While anticounterfeiting is a tireless fight for many brands, Coach Inc. scored a $5.5 million win last month by settling with the owner of a well-known Fort Lauderdale, Fla., flea market that was selling fake Coach goods.
This story first appeared in the January 21, 2014 issue of WWD. Subscribe Today.
In the federal court settlement, Preston Henn, owner of the Swap Shop, agreed to the multimillion-dollar payment. “Thrilled” as Coach’s deputy general counsel Nancy Axilrod was with the settlement, it was not about the money per se, but the deterrent effect the case will have on others.
Beyond the dollar amount, what makes Coach’s settlement significant is the fact it stems from a criminal case that held the property owner accountable. The news also comes at a time when designers and major brands are battling knockoff artists who are using 3-D printing and prototypes to try to fool designer-hungry shoppers. Compounding the problem is an upswing in “superfakes” — defective designer goods taken from a factory or items that are made with some authentic materials. Another telltale sign of the superfake is the price tag, which can be $500 or $600, compared with a flea market special, which can sell for $30 to $40.
Coach’s Axilrod hopes its Swap Shop news will help to set a precedent. Since launching Operation Turnlatch, a national anticounterfeiting program, Coach has filed more than 700 lawsuits, and Axilrod added, “I’m happy to say we haven’t lost a single one, but this case is the one we are most proud of. They definitely put up a long and difficult battle for us.…Before this, they were either ignoring us or sending back dumb excuses and combative explanations.”
Coach has records of counterfeit goods being sold at the Swap Shop dating back to 2004, though violations may have gone back further, Axilrod said. Founded in 1963 by Betty and Preston Henn, the Swap Shop is now an 80-acre stretch with more than 2,000 vendors as well as carnival rides and a 14-screen drive-in movie theater. More than 12 million people visited the Swap Shop in 1990 (the most recent year listed), according to the company’s Web site. In accordance with the settlement, Coach will continue to monitor closely what is sold at the Swap Shop. Should any counterfeit Coach goods be found there, the Swap Shop would be put on notice and would have an obligation to stop that within 30 days, Axilrod said.
Susan Scafidi, founder and academic director of the Fashion Law Institute at Fordham Law School, said Coach’s win is interesting on three fronts — “as a revival of brick-and-mortar enforcement rather than an exclusive focus on the Internet; as a return to using secondary liability against a marketplace, which declined in popularity after Tiffany lost its case against eBay, and as a big number for a small flea market.”
Henn, whose lawyer did not respond to requests for comment, has reportedly vowed to do a better job of policing his flea market. How the publicity may impact his sales remains to be seen. In 2012, a federal jury awarded Louis Vuitton $3.6 million after a San Antonio flea market was found to have sold fake Louis Vuitton merchandise. Jurors decided that Eisenhauer Market owner Bruce Gore and manager Patricia Walker contributed to trademark infringement for allowing vendors to sell knockoff items depicting the Louis Vuitton brand. “They are not allowed in here. We have big signs up everywhere. We look at all the merchandise that comes in here. We have done everything they asked us to,” said Walker, adding that business had suffered as a result of the negative publicity.
Attorney Harry Schafer, who worked on that case for Louis Vuitton, said, “Brand owners have their hands full, with counterfeit stuff being sold all over the Internet, people selling out of the trunks of their cars and on card tables on the street. There are a lot of people looking to trade on counterfeit goods.”
In fiscal year 2012, $864 million worth of fashion-related counterfeit goods bound for the U.S. were seized by federal officials, according to the International AntiCounterfeiting Coalition. And that figure does not reflect the countless other counterfeit goods that are being sold in brick-and-mortar stores, flea markets and online. Just last week, federal and local officials seized thousands of counterfeit items — bearing such labels as Louis Vuitton, Michael Kors and Ralph Lauren — with an estimated value of $1.8 million from a Nashville store.
If 3-D specialists and superfake sellers weren’t enough, there is the plethora of counterfeiters selling online. To try to crack down on online counterfeit sales in China, the International AntiCounterfeiting Coalition signed a deal with Taobao, China’s largest consumer-to-consumer Web site in the world’s most populated country, in August. IACC president Bob Barchiesi described the Coach settlement as “fantastic.…It sends a message to landlords and property owners that they can and will be held accountable. It is also a reminder that you should know who you’re dealing with [through your business.]”
New York City’s Canal Street and Santee Alley in Los Angeles continue to be trouble spots — and trendsetters — for counterfeiting, he said. To help shoppers wise up, the IACC is working with the Crime Museum in Washington to unveil an exhibition later this year. The IACC-backed DesignsFauxReal Web site is another way consumers are learning about the risks associated with shopping on counterfeit sites, Barchiesi said.
(In 2010, eBay won dismissal of a Tiffany & Co. lawsuit accusing the auctioneer of deceiving customers by allowing the sale of counterfeit Tiffany jewelry on its site.)
After the Counterfeit Triangle raid in New York City’s Chinatown, which seized $1 million in fake fashion items and held the building owner responsible with a hefty fine, some counterfeiters were driven to the streets — the trunks of their cars and street corners — to sell their knockoffs. Scafidi said, “It’s not new laws but increased enforcement, including enforcement against landlords, that has pushed counterfeit sales out of back rooms and onto the streets again.”