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It’s dawn, and private detective Terry Merrifield is sifting through a trash dumpster behind a seedy warehouse in an equally seedy industrial section of a D.C. suburb. “Garbology 101,” he calls it with a laugh.
The object of Merrifield’s scrutiny this morning is a clothing distributor. Chances are this warehouse is supplying apparel to retail outlets all over D.C., Maryland, and Northern Virginia. Chances are equally good that nearly every item is a fake, a cheap knockoff of an expensive brand name like Chanel or Tommy Hilfiger. Checking out the garbage is an established if smelly technique for tracing where the goods are coming from and possibly where they’ll end up.
It could be a label from a packing box carelessly tossed into the dumpster, or maybe a swatch of cloth, that will enable Merrifield to tie items from the warehouse to street vendors in downtown D.C. or to suppliers in Baltimore, Philadelphia, or New York. Just as in drug investigations, the trick is to follow a trail back to the source.
The garbage survey completed, Merrifield retreats to his vehicle, parked across the street from the warehouse. It’s equipped with a cellular phone, a camera with telephoto lens, and a camcorder. Its windows are tinted dark and, for good measure, covered by curtains.
Merrifield’s stakeouts are nervous work. One slip, and the hypervigilant types inside the warehouse will be onto him. “We’re dealing with very paranoid people,” Merrifield says. “They’re always on the lookout for suspicious-looking cars, people with cameras, et cetera.” The counterfeiters have a lot to lose if the authorities smell them out, and Merrifield is unarmed.
The rest of the day is spent videotaping everybody who comes and goes from the warehouse, getting license-plate numbers of delivery trucks, and tailing the trucks that haul finished fakes from the warehouse to vendors all over the region. The job requires patience, perseverance—and a strong bladder.
Merrifield is one of a new breed of private investigators hired by big corporations to protect their trademarked and copyrighted goods from counterfeiters. His agency is employed by Baker & Hostetler, one of several law firms in the District that specialize in prosecuting sellers and distributors of pirated goods. These firms work for some of the biggest names in luxury apparel and accessories—outfits like Gianni Versace, Louis Vuitton, Rolex, and Cartier.
Merrifield’s job is bird-dogging the people who crank out counterfeit copies of the products those companies make, which are sold from vending carts and storefronts in D.C., Maryland, and Virginia. Business is booming.
The flow of pirated goods across national and international borders has exploded in recent years, a sort of shadow commerce that has grown right alongside the trade in legitimate merchandise. The same factor fueling the growth of legal trade—increasingly barrier-free markets—has propelled commercial counterfeiting into a $200-billion worldwide phenomenon. As with legitimate traders, commercial counterfeiters see America as the land of opportunity. According to a 1988 report by Baker & Hostetler, 62 percent of the world’s pirated products end up for sale in the U.S.
With its lenient vending laws and hordes of souvenir-hungry tourists, the District is an ideal place to move counterfeit merchandise. Nearly 2,000 licenses were issued to street vendors in D.C. last year. Invariably, whatever they sell—purses, scarves, sunglasses, watches, videos—is dirt cheap, often half the price of similarly labeled stuff at a department store.
To the casual observer, it may look like good old American commerce. But much of it consists of bogus products ginned out in sweatshops overseas or in New York, Philadelphia, or other American cities, then stamped or labeled with the logos of big-name manufacturers. According to industry sources, upward of 60 percent of the goods sold by D.C. street vendors are pirated copies. Think it’s penny ante? Think again.
The D.C. police vending unit checks vendors to make sure that they have the proper licenses and are not vending where they shouldn’t be. Last year, according to the unit, vendors at prime locations such as 10th and E or 10th and Pennsylvania NW raked in around $23,000 per week during the height of the tourist season. Vendors at less heavily trafficked locations rang up sales of nearly $6,000 a week.
One reason the phony merchandise trade flourishes is the persistent belief by law enforcement that commercial counterfeiting is basically a victimless crime. The cries of pain of multimillion-dollar international corporations hardly constitute a stirring call to action on the part of the cops.
That lack of interest perturbs John Bliss, current director of the International Anti-Counterfeiting Coalition (IACC), a Washington-based trade group. Bliss sees plenty of victims: “How about the loss of 750,000 jobs by American workers?” he demands. “How about $20 billion in lost profits to U.S. businesses? The computer software industry alone estimated its losses to pirating in 1993 at over $12 billion.”
And those estimates don’t include the cost of creating a force of private detectives, arming them with limited police powers, and turning them loose to haul counterfeiters into court. According to attorney Brian Brokate, a partner with Gibney, Anthony and Flaherty, a New York law firm that handles trademark and copyright infringement cases for Gucci, Rolex, Cartier, and others, U.S. luxury-goods companies spend about $50 million a year fighting rip-offs of their trademarks and copyrights. The vast majority of that amount, Brokate says, goes to chasing down the counterfeiters.
And what about lost tax revenue to cash-starved Washington, D.C.? While no one knows exactly how much money is generated by the District’s street vendors, estimates by the police vending unit suggest that millions of dollars a year change hands over vending carts. Yet the District assesses vendors a flat quarterly rate of $375 in lieu of sales taxes.
D.C. street vendors may not fear the cops, but they are wary of hired enforcers like Merrifield. Short and stocky with salt-and-pepper hair, typically decked out in aviator sunglasses, jeans, a leather jacket, andpointy cowboy boots, Merrifield looks a bit like an off-duty cop on his way to a country-western concert. And why not? He was a U.S. marshal for almost 11 years. Before that, he did stints as a military policeman, a D.C. cop, and a member of the old White House Police. (Remember those guys, dressed in comic-opera uniforms designed personally by Richard Nixon? Merrifield was one of the last ones hired before the White House Police became the Executive Protection Service and, mercifully, returned to dressing like real cops.)
In 1982, Merrifield founded his own investigation company. At first, the work consisted mostly of serving summonses and subpoenas, largely because the Marshals Service had decided to get out of that business. But as the trade in pirated goods began heating up around the country, a number of the bigger luxury-goods companies started hiring local law firms that in turn hired private detectives to cruise the District and spot fakes. Today, hunting counterfeits takes up about a third of Merrifield’s time.
One of his biggest clients is Saban Entertainment Inc., the creator of the latest kid craze—the Mighty Morphin Power Rangers, six hyperactive TV superheroes who look, in their costumes, a bit like Evel Knievel. The Power Rangers’ popularity has spawned hundreds of imitators, eager to make everything from T-shirts to jean jackets emblazoned with Power Ranger lookalike logos and trademarks. The only problem is, few of the copycats bother to ask Saban’s permission.
On a frosty Saturday in February, thousands of kids and their bemused parents lined up at the D.C. Armory to see an exhibition of Power Rangers accessories and a personal appearance by the Rangers themselves. Outside the Armory, Merrifield and a co-worker patrolled the grounds, methodically checking everything on outside vending tables for signs of Ranger rip-offs. A uniformed D.C. motorcycle cop, hired specifically to provide security, tagged along but otherwise took no part.
One woman was selling action figures that were labeled “Power Pals,” but in every other respect nearly identical to the genuine articles. “These are counterfeits,” Merrifield told her.
“Really?” she said, sounding surprised. Merrifield nodded, and the woman immediately removed the offending toys from sight.
That wasn’t necessary with most of the other vendors. After months of serving warnings and cease-and-desist orders about bastard offspring of the Power Rangers, Merrifield was immediately recognized. Suddenly, Ranger rip-offs were conspicuously scarce. A few vendors even asked Merrifield to check the stuff they were selling, apparently anxious to avoid trouble.
There’s nothing particularly new about trademark or copyright piracy. Geologists in Paris dug up records of the 16th-century trial of a man accused of copying the fabrics of a manufacturer with the exclusive right to make garments for members of the royal court. The court sentenced him to death by hanging. These days, the penalties for counterfeiting are a bit less Draconian; in fact, it’s the trademark or copyright holder who suffers the greatest damage.
Counterfeiting would be troublesome enough if it only involved tax revenues and disappearing profits for luxury-goods and toy manufacturers. But counterfeit products are sometimes a real danger to the people who buy or use them. Florida-based Arrow Air was forced to suspend flight operations recently, after Federal Aviation Administration inspectors discovered that, among other problems, its planes were being serviced with counterfeit aircraft parts. And Lycoming, a manufacturer of engines for small planes, recently warned that a bogus bolt accidently included in some of its engines could break, possibly leading to engine failure. As of 1992, more than 200 cases against illegitimate plane-parts dealers had been referred to federal grand juries.
If that’s not scary enough, the General Accounting Office, Congress’ watchdog, released a report in 1990 revealing that 72 of 113 U.S. nuclear power plants had been built using counterfeited fasteners, some of which were in critical systems intended to shut the reactors down in the event of an accident.
Pirating drugs is also big business. Nearly 5 percent of all world trade consists of pharmaceuticals, and 70 percent of that trade outside the U.S. involves bootlegged copies of medicine. The most commonly copied drugs are American. Seventy percent of the AZT—the drug used to treat HIV-positive people—sold in Europe is bogus. While some counterfeit drugs approach the reliability of generic copies, they often contain a different active ingredient from the original or contain the active ingredient in amounts below therapeutic levels.
Some counterfeit pharmaceuticals have even found their way into the U.S. In 1984, for example, nearly a million counterfeit copies of the birth control pill Ovulen-21, produced in Central America, were distributed to American women, resulting in numerous cases of internal bleeding and untold numbers of unplanned pregnancies.
One common way to sneak pirated goods into the U.S. is to ship the fakes among a load of legitimate goods. Another is to bring the stuff in as blanks, with no labels or logos on them. Take the fake Cartiers or Rolexes being sold for $20 to $40 on D.C. streets. They probably originate in Korea, Singapore, or Taiwan. From there, the watches are shipped to the U.S. unmarked except for their country of origin, thus avoiding seizure by the Customs Service, whose agents are trained to recognize knockoffs. The massive flow of trade through U.S. ports makes intercepting pirated goods chancy at best. Customs agents annually confiscate about $50 million in bogus goods of all kinds. But the trade is so extensive, that amounts to only about 3 percent of the total.
Once through Customs, the watches are trucked to “factories” in numerous cities where counterfeiters use sophisticated computer-controlled machines to stamp the goods with phony logos. These machines, which resemble drill presses, can stamp a bogus trademark or logo right onto a watch face. Often, these factories are little more than sweatshops staffed with illegal aliens. The counterfeiters get the advantages of cheap labor from people who are unlikely to complain or report them to police.
But some counterfeiting is even easier. In mid-March, Disney announced with great fanfare the video release of its hit movie The Lion King. That gave private detective Wayne Jirsa a laugh. “Bootlegged copies of that film were on the streets in D.C. the day it hit the movie theaters,” he says.
A tall, fortysomething ex-Maryland state trooper—most of the detectives involved in anti-counterfeiting are ex-cops or former FBI agents—Jirsa has been chasing video pirates for the Motion Picture Association of America for the past 14 years. “If you buy a video from one of the merchants on the street in D.C.,” he says, “chances are almost 100 percent it’s a pirated version.”
One of Jirsa’s first cases involved a Korean-American woman employed at the Australian Embassy in D.C. She was buying original videotapes, then making thousands of copies and selling them to street vendors up and down the East Coast. The woman didn’t have her own car, so Jirsa gained her confidence by offering rides to dealers. Eventually, he ended up keeping her books, which gave him a complete financial breakdown of her operation. She even took him to meet another Korean-American who ran a New York “factory” where hundreds of video machines ginned out copies of pirated vid eos 24 hours a day. From there, the videos were shipped to virtually every major city in the U.S., including Washington. Based on Jirsa’s inside info, the FBI conducted simultaneous raids in more than 20 cities in 1984 and seized tens of thousands of bogus videos.
For counterfeiters, almost anything can constitute a “factory.” In Philadelphia, Jirsa raided a three-bedroom town house with a basement and an enclosed garage. Inside were hundreds of VCRs and a computerized packaging machine. The pirates had taken pictures of the boxes that legit videos come in, then made color copies to label the boxes containing the bogus tapes. “The owner’s books showed profits of $40,000 per week,” Jirsa recalls.
Video pirating can be fabulously profitable, Jirsa says. Pirates buy original copies for about $50 each from a video-store owner or manager. Over a single weekend, counterfeiters can make up to 2,000 copies, then sell them on the streets of D.C. or through mom and pop video stores for $5 to $10 a copy. That’s $10,000 to $20,000 a week. “And you can bet that nobody is paying sales or income taxes on this,” Jirsa notes. “So it’s pure profit.”
In another case, a dealer in Hyattsville was raided after a Jirsa investigation, resulting in the seizure of some 4,000 pirated tapes. Jirsa says the dealer was receiving two deliveries a week from a New York supplier, each with about 2,000 tapes. He sold them for around $5 a pop.
“Do the math,” Jirsa says. “Five dollars times 4,000 equals $20,000 a week, times 50 weeks a year—hey, even crooks take vacations, right?—that works out to a cool $1 million a year. It’s a new kind of drug dealing, only it’s safer, less violent, and the cops don’t care.”
When a business generates the kind of cash flow that commercial pirating does, the question becomes: Is organized crime involved? Not according to the Federal Bureau of Investigation. But others are not so sure.
“Organized crime is a natural for involvement in counterfeiting,” asserts John Quirk, a former U.S. intelligence officer whose firm, the Industrial Research Group, tracks commercial counterfeiters worldwide. “Financing these operations requires lots and lots of cash, and only organized crime can come up with that kind of money. And, it generates million and millions of dollars that can be diverted to other criminal activities.”
In fact, according to the IACC, organized crime is heavily involved in counterfeiting. A report compiled by the group notes that:
Chinese organized crime syndicates, commonly known as Triads, are increasingly turning to counterfeiting as a way to launder drug money and as a source of ready cash. The Triads focus on apparel, pharmaceuticals and credit cards. In this country, Canal Street in New York is the hub for Triad-run counterfeiting up and down the mid-Atlantic coast. Private investigators say that many of the counterfeit watches peddled in the District come from Canal Street.
Before his arrest in 1992, David Thai, leader of a New York-based Vietnamese gang called Born to Kill, boasted that he used $13 million in profits from bogus watch sales to finance the activities of his gang across the U.S.
Ukrainian, Albanian, and Italian Mafia members have reached financial and turf agreements for everything from cigarettes to pirated handbags.
The Mafia has also gotten into video pirating. One raid in Italy netted 4,800 high- speed, computerized VCRs capable of cranking out 20 million cassettes a year.
Even terrorists have turned to counterfeiting as a way to fill their coffers. According to the IACC, Republican and Loyalist paramilitary groups in Northern Ireland have helped fund their terrorist activities through sales of bogus perfumes, veterinary products, videos, video games, software, and pharmaceuticals. And the terrorists on trial for the World Trade Center bombing in New York reportedly raised cash for their defense by dabbling in counterfeits.
Given that level of interest and activity, it’s not surprising that counterfeit merchandise has become ubiquitous in so many American cities. Fakes are a “problem that plagues most major U.S. metropolitan areas, especially if they have lots of foot traffic that allows open-air markets to thrive, like on K Street,” says New York lawyer Brokate. But Washington’s counterfeiting problem has a unique twist: The vendors are on wheels.
A D.C. Class B vending license—the kind you need to sell merchandise rather than hot dogs in the District—costs $106 per year. That entitles a vendor to compete each day for a spot to peddle his or her wares. Vending sites are hot properties, and more than one fight has broken out in the wee hours along 10th Street or the K Street corridor as vendors hassle over prime selling locations. It’s strictly first-come, first-served, so finding the same vendor in the same spot from one day to the next is, well, iffy. That makes for headaches in anti-counterfeiting efforts.
Dealing in commercial counterfeits is against both U.S. and D.C. law. But with so little official interest in the problem, the many vendors of counterfeits hauled into court by the manufacturers usually face civil rather than criminal charges. Those cases are compiled by private detectives like Merrifield and Jirsa. They watch the vendors, report to the law firms on what’s being sold by whom, and occasionally blanket vendors with cease-and-desist letters, which are basically orders from federal district court to stop selling fakes. It sounds impressive, but results are mixed.
Despite raids and seizures of bogus goods, counterfeits remain freely available in virtually every part of the District. “Seizures in the District haven’t worked,” Brokate points out. “They only keep the stuff off the streets for a short time. As soon as you stop the civil enforcement, the stuff begins to creep back.”
Others are less temperate in their assessments. “Serving these people with civil papers is like spraying Raid on a bunch of cockroaches,” snaps Veronica Hrdy, vice president and counsel for Chanel. “Civil remedies work against stores, because they have something to lose. But against people who deal off of carts?”
Hrdy is particularly frustrated by the federal government’s indifference. “It’s almost more difficult to get the feds involved than it is to deal with the counterfeiters,” she says. “It’s amazing how low the level of interest is.”
When local, state, and federal authorities do cooperate in combating counterfeiting, the results can be spectacular. In 1990, for example, FBI agents, and Virginia state and local police—aided by Merrifield, who did the spade work that set up the bust—raided a warehouse in Northern Virginia and seized over $3 million worth of bogus T-shirts and sweatshirts. The raid even made headlines in the Washington Post. Nevertheless, actions like that remain the exception to the rule.
“It all comes down to money and priorities,” says Brokate. “When you have homicide rates going through the roof and federal prosecutors chasing drug dealers, protecting the copyrights and trademarks of luxury-goods manufacturers is commonly viewed as a private problem.”
Don de Kieffer, a D.C. lawyer and former executive director of the IACC, puts it more bluntly: “You’ve got bodies piling up. You’ve got drug dealing and guns. You think the cops are going to worry about bogus watches or handbags? Get a life.”
The cops—D.C. and federal—pretty much confirm de Kieffer’s assessment. “I wouldn’t know a counterfeit if I saw one,” admits a supervisor on the D.C. police vending unit. “If there’s a raid set up to seize counterfeits, we’ll go along to keep order, but we don’t do seizures,” the supervisor says. “That would be serving a private instead of a public interest.”
FBI headquarters refused repeated requests for in-person interviews, but one supervisory agent summed up the situation this way: If the local U.S. Attorney isn’t interested in pursuing counterfeiters, then the FBI isn’t interested. And the fact that companies can pursue the wrongdoers in federal civil court pretty much means U.S. Attorneys are not inclined to get involved.
In the District, it’s a common belief among lawyers and law enforcement officials that the price of hooking a U.S. Attorney into pursuing a piracy case is between $300,000 and $1 million. If the dollar value of the goods involved falls below that, chances are, says one source, that the U.S. Attorney “just doesn’t give a shit.”
“I don’t know of any such dollar threshold,” says Assistant U.S. Attorney Tom Zeno, whose job includes investigating commercial counterfeiting in the District. Then what’s stopping the feds from chasing the knockoff artists? “[FBI agents] don’t bring us the cases,” he says plaintively. “I haven’t had one agent call me up and say, “I want to do this case.’ ” If only they would, Zeno says, he could get counterfeits off D.C. streets in a matter of months.
Leaning across his desk, Zeno confides, “I have a plan.” Of course, he can’t share this plan with a reporter. But, he promises, if he could just get the FBI to start calling him with cases, he’d put his plan into motion.
Terry Merrifield also has a plan for sweeping D.C.’s streets clean of counterfieits, and he’s not the least bit shy about sharing it. First, he says, make it a criminal offense for vendors to deal in counterfeits; then, jack up the fine for selling counterfeits to a minimum of $500 per offense; and finally, jerk the license for a year of any vendor found guilty of counterfeiting three times. Counterfeiters could be dealt with by an administrative board, he says, thus avoiding clogging the D.C. courts with counterfeit cases. In fact, Merrifield says, he suggested just such a plan to former Mayor Sharon Pratt Kelly, who considered it but never put it into effect.
There is one man who isn’t waiting for anyone’s plans. Federal District Court Judge Royce C. Lamberth has had numerous piracy cases brought before him, and has issued a tsunami of show-cause and civil-seizure orders for companies like Louis Vuitton, Rolex, and Ralph Lauren. And still the counterfeiters work the streets. It pisses Lamberth off.
A large, red-faced, boisterous man, the judge resembles actor John Goodman. Waving his arms over his head, Lamberth declares, “Off the record” as he leads a reporter into his chambers. “You can’t quote me.” Easing himself into a high-backed chair, he virtually disappears behind stacks of papers on his desk. Only his head remains visible. “I start off all conversations with the press like that,” he says with a grin.
Lamberth won’t discuss any counterfeiting cases currently before him. But in general, his credo is simple enough: “I don’t think counterfeiters should be above the law.”
In line with that philosophy, Lamberth has authorized numerous civil seizures of pirated goods in the last two or three years. Because he could get neither the U.S. marshals nor the D.C. police to handle the seizures—both, he says, usually begged off, pleading lack of troops—Lamberth has essentially deputized a small army of private detectives working with local attorneys to act as marshals and seize counterfeit goods from D.C. vendors.
Not everyone sees this practice as a great leap forward. Some lawyers feel that arming private individuals with the power to seize bogus goods violates the fourth amendment’s search-and-seizure provisions. And Lamberth admits he’s uncomfortable with the idea of having created essentially a private anti-counterfeiting police. But what else can he do?
“I can’t have the orders of this court ignored, and I don’t think these manufacturers can be relegated to having no remedy when their goods are being counterfeited,” he says.
To guard against excesses, Lamberth insists on a thorough briefing before he’ll authorize any seizures, and gives specific instructions on how raids are to be carried out. So far, he says, there have been no serious problems. Far from protesting that their rights are being abrogated, none of the hundreds accused of dealing in pirated goods have ever even appeared in Lamberth’s courtroom to contest the charges. In fact, the defendants in these cases are often nameless, referred to in court records as “John Doe” or lumped together as “John Does Nos. 1-300.”
Two defendants did appear before Lamberth last June—not to deny that they were trading in pirated goods, but to claim that the items seized from them weren’t being destroyed but sold, with the profits going into someone else’s pockets. Lamberth was not amused. If you don’t believe the stuff is being destroyed, he told them in open court, come back in two weeks and you can watch it being destroyed. Two weeks later, Lamberth had his clerks scurrying about the courtroom with hammers, anvils, and large shears, smashing phony Rolexes and cutting up bogus Ralph Lauren shirts.
Lamberth’s patience with the dilatory response of the D.C. police and federal authorities is wearing thin. Last June, he put his dissatisfaction in writing: “Due to manpower shortages in the U.S. Marshal’s Office, the U.S. Marshal is only able to conduct vendor raids after 4 p.m. on Fridays or during the day on Saturdays,” he wrote. “Since much of the counterfeiting activity takes place between the hours of 10 a.m. and 4 p.m. on weekdays in downtown Washington, the effectiveness of this court’s orders was undermined.”
Lamberth also detailed a case in which the D.C. police refused to become involved after private detectives ran into trouble during a vendor raid. “This Court finds the District of Columbia law enforcement response to be wholly unsatisfactory,” he wrote. That’s about as close as a federal court judge comes to telling the police to move their asses.
Lamberth says he’s seriously considering holding defendants found guilty repeatedly of dealing in counterfeit goods in criminal contempt of court, which could involve larger fines and even possible jail time. And, he says, “I’m calling the U.S. Attorney into my courtroom and asking him why federal authorities are not doing a better job of combating counterfeiting.”
For now, though, the job remains primarily in the hands of private investigators like Jirsa and Merrifield. And Merrifield’s horizons are expanding; he’s negotiating a merger with a firm that runs anti-counterfeiting operations throughout the U.S. and in Europe. Short of a complete change of attitude in local and federal cop shops, however, he’ll find plenty to keep him busy on the streets of D.C.
Art accompanying story in the printed newspaper is not available in this archive: Darrow Montgomery.