Fake goods problems. Though you might like getting a deal on a counterfeit Gucci handbag, the 'global epidemic' of bogus products takes a sizable bite out of the economy.
Recently I took a walk through New York's Chinatown to see just how easy it was to buy counterfeit goods. As I walked down the street, I passed many storefronts filled with cheap products by no-name or made-up brands. To find brands such as Gucci, Prada, Cartier or Louis Vuitton, though, I was going to have to dig a little deeper.
Eventually, I was approached by a man who claimed to have "really good" fakes several blocks away. I followed him through the crowds for a few blocks until we entered a small store that sold postcards and tourist knickknacks. Then we walked to the very back of the shop and through a secret door. Once we were inside, the door was shut behind us, and we were locked in with hundreds of counterfeit handbags and wallets -- and a handful of shoppers.
In this room, at least, the knockoffs were selling like hotcakes. A counterfeit Gucci bag went for $80; a real one can cost $750. A counterfeit Louis Vuitton wallet was $60; the real deal goes for $535.
It felt creepy to be locked in a small room with frantic women bargaining for bags, but it didn't seem to bother the shoppers. "There's always a danger" when people go into back rooms to buy goods, said Andrew Oberfeldt, the president of Abacus Security. "People take incredible risks for very little value."
Which products are fakes? Test your smarts
A big industry
It's not just fake Prada and Gucci bags on the black market these days. Counterfeits include medicines, shampoos, laundry detergents, semiconductors, computer equipment and even airplane parts.
Seizures of counterfeit products that pose potential safety or security risks surged 124% in fiscal 2008 to a value of $62.5 million, according to U.S. Customs and Border Protection.
In summer 2007, counterfeit Colgate toothpaste was found on discount-store shelves in four states and Canada, as well as in hospitals and prisons. The counterfeit toothpaste lacked fluoride, an ingredient found in real Colgate toothpaste, and some of the toothpaste contained micro-organisms such as bacillus spores, which can cause anthrax, and diethylene glycol, which is typically used in antifreeze.
Phony pharmaceuticals have become a huge problem as well, "partially as a result of the Internet," said Andrea Sharrin, a deputy chief in the Criminal Division's Computer Crime and Intellectual Property Section of the Department of Justice.
"More people are using the Internet as a global marketplace -- because of that, there is more access to counterfeit goods," she said. "If you get your pharmaceuticals online, you might not know what you're getting."
There are also more bogus semiconductors on the market these days, with the biggest issue being the re-marking of products, in which packages are labeled with counterfeit brands, phony speeds or different part numbers, according to the Semiconductor Industry Association.
Counterfeits have even hit aircraft and the military.
The Federal Aviation Administration estimates that 2% of the 26 million airplane parts installed each year are counterfeit.
Fake computer components and routers have been found in military aircraft, computer networks and other equipment. "What we have is a pollution of the military supply chain," retired four-star Gen. William G.T. Tuttle Jr., a former chief of the Army Materiel Command and now a defense industry consultant, told BusinessWeek last fall.
Tackling the problem
That "pollution" extends far beyond the military. There are many stages in the supply chain, and often intermediaries are involved, providing openings for counterfeiters.
"If you're buying from authorized distributors and directly from manufacturers, you limit your exposure to counterfeiting," Richard Tapping, the general manager of Semicentral.com, told EDN, an electronics-industry news and information Web site. Semicentral.com facilitates component trading among original equipment manufacturers and contract manufacturers. "Also, if somebody quotes you $2 for a $20 part, you might get suspicious. You can see in the price that it has been counterfeited."
The counterfeiting problem has not escaped the federal government's attention: There are a number of criminal statutes that cover copyright violations.
Still, counterfeiting is a good gig compared with weapons smuggling or the drug trade, Abacus Security's Oberfeldt said. "If you get caught for selling fake handbags, you aren't going to do much time -- maybe one year. It's all benefit and no penalty."
A global problem
Though tourists in Chinatown might think it's innocent fun to get a "bargain" on a fake bag, the impact of counterfeiting on the economy is huge.
"It is a global epidemic, with 750,000 jobs lost to counterfeiting," said Valerie Salembier, the publisher of Harper's Bazaar. Counterfeiting also has close ties to organized crime, and "organized crime is a business, where you get the most amount of profit for the least amount of risk," Oberfeldt said.
The Harper's Bazaar Anticounterfeiting Alliance was formed five years ago to raise awareness of the issue. The magazine hosts an annual anti-counterfeiting summit in New York and produces a consumer Web site with tips on how to spot fakes.
Counterfeit drugs can be especially difficult to spot. The World Health Organization in 2008 estimated counterfeit drug sales at $35 billion to $40 billion. Pfizer, which makes the erectile-dysfunction treatment Viagra, estimated it loses $2 billion a year to counterfeit sales.
What's your best protection against counterfeit drugs? In the U.S., the Food and Drug Administration recommends buying prescription drugs only from state-licensed pharmacies.
Counterfeiting has been tied to terrorism funding, child labor violations and other illegal activities.
"You have to assume that any fake good is produced in circumstances that violate all laws, from environmental laws to child labor laws," said Justin Hughes, a professor of intellectual-property law professor at Yeshiva University in New York City.
The recession has aggravated the problem. "During a severe economic downturn, there are a lot of industrial resources that are not in use," Hughes said. "It becomes tempting for someone to use an idled plant, for example, to make money in an illegal way."
Which products are fakes? Test your smarts
Authorities crack down
Only a few years ago, tourists in New York City didn't have to go to Chinatown or back alleys to buy counterfeits. They could find fake Gucci, Coach or Louis Vuitton handbags on many street corners in Manhattan.
The New York Police Department has cracked down on the counterfeit business, shutting down at least 18 manufacturing sites in the past five years. In February 2008, the department raided a block-long area of Chinatown and seized more than $1 million in knockoff accessories and fragrances. The block was home to 32 storefronts that had sold fake goods for nearly a decade.
Counterfeiters have responded by becoming more creative.
"To avoid Customs detections, many Chinese and South Korean counterfeiters send their handbags out unmarked," Oberfeldt explained. "In a separate factory somewhere in the city, then they will add the metal plates and affix the trademarks. Their attitude is, 'Until we put it together, it's not illegal.'"
Many luxury companies spend millions of dollars to fight the problem.
Louis Vuitton Moët Hennessey, for example, has 60 people working full time on anti-counterfeiting in collaboration with a network of outside investigators and a team of lawyers, according to the company's Web site.
"There is a great effort among private companies to get better enforcement, to better organize together," Hughes said. "It is in their interest to try to leverage the enforcement resources they receive from governments and to constantly monitor the market and be able to tell authorities what to look for."
'Ghost' factory shifts in China Seizures of fake goods in the U.S. have soared in recent years.
The domestic value of goods seized for intellectual-property-rights violations in fiscal 2008 jumped 39% to $272.7 million, according to Customs and Border Protection. Goods from China accounted for 81% of the total value.
Often, counterfeit goods are produced in the same factories that make the real things.
A Chinese factory might produce two shifts of legitimate items and then, with a wink and a nod, stay open overnight for a "ghost" shift to make counterfeit goods, Caroline Joiner, a former executive director of the Global Intellectual Property Center at the U.S. Chamber of Commerce, told New York's Gotham Gazette last year. Often the goods produced during that third shift are made with lesser-quality materials, but sometimes they are nearly impossible to distinguish from the genuine articles.
"If you have a good, reputable factory and a good long-term relationship, you shouldn't experience a ghost-shift issue," said Ed Haddad, the vice president for intellectual property for New Balance athletic shoes. Still, it "can always happen," he cautioned.
The issue is being addressed, the Justice Department's Sharrin said, but "change doesn't happen overnight."
One hope for copyright and trademark holders is that "there are brand owners in China now. They're being counterfeited now and are complaining to their government," Haddad said. As China's own industries grow and develop their own trademarks, hopefully, there will be less counterfeiting.
It's up to consumers
"Everything and anything can be counterfeited," said Salembier, of Harper's Bazaar. "And that puts a big responsibility on consumers to make sure they know what they're buying." If there's one thing to know, Salembier said, it's this: "If it's cheap, 99.99% of the time, it's going to be fake." /msn.com
Recently I took a walk through New York's Chinatown to see just how easy it was to buy counterfeit goods. As I walked down the street, I passed many storefronts filled with cheap products by no-name or made-up brands. To find brands such as Gucci, Prada, Cartier or Louis Vuitton, though, I was going to have to dig a little deeper.
Eventually, I was approached by a man who claimed to have "really good" fakes several blocks away. I followed him through the crowds for a few blocks until we entered a small store that sold postcards and tourist knickknacks. Then we walked to the very back of the shop and through a secret door. Once we were inside, the door was shut behind us, and we were locked in with hundreds of counterfeit handbags and wallets -- and a handful of shoppers.
In this room, at least, the knockoffs were selling like hotcakes. A counterfeit Gucci bag went for $80; a real one can cost $750. A counterfeit Louis Vuitton wallet was $60; the real deal goes for $535.
It felt creepy to be locked in a small room with frantic women bargaining for bags, but it didn't seem to bother the shoppers. "There's always a danger" when people go into back rooms to buy goods, said Andrew Oberfeldt, the president of Abacus Security. "People take incredible risks for very little value."
Which products are fakes? Test your smarts
A big industry
It's not just fake Prada and Gucci bags on the black market these days. Counterfeits include medicines, shampoos, laundry detergents, semiconductors, computer equipment and even airplane parts.
Seizures of counterfeit products that pose potential safety or security risks surged 124% in fiscal 2008 to a value of $62.5 million, according to U.S. Customs and Border Protection.
In summer 2007, counterfeit Colgate toothpaste was found on discount-store shelves in four states and Canada, as well as in hospitals and prisons. The counterfeit toothpaste lacked fluoride, an ingredient found in real Colgate toothpaste, and some of the toothpaste contained micro-organisms such as bacillus spores, which can cause anthrax, and diethylene glycol, which is typically used in antifreeze.
Phony pharmaceuticals have become a huge problem as well, "partially as a result of the Internet," said Andrea Sharrin, a deputy chief in the Criminal Division's Computer Crime and Intellectual Property Section of the Department of Justice.
"More people are using the Internet as a global marketplace -- because of that, there is more access to counterfeit goods," she said. "If you get your pharmaceuticals online, you might not know what you're getting."
There are also more bogus semiconductors on the market these days, with the biggest issue being the re-marking of products, in which packages are labeled with counterfeit brands, phony speeds or different part numbers, according to the Semiconductor Industry Association.
Counterfeits have even hit aircraft and the military.
The Federal Aviation Administration estimates that 2% of the 26 million airplane parts installed each year are counterfeit.
Fake computer components and routers have been found in military aircraft, computer networks and other equipment. "What we have is a pollution of the military supply chain," retired four-star Gen. William G.T. Tuttle Jr., a former chief of the Army Materiel Command and now a defense industry consultant, told BusinessWeek last fall.
Tackling the problem
That "pollution" extends far beyond the military. There are many stages in the supply chain, and often intermediaries are involved, providing openings for counterfeiters.
"If you're buying from authorized distributors and directly from manufacturers, you limit your exposure to counterfeiting," Richard Tapping, the general manager of Semicentral.com, told EDN, an electronics-industry news and information Web site. Semicentral.com facilitates component trading among original equipment manufacturers and contract manufacturers. "Also, if somebody quotes you $2 for a $20 part, you might get suspicious. You can see in the price that it has been counterfeited."
The counterfeiting problem has not escaped the federal government's attention: There are a number of criminal statutes that cover copyright violations.
Still, counterfeiting is a good gig compared with weapons smuggling or the drug trade, Abacus Security's Oberfeldt said. "If you get caught for selling fake handbags, you aren't going to do much time -- maybe one year. It's all benefit and no penalty."
A global problem
Though tourists in Chinatown might think it's innocent fun to get a "bargain" on a fake bag, the impact of counterfeiting on the economy is huge.
"It is a global epidemic, with 750,000 jobs lost to counterfeiting," said Valerie Salembier, the publisher of Harper's Bazaar. Counterfeiting also has close ties to organized crime, and "organized crime is a business, where you get the most amount of profit for the least amount of risk," Oberfeldt said.
The Harper's Bazaar Anticounterfeiting Alliance was formed five years ago to raise awareness of the issue. The magazine hosts an annual anti-counterfeiting summit in New York and produces a consumer Web site with tips on how to spot fakes.
Counterfeit drugs can be especially difficult to spot. The World Health Organization in 2008 estimated counterfeit drug sales at $35 billion to $40 billion. Pfizer, which makes the erectile-dysfunction treatment Viagra, estimated it loses $2 billion a year to counterfeit sales.
What's your best protection against counterfeit drugs? In the U.S., the Food and Drug Administration recommends buying prescription drugs only from state-licensed pharmacies.
Counterfeiting has been tied to terrorism funding, child labor violations and other illegal activities.
"You have to assume that any fake good is produced in circumstances that violate all laws, from environmental laws to child labor laws," said Justin Hughes, a professor of intellectual-property law professor at Yeshiva University in New York City.
The recession has aggravated the problem. "During a severe economic downturn, there are a lot of industrial resources that are not in use," Hughes said. "It becomes tempting for someone to use an idled plant, for example, to make money in an illegal way."
Which products are fakes? Test your smarts
Authorities crack down
Only a few years ago, tourists in New York City didn't have to go to Chinatown or back alleys to buy counterfeits. They could find fake Gucci, Coach or Louis Vuitton handbags on many street corners in Manhattan.
The New York Police Department has cracked down on the counterfeit business, shutting down at least 18 manufacturing sites in the past five years. In February 2008, the department raided a block-long area of Chinatown and seized more than $1 million in knockoff accessories and fragrances. The block was home to 32 storefronts that had sold fake goods for nearly a decade.
Counterfeiters have responded by becoming more creative.
"To avoid Customs detections, many Chinese and South Korean counterfeiters send their handbags out unmarked," Oberfeldt explained. "In a separate factory somewhere in the city, then they will add the metal plates and affix the trademarks. Their attitude is, 'Until we put it together, it's not illegal.'"
Many luxury companies spend millions of dollars to fight the problem.
Louis Vuitton Moët Hennessey, for example, has 60 people working full time on anti-counterfeiting in collaboration with a network of outside investigators and a team of lawyers, according to the company's Web site.
"There is a great effort among private companies to get better enforcement, to better organize together," Hughes said. "It is in their interest to try to leverage the enforcement resources they receive from governments and to constantly monitor the market and be able to tell authorities what to look for."
'Ghost' factory shifts in China Seizures of fake goods in the U.S. have soared in recent years.
The domestic value of goods seized for intellectual-property-rights violations in fiscal 2008 jumped 39% to $272.7 million, according to Customs and Border Protection. Goods from China accounted for 81% of the total value.
Often, counterfeit goods are produced in the same factories that make the real things.
A Chinese factory might produce two shifts of legitimate items and then, with a wink and a nod, stay open overnight for a "ghost" shift to make counterfeit goods, Caroline Joiner, a former executive director of the Global Intellectual Property Center at the U.S. Chamber of Commerce, told New York's Gotham Gazette last year. Often the goods produced during that third shift are made with lesser-quality materials, but sometimes they are nearly impossible to distinguish from the genuine articles.
"If you have a good, reputable factory and a good long-term relationship, you shouldn't experience a ghost-shift issue," said Ed Haddad, the vice president for intellectual property for New Balance athletic shoes. Still, it "can always happen," he cautioned.
The issue is being addressed, the Justice Department's Sharrin said, but "change doesn't happen overnight."
One hope for copyright and trademark holders is that "there are brand owners in China now. They're being counterfeited now and are complaining to their government," Haddad said. As China's own industries grow and develop their own trademarks, hopefully, there will be less counterfeiting.
It's up to consumers
"Everything and anything can be counterfeited," said Salembier, of Harper's Bazaar. "And that puts a big responsibility on consumers to make sure they know what they're buying." If there's one thing to know, Salembier said, it's this: "If it's cheap, 99.99% of the time, it's going to be fake." /msn.com
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