Accept no imitations: Counterfeits, ‘knockoffs’ a growing problem

By Richard N. Velotta

Friday, Oct. 10, 2003 | 5:38 a.m.

WEEKEND EDITION: Oct. 12, 2003

There were only a few customers in the Designer Incognito store last July when Metro officers armed with search warrants came in and took most of the merchandise away.

Metro officers were looking for counterfeits and "knockoffs" -- illegally produced copies of name-brand women's apparel and accessories.

"We filled 124 boxes with purses, handbags, clothing, jewelry and watches," said Lt. Kathleen Suey of the Intelligence section of the Homeland Security Bureau of Metro.

In all, Metro that day impounded 1,877 items that were on display in a small retail outlet on Buffalo Drive, just south of Summerlin Parkway.

Designer Incognito was an unusual fit in a setting that is more an office park for attorneys, doctors and accountants than a retail shopping center.

The store doubled as a studio apartment for Steve Conn, who saw most of his inventory and his livelihood as a purveyor of what he calls knockoff goods disappear in the eight hours that Metro officers catalogued what is now evidence.

Clark County's District Attorney's Office hasn't determined whether it will prosecute Conn, a 70-year-old former New Yorker who said he was only trying to make money to put his daughter through college and keep his loyal customers happy. They're mostly women who like the look of fashionable high-end accessories, but don't want to pay big bucks for name brands.

To hear Conn talk about it, he's the victim and the high-end retailers are the bad guys.

"I had women crying when I closed," Conn said. "They know I'm just a nice guy that has some of the things they like at a better price.

"The real crooks are Louis Vuitton," he said. "They mark up merchandise about 50 times what it cost them. I don't know how they can do that to people.

"My customers are happy and they know what they're getting is a facsimile, not a real Louie. Everybody knew what they were, there's no fraud involved here."

Conn and other sellers say they see nothing wrong with selling "knockoffs" -- replicas that aren't represented as a real brand-name product -- and not counterfeits -- copies that are fake and sold as if they are genuine.

But officials who work for Louis Vuitton, Gucci, Kate Spade, Coach, Burberry, Christian Dior, Rolex and other high-end brands adamantly disagree.

Barbara Kolsun, an attorney who works for Kate Spade, coordinates the company's efforts to track down people who sell replicas of its products.

Kolsun said the sale of counterfeit goods is a growing problem across the country and is undoubtedly getting worse in Las Vegas because of the city's expansion as a shopping mecca. But the bigger problem, she said, is that most people don't recognize the purchase or sale of replicas as a criminal offense.

"There's a real sense that this is somehow OK," Kolsun said. "But it's just like walking into the store and shoplifting. It's still stealing."

Kolsun and law enforcement officers who have worked product counterfeiting cases said those types of crimes against property don't have as high a profile as crimes against persons.

Still, product counterfeiting investigations were stepped up in priority by a number of police agencies after the Sept. 11 attacks because federal investigators believe that, in some cases, the sales of phony goods are financing terrorist operations.

Metro Sheriff Bill Young said his department has found no evidence linking the sale of knockoff goods in Las Vegas to terrorist activities.

"To my knowledge we haven't proved anything locally, but federal law enforcement is concerned that this is one way they (terrorist groups) make money," Young said.

Young said that from a national intelligence standpoint, the link between the sale of knockoff products and the financing of terrorism "is being inferred."

"Really, I can't tell you we've uncovered anybody more than just greedy merchants," Young said.

Still, he said Metro continues to work with the FBI through the Southern Nevada Joint Terrorism Task Force to determine whether a terrorism link exists. Young said the pursuit of individuals who violate state and federal laws by selling knockoff goods is not as high a priority to his department as the pursuit of other crimes such as those involving violence.

"But if it has national interest, obviously the priority changes," Young said.

So how does Metro get involved with people like Steve Conn?

The process normally starts with the companies whose goods are being copied and sold in mass quantities.

Kolsun said she works with several private investigators who have educated themselves about what to look for to determine if a piece of merchandise is authentic or fake.

Investigators often do their own surveillance on behalf of a name-brand company, observing stores, buying samples of suspected goods and communicating with company officers about what they've seen.

Name-brand companies often try to solve problems without police intervention by having a lawyer send a cease-and-desist letter to the retailer, explaining that they are in violation of copyright and trademark infringement laws by selling knockoffs.

"Sometimes, that solves the problem, especially with some people who sell knockoffs at 'purse parties.' These women don't want to be embarrassed in front of their friends, so they stop doing it," Kolsun said.

But store-front retailers are much more persistent, she said.

Some will acknowledge the letter, but go back to selling a few weeks or months later. Others ignore the letter and continue to sell.

Kolsun said it then becomes a matter of convincing police that a crime has been or is being committed and asking for help.

Sgt. Mike Bunker, one of 10 officers who served the search warrant and worked cataloguing evidence in the Designer Incognito case, said some leads on counterfeit goods are generated by complaints from neighbors whose parking spaces are jammed by bargain-hunting shoppers.

"We'll get leads from a variety of sources," Bunker said. "Sometimes, we hear about it from citizens concerned about unusual traffic around a residential area or we'll just hear from somebody who's angry that somebody is parking in their space at a business establishment where there's normally low foot traffic.

"Sometimes, we'll just uncover something that looks suspicious in the normal course of another investigation."

If there are enough red flags, police will investigate further and possibly seek a search warrant.

In the Designer Incognito case, Metro was tipped by a Kate Spade investigator. More than half the items confiscated were Kate Spade knockoffs, he said.

"They were doing a fine business at this place," Bunker said. "There were all kinds of handbags, wallets, watches, a potpourri of high-dollar things."

Bunker said employees at the store were taking the police presence in stride.

"They were almost blase about us being there," he said.

Higher priority

Officers logged the confiscated property, sealed it in the boxes and loaded it into a rented truck to be hauled to an evidence vault. Now, he said, it's up to prosecutors what happens next. He acknowledged that it can take longer for this type of case to be processed because violent crimes have a higher priority.

"From the prosecutor's perspective, which case is going to be more important, this trademark infringement case or something involving the 311 Boyz?" Bunker asked rhetorically.

That's not to say that copyright infringement cases aren't important, he said.

"But as big as the department is, we all have limited resources," Bunker said. "One of the things we do is notify the appropriate federal agencies to follow it up."

Suey said the Designer Incognito search was the only Metro case this year involving copied merchandise. Such actions are rarities, she said,

Decisions on how to proceed on each action are made on a case-by-case basis, she said, but it's hard to ignore any matter involving a large amount of potentially illegal merchandise.

"When someone is blatantly breaking the law, we'll do an investigation," she said.

Like a narcotics agent working a drug case, investigators often lean on suspects to try to find their suppliers to stem the problem on a broader scale.

That's why police work with the FBI, the U.S. Secret Service, the U.S. Customs Service and the Joint Terrorism Task Force, which involves several police agencies. In the Designer Incognito case, information was turned over to other agencies in hopes of apprehending suppliers.

Federal investigators say replicas are manufactured worldwide but there are 50 countries that get special scrutiny for lax enforcement policies. Among the worst: Ukraine, Paraguay and China.

Big business

The knockoff trade is a big business. Bunker estimates that proprietors can make 10 times what they paid for their inventory.

Bunker said most people who either buy or sell counterfeit goods don't realize the economic damage they inflict.

Darren Pogoda, an attorney with the International Anticounterfeiting Coalition (IACC), Washington, D.C., explained that fake merchandise creates more hardships than most people realize.

"These people don't pay taxes, so it hurts every local economy, and there are cases in which counterfeit merchandise has actually endangered consumers because the goods are so substandard," Pogoda, whose organization is an association of more than 150 companies fighting product counterfeiting, said.

A survey of Fortune 500 companies conducted by the IACC indicates such companies spend an average of between $2 million and $4 million a year each to fight counterfeiters.

The IACC has warned of risks because of counterfeit parts in cars and aircraft.

Investigators determined that a plane crash in Norway that killed 55 people in 1989 occurred because substandard bolts manufactured in the United States were used in the manufacture of the plane. Investigators never determined where the substandard bolts came from.

Speaking generally and not about any specific case, Metro's Bunker said the type of business people who would attempt to profit from counterfeit goods probably would attempt to cut other corners.

"They say it's a victimless crime, but it isn't," Bunker said. "It's hard to establish what the economic impact is, but I wonder if the people who work (at stores) are paying any income tax. Are they (employees) covered by workers' comp? Are the people covered by any health plan or are they receiving indigent medical care, paid for by you and me?

"And what about sales tax? If there's $10,000 worth of merchandise, multiply that by 7 1/2 percent and see how much is not going to the government to pay for services we all use."

Pogoda said some of the largest retailers have paralegals who surf the Internet all day, looking for websites advertising merchandise suspected to be counterfeit.

The companies whose goods are copied say they're not only losing sales to counterfeiters but that consumers who think a fake is real are misled about quality.

"Counterfeits, generally of a very poor quality, would have undoubtedly diluted the image of the Louis Vuitton brand, by far the leader of the luxury world with specific values of exclusivity and quality, if actions have not been taken to tackle the phenomenon," said Michael Salamanca, a spokesman for Louis Vuitton in New York in a prepared statement on counterfeiting.

Commitment to customers

"Fighting counterfeiting is, therefore, one of Louis Vuitton's main commitments to its customers whose investments in the brand are above all protected by the LV (Louis Vuitton) fully controlled distribution, which is the best ever guarantee a brand may give to its customers," Salamanca said. "Louis Vuitton products are sold worldwide in Louis Vuitton stores only."

But Vuitton copies are readily available all over Las Vegas. Designer Incognito's Conn said even before his store was shut down, he had competition in all corners of the city. He estimated that at least 50 outlets sell knockoff goods.

Knockoffs are sold openly at area swap meets, but there are even mall retailers that have copies. Hijuki, an accessory store in the Meadows Mall, has a vast inventory of handbags and has received a cease-and-desist letter from Vuitton. But is the merchandise counterfeit?

Byoumg Park, manager of Hijuki, said it isn't.

"We used to sell knockoffs, but after we received the letter, we stopped," Park said. "They look similar (to Louis Vuitton goods), but they don't have a name on them. They aren't knockoffs."

But Hijuki has a larger supply of accessories similar to those manufactured by Gucci. Store clerks said that they aren't authentic Gucci goods.

Park said some of his Gucci goods are authentic and some are copies.

The IACC's Pogoda said there are different levels of behavior that can be prosecuted criminally or civilly. Counterfeiting, or producing exact replicas, can be pursued as a criminal offense, he said. Dupicates "that produce the likelihood of confusion from among consumers" can be pursued in civil suits as trademark infringement.

He said experts often have to be called in to determine what type of legal action to pursue.

Kolsun hasn't determined whether Kate Spade would pursue a civil case against Conn.

Finding the worst offenders nationwide, determining which cases have the best potential for prosecution and doing the legwork necessary to help build a case is what makes the pursuit of chasing counterfeiters so expensive, Pogoda said.

"It's difficult to pursue," Pogoda said. "It's clear that it's gone well beyond the guy who goes down into his basement to make silkscreen shirts and then takes them out to the Boardwalk to sell them."