The High Price of Cheap Knock-offs

Just three miles from the headquarters of the Federal Trade Commission in Washington, D.C. is the heart of Georgetown, home to many of the capital city’s toniest boutiques. On the streets of Georgetown, you see the latest fashions from Kate Spade® handbags and Rolex® watches, to Washington Redskins® caps and Hermès® scarves, to new Nike® Jordan LX2(TM) NBA® sneakers with Velcro® straps. In fact, you could Rollerblade® right up to the display racks as many of the hottest styles are sold right on the sidewalk at prices that can’t be beat. A Rolex® Oyster Perpetual(TM) Sea-Dweller 4000(TM) will set you back about thirty-five dollars. Inexplicably, a Hermès® scarf goes for about the same. And in case you’re blinded by these bargains, for less than the price of an entrée at Café Milano you can pick up a pair of Ray-Ban® Undercurrent 4006(TM) sunglasses. Just don’t use Windex® or a Kleenex® to clean the lenses as it will wreck the cheap coating. It’s probably also a good idea to refrain from smoking and avoid open flames while wearing that “hand-rolled silk twill” scarf. And don’t rely on that “Rolex” to be on time for that big job interview.

Counterfeits may seem to offer a cheap entrée into a higher standard of living, yet with every purchase of a knock-off handbag, the relative value of the real deal goes down. Patents and trademarks, so called intellectual property, are the lifeblood of most companies. Kate Spade, Ralph Lauren, Tommy Hilfiger and the non-eponymous designers, movie producers, athletes and recording artists deserve to be justly compensated for their creativity, intelligence, and hard work.

What sets most designer products apart are the strengths of the respective brands. Name brand luxury goods are expensive for a reason. Certainly this has much to do with the quality of the merchandise, craftsmanship and customer service. More subjectively, the prices stem from the cachet of owning the hottest fashions; that is, it’s not just how these products look on you or your family, but what you perceive these products to say about you, your style, your income, and even your education and values.

Though the prices might seem great, the societal costs of these knockoffs are enormous and can be measured in terms of jobs, tax revenue, health and safety, and now more than ever, national security. U.S. and international law enforcement officials confirm that Al Qaeda and Hezbollah are actively engaged in the importation of counterfeit apparel, electronics and other merchandise and use the proceeds to fund operations and attacks. In testimony before the House International Relations Committee, Interpol Secretary-General Richard Noble stated that these terrorist groups, directly responsible for the murder of over 3,000 Americans on September 11th, 2001 and catastrophic attacks in Bali, Spain, Saudi Arabia, Africa and the ongoing attacks against Israelis. ”We know that Al Qaeda supporters have been found with commercial-size volumes of counterfeit goods. And if you find one Al Qaeda operative with [counterfeit products] it is like finding one roach in your house. It should be enough to draw your attention to it,” Noble testified. It is a sad irony that on New York’s Canal Street, buyers of knockoff products might unwittingly be funding the very terrorists that crashed hijacked airliners into the World Trade Center that stood just blocks away.

U.S. law enforcement spends hundreds of millions of tax dollars each year to pursue the international criminal syndicates responsible for designing, manufacturing and smuggling that watch (along with dangerous fake drugs) and thousands of other products across our borders. Counterfeit goods and smuggling is a tax free, unlicensed and unregulated industry that is estimated to cost the U.S. economy a staggering $200 billion dollars each year according to The International AntiCounterfeiting Coalition (IACC). Think of it: Hundreds of thousands of jobs at every level gone; billions annually in local, state and federal tax revenue down the drain. Twenty-five or $30 at a time, this money flows out of the local community and upstream to overseas black and grey market groups whose activities undermine and corrupt foreign governments.

At a time when our law enforcement resources are stretched thin in a global war on terror you might wonder why the Feds bother going after counterfeiters. Fact is, they are often working hand-in-hand. The links between terror and counterfeiting are not a theory. They are not a scare tactic capitalizing on people’s fears and patriotism. They are incontrovertible facts. Here are just a few from an IACC fact sheet:

  • “Operation Green Quest — a multi-agency task force established by the Treasury Department and aimed at identifying, disrupting and dismantling the terrorist financial infrastructure and sources of funding — has specifically recognized counterfeit merchandise schemes as a source of terrorist funding.”
  • “On February 28, 2003, Mohamad Hammoud was sentenced to 155 years in prison for helping to lead a cigarette smuggling operation that sent money to Hezbollah.”
  • “Federal authorities have several investigations under way examining evidence suggesting that Hezbollah, Hamas and other terror networks might be selling counterfeit products to pay for their worldwide activities… Law enforcement officials said they are investigating multimillion-dollar counterfeit software operations based in Ciudad Del Este, in eastern Paraguay, that are believed to have diverted money to Middle Eastern groups with ties to terrorism. Some of the suspects are of Lebanese origin and were arrested by Paraguayan authorities based on information from the U.S. government, the officials said.”
  • “In 1996, Business Week reported that that the FBI had investigated the link between counterfeit merchandise sales in New York and the terrorists who bombed the World Trade Center in 1993.”
  • “According to the private investigator conducting the search, a raid of a souvenir shop in mid-town Manhattan led to the seizure of a suitcase full of counterfeit watches and the discovery of flight manuals for Boeing 767s, some containing handwritten notes in Arabic. A similar raid on a counterfeit handbag shop in New York uncovered faxes relating to the purchase of bridge inspection equipment. Two weeks after the raid on the handbag shop, police in New Jersey were investigating an assault on a Lebanese member of an organized crime syndicate. During a search of the man’s apartment, authorities found fake drivers’ licenses and lists of suspected Al Qaeda terrorists – including the names of some workers in the handbag shop that had been raided.”
  • “Law enforcement officials in Los Angeles are investigating the possible involvement of the Wah Ching Chinese organized crime syndicate in a counterfeit software ring. A March 1995 raid in Los Angeles netted more than $10.5 million in counterfeit Microsoft software, holograms, shotguns, handguns, TNT and plastic explosives. Officials believe three organized crime groups were involved. The case started with check forging, escalated to kidnapping and finally found a link to product counterfeiting. This is just one of the many examples of ties between product counterfeiting, organized crime and the violent crimes these groups perpetrate.”

Clearly it is certainly not a stretch to conclude that criminal syndicates that successfully slip hundreds of tons in illegal merchandise through our ports and borders each year would have little trouble adding a few dozen Stinger shoulder-fired anti-aircraft missiles to an order. 

In addition to the societal costs, counterfeits are usually of a lesser quality leading to personal injury. Take knock-off sunglasses. Along with the cheap material, the labels claiming 100% UV protection are also fake. As a result, the tinted plastic lenses trick your retina into opening, allowing dangerous ultraviolet radiation to enter your unprotected eyes. In fact, you are far better off wearing no sunglasses than ones with questionable UV protection. You might think a fake watch, bootlegged “Finding Nemo” DVD, or wannabe Gucci’s won’t kill anyone. It’s not that simple. Behind the street vendor that sold you that movie or fashion accessory is often a chain of criminal activity that extends around the world and finances the unregulated labs that crank out potentially lethal look-alike prescription medication and even baby formula. It doesn’t stop there.

The IACC reports that $12 billion in counterfeit auto parts are sold in the U.S. each year at a cost of 210,000 workers. And unlike that $25 fake scarf, you might not figure out if your brake pads are real until an insurance company is picking through the charred wreckage of your minivan. Fake aircraft parts have even been implicated in numerous fatal crashes, some of which involve our soldiers and airmen. 

So how do you tell the real ones from the fakes? It’s easier than you think. With hundreds of knockoffs for each genuine article, a complete list would be the size of a phone book. Here’s a primer.

Location 

  • High-end fashions are generally sold out of their own company-owned stores or through authorized department stores and boutiques. They are rarely ever sold at discount warehouses and “overstock” stores where many counterfeits tend to show up. Finding out for sure is often as easy as visiting the designer’s Website or calling its 800 number. Avoid any “boutique” whose main architectural feature is chicken wire, backfires, idles roughly, or has parking tickets on the windshield.   
  • The number of “replica” and “designer inspired” goods online retailers is staggering. In fact more than ten percent of counterfeit goods worldwide are now sold online. High-end designer apparel is rarely sold through online auctions and discounters. While eBay and other online auction houses strictly prohibit the sale – especially retail sale – of counterfeit merchandise enforcement is often difficult. When an online dealer of fakes is uncovered, they often reappear within days under a new Web address. A quick visit to the designer’s Website will let you know just who is authorized to sell their merchandise. 
  • To protect consumers, official sports merchandise is not sold by people roaming the stadium parking lots or adjoining streets; as with other brand name goods, official team and league apparel is sold by authorized retailers and manufactured by official licensees. 

Price 

  • If the price seems too good to be true, it is. You may find a good deal on that Rolex Daytona but you’re not going to pick one up for thirty-five bucks.

    

Workmanship

  • Real DVD movies do not have silhouettes of people carrying gigantic bags of popcorn walking in front of the set. They are not on sale before the movie hits theatres. And if the movie is still playing at the theater down the street, chances are that the DVD of that movie is a fake. With thousands of products counterfeited, it’s impossible to list the myriad distinguishing characteristics of each. Once again, the official Websites often have pages devoted to telling how to spot fakes.

Manufacturers are fighting back by hiring private investigators and intellectual property attorneys to bring legal action against counterfeiters and even the street vendors that sell the merchandise. In just one case, a private investigator working for an attorney representing major consumer products manufacturers posed as a customer in search of fake Cartier watches. The Toronto Globe & Mail reports that the undercover investigation yielded valuable information on “well-connected” counterfeiters and the manufacturers’ attorney is currently negotiating settlements a lawsuit seeking more than $1,000,000 in damages. Intellectual property attorney continue to win verdicts against individuals and businesses that infringe upon their client’s designs, but such measure remain an uphill battle without increased law enforcement.

Many companies have banded together to assist law enforcement and protect consumers from knock-offs. Notably, the major professional sports leagues and collegiate athletic authorities have formed the Coalition to Advance the Protection of Sports Logos, or CAPS, www.capsinfo.com. This informative site has links to NBA, NFL, NHL, MLB, NCAA and other leagues’ sites where you will find detailed information on spotting fakes. These leagues have gone the extra step by standardizing their anti-counterfeiting measures to include unique holograms of the respective trademarks that are affixed to licensed products. The major software producers and trade organizations have also formed coalitions to fight its enormous piracy problem; among them are the Business Software Alliance, the Software & Information Industry Association, the Motion Picture Association, and the Recording Industry Association to name just a few. Each of these organizations offers comprehensive information online to help protect consumers from fakes.

Perhaps out of ignorance, many people, even those who can afford to buy the genuine article, choose to purchase fakes. One person buying a look-alike purse can’t make a difference, the thinking goes. Think again. Though the sweatshops, money laundering operations, underground drug labs and terrorist training camps are oceans away from the street merchants of Georgetown, Lower Manhattan, Boston or LA, there is complicity.