In China, A Growing Taste for Chic
According to Fanti, many of the parts for these watches were manufactured in southern China and flown from Hong Kong and Malaysia to Austria, Belgium and Germany, then tucked into removable floorboards in cars and driven to the southern Italian city of Naples, center of a distribution ring overseen by a branch of the Mafia known as the Camorra. Finally, they were parceled out to artisans near Venice, who fashioned gold cases and put the pieces together.
The investment in this production was as much $2,500 per watch, but customers typically paid $12,000 or more, Fanti said. Some of the boutique owners were in on the scam; some were unwitting dupes. The watches were mixed into a well-established "gray market" in which boutiques purchase real goods at discounted prices from smugglers who buy them in Eastern Europe, where retail prices are lower, then sneak them into high-cost countries such as Italy, France and Germany.
But customs authorities acknowledge that the sheer volume of China's exports means they can catch only a tiny fraction of smuggled fakes. "If one were to control all of the containers that pass through the port of Naples in one day, it would take at least a year to inspect them all," Fanti said.
In the United States, so-called secondary markets, in which retailers sell excess stock to trading companies, has created a similar opportunity for counterfeiters to get goods on shelves at reputable stores, according to legal experts. The trading companies resell the stock to other retail operations. Counterfeiters sometimes pose as legitimate sellers by forging invoices that make it seem as if their products were once bought directly from the major brands.
In May 2000, the U.S. clothing chain Daffy's bought 600 Asian-made fake Gucci handbags, then sold them for $300 to $400, according to a judgment from the U.S. Court of Appeals for the Third Circuit in a trademark infringement case brought by Gucci. Daffy's purchased the bags from a supplier with whom it had frequently done business, paying $238 to $250. The court found Daffy's was not liable because it had been duped.
"The quality of the counterfeits has gotten better and better," said Louis S. Ederer, an intellectual property lawyer in New York who has pursued cases in which Chinese-made counterfeit Tommy Hilfiger clothes have landed on the racks at Wal-Mart. "This is not just a street business anymore."
The Internet also has become a major channel for fakes. Cartier recently raided a two-room office in Manhattan, finding more than 550,000 fake watches. According to Cartier attorney Harley I. Lewin, the parts were made in China, flown to New York via Hong Kong and assembled in workshops in Chinatown before being sold worldwide over hundreds of Web sites. The parts cost $3 to $5 per watch, while the finished products retailed for $150 to $200. The lone warehouse supported sales of $100,000 per day, Lewin said.
The major companies are worried that the growth in high-quality counterfeits may dilute their brand in the wealthiest markets -- Europe, Japan and the United States.
"I'm most concerned when I see some ladies with high income going to buy what they call a good copy," said Dior's chief executive, Sidney Toledano.
"That bag might look okay today, but the counterfeiter cannot use gold, cannot use the best part of the skin, cannot use the same manpower we use. Not only have I lost a customer, but in six months that bag will look like a potato sack. It will have a bad odor. It will be a disaster. And because she has a high income, no one will think she carries a fake one and so it damages the image."
© 2004 The Washington Post Company
Customers browse at Giorgio Armani's flagship store in Shanghai. Designers are excited about the growing market for their goods in China, but concerned about widespread counterfeiting.
(Kevin Lee -- Bloomberg News)