Reality Check

Trafficking in counterfeit goods has become an increasingly nasty business. Robin Pogrebin looks at the high price of faking it.

Right outside Bergdorf Goodman a black nylon tote ($35) sits on a table piled high with what's being hawked as so-called "Birkin" bags ($55) and "Burberry" scarves ($10). On the familiar triangular metal plate where "Prada" should be, it reads instead "Original."

Across town, on the perfumed first level of Bloomingdale's, the season's new Kate Spade bags sit elegantly displayed, each with intriguing names and each made from inviting materials—the "Belize Brice" of bright bouclé imported from Spain for $375, the "Sonata Small Brice" made of Italian calf leather with the red, bone, and black Mondrian-inspired pattern for $425.

Just two blocks away, fake "Kate Spade" bags are also for sale, though these are displayed outdoors on a table, peddled by vendors for prices ranging from $30 to $60.

Welcome to the mystifying, maddening world of counterfeit luxury goods, where even serious legal action has been unable to stem the flow of fake purses, watches, and scarves into discount stores and onto the streets. "They're like cockroaches," says Barbara Kolsun, senior vice president and general counsel of Kate Spade, LLC. "Every day of the week, there is a criminal case somewhere. It's the new hot crime."

Counterfeiting has tripled in the last decade, costing businesses $350 billion in annual sales, according to the International AntiCounterfeiting Coalition in Washington, D.C. The problem has worsened, experts say, because of the increasing availability of fakes and a growing disregard for the moral implications of buying them. The rash of Louis Vuitton's colorful Takashi Murakami bags on people's shoulders is proof positive: Clearly, they cannot all be real.

"It's increased because everybody's looking for a bargain," says Dale M. Cendali, who heads the copyright and trademark group at the law firm O'Melveny & Myers. "Law enforcement has been trying to help stop at least domestic U.S. counterfeiting," she adds. "But you bat one down and another one springs up."

Exacerbating the scourge, these experts lament, is a cultural shift in attitudes toward fakes. "One of the phenomena that makes it more of a problem is a kind of acceptance," says lawyer Rick Kurnit of Frankfurt Kurnit Klein & Selz. "People who can well afford to pay for luxury goods seem to have no hesitancy to purchase the counterfeit goods and to display them with a certain amount of pride. The market for counterfeit goods booms when people assumed to be able to afford full price are happy to buy things on the street."

In an unexpected twist, some shoppers have even come to view fakes as a status symbol—a brazen trophy of successful bargain hunting or a subtle way to look stylish without paying top dollar. "They're purchased with a certain ironic spirit," says Richard Leonard, the vice president of the Zandl Group, a trends research firm. "People who buy a $10 Rolex don't think anyone is going to mistake it for a $20,000 watch," he adds. "It's ironic, cool, chic."

Designer Isaac Mizrahi sees other hands at work. "I sometimes think designers are looking to be copied. Like who can put more buckles and copyable things on a bag." He may be onto something. Prada CEO Patrizio Bertelli recently dismissed the copying craze as just part of the "game of fashion." He said, "I would be more worried if my product wasn't copied." Even Marc Jacobs, whose collaboration with Takashi Murakami was undoubtedly responsible for a fair share of the revenue on New York City's Canal Street (a kind of Counterfeit Row), seems unfazed: "I don't mind that we're copied so much. I think that it's really flattering." For spring 2004 Jacobs sent out 51 completely different handbag "looks." Whether that was meant to throw counterfeiters a curve or to give them more to work with, who knows. Other designers blur the line even further by offering their own take on "fakes." Miuccia Prada designed a bag that "suggests" a classic Chanel—the quilting, the chain-link handles, it's all there. So is it a real Prada or a fake Chanel? Or do we just not care anymore?

"The best things," Mizrahi says, "don't set themselves up for this kind of thing. You can't really copy a Bottega Veneta. It's just about the execution, it's about the softness, the richness, which are subtle things no one cares about except people who care about softness and richness."

To be sure, die-hard consumers of designer goods say they will continue to pay for the genuine article; part of what motivates a splurge in the first place is the desire to own something authentic. Ilene Rosenzweig, who, with designer Cynthia Rowley, created Swell (a line of hip home products), says she treats herself to luxury items precisely because they are rare—like Chanel ballet flats. "Every time you put those on, it's exciting," Rosenzweig says. "They have all those classic associations that are the glamour of the brand."

Rosenzweig also says shopping in high-end stores is one of the attractions of buying high-end goods. "Part of the fun is going to Hermès and buying something—and getting that full flush on your cheeks when you sign that credit card slip," she says. "I don't get that rush from buying from a street vendor."

One would think that those who buy brands would actually want to flaunt them, but Rosenzweig says that, for her, the opposite applies. She tries to be low key about her luxury purchases, buying accessories that don't show the labels. Sometimes, however, she makes an exception. Like for the Dolce & Gabbana sneakers with the Italian flag stripes she fell for, which amounted to something of a billboard. Rosenzweig says she might as well have been wearing the price tag. "Everyone knew I had spent $395 on a pair of sneakers," she says. "It's like Minnie Pearl."

Nevertheless, plenty of women justify buying fakes on the grounds that they have no qualms about sporting knockoffs. On a Madison Avenue street corner the other day, for example, the vendors were doing a brisk business in handbags. A woman carrying what appeared to be a real Louis Vuitton bag on her arm stopped to inspect the goods. (Then again, maybe hers was a fake.)

As for the vendors themselves, they adamantly refused to discuss their sales or their suppliers, citing recent television news reports that had linked vendors to terrorists. "I can't tell you nothing," one of them said.

If more people refused to purchase fake goods, of course, the market would diminish. "Where there's no demand, there's no supply," Kolsun says. And what lawyers like Kolsun and the luxury companies they represent hope to impress upon consumers is that buying fakes is not simply a benign attempt to find a bargain—it supports a federal crime. "Buying counterfeit goods is stealing," Kolsun says. "It's a kind of theft, and people have chosen to close their eyes to that fact.

"People are immoral," she continues. "There is no respect for intellectual property."

Indeed those in the thick of the fight against counterfeiting do seem practically evangelical on the subject. "I don't think people realize how serious a problem it is, how much intellectual-property-related industries are part of our country's economy," Cendali says. "It has serious consequences for America."

For whatever reason, the message has been difficult to get across, in the same way music fans have had a hard time understanding why they shouldn't download songs off the Internet. "People who would never shoplift, people who would never think to actually steal something, don't make any connection that the purchase of counterfeit goods is ethically or legally unacceptable," Kurnit says.

While vendors peddle their wares right under the noses of New York's toniest retailers, there is little that companies can do about counterfeit goods once they have reached the street. "There is some entrepreneur somewhere who is orchestrating this," Kurnit says. "They interpose layers and layers of other parties, so you have a hell of a time tracing it to the top."

Some companies try to follow fakes back to where they originate. Lately this tends to be Asia and Latin America, where labor is cheap and regard for intellectual property is weak. Sometimes factories fill their legitimate orders during the business day, then produce a surplus after hours to sell on the black market. "They're making the handbags for the trademark owner from nine to five, and from five to midnight selling out the back door," says Richard Lehv, a partner specializing in trademark and copyright litigation at Fross Zelnick, which represents Tiffany & Co. and Chanel.

Under the law, if the goods are made in a factory that manufactures the genuine article but were not approved by the owner, they are considered counterfeit, Lehv says. But it gets confusing. The goods are real; they just weren't supposed to be made in the first place.

To guard against these overruns, owners often provide factories with only a limited supply of authentic labels. But then the factories just make their own phony labels and pass them off as the real thing. "They still have the mold or the form or the capacity, so they just keep going," Kurnit says. "The best counterfeiters put on the actual label or logo and simply sell the items without the markup."

Kolsun says that overruns are not the main problem, that most luxury-goods companies like Kate Spade work with factories that they know and can trust. "Counterfeiters manufacture fake labels," she says. "Customs officers catch them all the time in New York."

Making counterfeit goods more difficult to combat, the fakes look increasingly real. "The ability to make good copies has increased dramatically over the years, with modern technology," Cendali says, "which is why people have to be vigilant to detect that things are copies."

Just about every luxury-goods company now has aggressive safeguards in place to try to fight fakes. Robert B. Chavez, president and chief executive of Hermès, for example, says his company "continues to be very, very active about pursuing individuals." Counterfeiters mostly rip off Hermès bags, he says, but belts, ties, and watches are also targets. "All of our employees are constantly on the lookout for these copies," Chavez says.

To stop fakes from circulating in New York City, companies concentrate on the gateway for the goods: customs. They work closely with customs officials, trying to educate them about how to distinguish their company's workmanship and packaging from knockoffs. These are guidelines the companies refuse to disclose publicly, for fear of giving the counterfeiters more ammunition.

Louis Vuitton says its efforts have been effective—particularly on Canal Street in New York, where 21 counterfeiters were recently arrested. The company has a Paris-based counterfeit-fighting team, with offices in Tokyo, Hong Kong, Rome, New York, and Buenos Aires, and has conducted hundreds of thousands of raids, resulting in prison sentences, fines, and payment of damages.

But just as cocaine and heroin continue to find their way into the United States despite concerted drug-fighting efforts, so do counterfeit goods. "When you have five hundred containers coming off a ship from Shanghai, you can assume there isn't a physical inspection of every one," Kurnit says.

Until countries that make knockoffs begin to feel the effects of counterfeiting on their own economies, they will continue to produce fakes. It's all about self-interest. "When China finds its own software or film industry is going to suffer and they need to protect it, they'll protect it," Kurnit says. "But of course, the pirates will move to the next underground place—whether that will be Vietnam or Myanmar, I don't know."

Isaac Says

Designer and tastemaker Isaac Mizrahi holds forth on fakes.

Can fakes sometimes be even more stylish than the real thing?
There's a whole thing called "ghetto fabulous," which is when you have a fake Louis Vuitton bag, but you wear it as if it were a real one and it's more fabulous. It's like wearing a mink in August—it's exactly the opposite of what you're supposed to do, which is why it's chic.

Do copies degrade the originals?
I can't bring myself to use the word "copied"; I use the word "popular" instead. Like, I'm making clothes for Target; they are so popularly priced. Everybody wants to be more democratic than they really are. Nobody wants to be elitist anymore. But I really don't think the "popular" items degrade the originals. To me, all they do is make the real thing even more valuable.

Is brand loyalty a thing of the past?
You get tired of a fake, it just takes up space in your closet. Hermès is copied more than anything else. But you can tell the difference between a real and a fake. The whole way it's turned, its color. I could never bring myself to buy a fake Hermès. It's all about the investment you make, the way it's made, that it gets better with age.

Real? Or Merely the Mock?

Companies are in a bind. They want consumers to be able to authenticate their products, but are loath to specify their distinguishing features for fear of giving counterfeiters information with which to improve their imitations.

A simple rule of thumb: Buy from an authorized establishment only. Louis Vuitton products are sold worldwide in Louis Vuitton stores. Chanel is carried at Chanel, Bergdorf Goodman, and Saks Fifth Avenue; Prada in Prada and Neiman Marcus. You get the idea. "We don't sell to the flea market in New Jersey or to house-party ladies," says Barbara Kolsun of Kate Spade.

Richard Lehv, a partner specializing in trademark and copyright litigation at Fross Zelnick, says it comes down to common sense. "If it's being sold by a guy on the street out of a cardboard box, it's not genuine," he says.

"If you buy a Rolex on the street, you can count on it being counterfeit or stolen property," says Rick Kurnit of Frankfurt Kurnit Klein & Selz. "You should not be supporting your local mugger."

Canal Street Confidential

My take on fakes has always been that it's better to wear the same real Gucci for three years than a fake one for a season. Before working on this story, I had never traversed the back alleys of New York City's Canal Street in search of a "Faulex" or a "Prado" original. And after five fake Vuittons and a man called Johnny Hookup, I can safely swear off the place for life. Attention shoppers: This is a cautionary tale.

I'd borne witness to the culture of counterfeit—bags on blankets along Fifth Avenue or on picnic tables on the corner of 66th and Madison. Canal Street is something different altogether: narrow, stall-like stores that seem to reach back into depths unseen with bags hanging from poles outside. The first five we went into were fully stocked with "Marc Jacobs," "Tod's," and "Jelly Kellys," but no Vuitton. But what was behind the padlocked grating? What was down those basement stairs? I had come down here to scout some fake Vuittons, and I was not going back to the office with my mission unaccomplished.

We went east and got lucky. In a corner stall, a man, seated and hooded (I swear!), whispered, "What you want?" "LV colors," I said. He handed me a piece of paper that turned out to be a page xeroxed from a catalogue with all sorts of Vuitton styles. He looked around nervously and told me to come back in an hour. Next stop: another xerox, different guy (this time no hood, just creepily long fingernails). I pick two off the page. He disappears. Fifteen minutes later, mindful of tales from friends of being caught in police raids, I am ready to bolt. Man No. 2 comes back with a Hefty bag containing the goods. All it takes is $55 to buy a fake bag from a man with long fingernails and, frankly, very bad dandruff.

The low point, however, is yet to come. Strolling down Canal, a man with a clipboard catches my eye and mouths, "LV?" Why not? He directs us to the pizza parlor across the street where his girlfriend is sitting with a Coke, a slice, and a full supply of fake Vuitton. There on the table is another xerox with a contact name and number. Johnny Hookup (again, I do not lie) it seems, wants to look legit.

But nothing down here is. All kidding aside, this is risky business, and there was something scary in all of it—a real sense that you were involving yourself in illegal activity, in backdoor trades and dirty deals. Which is, of course, exactly right. At the end of the "experience" (I'm chalking it up to that), I gazed uptown, searching for a light from the LV tower to guide me back to a land of orange shopping bags tied up in brown ribbons, credit card slips signed over the counter, and a world away from Johnny Hookup.

And unless you just arrived from Mars, these bags are about as close to the real thing as a tattered, dog-eared, manhandled xerox. Cheap is expensive.