January 2008
Why fakes are booming
THE LINEUP Dylan J. DeFrancisci of U.S. Customs and Border Protection in Washington, examines fake items.
The Internet lets counterfeiters find partners to make, market, and distribute fakes to an ever wider audience. And as with
legitimate goods, the making of knockoffs has been outsourced, which makes oversight harder for U.S. agencies. The Department
of Homeland Security says that 81 percent of all counterfeits in the U.S. come from mainland China. (Hong Kong is second,
accounting for 5 percent.) The level of sophistication is eye-opening. Some Chinese factories conduct "split runs," churning
out legitimate products by day and black-market knockoffs after hours, says Chris Israel, U.S. coordinator for International
Intellectual Property Enforcement.
"As China becomes better at making legitimate goods, they're becoming better at making fakes as well, up-to-the-minute details of packaging and embedded holograms," Israel says. Manufac-turing is now driven by software. A machine that makes sneakers, for example, is directed by a CD in a computer. Once counterfeiters have swiped the software, they can make a cheap clone by using lower-grade leather, rubber, and such, tweaks that may not be noticeable to the untrained eye.
"It's easy to fool people," says Ed Haddad, vice president of intellectual properties and licensed products for the athletic-shoe maker New Balance, whose products have been targeted by fakers. "Ninety-nine-point-nine percent don't know the difference," Haddad says, though he notes that the knockoffs usually don't wear as well and lack the technology that contributes to comfort.
China has been pressed by other countries to crack down on counterfeiters. There have been some headline-grabbing busts such as last summer's "unprecedented cooperative effort," to quote the FBI, in which law-enforcement agents for the U.S. and China arrested 25 people and seized almost $500 million in knockoffs of Microsoft and Symantec software CDs.
But the rest of the time, says Nils Montan, president of the International AntiCounterfeiting Coalition, a nonprofit group that combats counterfeiting and piracy, you can't tell how much of the rhetoric is genuine and how much is lip service or bluster. "The Chinese authorities are masters at the 'rope-a-dope,' to do just enough to keep you quiet," he says.
Judging by the penalties it imposes, China has a long way to go to deter counterfeiting. Local law-enforcement agencies can seize fakes and levy fines. But fines are so modest, Montan points out, that counterfeiters don't raise an eyebrow. Civil fines can be up to three times the value of the knockoffs; criminal penalties usually top out at $5,000. Any jail time is often suspended, Montan says.
But if the maker is to blame, so is the buyer. "A huge part of the problem is the demand for these cheap luxury goods," says Vaughn Volpi, the PICA Corp. president. "People who knowingly buy counterfeits are the same ones who would never run a stop sign." A Gallup survey released last summer found that one in five Americans knowingly bought knockoffs in the previous year. They did so mostly because the fakes were easy to find and the price of the genuine article was seen as too high.
Yet counterfeiting is not a victimless crime, says Chris Israel. "People selling you a $20 purse aren't scrappy entrepreneurs," he says. "That person is fronting for organized crime." Crime networks that are involved in counterfeiting, experts say, promote child and sweatshop labor, prostitution, human trafficking, and gang violence, among other illicit activities.
"As China becomes better at making legitimate goods, they're becoming better at making fakes as well, up-to-the-minute details of packaging and embedded holograms," Israel says. Manufac-turing is now driven by software. A machine that makes sneakers, for example, is directed by a CD in a computer. Once counterfeiters have swiped the software, they can make a cheap clone by using lower-grade leather, rubber, and such, tweaks that may not be noticeable to the untrained eye.
"It's easy to fool people," says Ed Haddad, vice president of intellectual properties and licensed products for the athletic-shoe maker New Balance, whose products have been targeted by fakers. "Ninety-nine-point-nine percent don't know the difference," Haddad says, though he notes that the knockoffs usually don't wear as well and lack the technology that contributes to comfort.
China has been pressed by other countries to crack down on counterfeiters. There have been some headline-grabbing busts such as last summer's "unprecedented cooperative effort," to quote the FBI, in which law-enforcement agents for the U.S. and China arrested 25 people and seized almost $500 million in knockoffs of Microsoft and Symantec software CDs.
But the rest of the time, says Nils Montan, president of the International AntiCounterfeiting Coalition, a nonprofit group that combats counterfeiting and piracy, you can't tell how much of the rhetoric is genuine and how much is lip service or bluster. "The Chinese authorities are masters at the 'rope-a-dope,' to do just enough to keep you quiet," he says.
Judging by the penalties it imposes, China has a long way to go to deter counterfeiting. Local law-enforcement agencies can seize fakes and levy fines. But fines are so modest, Montan points out, that counterfeiters don't raise an eyebrow. Civil fines can be up to three times the value of the knockoffs; criminal penalties usually top out at $5,000. Any jail time is often suspended, Montan says.
But if the maker is to blame, so is the buyer. "A huge part of the problem is the demand for these cheap luxury goods," says Vaughn Volpi, the PICA Corp. president. "People who knowingly buy counterfeits are the same ones who would never run a stop sign." A Gallup survey released last summer found that one in five Americans knowingly bought knockoffs in the previous year. They did so mostly because the fakes were easy to find and the price of the genuine article was seen as too high.
Yet counterfeiting is not a victimless crime, says Chris Israel. "People selling you a $20 purse aren't scrappy entrepreneurs," he says. "That person is fronting for organized crime." Crime networks that are involved in counterfeiting, experts say, promote child and sweatshop labor, prostitution, human trafficking, and gang violence, among other illicit activities.
