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Knock-off brands no bargain for deal hunters

Bargain hunters beware: That knock-off Louis Vuitton bag may be tempting, but there’s a hidden cost behind counterfeit merchandise, says Jim Downs, managing director of MKD International Inc.

“This is a multi-billion dollar industry, and many of the products are coming from China where labour costs are 10 cents on our dollar,” he tells AdvocateDaily.com.

MKD works with both personal injury lawyers who represent claimants and insurance companies that investigate fraudulent claims. Downs says knock-off products such as running shoes, sunglasses, watches and clothing often show up at flea markets and pop-up kiosks in malls. 

When Downs gets involved in a counterfeit investigation, he starts by collecting evidence to determine that the product in question is, in fact, a knock-off of the brand.

“These are cases of intellectual copyright infringement, so the first thing we do is get our hands on the product,” he explains. “It has to be verified by the client that it’s a copyright infringement of the original brand.”

Next, he gathers information about the counterfeiter’s distribution chain – where they manufacture, store and sell the goods in question.

“Eventually, you want to get the authorities involved, but you have to lay the groundwork for a successful conviction, whether it's a civil or criminal case,” says Downs. “If you want search warrants or injunctions, you have to satisfy the court that there’s a reasonable case for fraud.”

People love their brand names, but they want the cheaper price, Downs says.

"This knock-off merchandise gives them boasting rights without paying the price.”

But it’s not only hot clothing brands that are being ripped off, says Downs. An increasingly mobile world has made it easier for fraudsters to set up websites that look virtually identical to those of the companies they’re imitating — no matter what business they’re in.

When consumers purchase knock-off handbags or jewelry, they’re supporting an industry that has turned its back on the law and its responsibilities, says Downs.

“This hurts all of us,” he insists. “The knock-off people aren’t innovating or designing products. They’re copying a legitimate manufacturer that has invested resources into developing its products. Counterfeiters are not producing products to the same strict standards the original manufacturers follow, so there could be potential health risks.”

Further, many counterfeiters run cash-based operations that sidestep the taxman and avoid paying their fair share for essential services such as health care and education, Downs says.

“That’s an unfair business practice,” Downs insists. “How can a legitimate business that follows the rules and pays taxes compete with that?”

Canada’s Anti-Fraud Centre says intellectual property (IP) crime involving the deceptive marketing of counterfeit goods continues to pose a significant threat to the economic integrity of Canada.

“Fraudsters are spoofing legitimate retailers' websites such as Canada Goose, Ugg Boots, Lululemon, Arcteryx, Michael Kors, Coach and many more,” it states. “Fraudsters have become proficient in producing websites that have the same look and feel as the legitimate manufacturer.”

Knock-offs can have an even more damaging impact for original manufacturers in developing markets, such as virtual reality (VR). Raymond Pao of VR maker HTC told Canadian Business that the raft of inexpensive and uncomfortable headsets with poor graphics quality and inferior user experience threaten to turn people off this emerging market.

“We’re not afraid of competition, we’re afraid of bad VR,” Pao said. “That’s the biggest problem with VR now.”

The Rio 2016 Olympic committee beat the counterfeiters at their own game when it sold its own line of knockoff merchandise, reports the National Post.

Cheap imitators dominate in the realm of professional sportswear, and some brands are starting to sell their own products for less to head them off, Down’s says.

“It comes down to economics, and it was obviously in their best interests to create a lesser quality product line that sells for less,” he says.

“Legitimate businesses that play by the rules are being penalized, and the benefits are going to those who circumvent the law.”

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