Jun 10, 2006 | By Christine Pomeranz

As Fake Products Spread, 'Fashion Victim' Gets New Meaning

The fashion industry takes the lead in thwarting international counterfeiting

Imagine that you have created a fashionable handbag out of cutting-edge technical fabric. The design sparks interest around the world. You are careful to register the process and design of your creation with the authorities in fifty countries including China and Thailand. You sign a licensing agreement for a company to manufacture and sell your product in China. On a trip to Thailand six months later, you are surprise to find a similar product bearing a cheap imitation of your logo being sold in the local market.

This is an example of counterfeiting, the unauthorized copying of an item that is later sold as an original. It is profiting from the theft of someone else's work. In the fashion business, this includes such goods as would-be Prada bags, T-shirts with unauthorized images of Kelly Clarkson, and fake Kate Spade accessories, to name a few. Original designs, technical processes, and similar tangible assets can be protected by copyrights, trademarks, or patents, and are known in legal terms as intellectual property.

Because of the fashion industry's growing interest in fighting international counterfeiting, the advisory board of FIT's Department of International Trade and Marketing organized an event in the John E. Reeves Great Hall on March 20, 2006, as part of its Talking Trade @ FIT guest lecture series. A spirited discussion was moderated by Dawn Buonacore-Atlas, chair of the International Anti-Counterfeiting Coalition and vice president of enforcement at Calvin Klein, with panelists Tarz Palomba, vice president of legal at Tiffany & Co,; David Althoff, counsel at Kate Spade; and Barbara Kolsun, senior vice president and general counsel of Seven For All Mankind.

According to the participants, the main damage caused by counterfeiting is the cheapening of the brand being copied, since an inferior version of the product can be obtained at different distribution points at varying prices.

The International Chamber of Commerce, a global organization that sets rules and standards for the conduct of international business, estimates that approximately $600 billion worth of business is lost annually to counterfeiting. As a result, it has formed Business Action to Stop Counterfeiting and Piracy (BASCAP), to increase awareness of the problem, encourage government action to fight it, and boost respect for intellectual property rights. According to BASCAP, counterfeiting activities have been recorded in some thirty countries, including India, France, Russia, and South Africa. The US Department of State estimates that some $200 billion in US tax revenue is lost annually due to counterfeiting and intellectual piracy operations.

With the problem escalating, the fashion industry has significantly increased its efforts to combat it. Tiffany & Co. sued eBay in 2004 for selling counterfeits. One source reported that eBay sells more "Tiffany" silver jewelry than Tiffany sells in its own stores. The company conducted an experiment, buying 186 pieces of "Tiffany" jewelry on eBay. Only five percent were authentic; about 74 percent were fake and being sold as genuine. It was unclear whether the remaining 21 percent were advertised as genuine (some were called "Tiffany style"). On March 1, Women's Wear Daily disclosed that Judge Richard Berman of the US District Court had granted a temporary restraining order and authorized the search and seizure of TC Fashion's showroom in Manhattan based on a joint complaint by North Face and Polo Ralph Lauren on trademark counterfeiting and infringement, false designation of origin, and false advertising. On April 20, the Financial Times reported that Louis Vuitton (LVMH), the luxury goods producer, was suing Carrefour, France's equivalent to Wal-Mart, for selling fake copies of its handbags at $6. Two offenders in China were also recently sentenced to hefty fines and jail terms for violating LVMH's intellectual property rights in separate cases there.

The industry is working closely with law enforcement bodies and governments to diminish the allure of making easy money at the expense of someone else's creation. Last March, Congress passed a law that, in the words of the US State Department, allows the "forfeiture and destruction of all counterfeit goods, of the equipment used in their production and marketing and of property and assets derived from counterfeiting." During her most recent official visit to China, German Chancellor Angela Merkel elicited a pledge from the Chinese government to battle counterfeiting.

While it is no surprise to find fakes at flea markets and on Canal Street in Manhattan, a growing trend is "purse parties"—like Tupperware parties, but the goods are imitation Gucci, Prada, and Marc Jacobs instead of plastic containers for keeping leftovers fresh. Companies have been working with the police, training them in various locales, including Hawaii, Guam, and Vancouver, to detect and spot the crime.

The following additional initiatives are recommended to protect intellectual property:

  • record the origin of authentic goods with customs in all countries
  • meet regularly with customs' strategic division
  • work with landlords, local officials, tax authorities, and state law enforcement
  • make it harder to copy your designs—for example, Kate Spade is using customized hardware to mount its trademarks; the results are therefore harder to reproduce
  • consider creating less expensive lines for younger consumers—for instance, Calvin Klein's Choice CK for juniors
  • educate consumers, retailers, and students
  • initiate public relations campaigns with the press

Though still in its earliest stages, a new spray technology that would allow recipients of goods to test them for authenticity is being developed by a Canadian company. Even so, implementing such a process on a wide scale is daunting because of the international scope of the industry, with its countless product on facilities and licenses and the multiple stages of shipping and receiving that occur between production and retail.

Nevertheless, the tide seems to be turning in favor of designers, assuring the continuation of innovation, investment, and growth. The fashion industry continues to be a leader in protecting intellectual property rights. It is taking an increasingly aggressive and strategic approach to fighting counterfeiting, and is winning victories through legislation, enforcement, and growing awareness of the issue.