Copying the Copycats: Versace and MIA Find Inspiration in Counterfeits

In a bit of "turnaround is fair play," Grammy-award winning rapper M.I.A. has reportedly teamed up with Italian fashion house Versace to design a fashion collection that draws its inspiration from -- of all places -- counterfeit street markets that had been hawking counterfeit Versace designs.

MTV Australia reports that the "Paper Planes" singer said "Versace's designs have always been copied, now it's Versace that copies the copies, so those that copy must copy the copies.  So this will continue."

Donatella Versace told reporters that "when MIA proposed to expose the issue of counterfeit Versace pieces by creating a collaboration inspired by these items, I thought it was an incredible idea."

A photoshoot starring MIA took place in counterfeit marketplaces around London.

Counterfeit UL Stickers End in Conviction and Bankruptcy For GuildMaster

Example of a Counterfeit UL Sticker

Missouri-based furniture and home decor company GuildMaster was sentenced in federal court after pleading guilty to importing thousands of lamps marked with counterfeit "UL" (Underwriter Laboratories) certification mark stickers.

UL is an independent product safety certification organization accredited for safety testing by the federal Occupational Safety and Health Administration (OSHA).

If a product carries an authentic UL certification mark, it means UL found that representative product samples met UL's safety requirements. These requirements are primarily based on UL's own published standards for safety. According to the UL website, this type of mark is seen commonly on appliances and computer equipment, furnaces and heaters, fuses, electrical panel boards, smoke and carbon monoxide alarms, fire extinguishers and sprinkler systems, personal flotation devices, bullet resistant glass, and thousands of other products.

A counterfeit UL sticker has the potential to mislead consumers into believing an electrical item has met the UL's safety requirements, when it may not have.

GuildMaster's website proclaims that "it is every company's responsibility to operate in a manner that is respectful of people and the planet." The company further claims that it has an "open book management" philosophy, in which it encourages its employees to "think and act like owners."

Nonetheless, in December 2011, U.S. Customs and Border Protection officials reportedly discovered that thousands of lamps that were being imported into the U.S. from China by GuildMaster were emblazoned with counterfeit UL labels.

According to a press release issued by the U.S. Attorney's Office, GuildMaster, which was formerly a client of UL, stopped producing its own lamps in 2005. Since 2005, GuildMaster has purchased lamps manufactured in China and imported them into the United States under the GuildMaster label.

GuildMaster maintains that none of its agents or employees had personal knowledge that they violated U.S. laws by importing the lamps. However, GuildMaster acknowledges that the knowledge and actions of its subsdiary's employees and agents are fairly attributed to GuildMaster.

Before the federal seizures, GuildMaster admitted that it did not inspect lamps coming from China to ascertain the authenticity of the "UL" certification marks placed upon the lamps. GuildMaster acknowledges that had it inspected the lamps, its employees would likely have seen counterfeit and unauthorized UL marks.

The sentence imposed in federal court requires destruction of nearly two million dollars worth of the lamps, and 5 years of probation.

Following the indictment, GuildMaster had filed for Chapter 11 bankruptcy. It is unclear if the sentence imposed will affect the company's continued existence, as GuildMaster had recently filed a request to extend time to file its bankruptcy exit plan, citing the government's demands that the lamps be destroyed.

Tory Burch Gets Tough On Fakes

Today, Tory Burch got tough on fakes. The designer's company filed four new lawsuits against companies allegedly dealing in counterfeit Tory Burch products.  

WWD reports that four cases all deal with manufacturers and wholesalers of jewelry featuring hardware identical to the brand’s trademarked “TT” logo. 

Their legal team described the four cases as separate but “interconnected”, and chief legal officer Robert Isen emphasized that the designer has “long been vigilant in defending [its] intellectual property, and will continue to take counterfeiting and copyright infringement seriously.”

In all four cases, Burch is seeking “unspecified damages and injunctive relief.”  In other cases previously filed by Tory Burch, the defendants were cybersquatters, primarily based in China, and (as in most cases like it) only a portion of the damages were recovered by seizing PayPal accounts and other assets.

This time, the defendants include a California boutique, two New York-based companies, and a Chinese company with a New York showroom and frequent tradeshow presence, the latter of whom showed the spurious goods to a private investigator.

America: Made in China

This image was taken from a real label that was found on the streets of New York.

The economic value of China's annual exports to the United States is estimated to be $417 billion, and growing each year. The number of American jobs lost to Chinese imports each year is likely in the hundreds of thousands. This data may help to explain why the Obama administration has struggled with a nagging unemployment rate of approximately 8%, even as the stock market reaches record highs.

It is no surprise to the consumer that very little furniture, electronics, toys or apparel are manufactured in the U.S. any longer, as these items are increasingly imported from China and other developing nations.

The Wall Street Journal has reported that the negative impact of cheap Chinese imports on the American economy is far greater than previously thought.

Similarly, a Wall Street Journal report in April 2012 found that America’s largest multinational corporations outsourced more than 2.4 million jobs over the last decade, even as they cut their overall workforces by 2.9 million. 

Outsourcing jobs to a cheaper foreign labor pool, and increasing the number of cheaply made products from China makes perfectly sound business sense at the microcosmic level in the short-term. Indeed, Wal-Mart has generated billions of dollars in profits derived virtually entirely from this very business model.

However, as a long-term matter, this strategy has the potential to tarnish brands, lower quality, encourage counterfeiting, and even destroy entire industries.

For example, in Deluxe: How Luxury Lost Its Luster, author Dana Thomas chronicles how some luxury brands have resorted to cheap, Chinese mass-market production methods, and how doing so has risked their previously sterling reputations.

No industry is immune from the effects of globalization, cheap imports and job outsourcing. Ironically, even U.S. patent lawyers have seen previously high-paying jobs outsourced overseas.

Counterfeit Airbags Present Serious Safety Risk

National Highway Traffic Safety Administration (NHTSA) and Immigration and Customs Enforcement (ICE) officials today warned consumers about counterfeit airbags made at overseas manufacturers and installed in cars throughout the U.S. 

The counterfeit airbags have been found in more than 75 different makes and models, both domestic and internationally-made cars, and could affect thousands of individuals.

Earlier this year ICE arrested and convicted a Chinese counterfeiter who was found with nine different brands of airbags. And just this year have confiscated more than 2,500 fake airbags.

Consumers are at risk if:

•   They have had their car airbag replaced in the last three years, at a repair shop not associated with a new car dealership;

•   Purchased a used car that may have had its original airbag replaced;

•   Own a car titled branded salvage, rebuilt or reconstructed;

•   Got a "too good to be true" deal for airbag replacement; or

•   Purchased their airbag from eBay, Craigslist or other non-certified outlet.

Because the faulty airbags are not the fault of car manufacturers or dealers, this is not a mandatory recall and consumers must pay out of pocket to replace the airbag.

"They look like the real thing and unfortunately consumers are not in a position to figure out if they have a fake or a real airbag and they certainly wouldn't be in a position to be able to replace their own airbag," David Strickland, NHTSA administrator said.

Officials urge anyone who has suspicions about their airbags to take their car to an expert for testing and replacement.

Egyptian Olympians Sporting Counterfeit Uniforms

The Huffington Post is reporting that Egypt, in understandably dire economic straits given its recent political upheaval, chose to save some money by purchasing its London 2012 Olympic uniforms from a Chinese supplier.


That regrettable decision has led to the Egyptian Olympians being decked out in wholly counterfeit apparel that display both fake Nike and adidas logos.


Nike has brought the issue to the team's attention, and has raised valid safety and quality concerns about the counterfeit apparel.

Online Counterfeiting Likely to Escalate

Numerous federal lawsuits have been filed by Intellectual Property owners in recent years to attempt to address the intensifying online threat from "rogue websites."

Additionally, the US Department of Justice and US Department of Immigration and Customs Enforcement have seized millions of dollars in assets, as well as shuttered many such websites by utilizing existing criminal laws in the ongoing Operation In Our Sites.

However, while Internet traffic to these sites has been measured and determined to be substantial, little research has been done to empirically survey the existing body of data related to this phenomenon.

A comprehensive empirical survey of over 3,000 Internet websites that federal courts have ordered shut down because of their sale of counterfeit goods has revealed that online counterfeiters can collect immense profits by generating over $10,000 in sales with a $1,000 initial investment.

An analysis of an online counterfeiters' potential profit margin can be summarized in the sample breakdown of typical revenue and costs as follows: The average cost of registering a single Internet domain name: $10-$20 per domain name, annually. The average cost of hosting multiple e-commerce websites on a shared server: $120 to $160, annually. International shipping is either paid for by the customer, or absorbed by seller if it is a nominal cost (less than $10 per item). Credit Card/online payment processing fees: 3-5% of sale price. Wholesale cost of counterfeit goods varies by brand and product category.

For example, a typical counterfeit coat has a $40-$50 wholesale cost, retails for $230-$300 on a rogue website. A typical counterfeit handbag: $40-$50 wholesale cost, retails for $200-$300 on a rogue website. A typical counterfeit bracelet: $10 wholesale cost, retails for $70-$80 on a rogue website. A typical counterfeit watch: $10 wholesale cost, retails for $160 on a rogue website. 


Therefore, starting with a $1,000 investment, if one sets up a hosted e-commerce website ($160) linked to five domain names ($100), and invests the remaining funds ($700) in selling and shipping wholesale counterfeit goods, one could generate: Up to $11,200 by selling 70 counterfeit watches (11.2x the initial investment); Up to $5,600 by selling 70 counterfeit bracelets (5.6x the initial investment); or Up to $4,200 by selling 14 counterfeit coats or handbags (4.2x the initial investment).

This low-risk business model offers a comparable return on investment (ROI) to trafficking in illegal narcotics.  Because of this dramatic ROI, online counterfeiting networks are exponentially spreading on the Internet like an infection. For example, the ROI from a single successful website selling counterfeit products encourages the creation of many more such websites.

Skilled programmers who have access to sophisticated technology and an extensive supply of counterfeit products are creating and operating these sites. To protect their business model, they are employing a variety of creative tactics to frustrate efforts to monitor them and remove them from the marketplace.

For example, they dynamically redirect their websites across multiple servers located in different countries. Significant server bandwidth is dedicated to hosting such sites, with large blocks of server space and IP addresses dedicated to managing the Internet traffic to them. Counterfeiters' websites are creating significant actual consumer confusion. One reason is that prices for counterfeit goods are designed to be credible to suggest genuine, discounted products rather than low quality counterfeits. Goods received are typically shipped directly from locations throughout China and Hong Kong, and

China is the country most often named as the country of the Registrant. However, Registrants do not usually provide legitimate or consistent contact information when registering new domain names, often using gibberish, nonsensical words and false addresses. Further, some Registrants are using the "Privacy Protection" services offered by Registrars to purchase a cloak of further anonymity. Software applications make it easier for infringers to create, register and warehouse thousands of domain names that contain permutations of trademarked brands. These conclusions make it likely that "rogue websites" selling counterfeit goods will likely continue to proliferate, demanding that legal action be taken by brand owners.