Sniffing out fakes
Firms that specialize in counterfeit detection are in demand
Last year, Peter Capolino, president of Mitchell & Ness Nostalgia Co., was desperate to shut down the street vendors and Internet sites selling counterfeit versions of his vintage sports jerseys, which can sell for up to $300. The Philadelphia firm's sales had been dropping, in part because lower-priced fake versions of its collectible shirts--which look like ones worn by teams such as the Lakers and the Red Sox--were flooding the market. With police busy with homicide and narcotic investigations, Capolino turned to Stuart Drobny, a private investigator.
Drobny, head of Norristown, Pa.-based Stumar Investigations, and his team immediately hit the streets, weeding through flea market stalls and hunting down street vendors. A year later, Drobny has raided more than 20 sellers in four states, served dozens of cease-and-desist letters, and confiscated hundreds of the bogus jerseys. This doesn't come cheap. Mitchell & Ness spends about $400,000 a year pursuing counterfeiters. "I should be spending my time and money on sales and advertising instead," says Capolino. "It's really frustrating."
With the surge in ersatz merchandise pouring in from Asia, business is booming for private investigators, like Drobny, who specialize in counterfeits. A little over a decade ago, counterfeiters focused on copying designer footwear, handbags, and jewelry, or CD s, videos, and DVD s. But today's counterfeiting trade has no limits: Everything from soaps and printer toner to airplane parts and medicine has an evil twin. And the copycats have moved beyond peddling their bogus wares via street vendors and flea markets. Fakes are even finding their way onto the shelves of major retailers and websites like eBay.
Pricey imports. Indeed, from October 2003 to March 2004, U.S. customs officials seized $64 million worth of counterfeit goods, up from an estimated $38 million during the same period the previous year. The FBI estimates that U.S. businesses lose up to $250 billion a year from the sham products. "If you are a brand owner, you can't get anywhere without hiring private investigators or having in-house counterfeit investigators," says Dan Chow, a law professor at Ohio State University and an expert in Chinese counterfeiting.
While most consumers consider buying a fake Louis Vuitton bag a victimless crime, companies argue the opposite. Yes, counterfeiting robs the company of revenue and jeopardizes brand reputation. But it also can be dangerous or even deadly--think counterfeit medicine, auto parts, and food.
Most Fortune 500 companies say they spend between $2 million and $4 million per year to combat counterfeiting, according to the International AntiCounterfeiting Coalition in Washington, D.C. In 2002, CEO s of several major companies, including Unilever, Gillette, Heineken, and Procter & Gamble, formed a coalition to devise strategies to address the threats to their brands, including pressing for stronger penalties for counterfeiters and tougher law enforcement.
The problem has worsened in recent years. Forget the old cottage-industry nature of counterfeiting. Many outfits now have mass production capability and have wormed their way into legitimate distribution channels. Technological advances such as scanners, high-speed CD and DVD burners, and digital embroidery machines have made some phony products virtually indistinguishable from the real thing. "Many companies feel that they are not winning the war against counterfeiting," says Timothy Trainer, president of the anticounterfeiting coalition. Mitchell & Ness is fighting back even harder. It recently added holograms and serial numbers to its labels to differentiate them.
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