California Apparel News

The runaway success of the premium-denim category has reaped great financial rewards for many blue-jean labels.

But skyrocketing popularity has opened a specialty niche for criminals who are also hoping to reap big financial rewards.

Knock-off artists are searching to counterfeit anything consumers hope to snap up at a bargain. That ranges from cigarettes to vodka to luxury handbags, according to U.S. Customs and Border Protection representatives.

Those bargain hunters are also hungering for inexpensive premium-denim jeans. Luxury blue-jean manufacturers say they are increasingly faced with the threat of counterfeiters attempting to hijack their burgeoning business.

In some cases, fake premium-denim labels can be bought on Web sites for half their wholesale price. The growing number of counterfeiting cases discovered can feel like a siege by invisible forces.

“The problem is it costs a ton of money to police the world,” said Deborah Greaves, the in-house attorney for Blue Concept and Blue Holdings Inc., maker of Antik Denim premium jeans.

For example, during the week of Feb. 5, Israeli customs notified Antik Denim that 20 pairs of counterfeit Antik Denim jeans were apprehended at the border, mixed in with a shipment of other counterfeit denim jeans.

“These were exact copies of Antik, with the Antik label, the style label, the waistband label, detailed stitching and hang tags,” Greaves said. “They will try to copy everything, but they mess it up really bad. They cut corners. Unfortunately, the consumer doesn’t know that.”

At last August’s MAGIC Marketplace in Las Vegas, two U.S. marshals confiscated two suitcases and five boxes of allegedly counterfeited Antik Denim jeans being sold at a booth under the same roof as the Antik Denim booth.

Every week private investigators confirm instances of counterfeit Antik Denim being sold on Web sites, Greaves said. “They sell it in small quantities of 100 units or less so they don’t get stopped by customs,” Greaves explained. “I placed an order last June for 10 units of jeans selling under the Antik Denim label. They shipped them to us from China. We tried to source the shipper but the address we had didn’t exist.”

Losing money

Denim counterfeiting abounds, but it makes up only a small portion of the $250 billion in annual sales the American economy loses to counterfeiting, according to the U.S. Trade Representative’s office. Among the top items counterfeited are cigarettes.

In the accessories category the most popular items are leather handbags, according to U.S. Immigration and Customs Enforcement.

Owners of different premium-denim labels estimate that sales lost to counterfeiting ranges from $50,000 to more than $500,000 per label. These labels contend that the threat from counterfeiting is growing and the apparel industry is getting more aggressive in pursuing this crime.

Another form of counterfeiting is trademark infringement. Counterfeiting is copying products and trying to pass them off as the real thing. The primary example of this are Louis Vuitton handbags. Counterfeiting is a criminal offense, but can also be pursued in civil court.

Trademark infringement is trading off someone’s label and producing a product that is confusingly similar. It is not a criminal offense but can be taken to civil court. For example, someone could set up a fast-food restaurant with golden arches over it, similar to McDonald’s, but call it McDonnell’s or McRae’s. The same thing happens with blue jeans. A well-known logo can be used with a different name in the middle. Or a copyrighted pocket design is imitated.

Apparel companies are becoming more litigious about enforcing their trademarks, according to a study by accounting firm PriceWaterhouseCoopers LLP. The study, published Feb. 17, found that 2 percent of the trademark infringement cases tried in the United States between 1980 and 2005 were brought by apparel manufacturers.

The study showed that over the years, penalties and awards have increased. Median awards in the 1990s were $200,000 for a jury trial and $100,000 for a trial decided by a judge. Recently median jury awards for a trademark infringement case were $1.2 million. For a bench trial decided by a judge, the median decision was for $400,000, according to the study.

Taking the case to civil court is a popular strategy because plaintiffs have been increasingly successful, said Aron Levko, with PriceWaterhouse- Coopers’ intellectual property practice. “There’s been a big jump in patents being upheld,” he said. “Correspondingly, trademarks are being upheld too.”

Getting tough

Premium-denim labels also contact law enforcement agencies to help enforce their trademark. Blue Concept’s Greaves estimated that her company’s law enforcement efforts were divided into 80 percent civil actions that resulted in a lawsuit and 20 percent criminal actions, where they worked with police agencies from the federal to the local level.

Greaves said sending a cease-and-desist order to a manufacturer of counterfeit clothes or a retailer selling the bogus jeans often scares them away from counterfeiting. Blue Concept and other labels also choose to prosecute their trademark cases in the court system because police officers are often limited in time and staffing. “With civil, you have a lot more control,” she said.

The number of detectives devoted to fighting counterfeiting has dropped in some police departments. The Los Angeles Police Department’s Entertainment and Trademark Unit is dedicated to investigating criminal trademark infringement. The unit’s staffing dropped from six detectives when the unit was founded in 1999 to two detectives now, according to LAPD Detective John Rodriguez. The lack of manpower forced Rodriguez’s unit to pick and choose what raids the unit can undertake.

In order to conduct a raid, he must borrow 10 detectives from other units for adequate manpower. While private investigators employed by apparel brands often first confirm that a counterfeiting operation is going on at a retailer or a factory, the trademark unit must re-investigate the claim. They must ensure that the private investigator was correct in stating that a crime was committed. Rodriguez said his unit conducts two operations each month.

“We’re not proactive. We’re reactive,” he said.

Private investigators hired by denim makers are on the front line in the fight against counterfeiting. They look for counterfeit jeans in stores. They investigate sales at Web sites. They look for them at warehouses. Like police, denim manufacturers say they must pick and choose their battles. Their legal efforts are often funded by awards won in court cases.

Strategy often takes the route of getting the product off the street and taking kingpins out of the game. But it’s tough, Greaves said.

“These people run fly-by-night entities. They can disappear quickly,” she said.