Flood of knockoff merchandise triggers a wider crackdown across US

It's become known as "the Watson's Flea Market Raid."

It began at the peak of the sales day, when local police and corporate officials wove through the crowd of bargain-hunters like buyers with badges. They inspected the merchandise, comparing serial numbers on the products with computerized lists from the manufacturers – and confiscated carton after carton of fake Red Monkey jeans and knockoff Timberland boots.

Allegations of selling stuff that purported to be something it wasn't landed 20 people in handcuffs that day, on charges of breaking state and federal licensing and trademark laws.

"It's good that they get rid of people who undercut ... legitimate dealers," says Catherine Scott, a necklace-maker who witnessed the raid two weeks ago. "But the flip side is there are fewer customers, because the knockoffs are what drew people to the market."

Traditionally, the counterfeit-goods trade has fallen under the purview of federal authorities, but that's changing. At the Watson's raid and in other crackdowns, local and state law officers are taking the initiative, in part because the counterfeit industry has become so large – worth $200 billion a year to US corporations – that crime-fighting backup is needed.

Intellectual property rights seizures in the US rose 72 percent between 2005 and 2006, and the value of seized apparel rose from $8 million to $10 million during that time. Seizures of footwear were up by $3.6 million last year, with 89 percent of those goods coming from China, according to the US Customs and Border Protection Agency.

"We're seeing an increase in seizures and an increase in enforcement, but also in the volume of goods coming through," says Travis Johnson, general counsel for the International Anti-Counterfeiting Coalition (IACC), an industry group based in New York.

Everyone agrees that trade in "counterfeit chic" has exploded over the past five years, expanding to include many more products and flooding the US market. Not everyone is united, though, on what to do about it. Manufacturers want an even more aggressive attack on patent and copyright violators, citing billions of dollars in lost sales. Others, however, suggest such crackdowns can go too far, impeding free enterprise, crimping artistic license, and even devoting too many taxpayer dollars to protecting the market position of corporations.

Many economists trace global counterfeiting from the open-air markets of Shanghai to places like Watson's Flea Market on the fringe of the Tar Heel capital, a sprawling, dusty yard that on weekends becomes a sort of low-income Mall of America. Some 15,000 people pack in to browse what state officials say is $1 million in counterfeit designer jeans and Kate Spade handbags.

The Watson's raid was the biggest in a series of flea-market busts organized by North Carolina's secretary of State, Elaine Marshall. Infractions of trademark and intellectual- property law caught the state's attention a few years ago, when licensed NASCAR vendors complained that fake Jimmie Johnson and Matt Kenseth hats and gear were being sold at races. Since then, officials have cited concern about public health and public safety, as counterfeiters expanded into appliances and other electrical products and even baby formula and pharmaceuticals.

What's more, counterfeiting undercuts states' tax revenues, because counterfeiters don't pay sales taxes on their illicit gains. In a 2004 report, New York State's comptroller said the state lost about $1 billion in tax revenues from counterfeit goods. Such reports are helping to drive enforcement efforts in North Carolina.

"Global competition is hard on us, and counterfeiting is another hardship. Legitimate businesses with licenses are saying, 'I'm paying taxes and following the rules, and I'm getting ripped off,' " says George Jeter, spokesman for Secretary of State Marshall. "Law enforcement is definitely more and more alarmed about what they're seeing."

That alarm has led businesses to work with police to conduct high-profile raids at places where suspected bootleggers congregate. Among multinational firms, enforcing laws against counterfeit goods is the No. 1 priority, according to a survey of 48 companies across 27 product categories, released last week by the International Chamber of Commerce.

"Various industries are really focusing on this as a big issue for them, and one of the things they're doing is partnering with local law enforcement," says Susan Scafidi, a law professor at Fordham University who blogs at CounterfeitChic.com.

In Springfield, Ill., police had always left counterfeit cases to the local FBI office. But when officers stumbled upon some fishy DVDs at a record store, their investigation last week yielded a machine that could duplicate nine DVDs at a time, as well as movie titles such as "Stop Snitchin' " and "Cocaine Country: Manuel Noriega" on sale for $6 each, according to police. "When you think of middle America, you don't think of counterfeit CDs and DVDs," says Ernie Slottag, a city spokesman.

On Jan. 30, a day after attending a workshop on trademark infringement, police officers in Harrisonburg, Va., raided a store called Threads and seized what they say is $52,000 in counterfeit NFL, MLB, and Nike merchandise. The local newspaper called it a "crime of fashion."

In New York, where the famous Canal Street is a bazaar of knockoffs, Mayor Michael Bloomberg has launched a video-piracy initiative that targets not only bootleg booty but also the pirates' makeshift film studios. The NYPD now has six officers working full time on piracy vice.

Conceding that counterfeiters cause real problems for unsuspecting consumers, critics of zealous law enforcement say such crackdowns can go too far.

Many cite last month's seizure in Atlanta of 80,000 mixtapes – popular songs and riffs that deejays mix into new tracks – and the arrest of well-known mix-master DJ Drama. Authorities have charged DJ Drama, who had built a small music production and distribution empire, with racketeering, and allege he stole other people's music to make his own products. His defenders say every artist borrows material from somewhere, and determining infringement becomes difficult when enforcement becomes aggressive.

"Anytime you go beyond actual copies and start to tread on the area of things that have been transformed in some way, [using local police] becomes a much more questionable type of enforcement," says Ms. Scafidi. "One thing we never want to do with intellectual property is to stop creativity."

Meanwhile, ambivalence about the plight of corporations, especially among low-income consumers, runs high. Some see businesses as making money by creating "artificial scarcity" that drives prices up, while selling style to the privileged. Knockoffs, in that view, become the consumer's revenge – the borrowing of an idea, rather than a physical theft.

"To call it theft in the traditional sense of the word is misleading, and it creates this real discord between what industries are trying to tell people and what they're pushing, which is really a defense of their economic position," says Abe Burmeister, a design writer and blogger at AbstractDynamics.org.

At Watson's Flea Market, footwear merchant Travis Lilley moved into a booth space left empty after the raid. A hand-painted sign hawks "real brand-names for $25." He says his goods are purchased legally in bulk. But Mr. Lilley also sympathizes with the bootlegging pariahs: "People are just trying to make a living."

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