Counterfeits of top-name luxury brands have exploded on the world market in recent years.
In an unglamorous garage in London stands a fake Ferrari 1967 P4. The P4, Ferrari lovers assure me, is one of the world's most beautiful cars, with all the curves in the right places, as well as one of the most expensive models in the Ferrari stable, with an estimated value today of $15 million. Only three were ever made, but I own a fourth one. Luxury fakes are my dubious specialty, which is why I know that the fourth example of the P4 is absolutely a fake. In the course of my work, I have managed to meet with New York Police Commissioner Ray Kelly, President José Manuel Barroso of the European Union and high-kick wizard Jackie Chan. On each occasion, I dressed to impress. I paired my Armani suit with an Alfred Dunhill shirt, Versace tie, Ferragamo belt, Louis Vuitton shoes and Givenchy socks. The commissioner wanted to arrest me, the president thought I was certifiable. And Jackie tore my outfit to shreds, kung fu style, and left me to face the press in my underpants. My entire outfit was fake, and these gentlemen do not take kindly to counterfeits. Neither do I. (The Jackie Chan episode was just for show, of course, to emphasize just how pervasive fakes have become.) For the last 20 years my job as an intellectual property lawyer has taken me from Paraguay's Ciudad del Este to Guangdong Province in China to Manhattan's Canal Street as I search for pirates of luxury goods.
Counterfeits are often associated with the shady street vendor, peddling imperfect copies. But in the last 18 months I have witnessed a paradigm shift in the manufacturing of fakes. It is still only a ripple—but it is set to become a tsunami. The next wave will change the face of manufacturing and retailing and it is fueled by a quantum leap in technological engineering.
The real story about that shift in counterfeits begins, in some ways, with the curvaceous Ferrari. I first learned of her existence after our investigators were tipped off during an investigation into counterfeit watches in central Thailand. Instead of timepieces they found fake Ferraris, Lamborghinis and Lotuses. Hogwash, I told the lead investigator upon receiving this report. Counterfeit supercars? Not possible. Their pride at stake, the investigators returned to the workshop in the dead of night and sneaked a series of eye-popping pictures, which they sent to me in London.
I was intrigued. As a "petrol head" I felt bound to broaden the scope of the probe and asked the investigators to try to track down other cases. I found a factory in northeast China, which claimed to produce modern sports cars. Could they manufacture me a Mercedes SLR, I asked—even though it was not listed in their full- picture catalog? Within three days I received a reply: no problem. I decided to raise the bar. How about a Maybach? The answer came back two days later by way of a question—would I like a long or short wheelbase? But here's the deal with these fake cars. The gas tank could explode, the brakes might fail, the steering wheel is rickety and, I am sad to report, the famous Ferrari Red on my P4 is starting to peel, which of course would never happen on the real thing. (By the way, I should make it clear that conscience keeps me from driving her, as well as the certain knowledge that my boss would kill me should I give in to the temptation of taking the lady for a spin.)
The counterfeit world has traditionally been a world of the shabby and shoddy. But things are changing. Take sophisticated mechanical watches. Recently I joined in on raids on warehouses in China where I witnessed fake Rolex, Audemars Piguet, Vacheron Constantin and Jaeger-LeCoultre watches being manufactured on the factory floor. These were of such high imitation I could not discern them from the real thing. When we took the illegal copies to specialist watchmakers, in many cases it was only after opening up the watches and examining the movement with specialized equipment that a determination could be made as to their authenticity. But—and this is the worrying bit—even the highly sophisticated core components of luxury watches, such as tourbillons, can now be replicated almost flawlessly. Personnel from service centers increasingly tell stories of customers returning watches for repair, only to discover that they are bogus. Awkward, if not painful, situations arise: irate girlfriends and aggrieved wives swearing vengeance on boyfriends and husbands for buying them cheap knockoffs.
The term "true original" is often overused, but high-quality Cuban cigars surely qualify. Or do they? It is estimated that as much as 90 percent of Cuban cigars in the United States are counterfeit. It is probably fair to say that the embargo on Cuban cigars plays into the hands of Internet traders who con desperate cigar lovers. Because of the status that Cohibas Esplendidos, Romeo y Julieta Churchills and Montecristo No. 2s enjoy, they are high on the list of counterfeited cigars. An abundance of good rollers and the emergence of counterfeit factories in Central America, as well as the uncannily close imitation of authentic-looking Cuban cigar boxes, have muddied the waters even more.
And yet another of life's luxuries is under threat: vintage wine. Wine is increasingly becoming the target of counterfeiters who copy bottles and labels to perfection. And even by the ample standards of pirates, the profit margins are staggering. Only a few months ago a Bordeaux wine merchant was accused of selling plonk under labels from top-notch châteaus: Pichon-Longueville, Léoville Barton and Gruaud-Larose among others. The depth and enormity of deceptive vintage labeling was also spectacularly revealed when billionaire wine collector William Koch filed a federal lawsuit against Zachys Wine Auctions and collector Eric Greenberg over the authenticity of wines he purchased at auction. It says much of the dire current climate that even Château Petrus owner Christian Moueix indicated that he has spoken to the FBI about fraud.
Wine, cigars and now...truffles. As a hopeless foodie, I was deeply offended to learn that the pride of France—the prized black Périgord truffle—has come to suffer at the hands of counterfeiters. Crafty dealers import the common tuber sinensis from China's Yunnan Province to sell in the land of culinary elitism. The impostor truffle may seem remarkably similar on the outside to its more illustrious cousin (tuber melanosporum), but is by far lighter on the palate. A similarly deceptive tactic was employed in the United States to sell fake caviar, and led to the owner of Connoisseur Brands serving a term in prison for trading in counterfeit Russian sevruga. The fake sevruga turned out to be fish eggs of the humble American paddlefish. Your taste buds may give you an indication that all is not well, but it is sobering that both fake truffles and caviar are so authentic-looking that they can only truly be detected by full DNA testing.
To round out the list of high-end knockoffs, here is one for the golfers. The next time you think your swing is "unbalanced" or your ball is going everywhere, you may want to check out the authenticity of your gear. My growing collection of fakes—referred to in the office as the Hall of Infamy—includes a nifty set of fake Callaway clubs and a tray of counterfeit Titleist golf balls.
So why is there such a sudden surge and vast proliferation of almost copy-perfect fakes in the last 18 months?
First, counterfeits come in two levels. At the bottom of the pile, you find what I call "genuine fakes." Here we are talking about the knockoff luxury watch, which until recently was sold on the street corners of New York, Milan and Hong Kong. "Genuine fakes" are typically made and sold by mom-and-pop enterprises. Both seller and buyer know the product is fake. A $20 Rolex watch? Yeah, right.
But a whole new wave of second-generation counterfeits has emerged: digital fakes. The advent of digital technology has made perfect copies possible by the touch of a button on a keyboard. Never has copying been so easy, quick and of such high quality. Digital fakes are immaculate in their appearance. Their packaging is superb and typically includes warranty cards of such high standard that they fool experienced experts. Only upon closer scientific testing can the differences be distinguished between original and imitation.
I first came across this new way of producing fakes about a year ago during a raid on a factory in southern China. In the midst of all the commotion—raids are noisy, disorganized and happen really fast—I spotted, by chance, a stack of innocuous-looking software discs. Upon subsequent analysis, we discovered that the counterfeiters made smart use of digital technology and laser scanners to reverse-engineer highly complicated mechanical watches. I was so fascinated by this ingenious use of technology that I visited Minolta's laser scanner labs after my return home. I will never forget the moment I was invited to remove my watch from my wrist and place it on the laser scanner turnstile. Within five minutes—eerily—a picture-perfect 3-D digital version of the outside contours of my watch was produced: the ultimate, undetectable copy.
Armed with this knowledge, our investigators in Hong Kong track-and-traced the sources of the software back to—not mainland China, surprisingly—but Singapore, Taiwan and Hong Kong. In other words, the triads and larger crime syndicates in these locations are "outsourcing" their counterfeit manufacturing to the less expensive labor markets of China, Vietnam and Thailand. Asia, however, should not be singled out. Organized crime groups in other parts of the globe have also jumped on the digital fake revolution. Not just luxury goods, but every product known to mankind can be, and is being, perfectly copied. This is sure to have profound implications for the future of global retail.
The list of fake products—digital and nondigital—on the market today is enormous and ever increasing. It didn't take but a blink for counterfeiters to concoct a copycat model of the iPhone. Soon after the launch of the original iPhone in the United States, the so-called iPhone Q380—there is no authentic iPhone Q380—was being scooped up across China for $75 to $250. And last June, the unfortunate Xiao Jinpeng died when an alleged counterfeit Motorola battery in his counterfeit cell phone exploded. Book titles from authors such as J. K. Rowling and John Grisham as well as the Oxford English Minidictionary have been faked, as have baby milk formula, whiskey, Colgate toothpaste, Viagra (the ingredients can be inactive but also positively harmful—authorities recently found phony Viagra sprayed with lead-based blue paint and pills made from cement powder), antibiotics, anticancer drugs, contact lenses, surgical implants (already being used in surgery), cough syrup, condoms, Timberland boots, perfumes, circuit breakers, automobile brake pads (made of sawdust and dried grass) and—even scarier—spare parts for helicopters and airplanes. The Concorde disaster in Paris a few years ago was caused by a "non-original" metal spare part on the runway, which fell off a DC-10 aircraft that had just taken off. This deadly metal strip punctured one of the Concorde's tires upon takeoff, causing the tire to explode and rupture the fuel tank. It is speculated that the non-original spare part referred to in the report from French aviation authorities is coded "speak" for counterfeit.
Counterfeiting is not a benign crime. The guys behind the fakes are not nice; in many cases they are outright criminals. I came across my first counterfeit factory employing child labor in distressing circumstances a few years ago, and have since seen countless examples. Child labor on either the production or distribution side has been reported in Thailand, China, Brazil, Italy, and even the United Kingdom. Gone are the mom-and-pop operations of yesterday in which impoverished families constructed fakes in their garages; they have been replaced by triads, cartels and mafiosi. More sinister, terrorist organizations such as Al Qaeda, the IRA, Farc, Hezbollah and Hamas have fully latched onto the lucrative high-reward/low-risk nature of the counterfeit business. As Magnus Ranstorp, an international terrorism expert, warns: "Counterfeiting has become the third most important form of funding for terrorism today." For those who still think counterfeiting is merely a way of stiffing fat-cat companies and a "victimless crime," pay attention to the words of Joseph Scott, a veteran New York investigator: "If you've ever bought a piece of counterfeit merchandise—watch, action toy, handbag, sweatshirt—you have supported organized crime, tolerated child abuse, committed larceny and participated in a business that uses murder as a sales tool." The U.S. Chamber of Commerce estimates that counterfeiting cost Americans $250 billion in lost tax revenues and contributed to a loss of 750,000 jobs last year, and led to smaller companies going under. Even such an American classic as Zippo was hurt when fake Zippo lighters flooded the market.
In the past, the hapless manufacturer bore the brunt of counterfeiting. But in recent times distributors, retailers and auction houses have also become entangled in the deception mess. Sotheby's and Christies have both been at the sharp end of legal complaints and have understandably become skittish about auctioning articles with an uncertain provenance. Wal-Mart has had at least six lawsuits filed against it in recent years on claims of counterfeiting.
The problems that real-world sellers encounter cannot compare with the mammoth headaches of e-tailers, auction sites and online marketplaces. My personal bugbear is the volume of counterfeit traders masquerading as single sellers on eBay. Another problem I encounter with ever-increasing frequency is unauthorized Web dealers selling high-end fakes mixed in with genuine "parallel" goods. And then there are the "spoof" sites that look like the authentic sites of the original manufacturers or authorized retailers but are not, because of a typo in the Internet address. In this scam, perfect digital images of the real product are transferred effortlessly from the authentic producer's site.
My own view is that we have to fight fire with fire—fight smart technology with smart technology. The black hats are just beginning to use next-generation digital technologies to enormous advantage and the white hats have been slow to follow. Customers need to know unambiguously whether a product is fake or real. Some manufacturers are exploring digital fingerprinting together with on- and off-line overt and covert authentication technologies. Online companies such as Portero.com and Lussori.com have spearheaded initiatives to guarantee authentic- and authorized-only luxury products to the customer, while Myauthentics.com helps the consumer distinguish between fake and real products online. [Editor's note: Cigar Aficionado maintains the "Counterfeit Corner" on its Web site, www.cigaraficionado.com, to help readers avoid cigar fakes.] Services such as these are desperately needed to provide an online environment of trust and authenticity. Most important, the profile of this problem has to be raised. In March, EU President Barroso will open the Global Anti-Counterfeit Summit in Brussels under the banner "Fakes Cost More"—an attempt to start a global awareness campaign.
So how to avoid purchasing fakes inadvertently? Speaking from personal experience, here are a few tips:
Price point: Often the most telltale sign. If the price is too good to be true, it usually is. Do yourself a favor and check the price against the original manufacturer's recommended retail price on its Web site or that of an authorized dealer. Deep discounts are a huge tip-off that you may have encountered fake goods.
Contact is key: Especially if buying online, determine the physical location and contact particulars of the sellers. Test their authenticity and call them by phone or check out their address on Google—remember: location, location. Examine closely whether the seller really is an authorized and reputable retailer. If you are buying from an online auction site, send an e-mail and see how willing the seller is to reveal authentic contact details—often an excellent polygraph test.
The devil is in the detail: Become an avid label reader. Be shop- and tech-savvy. Counterfeiters often make spelling mistakes, get the type font wrong or miss some other detail. Spot the differences. If something just looks wrong, follow up with further investigations—contact the manufacturer's customer service center. And study the product itself closely. Vintage wines should have sediment in the bottle as an occurrence of aging. The labels are often damaged and have stains. Most château wine corks bear the correct vintage and trademark. High-end mechanical watches have a distinctive dial. Cartier watches, for example, have the word "Cartier" minutely etched onto the V of the Roman numeral VII and counterfeiters often miss this detail in their replicas. Authentic Cuban cigar boxes are very detailed and must carry the warranty seal, the "Habanos" chevron, hallmarks and proper bands around the cigars. Recent Colgate toothpaste fakes miscopied the word "favor" from the authentic packaging, using the British spelling (favour) instead of the American, and indicated that the sources of origin were African countries where Colgate does not manufacture.
Call upon the experts: This isn't always possible, but if you can, call in the experts, such as watchmakers, winemakers, car engineers and other specialists. Because copies are so perfect, even the gurus find it impossible to determine authenticity without a full scientific analysis—often based on an in-depth test such as DNA fingerprinting.
This is an onerous battle, worth fighting if it means spiking the guns of the terrorists, closing child labor sweatshops, stopping things from going up in smoke—literally—and keeping the veritas in the vino.
Frederick W. Mostert is the chairman of the Authentics Foundation, past president of the International Trademark Association, author of Famous and Well-Known Marks and From Edison to iPod—Protect Your Ideas, and the chief intellectual property counsel for a major luxury goods company.
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