Fake products are a $250 billion business in the United States, and stamping them out will take what one attorney calls a "Hundred Years War" - Tuesday, March 02, 2010; By Daniel D'Ambrosio
It had been a long, hot July day at Pocono Raceway when Carolyn Donohue, assistant to the president at luxury purse maker Dooney & Bourke of Norwalk, Conn. — and life-long NASCAR fan — sat in the back of her son Tom's van, shoes off, tired, stuck in bumper-to-bumper traffic.
Settling in for the long trip home to Connecticut from Pennsylvania after the day's race, Donohue's son suddenly pulled to the side of the road. There were state troopers everywhere, watching over the mass exodus of race fans and their vehicles.
"Ma, there's Dooney fakes over there!" said an indignant Tom. "You got to take care of them."
Vendors of all descriptions lined the road into the track, hoping to cash in on the tens of thousands of fans leaving the raceway. Dirty from the track, and a little annoyed by this intrusion into her life outside of work, Donohue nevertheless pulled on her shoes and slid out of the van. Sure enough she saw stacks of fake Dooneys in one of the roadside booths.
Walking up to the vendor with her son watching nearby, Donohue said, "Listen to me. I'm from Dooney & Bourke. I'm tired and I don't have the time, but I will go over and get that state trooper right now. Get this shit out of here."
As the vendor scrambled to load up his van to leave, Donohue turned to her son, "Tom, please, could we go home?" Three weeks later, armed with the license plate number she had taken down, a private investigator working for Donohue nailed the Pocono vendor for selling counterfeit Dooney bags.
Counterfeit goods are ubiquitous in the United States, reaching from centers of distribution on Canal Street in New York and Santee Alley in Los Angeles into every corner of the nation, from sidewalks and storefronts in cities like Hartford, New Haven and Bridgeport to flea markets in small rural towns in Connecticut and beyond, and venues like Pocono Raceway and Comcast Theater in Hartford, where police regularly bust parking lot vendors selling bootleg CDs and T-shirts at concerts by major acts.
The range of counterfeited products goes from fashion apparel and perfumes — recent news stories reveal cat urine is used in some of the fake scents — to aircraft parts and automotive brake shoes made of sawdust. In December 1995, after American Airlines flight 965 smashed into a mountainside in Buga, Colombia, the Associated Press reported "outlaw salvagers didn't even wait for all 159 victims' bodies to be collected before they moved in."
The salvagers collected engine thrust reversers, cockpit avionics and other valuable parts and flew them off the mountain in helicopters. The parts later turned up on the black market in Miami, "a hub of the thriving black market in recycled, stolen and counterfeit aircraft parts." It was counterfeit bolts, bushings and brackets that were blamed for the worst confirmed crash involving bogus parts, when the tail section of a turboprop plane tore lose on a flight over the North Sea in September 1989, killing 55.
Roger Schmedlem, a private investigator in Michigan who specializes in counterfeit cases for corporate clients like Disney and Oakley sunglasses, claims "every commercial airliner flying today has counterfeit parts on it." The overall scale of the counterfeit business is staggering.
"The estimate across the United States is this counterfeit industry is about a $250 billion business," says Bob Barchiesi, president of the International AntiCounterfeiting Coalition, an industry group formed in 1979. "It costs legitimate business 750,000 jobs in the U.S."
Most counterfeit goods sold in the United States are made in China — some 90 percent according to Barchiesi.
"Quite frankly [counterfeiting] supports an underground economy in China. It's big business," says Barchiesi.
And the profit margins are high, according to Barchiesi, who retired from the major case narcotic unit of the New York Police Department before taking over at IACC.
"It's low risk and high reward," says Barchiesi. "The profit margin on cocaine is 100 percent or 200 percent. On some of these counterfeited goods it's 400 percent, and they don't pay taxes."
The huge amounts of tax-free cash generated by counterfeiting are increasingly winding up in the hands of terrorist groups. The New York Times quoted the secretary general of Interpol in 2003 saying counterfeiting "is becoming the preferred method of funding for a number of terrorist groups."
A 2004 report by the comptroller of New York, William Thompson, estimated $23 billion was spent on counterfeit goods in the city in 2003, depriving New York of about $1 billion in tax revenue. Thompson's report cites bootleg compact discs to illustrate the gigantic size of the problem in New York.
"Seizure statistics for 2003 indicate that nearly 2.5 million illicit sound recordings were seized in the NYC area, and that approximately 17 million illicit sound recordings made their way undiscovered to the streets of New York City for sale to the public," states the report. With an average price of $5 per disc, that means bootleg CD sales in New York amounted to $85 million in 2003.
Although the report, called "Bootleg Billions," has not been updated since 2004, seizure statistics released by U.S. Customs and Border Protection and U.S. Immigration and Customs Enforcement in October 2009 show the total value of counterfeit product seizures has increased by more than 25 percent each year since 2005, with the exception of last year when there was a small decrease.
Marcy Forman, director of the National Intellectual Property Rights Coordination Center in Washington, D.C., says the IPR Center, which brings together ICE, CBP, the FBI and other federal investigators, is still trying to get its arms around the worldwide criminal enterprise behind counterfeiting.
"We're trying to identify the individuals," says Forman. "As you know you can't just chop off the tail of a snake, you have to go to the head, starting with manufacturing — those engaged in reproducing the goods, shutting down their factories."
That's problematic, given that most of those factories are in China. Forman says there's progress on that front, despite the fact that she couldn't definitively point to cases involving factory closures in China.
"I just met with a group of Chinese officials that addressed IPR issues less than two weeks ago," she says. "They're very amenable to partnering with us to go after counterfeiters."
On the local front, a bust on Feb. 4 in Hartford at Do It All clothing store on Main Street, owned by 38-year-old Roosevelt Holmes of East Hartford, netted more than 1,200 different counterfeit products, including Juicy Couture necklaces, Timberland boots, Nike sneakers, Coach, Louis Vuitton — and yes, Dooney & Bourke — handbags, plus DVDs of movies like Precious, Lovely Bones, Sherlock Holmes and Legion, and "vast amounts of blank CDs," according to Lt. Charles Cochran, commander of the vice and narcotics squad for Hartford Police.
Holmes and three of his clerks, including his mother, were arrested.
"Apparently they were doing it all," says Cochran.
Hartford Police made a second arrest that same day in front of 825 Main St., where 45-year-old Mambaye Mbaye of Hartford was selling out of his van. There were 35 items on Mbaye's folding table, including — again — Dooney & Bourke purses, along with Coach, Fendi, Louis Vuitton, Chanel, Gucci and Nike purses.
A 15-year veteran, Cochran came off the street five years ago, but said when he was working his beat there was a guy who supplied large amounts of CDs to street vendors and talked freely about his illicit business. He claimed he made $3,000 weekly from each of seven locations around the city.
"Getting arrested was the cost of doing business to him," says Cochran. "A $15,000 fine was no big deal, only a week of proceeds."
Connecticut has strong statutes on the books where counterfeiting is concerned, with fines up to $250,000 and jail time up to five years, or both. Those penalties mirror the federal statute for counterfeiting, which also calls for fines up to $250,000 and jail time up to five years, or both.
In Bridgeport, detectives Frank Podpolucha and Erno Nandori say they're not seeing much counterfeiting any more after "very aggressive" efforts in the past few years to target bogus DVD sales on street corners and in downtown stores.
"I think the word spreads quickly when you make a big bust," says Podpolucha. "They were on the street corners at one time and we targeted them hard. Narcotics and vice also hit them a couple of times."
In New Haven, spokesman Joe Avery says police have made some "incredible hauls" of bootleg tapes and CDs at the flea market on Ella Grasso Boulevard. Bruce Foucart, special agent in charge for ICE in New England, cites a recent case involving undercover agents in the New Haven office who cracked an online community, known as the "warez scene," where computer software, games and other copyrighted materials are reproduced and distributed. Five arrests of defendants in Florida, Minnesota, North Carolina, Georgia and New York resulted.
In December, says Foucart, Operation Holiday Hoax in 41 cities around the country plus Puerto Rico and Mexico resulted in the seizure of more than 700,000 products ranging from cosmetics to holiday ornaments. In Mexico alone authorities seized 225 tons of counterfeit products.
"What we're finding is these criminal organizations who are involved with IPR [violations] are also involved with other crimes," says Foucart. "They're involved in narcotics trafficking, human smuggling, they don't limit themselves to [counterfeiting]."
Still, says Cochran, jail terms are rare, and short. And the counterfeiters' customers have a hard time seeing what the big deal is.
"It's not a violent crime, it's copyright infringement, a white-collar crime," said Cochran. "[Counterfeiters are] looked at as providing a service to the community. If you're living in the projects and you don't have the money to see Sherlock Holmes you can buy a DVD for your whole family for $3."
The way customers see it, says Cochran, Brad Pitt can probably afford not to get his royalties on one more DVD. And for Hartford cops, chronically short on manpower, the focus is on drugs, not bootleg copies of The Wolfman.
"We have very limited manpower which we target toward gateway crimes like selling drugs," said Cochran. "The people that buy the drugs commit other crimes, like burglaries. We are trying to intervene in that chain, and [counterfeit products] don't so much fit [in that chain]."
Carolyn Donohue has spent her professional life working at the iconic Dooney & Bourke, whose purses and bags sell for $200 or more and sit on the shelves of stores like Saks Fifth Avenue.
She joined the company just a few years after it was founded in 1975 by Peter Dooney and Rick Bourke. Dooney still runs the company out of a quirky low-slung brick building in East Norwalk. There is no Dooney & Bourke sign anywhere on the building, and pulling into the parking lot recently, I called Donohue on my cell phone, convinced I was in the wrong place. I wasn't.
"We like to keep a low profile," said a casually but elegantly dressed Donohue as we settled on well-worn couches to talk in a room sporting a giant moose head on the wall. Peter Dooney had picked it up somewhere, and it fit perfectly in the informal atmosphere of the office.
Donohue received her first tip about counterfeit bags in 1993, when "somebody called" and said there were fake Dooneys being sold in Baton Rouge, La. She was caught by surprise.
"We did an investigation and all of a sudden we started getting flooded with phone calls of fakes being sold throughout the United States," said Donohue. "I flew all over the country on raids with federal agencies, local law enforcement and investigators, taking product down."
At the height of the counterfeit outbreak in the mid to late 1990s, Donohue had more than 14,000 entries in her computer of people and places selling fake Dooneys; there were license plate numbers, street corners, flea markets, nail salons, and more, says Donohue. Most of the tips came from loyal Dooney & Bourke customers.
"There are dedicated customers out there who are outraged at what's going on," said Donohue. "They want good product. Because they paid $250 for that bag they don't want you walking down the street saying, 'I only paid $25.'"
Donohue says she went flat out from 1993 until 2001 or 2002 when the counterfeiting slowed down. She had the entire country covered by a team of investigators — and still does — who would follow up on tips and make the cases for local law enforcement. But whenever her presence was requested, and it often was, Donohue would go. She wanted everyone to know that Dooney & Bourke took this seriously.
"If I was requested by the FBI or Customs to show up, that was important to do that," said Donohue. "I was on the road all the time. It was exhausting."
Somewhere back in the bowels of the building in East Norwalk — I wasn't allowed to see — long-time Dooney & Bourke employees were cutting leather and stitching seams on the latest purses and bags, just as they have since 1975. At first Dooney was entirely American made. Now there are factories in Puerto Rico, Mexico, Italy and China. But the designs and specifications for materials and manufacturing still originate from the desk of Peter Dooney, according to Donohue.
Now the counterfeiting is gaining momentum again. When Dooney introduces a new design or a new collection, it shows up on Canal Street in a flash and then goes "all over," says Donohue.
"I want it to stop," she said. "I don't want to lose my job. I don't want these little ladies working back here for 30 years to lose their jobs. It's a good company. Peter Dooney is a good man. I take it personally."
Angelo Mazza is a partner in the New York law firm Gibney, Anthony and Flaherty, general counsel to Rolex watch, a company that has had to deal with its share of counterfeiters. But like most law firms and investigators dealing with the counterfeit trade, Mazza's firm serves a large number of clients who pool their resources to fight off the fakes.
Over 20 years of dealing with counterfeiters, Mazza says he's seen a dramatic increase in both the sophistication and range of those products. Moving beyond the traditional sneakers and apparel luxury goods, counterfeiters are faking toothpaste, infant formula, pharmaceuticals, and even basic infrastructure items like circuit breakers, often with disastrous results.
The Internet has made it especially difficult to shut down the sale of counterfeit drugs like fake Viagra, says Mazza, which often have no active ingredients but do have ingredients like chalk and road paint.
Mazza is under no illusions concerning the struggle to fend off counterfeiters, calling it a "hundred years war." And he says the approach to fighting counterfeiters must be "multi-pronged." The city of New York, for example, recently began going after the landlords of the buildings where counterfeiters set up shop rather than trying to chase down individual sellers.
Jason Post, spokesman for Mayor Michael Bloomberg, says the city has brought more than a dozen cases against landlords since 2006 and has received closing orders in most cases, forcing landlords into changing their ways.
"When landlords are threatened with the loss of their property and court orders, we found we increased the chances buildings can be put to legitimate use," says Post.
Mazza likens it to trying to stamp out cockroaches.
"You want to step on them, that's fine. Spray them with chemicals and stuff steel wool into the baseboards, that's fine," he says. "Individually all those things are good but together they have a greater impact."
Ultimately, says Mazza, the only way counterfeiting will end is the same way the drug war will be won — and we all know how well that's going. It comes down to demand, he says. People have to realize buying fakes isn't done in good fun. There's a "whole trail of exploitation" that goes along with counterfeit goods, Mazza says, from children forced to assemble fake watches because their fingers are small, to the effects of shoddy goods on the public health and safety.
"You don't start off thinking you're going to buy a counterfeit good and support a whole host of illegal activities," says Mazza, "but that's what lies behind each purchase."
What to do with those tons of counterfeit goods? Everyone agrees that products like watches or DVDs should be destroyed, and they are. But in the past, various nonprofits have put fake designer clothing seized by authorities to good use, distributing it to the needy after removing labels and defacing trademarks.
That's why the New York Police Department drew the attention of The New York Times in January when the paper learned police had rented an industrial shredder last year to destroy 12 truckloads of bootleg clothing, including "winter jackets, shirts, pants and underwear." More truckloads were shipped to an incinerator in Long Island.
When asked by the Times, the police department, which had provided clothing to nonprofits like the New York City Clothing Bank in the past, said no one asked for the knockoffs in 2009, "an explanation that was bewildering to the operators of the clothing bank, who run a warehouse that supplies clothing to needy New Yorkers." The clothing bank told the Times they had made "many requests" for the clothing.
Copyright 2010 Hartford Advocate
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