Islands provide ideal spot for sale of counterfeit products

Advertiser Staff and News Services

Browse the merchandise carts at International Market Place in Waikiki or hole-in-the-wall stores between Kalakaua and Kuhio avenues and it's easy to find Gucci, DKNY, Guess and Rolex items for less than you'd expect.

A monster truck crushed a stack of counterfeit software in a demonstration put on by Microsoft in Los Angeles last July. The street value of the CDs was $2.5 million. Bloomberg News Service

"Counterfeiters are smart," said Vance Lommen, head of security for sunglass-maker Oakley Inc. "They're going where the public is."

That means that in some areas there are a growing number of company investigators and local police strolling beaches, parking lots at concerts and flea markets looking for pirated T-shirt designs and the like.

"These guys are hard to catch," said Kris Buckner of Investigative Consultants in Torrance, Calif., who works for more than three dozen companies. "These guys do the black duffel bag thing. They just zip up and run when we come by."

In the Islands, authorities said other times of the year — like Golden Week in January — tend to be busier than summer because bogus merchandise retailers target Japanese visitors. Still, they said, the business of counterfeiting occurs year-round.

"We probably don't follow the summer vacation pattern that you find on the Mainland, but there is plenty of counterfeit merchandise out there in Waikiki," said Michael Cox, supervisory special agent with the U.S. Customs Service in Honolulu. "You really have to look pretty hard not to find it."

Gary Hahn, chief operating officer of Louis Vuitton Hawaii, said one company employee a few years ago was mistaken for a Japanese tourist and asked if she was interested in buying some cheap Louis Vuitton handbags. She was led to a rented unit in the Waikiki Trade Center, to which she later led authorities.

Hahn said that Hawai'i isn't as popular for name-brand knockoffs today as it was several years ago. He said Italy and South Korea have become the Meccas for knockoff retailing.

The largest local discovery of counterfeit merchandise was made in 1996 when the Customs Service seized 20,000 items in Waikiki valued at $1 million on the wholesale market. Other major busts that year included 2,000 counterfeit watches appraised at more than $170,000 and 3,000 knockoff designer watches, earrings, sunglasses and belts with a wholesale value of about $200,000.

Cox said regular seizures of smaller quantities — five or six items — are more common now. That's because shippers avoid sending containerloads of counterfeit merchandise directly to Hawai'i, opting for bigger ports in California where contraband is less detectable.

"We're not seeing those huge international shipments like we may have seen in the mid-1990s," Cox said. "I think everybody's getting smarter."

Billions lost

While there are no reliable figures on how much counterfeit apparel and merchandise is sold in the United States each year, the cost to U.S. businesses is high. Trademark infringement, including pirated videos and software, drains about $200 billion a year, according to International AntiCounterfeiting Coalition, a Washington-based industry group.

Its investigators seized a fraction of the contraband, about $180 million, in 1999 — the last year for which figures are available.

Most businesses don't like to discuss their efforts to enforce trademarks and copyrights and won't say how much they lose in sales.

Hahn said Louis Vuitton figures that for every seven items it sells, one fake is sold or confiscated. "It is a real problem for our brand," he said.

Oakley said it seized about $11 million in fake sunglasses selling for $15 each last year. Oakley sunglasses typically start at $100 apiece.

But big companies like AOL Time Warner Inc.'s Warner Brothers and Walt Disney Co. say it's not just a matter of lost profit.

"Sometimes it's local jobs and people getting defrauded by the cheap merchandise," said Peter Nolan, Disney's legal counsel.

While some vendors think they're too small to prosecute, police say the opposite is true.

"What surprised me is that a big company like Walt Disney would be interested in taking the time and talking to us about a couple of dozen T-shirts," said Detective Sgt. David Szalkowski in Seaside Heights, N.J. He began working with companies to catch counterfeiters at the beach resort about six years ago and typically makes a half-dozen arrests each summer.

Law enforcement officials and investigators take their work seriously, comparing illicit vendors to street-wise drug peddlers or worse.

Extremist groups

The International AntiCounterfeiting Coalition said some vendors are part of a chain that leads to organized crime cartels or other extremist groups.

"Some people don't mind throwing $10 or $15 or $20 time and again to buy a bag because it says Chanel," said Tim Trainer, the group's president. "What they're not thinking about is what that money might be supporting."

Buckner said at least a third of the vendors he encounters in such Los Angeles tourist areas as Hollywood Boulevard or Venice Beach belong to a bigger operation. He's connected the counterfeiters to drugs, minimum-wage violations and child labor.

While some small retail stores participate in the sale of knockoffs, tourist-area vendors typically operate out of a cart or a duffel bag — making it easy to pull up shop to avoid arrest. Szalkowski said most complaints are from established businesses who are undercut by itinerant competitors.

The large profit margins make it worth the risk, investigators say.

"A lot of these people involved in counterfeiting, they're making six figures and living in a house in the hills with a brand new Mercedes," Buckner said.