Internet: The Wild West of Counterfeiting
Reprinted from Rapaport Diamond Report

Up until the latter half of this decade, trademark and copyright infringers were easy enough to pinpoint. They could be found on the street corners of Manhattan, with rows of "designer" watches laid out on a blanket and bags and scarves hanging above. Or they could be found at tourist destinations, selling their wares to travelers eager for a bargain and a souvenir all rolled into one. Or they could be found in legitimate jewelry stores, where knock-off lines might mingle with the real thing in retail display cases.

Though it takes a lot of perseverance and energy to track down such infringements, it can be done by anyone willing to expend the effort, and the law and enforcement manpower are there to provide support.

But now, a new frontier has opened for the counterfeit business, and like the old Wild West, it's a land that seems to exist outside the law. To track down the manufacturers and marketers of the thousands of phony Louis Vuittons, Cartiers, Chanels and Guccis sold by e-commerce is probably, at this point in time, impossible.

In a recent article in the Wall Street Journal, the Counterfeiting Intelligence Bureau of the International Chamber of Commerce was quoted estimating online counterfeit sales at $25 billion worldwide, or 10 percent of the total counterfeit market. "That's about double the amount of legitimate online retail sales in the U.S. - and a major threat to an industry that lives and dies on brand identity," said the article.

In interviews with nine luxury-goods retailers, none said they sell their products on the Internet, or through licenses with Internet vendors. Some of the pieces sold through sites like eBay were found to be real, but most were copies, although some were very good and expensive copies.

Ebay has made some effort to control the problem on its site by shutting down auctions when informed by the trademark holder that counterfeit items are up for sale.

Other efforts at ameliorating the problem are being made by the Federal Bureau of Investigation, which recently proposed a consortium to root out Internet fraud, the Journal article reported.

In the non-cyber world, consumers can often tell they're getting a cheap imitation by simply picking up the merchandise and holding it in their hands. Some care about the quality, and some are just thrilled to have the "look" at a bargain price. But as Simon Critchell, Cartier president, pointed out in the Journal, the Web deprives consumers of that opportunity.

There are now some law firms sprouting up that specialize in searching the Web for their clients in order to track down counterfeiters. But the offending site could be down the block, or half-way around the world where U.S. laws hold no sway. And even if the long arm of the law can reach the site, nothing is to stop it from closing down and opening up under a new name.

But perhaps the worst problem for manufacturers is that they're pretty much alone out there defending their turf. Consumers, by and large, aren't too concerned if the goods they buy have been duly licensed and sold through legal channels. Especially when a knock-off is sold for what it is (a "replica" or "reproduction") the consumer is happy to pay less and get something that's got brand-name cachet.

Every product, every store, every company has a name. Most even have a logo and some kind of commercial identity. At what point does the name transform into something greater than itself, something that evokes a certain gestalt in the marketplace? When does a name become a brand?

James Dettore, founder and head of the Miami-based Brand Institute, is in the business of creating that moment for a wide range of industries, from pharmaceuticals to breakfast cereals to financial products, most recently, a diamond firm.

"A brand name is obviously a designator, something that distinguishes one company's product or service from another. That's the legal definition," Dettore said. "But in the marketplace, it's something more, It's an added value, the essence, the personality, the soul of the product or service. It's an intangible that takes a commodity product and positions it in a certain way in the consumer's mind."

According to Dettore, a brand has the capacity to become an asset in itself. Through that asset, the company can extend the life of its products indefinitely.

To establish a brand identity, the Brand Institute works with companies in a comprehensive way, acting as guru and guide to finding the "soul" and expressing it to the world. It helps come up with the name, the logo, the look, the tone of marketing and advertising materials, which, altogether, position the brand as an entity in the world.

Dettore said that until very recently, no jewelry or gemstone firms have availed themselves of this service. But the Brand Institute has recently acquired its first diamond industry client (whose name in confidential), and Dettore said he expects more as the diamond and jewelry businesses become more brand-oriented.

"It's like what happened in the telecommunications industry after deregulation," said Dettore. "You had a commodity that now had the opportunity to move from the mass, generic market into a specific identity. That's what's happening now with diamonds and jewelry. They're moving from a commodity into differentiated brands."