JMBM IP Update: Landlords Becoming a Target of Anti-Counterfeiting Enforcement

In places like Canal Street in New York City, where peddlers sell their wares from racks and stalls that can be packed up and moved quickly, trading in counterfeit handbags, watches, compact discs and DVDs is commonplace. In such environments, the peddlers often change and move from place to place, frustrating the enforcement efforts of intellectual property owners. The value of the counterfeit trade in New York has been estimated to be $23 billion annually and growing. Therefore, enforcement efforts have recently been directed against the landlords who provide the venues for counterfeit traders to flourish.

The luxury goods maker Louis Vuitton Malletier has succeeded in forcing the owners of 18 buildings on Canal Street in New York to settle lawsuits in which Louis Vuitton claimed the owners had knowingly looked the other way while their tenants sold thousands of cheap knock-offs of Louis Vuitton handbags.

Notably, the owners of seven buildings recently agreed to open their doors to weekly inspections for two years to confirm that no counterfeit goods are being sold on the premises. As part of the settlements, warning signs are also being posted at the sites, informing shoppers that counterfeiting is a crime.

The strategy of “house-to-house fighting” against landlords in areas where counterfeiting is epidemic is proving successful and is therefore being employed by more intellectual property owners facing the prospect of large numbers of lost sales to counterfeiters. Although U.S. Customs agents seized counterfeit goods worth about $93.2 million in the fiscal year that ended in September 2005, billions of dollars worth of knock-off goods are believed to have slipped through the net and entered the U.S. market.

Luxury goods makers are also becoming increasingly aggressive in pursuit of counterfeiters in the countries of the goods’ origin. Recently, Gucci, Prada, Chanel, Burberry and Louis Vuitton won a lawsuit in China against a Beijing shopping mall that trafficked almost exclusively in counterfeits. The judge in the case ordered the mall’s owner to pay damages and stop on-site vendors from selling fakes.

The pursuit of “landlords” of counterfeit enterprises has also extended into cyberspace, with the lawsuit in 2004 by Tiffany & Co. against eBay, wherein the luxury goods maker Tiffany claimed that the online auction site facilitates counterfeiting by allowing thousands of bogus Tiffany items to be sold each year. Like the real property landlords discussed above, eBay has defended itself by maintaining that it merely provides a place for people to advertise, and isn’t itself involved in the sale or handling of merchandise. Through its “VeRO,” verified rights owner program, eBay has long offered to halt any auction that a designer company like Tiffany believes involves counterfeit goods, but maintains that it doesn’t have the expertise to determine which auction items are knockoffs itself.

While building owners can also claim ignorance of the expertise necessary to determine the difference between authentic and counterfeit goods, they can defend themselves against possible claims by taking precautions, like screening renters carefully and barring them from subletting their space. If your company acts as a landlord to retail tenants, please let us know if you would like us to review your lease agreements for protection against this type of tenant illegalities.

We have a strong record of successful enforcement of intellectual property rights against counterfeiters in the United States and abroad. Please let us know if your company wishes to discuss how we may help you implement an anti-counterfeiting program.

For more information, contact Rod Berman at 310.201.3517 or RBerman@jmbm.com.