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RELATED ARTICLE
Knock-Off Merchants Go Global1
Bagging Fakers and Sellers
Makers of Luxury Goods Try
New Legal Tactics Against Those
Who Aid Counterfeiters
By
ALESSANDRA GALLONI
Staff Reporter of THE WALL STREET JOURNAL
January 31, 2006; Page B1
Women trolling New York City's Canal Street for trendy Louis Vuitton totes are getting a wake-up call: big signs warning that the bags could be fakes, but the punishments for selling them are very real.
"This retailer is not authorized or licensed to sell Louis Vuitton merchandise," the signs read. "Counterfeiting is criminally and civilly punishable under federal and state law by up to 10 years of imprisonment and $2,000,000 in fines." While the penalties apply to sellers, the aim is to scare shoppers as well.
The posters are part of a new effort by luxury-goods companies like
LVMH Moët Hennessy Louis Vuitton SA, owner of the Vuitton brand, to counter the rampant global trade in counterfeit luxury goods. The companies are fighting back with a new arsenal of legal tactics. In addition to targeting manufacturers and sellers of fakes, they are turning their attention to landlords, shipping companies, credit-card companies and any other part of the supply chain that leads to the sale of counterfeit wares.
Louis Vuitton is cracking down on shops on New York's Canal Street selling fake goods.
"The idea is that if you're making money out of this business, we're going to sue you," says Nathalie Moullé-Berteaux, intellectual-property director at LVMH's fashion group.
In legal terms, the concept is called "vicarious" and "contributory" liability. It targets people aiding and abetting someone committing a crime even if they are engaging in a legitimate transaction, such as renting out a property or shipping a package.
In a legal settlement in New York last week, landlords for seven Canal Street properties promised to prevent tenants from selling handbags with counterfeit Louis Vuitton logos. The landlords agreed to hang signs inside and outside their shops warning that the retailers aren't authorized vendors of Louis Vuitton products. They also promised to evict tenants found selling fakes.
LVMH and fellow luxury-goods companies such as Compagnie Financière Richemont SA,
Burberry PLC, PPR SA's
Gucci Group and
Prada Group NV have been fighting the fakes trade for years. The companies have large teams of in-house intellectual-property lawyers who help customs officials and prosecutors around the world hunt down counterfeiters. They also regularly hire private investigators.
Counterfeiters have morphed into sophisticated multinational organizations in recent years, in part helped by the influx of fashion houses to China. As fashion houses have opened boutiques throughout Asia, fake makers see the real stuff more often -- and are thus able to make better copies. Internet sales have also facilitated transactions for fake luxury goods.
The rationale of the "Landlord Program," as the fashion houses call it, is to go after wealthy property owners who have a lot to lose. In a 2004 case, a New York judge ordered 29 Chinatown retailers of fake Louis Vuitton and Fendi accessories to pay LVMH a total of $464 million. But most of the retailers, who included vendors at little Canal Street stores, didn't have that kind of money. LVMH didn't make a big effort to collect from the tenants and hasn't received any of the money.
"Due to the difficulty in collecting judgments against the tenants, we also go against the landlords," says Steven Kimelman, an attorney at Arent Fox PLLC, a law firm in New York that is working with LVMH.
Unauthorized Louis Vuitton bags hanging on display in a shop on Canal Street in New York City.
The new legal approach is reaping results. The landlord case settled earlier this month by LVMH was the third in New York in the past few months. Last year, the company signed similar settlements with two different landlords who owned a total of 11 buildings on Canal Street. Each building holds about 10 shops. In the latest settlement, involving seven more properties, the landlords -- whose names weren't disclosed -- agreed to finance and provide full access to court-appointed officials who will regularly search the shops for fake Vuitton products.
Some of the contents of the settlement remain sealed; legal experts say this probably means that LVMH also received financial compensation from the landlords. LVMH wouldn't comment on the sealed records.
Jura Zibas, an attorney at Gibson Behman PC who represented a landlord from one of LVMH's settlements last year, said the luxury-goods firm is using the wrong tactics because there is only so much property owners can do to monitor their tenants. "Why are they punishing everyone except the people at fault?" she says. "If they really wanted to do something, they should stop people at the border."
The landlord tactic has yielded a first victory in China. Late last year, a Chinese judge ordered a group of landlords in Beijing's Silk Market, known for its knock-off products, to pay damages to Prada, Gucci, Chanel, Burberry and LVMH. Mr. Kimelman says LVMH -- whose Louis Vuitton brand is one of the most copied labels in the world -- is looking at similar moves in other cities, such as Los Angeles.
Still, recent victories are only a small setback for pirates. Industry officials say the fake luxury-goods business makes up about 5% of the overall $545 billion in annual sales of counterfeit products, such as compact discs, medicines and airplane parts, as estimated by the World Customs Organization.
In many countries, "law-enforcement officials will not invest the same human resources in a counterfeiting probe as they would for something like narcotics," says Timothy Trainer of the Global Intellectual Property Strategy Center, an intellectual-property consultancy in Washington D.C. It is often hard to prosecute offenders because judges at times tend to shrug off counterfeiting as not much more than a misdemeanor, trademark attorneys say.
Warning signs have been posted in vendors' stalls.
Luxury-goods executives and their lawyers say the next step could be to target international shipping companies which they say transport fake products around the world or financial-services companies whose credit cards are used to buy fake goods online. "These landlord cases in New York are establishing the legal foundation for what I predict will be an increasing number of future cases holding third parties liable," says Mr. Kimelman of Arent Fox.
Richemont, the world's second-largest luxury-goods firm, has looked to shipping companies in its fight against fake versions of pricey watch brands such as Cartier, Baume et Mercier and Vacheron Constantin. In a case Richemont won in New York in 2003, a judge ruled that 33 defendants accused of counterfeiting pay $594 million in damages to the luxury-goods firm. Richemont has only recouped a fraction of that money, according to a Richemont official.
But Harley Lewin, a trademark lawyer at Greenberg Traurig in New York who works for Richemont, says the counterfeiting organization -- which allegedly stretched across Asia, the U.S. and Europe -- was exposed by tracking express-delivery shipments and post-office boxes that were used to pick up and distribute the fake goods. Richemont subpoenaed some of the independently owned operations of the shipping companies.
Mr. Lewin also says that Richemont is still working on getting the money owed to it by the 33 defendants. "The habit of many brands is to take a large judgment on paper and never seek to enforce it," he says. "We intend to change that practice."
Consumers are becoming targets as well. Thanks to lobbying by European fashion houses, the French and Italian governments last summer introduced new laws that make buying counterfeit products a crime. In France, buyers can face up to three years in jail.
In the U.S., it isn't illegal to buy fake goods. Experts say most consumers know the products on Canal Street are fakes, though some believe they are stolen goods and therefore real. Ms. Moullé-Berteaux hopes the warning signs on Canal Street serve as a deterrent for consumers. "You can still find fake Vuitton bags on Canal Street," she admits. "But you'll be led to secret hideaways where they lock the doors behind you. It will make you think twice."