The report values the market for imported fakes at US$509 billion, up from US$461 billion in 2013. It does not include counterfeit goods domestically produced and consumed, or those sold over the internet.
By contrast, French multinational LVMH, which owns luxury brands including Celine, Dior, Givenchy and Louis Vuitton, reported revenues of around US$53 billion in 2018.
Footwear, clothing and leather goods are the top categories of fakes, while most fake goods picked up at customs checks originated from Hong Kong and mainland China, according to the report.
Why Hong Kong is a city of fakes: five recent counterfeit operations
Concerns about the thriving illegal trade are not shared by the small businesses in Chinatown that benefit from a trickle-down effect of tourism created by counterfeit goods sellers.
George, who owns a souvenir shop in the area and requested anonymity, says that as a businessman he appreciates the presence of fake-goods vendors and does not want to publicly denounce them: “They don’t bother me. I sell legitimate goods and they bring in traffic, but to be honest it can be annoying when it’s outside my door.”
There are upwards of 50 souvenir shops like George’s selling memorabilia along Chinatown’s Canal Street, but not all are legitimate.
Once in a while a customer will walk into a store that is almost bare except for a few perfume bottles and red leather tote bags on display. The customer will disappear behind a curtain for 30 minutes only to re-emerge on the streets with a new “Gucci” purse.
Heather McDonald, an intellectual property lawyer at BakerHostetler in New York, has been dealing with counterfeit cases for more than two decades and is familiar with how the operations work.
She says that rather than accumulating a huge inventory, individual vendors in the city operate within a supply network, holding on to only a few items at a time.
Efforts to clamp down on sales of fake goods in Chinatown appear to be half-hearted. Chan says law enforcement agencies seem to be more concerned with solving more serious crimes such as murder and arson, which have clear victims, rather than chasing after vendors of fake handbags and purses. There is a perception that the peddling of counterfeit goods hurts only faceless corporations.
Hawkers who are caught are subject to a fine and may be jailed for a few days, “but the [New York Police Department] doesn’t want to clog the courtrooms with these cases”, Chan says. “They don’t care any more, but when the counterfeit task force puts pressure on them, they will just round up the usual suspects.”
Still, law enforcement officials have made gains in tackling the problem at its source.
In August last year, the US government seized US$450 million worth of counterfeit luxury goods in New York following a six-year investigation. Thirty-three suspects were arrested on charges of conspiracy, trafficking in fake goods and trademark counterfeiting.
The goods had arrived in the US through the ports of New York, New Jersey and Los Angeles, and included fake Gucci, Tory Burch, Hermes, Coach and Burberry items, among others.
In a press conference to announce the arrests, Angel Melendez, Homeland Security Investigations special agent in charge, said the sting should send a crystal-clear message “that counterfeiting and intellectual property rights violations are anything but a victimless crime, as it harms legitimate businesses, consumers and governments”.
Travis Johnson, vice-president of legislative affairs for the International AntiCounterfeiting Coalition, says luxury brands have been attempting to clamp down on the fakes business for years – with mixed results.
The coalition, whose members include Calvin Klein, Louis Vuitton and Burberry, say counterfeit goods rob legitimate manufacturers of revenues and that poorly made knock-offs harm the brands’ reputation and good name, as fakes cheapen their image.
Joel Cohen, a lawyer representing Liang Qifeng, one of the defendants in last August’s federal indictment, has been working on counterfeit issues in New York for more than two decades. He says he has been “lucky to become one of a few go-to men” among the city’s Chinese community.
From Cohen’s experience in representing Chinese defendants in similar cases, most are not hardened criminals. “They’re mostly just businessmen who don’t have a lot of respect for intellectual property rights.”
Cohen says he expects the outcome of the 2018 case to be similar to others he has dealt with: the defendants are likely to have their property confiscated, be fined and face a couple of months in jail. The case will most likely drag on for a few years as the prosecution seeks jail time.
Neither Department of Justice lawyers representing the federal government nor the Attorney’s Office of the District of Eastern New York responded to phone calls or emails requesting a comment on the case.
Johnson says US courier companies have been working with law enforcers in an attempt to stem the flow of illegal goods entering the country.
“Ever since 9/11, many companies have automatically volunteered data on shipments coming into the US to US Customs and Border Protection,” he says.
Johnson adds that information on a shipment’s origin, and affiliated person or company, are provided to officials if a parcel is associated with a person under suspicion or a past seizure.
Those packages are flagged and “by the time it gets to shipping hubs – where the international packages are arriving – customs already have a number of data points, and are therefore able to do pre-screening of packages,” he says.
Meanwhile in China, law enforcers are also doing what they can to crack down on suppliers and vendors of counterfeit goods, according to Jack Chang, chairman of the Quality Brands Protection Committee, a China-based industry organisation representing 200 foreign companies operating in the country.
“I never complain that Chinese enforcement [officers] are not doing their job. The police have limited resources. The pattern of counterfeiting keeps changing, and the police are prioritising this,” he says.
Amber Li, a former intellectual property specialist at the Beijing office of law firm Hogan Lovells, says Chinese and Western governments must continue to work together to halt the market in fake goods.
Both sides need to collaborate to see that more rigid laws are put in place to protect trademarks and copyright, and see that stiffer financial and criminal punishments are imposed.
Seeking justice is still not easy because “legal systems in China and the US are set up in a way that brands cannot seek legal actions outside their jurisdiction”, she says.
And that is a major concern for multinational companies doing business in China. The annual Business Climate Survey conducted by the American Chamber of Commerce in Beijing shows that one of the biggest concerns year after year for foreign companies operating in China remains the protection of their intellectual property.
“There is still a lot of room for improvement in China’s trademark laws and they still need to catch up,” says Professor Tao Xinliang, a Shanghai-based intellectual property expert. “But that is not just a problem China is facing. It is a problem the world is facing together.”
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