The dangerous business of counterfeit goods

Neil Sutton  October 9, 2009  

News Public Sector

The combination of massive profit margins and slap-on-the-wrist legal penalties has made counterfeiting a lucrative and popular practice in Canada, according to a Toronto lawyer in the know.

Lorne Lipkus has devoted his law practice — Kestenberg Siegal Lipkus LLP — to intellectual property law with a focus on anti-counterfeiting enforcement. There are two things that can be counterfeited, says Lipkus, who spoke at the Retail Council of Canada Loss Prevention conference held Sept. 15 in Toronto: “anything and everything.”

Most people tend to picture handbags and t-shirts when they think of commonly counterfeited goods, but the reality is more disturbing. Fake aircraft parts, liquor, medicines and pesticides have all been passed off as the real thing. At least one plane crash has been attributed to counterfeit aviation equipment, not to mention hundreds of deaths in Russia linked to counterfeit vodka consumption.

Lipkus got his start in anti-counterfeiting in the 1980s raiding flea markets on behalf of his client, clothing retailer Club Monaco. Presenting what’s know as an Anton Piller Order, a court order that provides the right to search premises and seize evidence, Lipkus shut down a merchant who was knowingly selling fake Club Monaco gear. But the only weapon the Canadian legal system currently has to combat such activity is some relatively small fines, he says, and ersatz Club Monaco t-shirts were back on sale shortly after the raid.

Conditions are such that a successful counterfeiter stands to earn massive profits with comparatively small risks. “Why would someone sell cocaine for double their money when they can sell counterfeit for 900 per cent profit?” says Lipkus. “There is nothing that exists that is popular and the public wants that cannot be counterfeit.”

Lipkus has since turned his attention to education and lecturing on the subject of counterfeiting, working with the RCMP, the Canada Border Services Agency, Industry Canada, regional and municipal police forces and other groups and organizations with a vested interest in combating the spread of counterfeit goods.

He has also spoken at college and university campuses about the impact of counterfeiting. One PowerPoint slide he likes to show is a pile of individually wrapped condoms. This inevitably results in a smattering of nervous laughter, but the reason he shows the slide isn’t to give young people a giggle. Lipkus has discovered that counterfeit condoms have been distributed at universities. Naturally, these condoms don’t meet the rigorous safety guidelines that legitimate manufacturers have to follow and are, in all likelihood, faulty. This could result not only in unwanted pregnancies but could contribute to the spread of AIDs and other sexually transmitted diseases.

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It’s difficult to quantify the size of the counterfeiting problem, but bodies such as the Organization for Economic Co-operation and Development (OECD) and the Progressive Policy Institute (PPI) estimate the global counterfeiting market is worth anywhere from US$200 billion and US$500 billion. According to the international Chamber of Commerce (ICC), counterfeiting is responsible for five to seven per cent of global trade.

The problem has worsened over the years, says Lipkus, as the Internet has grown in the public consciousness as a place to shop. Sites purporting to sell genuine merchandise at deep discounts are all over the Internet. “In the last year-and-a-half, we’ve had an explosion of people selling not only counterfeit but goods stolen from stores on websites.” Even legitimate sites like Facebook and MySpace are being used as a platform to sell illicit goods.

Aside from applying stiffer penalties to those caught manufacturing or dealing in counterfeit goods, the best way to combat the problem is education, he says. There are telltale signs that merchandise isn’t the genuine article. It’s often as blatant as a bad spelling mistake on labels — even the brand name itself might be butchered. But sometimes forgeries can be nearly perfect and it can take a trained eye to spot a fake.

Common sense can be your strongest ally, says Lipkus. If a deal sounds too good to be true, it probably is — and that philosophy applies not only to personal purchases but to large contracts.

Lipkus suggests that governments review their procurement policies and tendering procedures — cheap bids may be an indication that goods and services are slipshod or in some cases fake. He says that the U.S. government has been caught unawares more than once. Counterfeit parts have been found not only in U.S. military equipment but also in NASA spacecraft.