Cedar Rapids seizure shows difficulty in stopping counterfeit goods

Hard to resist.

Gucci, Louis Vuitton, Ed Hardy and Ruimacci hand bags were some of the designer labels at a liquidation sale in a rented space at Westdale Mall in February, and the prices were right.

Other things were not so right - a missed stitch here, a questionable grade of leather there.

When somebody showed up to grab the bags on Feb. 18, they were in uniform.

It was the United States Department of Homeland Security Immigration and Customs Enforcement Office, tipped off that the goods were counterfeit.

The agency ended up seizing $442,912 worth of wallets and purses from one of the liquidation sale vendors, who is still under investigation. All the bags will likely be destroyed, according to federal officials.

The bust was one of many carried out each month by the Department of Homeland Security in the Midwest, and doesn't even qualify as one of the larger seizures.

Knockoff goods are a booming business in the United States, fueled not just by unscrupulous sellers but consumers willing to suppress their doubts about the authenticity of goods they buy to get a good deal. Craigslist and eBay are two of the online hot spots for counterfeit goods, according to the Better Business Bureau.

“The hard sell for us on this type of thing is that the average person thinks, ‘If I can get a counterfeit handbag for $20, why end up paying $500?'?” said Mike Feinberg, special agent in charge of investigations at Homeland Security's Minneapolis regional office.

Feinberg's response is that buying or selling counterfeit goods undermines the economy and jobs by cheating legitimate companies out of the profits they received through innovation and risk-taking. Immigrations and Customs Enforcement seized $78.3 million worth of merchandise in the last fiscal year, merchandise that if legitimate would have worth $1.1 billion.

China is the number one source of counterfeit goods, Feinberg said, accounting for more than 65 percent of goods seized.

So many counterfeits are coming into the United States that the agency knows it can't get them all.

“Our number one goal is to stop the sale of items that could pose a health and safety risk, such as counterfeit pharmaceuticals and electronics,” Feinberg said. The agency has repeatedly seized counterfeit medicines for treatment of cancer, heart disease and male erectile dysfunction.

Counterfeit drugs not only fail to provide the medical benefits of the authentic drugs, but often contain dangerous ingredients like formaldehyde that jeopardize health, Feinberg said.

Manufacturing practices for counterfeit goods are so dubious that even wearing counterfeit goods has caused sickness, according to Shawn Neudauer, public information officer for the Immigration and Customs agency in Minneapolis. The agency confiscated a large load of counterfeit Ugg boots after dangerous chemicals in the leather got into the bloodstreams of at least one wearer who became ill.

The sale of counterfeit goods in Iowa tends to rely on transient merchants.

In large cities like Chicago or Minneapolis, Feinberg said it's not unusual for a store that sells counterfeit goods to lease a storefront or mall space for several months.

In Iowa, the knockoffs tend to show up at flea markets or special sales that last a week or less in rented halls or retail spaces.

The short window of time available to respond to the counterfeit report was the unusual thing about the seizure at Westdale Mall because the sale only lasted two days, Neudauer said. Agents can't just show up and seize the items. They must investigate their authenticity and receive court warrants to seize the property.

Westdale Mall management learned of the handbag seizure well after the fact and expressed surprise.

Westdale Mall General Manager Kerry Sanders said the mall strives to maintain a quality atmosphere both for shoppers and retailers. He said the business selling the pursues had received positive references.

“The vendor in question won't be invited back to the property,” he said, adding that the mall is cooperating fully in the investigation of the vendor.

The Iowa Attorney General's Office encourages customers who identify their purchases as counterfeit goods to request that the retailer refund their money. If the goods were purchased at a transient sale like the liquidation sale at Westdale Mall, they are subject to Iowa's door-to-door sales law. That law allows consumers who bought goods to receive a refund during a three-day reconsideration period.

Catching the retailers that sell counterfeit goods is not as important to the Immigration and Customs agency than catching the source of the goods. That's because the importer/wholesaler can always find other outlets for knockoff goods if one or two are shut down.

“We don't have the resources to follow these guys from show to show,” Feinberg said. “What we'd like to do in most cases is to approach them and seek their cooperation to get contacts at the next level up. It's just like working a drug deal. You try to build it (the case) back up to the next level.”

If the Immigration and Customs agents get lucky, they can intercept the shipping packages or shipping documents from the counterfeit goods in order to find out where they originated, Feinberg said.

Neudauer said small quantities of seized goods are usually destroyed in a manner sufficient to satisfy the holder of intellectual property rights when a relatively small quantity of goods is involved. In some cases, the intellectual property issues can be resolved as simply as removing a brand label from the product, but in other cases they are physically destroyed beyond recognition.

When large quantities of apparel are involved, Neubauer said the agency has sometimes worked with the intellectual property holder to arrange donations of the property. In some cases, he said, the fraudulent labeling is altered or removed and the items donated to relief groups and orphanages in underdeveloped countries.

How to avoid fake products

Avoiding the purchase of counterfeit goods is mainly a matter of taking precautions:

•  Know what the goods you are buying are supposed to look like and cost by studying images online or viewing them in person, Details such as zippers, screws, clasps and sticking are usually specific for each brand.
• Red flags should go up if labels or tags are missing, or if the pricing is significantly lower than the lowest prices available from reputable retailers' prices.
•  Online retailers selling counterfeit goods often go overboard in their product description in their use of words such as “authentic” or “genuine” that retailers selling authentic merchandise would likely see no need to use.

Sources: Iowa Attorney's General Office, Better Business Bureau

Who to contact

Consumers who believe they have received counterfeit merchandise who don't get satisfaction from the retailer may take their complaint to several websites:

•  Better Business Bureau: http://smgs.us/mic
• Iowa Attorney General Consumer Protection Division: http://smgs.us/mi9
•  National Intellectual Property Rights Coordination Center: http://smgs.us/mia