Louis Vuitton, Coach Fight $23 Bln Flood of Fakes in New York

26 january 2006

Article published by: www.bloomberg.com (Last Updated: January 26, 2006) To contact the reporter on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net

Louis Vuitton, Coach Fight $23 Bln Flood of Fakes in New York ``Louis Vuitton?'' asks the woman on a busy corner in New York City's Chinatown. With a glance, she leads the way to a nearby basement and offers a canvas ``Hudson'' handbag with the trademark LV monogram for $40. The genuine article usually costs about $1,430. Police crackdowns are pushing counterfeit sales off Manhattan sidewalks and into stalls hidden in residential and office buildings. Now luxury goods makers including LVMH Moet Hennessy Louis Vuitton SA are hiring lawyers and private investigators to go after bootleggers law-enforcement authorities haven't been able to stop. ``It mimics what happened in the drug trade,'' says Andrew Oberfeldt, a retired New York City detective who conducts undercover ``buys'' for clients including LVMH. ``Once it gets driven underground, it gets more difficult to detect.'' Sales of knock-offs, including purses, scarves and DVDs, rose to $23 billion in New York in 2003 from $15 billion in 1995, according to a report from City Comptroller William C. Thompson Jr. The surge erodes the exclusivity of luxury brands, damages their reputations and costs New York City more than $1.6 billion a year in tax revenue. ``New York City is the first place counterfeiters think of in the United States,'' says John Tepper Marlin, Thompson's chief economist. He estimates 8 percent of all fakes sold in the U.S. are sold in the city. There are no solid numbers on how much individual companies lose to counterfeiters, says Michele Moore, a spokeswoman for the International AntiCounterfeiting Coalition, whose members include Paris-based LVMH, the world's largest luxury-goods maker and owner of Louis Vuitton; Burberry Group Plc, the London-based company that built a business around a plaid-lined trench coat; Swiss watchmaker Rolex Group's U.S. distributor, and Tiffany & Co., the biggest U.S. luxury retailer. $250 Billion Trademark infringement, such as counterfeit sales, drains about $250 billion from U.S. businesses in lost sales a year, according to the coalition. Clothing, handbags, backpacks and watches accounted for 56 percent of the $139 million of the fake goods seized by U.S. Customs in 2004, according to the Department of Homeland Security. ``Designs and trademarks are the most valuable assets a company has,'' says Carole Sadler, senior vice president and general counsel for Coach Inc., the largest U.S. luxury leather- goods designer. ``If the legitimate consumer is no longer interested in your product because it is ubiquitous, then you have lost the cachet of the brand.'' Peddler Charges Buyers seeking cheap copies in New York converge on locations including Canal Street in Lower Manhattan. There peddlers steer potential customers to off-street sales spaces. ``New York is a shopper's paradise, and people know that you can go to Chinatown or Broadway in Manhattan to buy a knock- off,'' says Barbara Kolsun, general counsel for 7 for All Mankind Jeans, whose designer denim trousers can retail for more than $150. ``It's even mentioned in tourist guides.'' Unlike Italy and France, where consumers can be fined for buying counterfeit goods, there's no law against buying fakes in New York. Penalties for selling fakes vary depending on whether the seller is a mere peddler or a wholesaler or importer. Peddlers are typically charged with a misdemeanor punishable by up to a year in prison; bigger operators can face federal felony counterfeiting charges that carry penalties of as much as 10 years in prison for first offenders. The New Drugs ``Counterfeiting is the new drugs,'' said Kolsun, a former chairman of the International AntiCounterfeiting Coalition. Manhattan District Attorney Robert Morgenthau's office prosecuted 1,469 cases in 2004 in which the highest charge was third-degree trademark counterfeiting, a misdemeanor punishable by up to a year in prison, said Leroy Frazer Jr., head of the D.A.'s Special Prosecutions Bureau. Manufacturers and retailers can't always depend on the police to locate and arrest counterfeit peddlers or wholesalers because officers aren't allowed to enter a building without probable cause that a crime is occurring, according to trademark lawyers including Steven Gursky of Dreier LLP, who has represented Polo Ralph Lauren Corp. The companies hire investigators such as Oberfeldt, president of Abacus Investigations & Security Inc. in Manhattan, to ferret out crooks and build a case that can be pursued in civil or criminal court. Oberfeldt has executed court-ordered seizures of counterfeit goods ranging from handbags to shoes. Deep Pockets Such civil seizures are authorized by state and federal laws including the Lanham Act, the principal U.S. trademark law. Trademark holders can obtain a court order authorizing them to seize counterfeit goods and destroy them. Discovering the phony goods is usually a job for private investigators, who are among the most effective weapons against counterfeiters, say trademark lawyers including Brian W. Brokate, a partner at Gibney, Anthony & Flaherty in Manhattan. ``Over the years, because of crime in New York, local law enforcement was not available, so using private investigators is recognized by the federal government and courts,'' says Brokate. ``If you go after counterfeiters, many disappear. Our firm goes after deep pockets, entities with assets.'' Fighting counterfeiters also makes unlikely bedfellows of normally fierce competitors, Brokate says. ``I will be around a table with 14 different companies that compete in the marketplace and do so heavily,'' he says. ``But when it comes to attacking trademark infringement, they're all holding hands.'' Industry Assistance Federal authorities welcome the industry's assistance, says Bruce Helman, head of the FBI's New York-based computer and intellectual property squad, and Martin Ficke, special agent in charge of the Department of Homeland Security's Immigration and Customs Enforcement office in New York. ``They give us the beginning of the investigation, and we take over from there,'' says Sgt. Ramon Rivera, of the New York Police Department's Trademark Infringement Unit. ``They're very helpful.'' Members of the AntiCounterfeiting Coalition declined to comment about their tactics to thwart counterfeiting. Some of their activities are detailed in court papers from cases such as one filed by Louis Vuitton, Fendi and Rolex against a Manhattan landlord and 29 unidentified peddlers in March 2004. In that case, investigators including Oberfeldt made several undercover purchases of counterfeit goods in a residential building in Manhattan. Their evidence led to a $16 million judgment in Manhattan federal court against the landlord, Michael Marvisi, and the 29 vendors. Calls to Jura Zibas, named in court papers as Marvisi's lawyer, weren't returned. Prada, Coach, Burberry In another case, a group of trademark holders hired Oberfeldt, who investigated sellers of counterfeit goods working out of the basement of a loft building on lower Broadway in New York. He secured a federal court order and along with New York City police officers seized tens of thousands of items including fake Prada, Coach and Burberry products. A police investigation to locate the suppliers of the phony goods continues, Oberfeldt says. So does the sales of counterfeit watches, purses and DVDs on Canal Street. The woman offering the ``Hudson'' bag says her name is Tina Yang. The space where she escorts a reporter during the holiday shopping season is a locked cubicle the size of a walk-in closet filed with several hundred purses. After the reporter identifies herself, Yang declines to answer several questions about her operation and shoves the reporter out and closes the door. At the corner of Broadway and Canal, Micki Iltis, 16, a blonde high-school student visiting New York from Graham, Texas, holds up four black plastic shopping bags. ``I got a Louis Vuitton messenger bag, a Vuitton purse, a Gucci purse and wallet,'' says Iltis, who says she lives 60 miles west of Ft. Worth. ``I'm a real good bargainer, so I got it at a good price. This all would've cost me more than $1,000 if they were real.''

Article published by: www.bloomberg.com (Last Updated: January 26, 2006) To contact the reporter on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net