Since Teresa Bell started shopping online three months ago, the Germantown, Tenn., homemaker has been snapping up designer wares at unbelievable discounts — a pair of Chanel sunglasses for $65, a pair of Oakley shades for $15 and three stylish Louis Vuitton accessories for as little as $53.
There’s just one thing she can’t figure out: Are they fake?
“I’m not going to die if they are,” says Ms. Bell, 41 years old. “If I can’t tell, I don’t think anyone else can either.”
Cyberspace is turning out to be the scourge of the luxury-goods industry. While everybody else is reveling in booming Internet sales, designer manufacturers see a dark side of e-commerce: an onslaught of cyberfakes. This year, online counterfeit sales may total as much as $25 billion world-wide, or 10 percent of the total counterfeit market, according to the Counterfeiting Intelligence Bureau of the International Chamber of Commerce. That’s about double the amount of legitimate online retail sales in the U.S. — and a major threat to an industry that lives and dies on brand identity.
And the problem is only likely to grow. The reason? The Internet is almost wholly unregulated. This week, the Federal Bureau of Investigation took a small first step, announcing the launch of a consortium to combat Internet fraud. Even if law enforcement gets more aggressive, the battle looks daunting. Unlike street vendors, who tend to congregate in certain areas, Internet counterfeiters are scattered around an estimated 5,000 sites and range from shady overseas manufacturers to school kids operating out of a basement.
Another problem: Sellers who get caught can simply pick a new Internet address and jump back into business. “They’re like roaches,” says Magali LaParc, who heads Louis Vuitton’s efforts to protect its trademark on-line. “You squish one, and 20 more come out of the woodwork.”
The problem is a sobering reminder of the underside of the Internet. Indeed, the Web provides such anonymity that nobody knows precisely how vast this market has become. The International Chamber of Commerce bases its estimate on seizures by customs officials, complaints from companies and its own surfing of the Web.
But most manufacturers are clearly alarmed. None of the major designers sells its products on the Internet or license to outside on-line vendors, and all of them warn consumers to be wary of what they see in cyberspace.
The threat of cyberfakes “looms large on our radar screen because of its potential power to disrupt everything we try and do to establish a luxury business,” says Simon Critchell, president and chief executive officer of Cartier Inc.
Although Cartier has fought hard over the years to stop ordinary counterfeiters–to the point of steamrolling mounds of confiscated fakes–Critchell says the Web presents special problems because on-line shoppers “can’t touch or feel” what they are buying. Indeed, some knockoffs on the Internet are of such high quality that even manufacturers have a little trouble telling the difference.
One reason the Internet is so worrisome is that on-line counterfeiters are by definition savvier about technology than their street-vendor counterparts. The Web also provides a vast new distribution channel for the crime syndicates and overseas gangs that federal authorities have been cracking down on for years.
Aggravating the problem is the fact some consumers don’t even seem to care. “If someone takes their time and makes a good copy, it’s not so bad,” says Fatima Hakim, a 27-year-old buyer at Conde Nast Publications Inc. in New York. The merchandise she has bought on the Web–a Chanel handbag, plus a Versace purse and shades–looks good enough to her.
Sellers realize this. On a site called Deals by Todd (www.dealsbytodd.com), for example, owner Rufus Todd Jones of Omaha openly concedes he sells copies of designer watches. “All my watches are replicas and are for entertainment purposes only,” Jones writes on his site. He says he buys watches from suppliers in Asia and stocks up on trips to New York’s Canal Street.
Many consumers simply don’t have the time to verify everything they buy. When Elizabeth Slocum, a 32-year-old electronic-commerce consultant in San Francisco, made her first luxury purchase on-line–a $70 Louis Vuitton leather key chain–she took it to a local Louis Vuitton store, which vouched for its authenticity. But she doesn’t bother doing that anymore, even for the Ferragamo tote bag she recently dished out $550 for on eBay. “That would defeat the purpose” of shopping on-line, she says.
Some manufacturers have begun to fight back, scanning the Web for knockoffs and threatening counterfeiters with lawsuits. An early recruit in this effort is Kelvin Eng, a 19-year-old sophomore at Hunter College in New York. Eng works between classes at Gibney, Anthony & Flaherty, a New York law firm that represents luxury-goods companies, including Rolex and Louis Vuitton. Eng, who works at a computer in the firm’s library and consults company manuals that explain how to identify fakes, says he finds hundreds of suspect items every day.
Searching eBay one day recently, he types in “Rolex,” and finds 747 sales in progress. “We look for anything that’s priced really low,” he says. He pauses at a Rolex Sea Dweller listed for $9.99 and raises his eyebrows. After pulling up a picture and description, he pronounces the watch a counterfeit. “Any time the description says `I cannot guarantee the authenticity,’ that means it’s a fake,” he says. (Even fakes marked as replicas typically violate trademark laws.)
On an independent site selling handbags, Eng finds a Louis Vuitton listed for $20. He points to a patch sewn on the side of the bag. “This patch means it’s fake,” he says, “Vuitton doesn’t put patches on the outside of their bags.” The page will be entered in a growing database of suspect Web sites.
When companies come across a cyberfeiter, they typically dispatch a cease-and-desist letter. Even if that doesn’t shut the site down, it may prompt the operator to quit selling the product in question. “It won’t solve the problem, but it will cut it down to something you can address,” says Bill Ellis of National Trademark Investigations in Los Angeles. His firm has five employees who monitor the Web for companies such as Swiss watchmaker Tag Heuer International SA.
Rolex Watch USA Inc. has gone a step further, filing two lawsuits this spring in federal district court in New York. One suit alleges that two Arizona men, Yanksova Sow and Tad Adkins, sold counterfeit Rolexes over a variety of sites with names such as World of Replicas and Replica Universe.
Rolex has also sued Jones of Deals by Todd. “I’m not trying to deceive anybody,” says Jones. “I’m just selling a replica.”
On-line auction services have had some limited success cracking down on fakes. Officials at eBay automatically shut down auctions when a trademark holder notifies the company of a counterfeit item for sale. Some luxury-goods makers have asked for additional help, but the auction sites say they can’t do much more. “We have about 10,000 new items going up every hour,” says Brad Handler, eBay’s director of public policy. “It’s just impractical to think we can police it all by ourselves.”
Some consumers have helped by notifying manufacturers about trademark violations, often via a toll-free number set up for that purpose. But others are only feeding the problem. Bell, for instance, gave her $15 Oakley sunglasses to her 17-year-old son’s girlfriend, whose friends have requested pairs for themselves. Bell is taking orders from the teens, and plans to purchase them en masse as soon as the kids tell her what color they want.
The sunglasses look just like the real thing except for a tiny trademark on the frame. “Real Oakleys don’t have those,” Bell says. “But none of their friends at school can tell the difference.”
