Why the $600 Billion Counterfeit Industry Is Still Horrible for Fashion

Racked is no longer publishing. Thank you to everyone who read our work over the years. The archives will remain available here; for new stories, head over to Vox.com, where our staff is covering consumer culture for The Goods by Vox. You can also see what we’re up to by signing up here.

There's a lot to consider here: Why can American shoppers buy fake luxury items without facing penalty? If the counterfeit industry is an unregulated black market, why aren't more consumers aware of where that money actually goes? Why are fast fashion brands allowed to steal concepts from big-name designers? Why is there no intellectual property protection for fashion, the way there is for art, film, and literature?

A new exhibit at the museum at New York City's Fashion Institute of Technology aims to answer some of these questions. "Faking It" opens tomorrow and examines both the history and current state of the counterfeit industry—the origins of the operation, the evolving craftsmanship, the various preventative actions consumers can take—with the hope that awareness and education will lessen its power.

The Birth of a Lucrative Industry

The counterfeit market brings in $600 billion annually, according to the World Trademark Review. Between the sale of phony pharmaceuticals, electronics, and luxury items, fakes represent about 7 percent of the global trade, with a revenue that's nearly twice that of the illegal drug market.

A real Chanel jacket (left) alongside a copy. Photo: FIT

The notion of copying designs dates back more than a 100 years. In 1903, British designer Charles Frederick Worth was the first to put a signature on the labels of his creations as a way to authenticate them. Madeleine Vionnet produced her acclaimed "Little Horses" dress in 1924; shortly thereafter, the beaded rayon piece was duplicated and sold without the designer's authorization. The silhouette of Christian Dior's 1947 "New Look" suit—nuanced bust, squeezed waist, exaggerated hips—was met with copycats almost immediately. Coco Chanel's tweed suits were also a target for knockoffs, although the designer saw copies as publicity and was famously quoted as saying, "Fashion should slip out of your hands. The very idea of protecting the seasonal arts is childish. One should not bother to protect that which dies the minute it is born."

Today, most of the fashion industry's fakes are handbags, mainly because bags have become the most attainable and recognizable luxury item. The logomania of the late '80s and early '90s played a big role in the ascent of these knockoffs.

"The peak of counterfeiting came with brands putting their logos all over everything," FIT assistant curator Ariele Elia explains. "Chanel, Louis Vuitton, MCM, Fendi. Logos drive a purchase because when people carry items like logoed bags around, it's a status symbol that they have the latest fashion trend."

A Dangerous Commodity

A UN report found that almost 70 percent of counterfeits seized globally from 2008 to 2010 came from China, but India and Brazil are popular spots for knockoff manufacturing too. Most shoppers purchase counterfeit items as a way to stay on top of trends while also avoiding steep prices. But not enough know that their money actually goes to institutions that support child labor, gruesome factory conditions, and even terrorism, explains Valerie Salembier, CEO of The Authentics Foundation.

Salembier, who previously ran PR for the New York City Police Department and also worked as the publisher of Harper's Bazaar, tells Racked that money from counterfeit items goes directly to criminal syndicates. Funds are linked to terrorist groups like Al-Qaeda and Hezbollah, confirms Interpol, the world's largest international police organization.

Counterfeit Christian Louboutin heels made in China. Photo: FIT

"People would change their behavior if they knew where the $50 for that fake handbag was going," Salembier says. "Child labor is one of the most egregious crimes on the planet, and when you buy a fake, you're supporting that, as well as sweatshops, drugs, and even terrorist activity."

Law enforcement has tried to crack down on counterfeit goods. As of 1984, the Trademark Counterfeiting Act has made the sale of counterfeits illegal, punishable with up to a $5 million fine and 20 years in prison. Under mayor Michael Bloomberg, New York City's 2003 anti-counterfeit initiative cracked down on landlords, who were held accountable if counterfeit manufacturing was done on their property. Still, advocates don't feel it's enough. While Europe has laws against buying counterfeits—not just selling or manufacturing—US law does not punish shoppers.

"The number one priority should be to make buying a counterfeit item illegal," says Salembier. "I'm not suggesting the fines should be overwhelming, but it would help stop the demand."

Other advocates are on the same page. Last year, NYC councilwoman Margaret Chin brought a bill to Bloomberg which proposed that the purchase of counterfeits be treated as a Class A misdemeanor, meaning convicted offenders would face a $1,000 fine and up to a year in jail.

Chin's proposal didn't come out of left field—countries like Italy, England, and France prosecute consumers who buy fake luxury goods, or are even caught in possession of counterfeit items. However, Chin's bill was shut down over concerns that tourism would be affected. As Charles Hynes, deputy bureau chief for the Brooklyn District Attorney, told the New York Daily News last year, "My 70-year-old mother wouldn't know a Hermès scarf from a Henry scarf. How would you prove what my mother knew?"

Authorities in Shanghai destroy counterfeits. Photo: Getty Images

Fast Fashion's Blurred Lines

Elia tells Racked that when she began to do research for the FIT exhibit, it wasn't just fake handbags on Canal Street and bogus luxury items sold on eBay that she found. Experts also see fast fashion as a counterfeit entity, one that affects the success of emerging talent and stifles the creativity of active designers who have their ideas stolen time and time again.

Retailers like Zara, H&M, and Forever 21 are allowed to rip off designers since they don't put fake tags on their items; a Forever 21 dress isn't trying to be passed off as actual Prada even if the design is nearly identical. And unlike art and literature, fashion design has no copyright protection laws, so while watchdog blogs might protest when Zara knocks off Balmain boots and or Nasty Gal recreates a Givenchy bag, there are no legal repercussions to be had.

"It's a strange distortion in the law," explains Susan Scafidi, founder of the Fashion Law Institute at Fordham University. "As production moved overseas, fast fashion went from taking three months to create a design to two weeks. It's tougher for designers to sell their names, and the fashion industry is always asking questions: Why don't they get more protection? Why isn't their intellectual property protected?"

Two years ago, senator Chuck Schumer sponsored the Innovative Design Protection Act, a bill that would protect brands from copycat knockoffs. It had been introduced to Congress several times before under a different name (the Design Piracy Prohibition Act) starting in 2007; its goal was a three-year copyright for designs that were "the result of a designer's own creative endeavor...and provide a unique, distinguishable, non-trivial, and non-utilitarian variation over prior designs for similar types of articles." The IDPA bill did not pass.

"Congress sees the fashion industry as frivolous, an area that doesn't need protection," Elia says. "They don't see ramifications, that copying hurts the industry and makes it difficult for designers to emerge. They don't see it as craftsmanship or an art form. They just see it for its functionality."

A Catherine Malandrino tote from the eBay x CFDA anti-counterfeit campaign. Photo: FIT

Elia believes fast fashion companies should be held just as responsible as counterfeiters.

"They really are stealing from designers, and it affects the emerging market of new designers too," she continues. "Students think they will get to design, working for a fashion company, but then they get a job working in fast fashion and are told to find a way to knock things off and produce it at a lower cost. It's almost a waste of talent. Why did they even go to design school?"

Shopping for Fakes Today

Given the recent attention shed on poor conditions in fast fashion factories and the rise in sustainable brands like Reformation and Everlane, fakes might seem taboo among today's conscious consumers. But the industry might have already evolved to outsmart us all, luring shoppers who don't intend to purchase knockoffs.

Just two week ago, MarkMonitor released its annual shopping report, which found that one in every six online shoppers was tricked into buying a counterfeit item. Websites and marketing tactics have become so advanced that they're even able to bamboozle the pros; back in July, Salembier managed to buy fake Converse sneakers from a website she was convinced was genuine.

Online counterfeit sales have increased, due in part to expert programmers who can duplicate brand sites to create an authentic look. It's also worth noting that discount websites like Gilt, Rue La La, and the Outnet have birthed savvy, deal-thirsty shoppers.

"We found that the number of bargain hunters had grown substantially, with a ratio of 28 deal-seekers to one fake-seeker," MarkMonitor writes. "Most shoppers are trying to purchase legitimate goods from brands they're familiar with and loyal to. But they're also looking for the best deals on these goods, which is why a shocking number of consumers end up on sites selling counterfeit goods."

You can even find fakes near the Vatican. Photo: Getty Images

On top of that, production has gotten so sophisticated that it's practically impossible to tell which items are handmade and which come from sweatshops in China—a level of counterfeits experts call "super fakes."

Advocates know the counterfeit industry isn't going to disappear any time soon, and that attempts to pass laws that protect copyrights and convict consumers have fallen by the wayside. But with more consumer education, they believe fashion enthusiasts—the very demographic buying knockoffs—will realize the impact fakes have on their beloved industry.

"People need to understand the harm it does to fashion," Elia says. "Shoppers buying fast fashion who say it's what they can afford should know there are American designers that are more affordable. It's better to save and buy one shirt than to buy five H&M shirts. With designer items, there's more that goes into it. There's quality, it lasts longer, and you know it's coming from a legitimate company."