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COMMENTARY: The Truth about Counterfeit Luxury Goods

Posted by admin on Sep 15, 2010 6:49:02 AM
A recent study released by the UK's Home Office on the impact of luxury counterfeit goods has received much attention.  In the report, Professors David Wall and Jo Large argue against the premise that counterfeit luxury goods are not as harmful to consumers or economies as generally perceived.  In fact, they suggest that public safety is not impacted, consumers consider knock-offs as a boon, luxury products actually benefit from increased brand awareness, and police resources should be re-allocated to focus on safety-critical counterfeits.

Some have called the study irresponsible; others have applauded the paper as fascinating. Certainly, the assertions made by Wall and Large, though unorthodox, seem plausible.  Has anyone ever been hurt by a fake designer handbag?  Don’t we all love a bargain?  Isn’t it true that when you buy a knock-off, you still crave the real thing?  And why waste time going after purse parties when people are dying from dangerous drugs?

Let’s do a reality check.  How can we think of this study in the context of the big picture? Here’s some food for thought:

1.      Counterfeiting is Crime with a Capital “C”

The study supports the broad consumer perception that counterfeiting of luxury goods is harmless.  However, I read articles everyday about huge seizures of fake designer handbags, watches, DVDs, circuit breakers, medicines, etc. worth tens and hundreds of millions of dollars.  Counterfeiters don’t think of selling designer handbags as offering consumer choice, and refrain from selling substandard circuit breakers and drugs because of public safety concerns.  These criminals sell whatever we want to buy, but for none of the right reasons.

According to U.S. government data, Chinese criminal gangs account for 80% by value of counterfeit goods seized.  A 2009 Rand study, entitled “Film Piracy, Organized Crime, and Terrorism”, provide detailed examples linking counterfeiting with money laundering and other nefarious activities.  We are talking about big-scale illegal operations managed by organized criminal gangs.  And we only know about the bad guys that get caught.

2.      Counterfeiting is Bad Business

The study claims that counterfeit luxury fashion is good for business.  Unfortunately, Louis Vuitton, Burberry, and Britain’s Association of Chief Police Officers do not agree.  While there may be some truth that knock-offs quicken the fashion cycle and raise brand awareness, for most brands, this is not the notoriety they seek.  Many luxury brands refuse to publicize their anti-counterfeiting initiatives for fear of being tainted with an association to counterfeits.

Counterfeiting is bad for business, and bad for the economies in which we live and work.  We feel the impact, even if we cannot always quantify the extent.  A 2008 study by the Los Angeles County Economic Development Corporation titled "A False Bargain" estimated that the State of California lost $407 million dollars, LA County lost over $40 million dollars, and the City of Los Angeles lost over $17 million dollars due to the sale of counterfeit and pirated goods.  These lost taxes ultimately mean fewer jobs for workers, and less revenue for local and state governments.

3.      Counterfeiting is a Snare in a Complex Web of Deceit

The study presents counterfeiting of luxury goods as not worthy of the limited resources of police and enforcement agencies.  However, an innocent purse party can be the tantalizing bait offered by a complex supply chain of illegal fronts, shops, and factories that make-up a counterfeiting ring.  As one unwitting purse party host reflected “It was always in the back of my mind that it was wrong, but I thought of them more as social events.”  In one case, investigators following the trail from purse parties resulted in arrests of more than 62 people, and the seizure of nearly $20 million in knockoff goods.

The question to ask is – Who is supplying the knock-offs at the purse parties?  It is only when you follow the supply chain back to its source that you expose the network of illegal activity.  That is when we discover the horror of child labor, toxic ingredients, brazen cost-cutting, money laundering, organized crime, and terrorist activity.

Counterfeiting, as all businesses, conforms to the laws of supply and demand.  To protect the public good, a two-pronged approach is needed – education to increase consumer awareness and limit demand, and enforcement to deter and stem the supply.

There is a grain of truth to Wall and Large’s study, but it’s worthwhile to dig a little deeper.  As we’ve all learned, if it sounds too good to be true, it is.

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Topics: Luxury Goods

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