Locked down for knockoffs

N.Y. landlords are paying the price for allowing tenants to hawk cheap fakes.

By David B. Caruso
Associated Press

NEW YORK - Things move fast on the grubby, half-mile strip of Canal Street on the edges of the city's Chinatown, famous as a black market for counterfeit designer handbags, fake watches, and pirated compact discs.

Customers come and go. Peddlers sell wares from racks and stalls that can be packed up and moved in a hurry. Just who is selling what changes daily.

With so many moving targets, companies and lawyers battling the city's booming knockoff trade - some estimates put it at $23 billion annually - are increasingly taking aim at the only people standing still: landlords.

Since the spring, luxury-bag-maker Louis Vuitton Malletier - part of the LVMH Mo Jet Hennessy Louis Vuitton conglomerate - has forced the owners of 18 Canal Street buildings to settle lawsuits contending that they had knowingly looked the other way while tenants hawked thousands of cheap fakes.

In the most recent round, the owners of seven buildings agreed late last month to open their doors to weekly inspections for two years to confirm that no knockoffs were on sale.

Blaring warning signs will also be posted on the premises, informing shoppers that counterfeiting is a crime.

Louis Vuitton's building-by-building fight against landlords on Canal is a strategy being employed with renewed vigor by companies that have seen world markets flooded with replicas, often manufactured by child laborers and distributed by criminal cartels.

U.S. customs agents seized more than 8,000 types of counterfeit items worth about $93.2 million in the fiscal year that ended in September, but billions of dollars worth of fakes, including auto parts, sneakers and pharmaceuticals, are believed to have slipped through the net.

The Recording Industry Association of America has launched lawsuits against flea market owners, arguing that they turned a blind eye to tenants selling pirated compact discs. One property owner in Marysville, Calif., settled for $1 million.

On Dec. 19, handbag-makers Gucci, Prada, Chanel, Burberry and Louis Vuitton won a surprising victory in a lawsuit filed in China against the owner of a Beijing mall that trafficked almost exclusively in counterfeits.

The judge ordered the building's owner to pay damages and stop vendors from selling fakes - a rare outcome in a country that produces a majority of the world's knockoffs.

In 2003, New York City officials began using public-nuisance laws to sue the owners of buildings in Manhattan's wholesale district, nicknamed "counterfeit alley" for its markets of questionable merchandise, tucked away in warehouses and office buildings.

Speaking Wednesday at a summit on counterfeiting sponsored by Hearst Corp.'s Harper's Bazaar, Mayor Michael Bloomberg said the program had shut down 14 buildings to date and had led to the confiscation of $48 million worth of goods.

"Trademark counterfeiting is big-time organized crime," Bloomberg said to an audience of executives and media in town for the start of New York's Fashion Week, when top designers introduce their fall lines.

He said the city's long history of tolerating the knockoff business as a minor vice was a thing of the past.

"If we permit large-scale criminal enterprises to keep operating in the middle of Manhattan," Bloomberg said, "what message will that send?"

Like Louis Vuitton, the city has brought its cases in civil courts, usually with the aim of forcing a settlement that would allow a building to reopen only if its owner posted a bond, fixed code violations, and agreed to seek city approval for future tenants.

At least one maker of luxury goods has sought to extend the concept into cyberspace.

Jewelry-maker Tiffany & Co. sued eBay in 2004, contending that the online auction site had facilitated counterfeiting by allowing thousands of bogus Tiffany items to be sold each year.

Like the owners of brick-and-mortar buildings, eBay has used the defense that it merely provided a place for people to advertise and that it was not itself involved in handling or selling merchandise.

EBay has long offered to halt any auction that a designer company such as Tiffany believed involved counterfeit goods, but the auction site has maintained that it did not have the expertise to root out fakes itself.

"How are we supposed to know, without taking possession of the goods, what is genuine and what is not?" asked eBay spokesman Hani Durzy.

The same might be said for New York landlords.

Property owners involved in the Canal Street and wholesale district disputes declined to be interviewed, but other building managers said it was unfair to expect people in real estate to be able to tell the difference between a genuine Louis Vuitton Popincourt Long bag, retailing for as much as $750, and the made-in-China replica that costs $70.

"I wouldn't know a counterfeit item if I saw one," acknowledged James Preston, an agent for Kew Management, a supervisor of commercial properties in Manhattan that has voluntarily tossed out tenants suspected of selling knockoff goods.

Building owners can take precautions, like screening renters carefully and barring them from subletting their space to peddlers.

"But I'm not sure it's fair to hold the landlord accountable to this degree," Preston said. "The landlord is in the real estate business. How are they supposed to know what a real Louis Vuitton bag looks like?"