WorldCity Business Magazine

Counterfeit crackdown

by Leora Herrmann

OPINION COLUMN

Three developments have come together to make it significantly harder to traffic in pirated goods in Miami.

On a sunny morning last December, more than 70 state and federal law enforcement officers raided nine warehouses and homes in Miami and Hialeah. They seized truckloads of counterfeit cigars, cigar boxes and labels in what officials described as one of the largest coordinated efforts against counterfeiting in the southeastern United States.

Those of us who had worked on the investigation were thrilled. Law enforcement relies heavily on brand owners and their private lawyers to jumpstart the criminal process by conducting initial investigations into counterfeiting operations. For six months, with help from private investigators, informants and others, we relayed information about the illegal enterprise to law enforcement officials.

By mobilizing an army of police for the complicated sting, Miami law enforcement demonstrated a commitment to attacking the costly and dangerous problem of pirated goods.

That white-collar crime goes far beyond the cigar raid. Miami has long been a hub of international counterfeiting, with illegal imports of everything from movies to designer clothes to electronics and even pharmaceuticals. However, it has suddenly become more complicated for the players behind those illegal operations.

There is now a triple threat: increased crackdowns by law enforcement, stiffer sentences from judges and a new federal law. Pirates are on notice that Miami takes counterfeiting very seriously.

Two days prior to the cigar raids, Miami-Dade police arrested five men who had imported Chinese-made handbags, suitcases, shoes and watches bearing designer names like Louis Vuitton, Prada, Gucci and Coach. A federal grand jury indicted the five on counterfeiting charges that could land them in prison for a decade or longer.

Then in January, two Columbian counterfeiters were stunned when a judge sentenced them to six years in federal prison for importing counterfeit Nokia batteries and cell phone components through the port of Miami. The unusually lengthy sentence was a milestone that delighted brand owners who had been clamoring for stricter penalties.

Most important of all, on March 16, President George Bush signed into law a potent federal statute that attacks counterfeiting at its heart and gives prosecutors the power to permanently disable pirating enterprises. The Stop Counterfeiting in Manufactured Goods Act could become the gold standard for intellectual property protection throughout the world.

The act not only throws a wider net around counterfeiting organizations but it requires the destruction of counterfeit goods. It also forces the crooks to surrender all profits and equipment and to reimburse the legitimate brand owners whose name they stole.

Why this aggressive new approach to cracking down on counterfeiters? For one thing,counterfeiting exposes unwary consumers to dangerous and even deadly products. Many of the counterfeit cigars that I inspected were moldy or otherwise defective, although they were being retailed for as much as $200 to $250 a box.

Of greater concern to authorities during the holiday season were the boxes of hazardous electrical cords with phony UL safety approvals, and the toy pistols that lacked the required markings to distinguish them from real guns. When the cords were seized in December , U.S. Attorney R. Alexander Acosta expressed outrage that “innocent consumers purchased potentially substandard, untested and unsafe electrical cords that may give rise to fire hazards.”

The seized toy guns looked like genuine Glocks. Anyone in possession could have been mistaken as wielding a real weapon and killed.

Then there’s the devastating economic cost. Every year, millions of dollars in counterfeit goods and labels enter the United States through our port in Miami, many of them originating in Latin America or China. U.S. businesses lose $200 billion to $250 billion each year and an estimated 750,000 jobs to counterfeiting. The cigar industry estimates that counterfeit cigars rob it of hundreds of millions of dollars a year.

Even worse, some of the money generated by counterfeiting has been traced to the coffers of terrorist groups, including Al Qaeda, according to Interpol and other official sources.

Counterfeiting couldn’t happen without fake labels. The ability to disguise a fake product as the real thing makes counterfeiting possible. The best way to stop that is to thwart the manufacture and distribution of phony packaging and labels. Yet a loophole in the old law meant federal prosecutors could pursue only those who trafficked in the bogus goods, not those who produced and sold sham labels.

That meant someone who sold counterfeit purses at a flea market could be convicted and jailed while someone who manufactured fake luxury purse tags would walk free.

Savvy criminals depended on this loophole to avoid serious prison time. The men nabbed in the Nokia bust brought many of the phone components into the United States bearing their own house-brand labels. Once in this country, those labels were replaced counterfeit Nokia tags.

But the new law closes that loophole. U.S. Immigration, Customs and the U.S. Attorney now have the power to prosecute counterfeiters at every level of the chain. The law’s forfeiture provisions requiring the surrender of all illegal booty and the equipment used to make it will prevent defendants from handing off the operation to accomplices who simply pack it up and move it elsewhere.

At the same time, federal judges are putting real teeth into combating this drain on our economy. Hence the six-year sentence for the Nokia pirates.

Still, government resources are strained. Authorities will continue to rely on the brand owners and their attorneys to start the initial investigation. We also have the option of proceeding in civil court to obtain injunctions and damage awards against the pirates. In cigar counterfeiting civil cases, for example, we obtained damage awards in excess of $3 million.

And we can record our clients’ trademarks and copyrights so that officials at the border can block importation of counterfeits bearing their brand names at the borders.

As Miami continues its exciting role as a key player in the global economy, it is imperative that brand owners and consumers are protected from counterfeiting by our laws and our justice system. These new developments in the fight against piracy are leading the way.

Leora Herrmann is a trademark and copyright lawyer with Florida-based law firm Kluger Peretz Kaplan & Berlin.