Professional Jeweler Archive: Anti-Counterfeiting Basics

February 2005

The Store / Managing Legal Issues


Anti-Counterfeiting Basics

In a world of brands, you should be increasingly concerned and vigilant

BY WILLIAM H. DONAHUE JR.


The sale of counterfeit goods is a half trillion-dollar business annually worldwide. It touches almost every industry, but few more pervasively than the jewelry industry. Professional Jeweler spoke with experts in the field of anti-counterfeiting to learn why you should be concerned and what you can do to protect yourself.

Sagging Sales & Besmirched Brands

A lost sale is only the most direct effect of counterfeiting, says Emilio Collado, president of the American Watch Association, Washington, DC. Watches have long been on the government’s list of the top 10 products counterfeited and on the top five list of goods seized as counterfeit. AWA was instrumental in drafting and lobbying for the 1996 Anti-Counterfeiting Consumer Protection Act, which strengthened and added penalties to existing laws.

You might think someone who bought a counterfeit watch, jewel, pen or other accessory would never have bought the genuine article anyway. In some cases, that’s true. But the consumer may well have bought a less-expensive brand you do carry. So you’ve lost that sale to counterfeiters too.

Counterfeits also have an insidious effect on the concept of branding, says Collado. This effect is known as brand dilution or brand pollution. If enough people wear or carry a fake branded item, it becomes less desirable because no one will know if the item is the real deal.

Ethical Issues

Other economic and ethical reasons regarding counterfeiting should concern you too, says Darren Pogoda, an attorney for the International Anti-Counterfeiting Coalition in Washington, DC.

  • The U.S. economy loses millions in tax revenue and tens of thousands of jobs every year to foreign counterfeiters.
  • Many counterfeiters are involved in drug trafficking and prostitution.
  • Counterfeiting rings often are tied to organized crime.
  • The U.S. Treasury Department recognizes counterfeiting schemes as funding for international terrorist organizations.

Criminal & Civil Liability

Scott Kramer of the law firm of Duane, Morris, LLC, Philadelphia, PA, represented Tiffany & Co. in several counterfeiting cases, including a recent one against Katz Imports. It arose from Tiffany’s allegation that Katz had sold counterfeit Tiffany merchandise on eBay and resulted in a judgment that required Katz to pay damages of $600,000.

Willful violations of the law can result in criminal prosecution, says Kramer. If you knowingly sell counterfeit goods in your store, you can be liable for civil damages also. These damages include lost profits suffered by the brand or trademark owner, loss of the profits you made selling the goods, punitive damages and attorney’s fees. In many cases, these fees exceed the damages for lost profits.

Liability is not limited to those who knowingly sell counterfeit goods. An innocent seller can be hit with a seizure order requiring him to turn over all the goods in his possession, and he is not compensated for this loss. To protect yourself from the assessment of damages, penalties and fees, you must prove you were an innocent seller (see “Fighting Fakes” below).

Selling “replicas” of branded merchandise may be illegal also. It’s not counterfeiting, because you are telling the customer the item is not real. But unless the manufacturer or supplier was authorized or licensed to copy and sell the item, it’s still a copyright infringement and may subject you to the same liability as selling counterfeit goods.

Designers Fight Back

Many designers and brand owners who have invested millions to create brands are determined to protect them. Tiffany hires people to monitor the web for counterfeiters and often uses private investigators to monitor the market, as do brands such as Cartier and Rolex.

Kathrine Baumann, whose company, Kathrine Baumann Beverly Hills, creates high-end designer handbags, obtained judgments against numerous companies she claims had made and sold copies of her designs. To root out counterfeiters, she sometimes disguises herself and goes into stores where she thinks knock-offs of her designs are sold. She admits that for safety reasons, she sometimes takes along a private investigator.

“Counterfeiting threatens the entrepreneurial spirit,” says Baumann. “Unless we can stop it, that spirit may well become extinct.” She warns that designers and creators of innovative products will lose the incentive to invest in bringing a product to market if counterfeiters can undercut them easily with cheap knock-offs. For the jewelry industry, that stifling of creativity may be the biggest penalty of all when it comes to counterfeiting.

Top: Knock-off bag. Below: Katherine Baumannn World Traveler.

Kathrine Baumann sometimes wears a disguise to find counterfeit bags sold as her genuine designs.


Fighting Fakes

You can take steps to protect yourself against counterfeiting and enlighten your customers: The International Anti-Counterfeiting Coalition’s website (www.iacc.org) provides information about piracy and international trade in counterfeit goods. You also may contact IACC to report suspected counterfeiting by e-mail at IACCSleuth@iacc.org or by phone at (202) 223-6667.

Here a few other tips:

Have a program with guidelines and practices in place to authenticate the goods you sell, says Scott Kramer, an attorney who represented Tiffany & Co.

Get “hold harmless” agreements from suppliers certifying their goods are genuine and, if they are not, that the supplier will protect you from financial loss. If you’re ever criminally charged or sued, this will help you prove you made a good-faith effort and may reduce any penalties.

Emphasize to your customers you’re an authorized distributor for the product you’re selling and why that’s important to them.

Check lists of known counterfeiters. A new federal initiative, the Strategy Targeting Organized Piracy, will list overseas companies that produce or trade in fakes and countries known to be major sources. Visit STOP’s website at www.stopfakes.gov.

Notify the brand owner if you know or suspect goods you’re offered are fake. Get a few samples if you can. Don’t investigate the company yourself – it could be dangerous.

If you’re tempted to buy designer or branded goods from an unknown supplier, especially if the merchandise is deeply discounted, contact the designer first to determine whether the supplier is authorized, says handbag designer Kathrine Baumann. Find out whether there are any authenticating marks on branded products. Many designer pieces are registered and numbered.

– W.H.D.

Copyright © 2005 by Bond Communications