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Luxury-goods manufacturers are fighting back. They are spending millions of dollars a year on legal teams and private investigators, who work with international customs officials to bust rings of organized counterfeiters. Louis Vuitton is one of the most aggressive manufacturers. The company employs 40 full-time lawyers and 250 freelance investigators around the world, and last year its operatives were involved in 4,200 raids on counterfeiting rings and 8,200 legal actions. Companies like Kate Spade, Chanel and Coach, whose purses are also widely copied, are members of several consortiums of luxury-goods manufacturers that facilitate civil and criminal seizures of counterfeit goods. "Every company affected by [counterfeiting] spends an inordinate amount of money trying to fix it," says Barbara Kolsun, general counsel at Kate Spade. La Chemise Lacoste, whose alligator-logo shirts are knocked off and sold around the world, reportedly budgets some $4.2 million annually to battle counterfeiting.
The luxury-brand companies' dragnets are pulling in folks who don't fit the usual criminal profile. In March, three women in suburban Detroit were arrested for selling fake Vuitton, Gucci and Burberry bags at posh purse parties.
Authorities recognize that counterfeit trafficking is part of a broader, organized-crime problem. In June, U.S. immigration and customs-enforcement agents busted 17 people for smuggling tens of millions of dollars' worth of bogus Louis Vuitton, Prada, Coach, Chanel, Christian Dior and Fendi merchandise in thirty 40-ft. containers through Port Elizabeth, N.J. According to the customs officials, 15 of the defendants are Chinese nationals who are part of two separate crime networks that use shell companies to import counterfeit luxury goods from China and distribute them through storefronts on Canal Street. Each organization paid undercover agents $50,000 a container to look the other way. These might be run-of-the-mill crime rings, but both customs and Interpol have warned in recent months that counterfeit merchandising is also being used to fund terrorist groups.
So far, the bad publicity has hardly put a dent in the trade, largely because China's factories are getting so good at churning out nearly perfect fakes. (Discounter Daffy's, for example, claims it was duped into buying high-quality fake Gucci bags--and promptly took them off the shelves when Gucci complained.) China's counterfeiters have a system for classifying their reproductions. Bags that are virtually indistinguishable from the originals are class AA. This merchandise is exported almost exclusively to the West. Grade-A or -B fakes sell for less in the bazaars of China--although some make their way to U.S. street stalls. Hong Kong residents stock up on fakes across the border, at Shenzhen's multi-story mall, where fluorescent-lit shops sell pirated Chinese-made DVD players, sneakers and top-quality knock-offs of the latest brand-name bags.