities prosecute the distributor. 

But lawyers, policies and arrests aside, Kolsun says the biggest challenge is convincing consumers that counterfeit goods contribute to an unregulated and underground economy. “This isn’t just eating into our business,” she says. “Counterfeit goods are made by irresponsible manufacturers who have no regard for labor standards. That purse you’re buying could have been made in horrible conditions.” She cites a recent raid in the U.S. where police found a sixteen-year-old girl working in a sweatshop. “Do people really want goods made like that?” she asks. 

Kolsun believes that education could be an effective strategy in drying up the demand for counterfeit goods, but until consumers begin to view counterfeits as more a social ill and less a shopping bargain, she says, the demand for fakes will likely be as strong as the originals they copy.