S. Korea’s Counterfeiters Make It Hard to Knock Off Knockoffs

Pamela Barry, a former Peace Corps volunteer in South Korea, was surprised during a recent visit here to discover vast quantities of Coach handbags for sale in Seoul’s tacky Itaewon shopping district.

Barry knew from her Peace Corps days that Itaewon had a reputation for catering to foreign tourists and American soldiers with sales of cheap knockoffs of foreign-brand goods. But the Coach bags looked real--and the sales clerks assured her that they were.

“I buy Coach in the United States all the time,” Barry said. “The briefcase I wanted in the U.S. costs $320, and I got it here for $135. I had no idea that Coach was over here.”

Actually, Coach isn’t in South Korea--not the famous American Coach, anyway. Here, the Coach name is owned by a South Korean firm that produces unauthorized but nearly identical replicas of the U.S. product.

Long a center for Asian production of pirated goods, South Korea--coveting recognition as a First World country--has been trying to shed this unsavory reputation by toughening laws protecting trademarks and intellectual property.

The steps are part of a crackdown against a wide range of illicit practices across South Korea that led, for example, to the recent sweeping indictments of top business executives and former political leaders on bribery and other corruption charges.

But when it comes to eradicating the counterfeit goods industry, South Korea’s own industrial prowess--and the high expectations of its customers, who demand first-rate fakes and are willing to pay for them--keep getting in the way.

With South Korea close to becoming a rich industrial society, its technical ability to make first-class counterfeits is rising as well. The imitation-goods industry is under pressure from sporadic crackdowns, but thanks to skilled management and high-quality work, it is surviving.

Management skills are a bit different, of course, from running an ordinary business. Manufacturers put a lot of effort into not getting caught. Shopkeepers also show a new level of fear and caution. Once completely open, the industry now has, by necessity, a cloak-and-dagger aura of intrigue.

“They’re very secretive. There’s a saying that all the people in that business are skinny because they worry so much,” explained a woman with 10 years’ experience in imitation-goods sales, who spoke on condition of anonymity.

They have some reason to worry.

“Korea wants to be perceived as First World,” explained Wayne Boatwright, an attorney with the Seoul law firm of Kim & Chang, which is representing America’s Coach in a South Korean court battle over the trademark. “If there’s something they do that isn’t First World, they really want to change it.”

Yet South Korean law still has loopholes that can be exploited by makers of imitation goods, and prosecutors and police remain relatively inexperienced in enforcing intellectual property rights, Boatwright said. Further progress will not come easily.

Walking casually through the tourist hot spot of Itaewon, past tailors touting cheap one-day suits and salesmen hawking fake Rolex watches, one gets the impression that Coach handbags are the district’s leading seller.

But those involved in the trade say that knockoffs of Chanel and Louis Vuitton handbags are even bigger hits. Japanese tourists who know exactly what they’re doing are the main customers in such districts as Itaewon, located near the U.S. Army base at Yongsan.

Brand-name fakes generally come in two varieties: outright imitations and approximate look-alikes. Items that resemble the originals but are intentionally altered are openly displayed, while near-identical replicas are sold more furtively.

The “LV” logo on a Louis Vuitton bag, for example, is sometimes changed to an “LY”--with only the shortest possible stem to the Y and everything else the same. For Chanel bags, a logo formed by interlocked forward and backward Cs may include thin bars of metal closing off the Cs to become something like O’s. A dealer explained that the bars can easily be snapped off by the purchaser after returning home.

Exact copies are usually kept out of sight and shown only to customers whom shopkeepers feel confident are not undercover investigators.

Although the work is riskier than it used to be, the profits from imitation-goods sales are still good. Top-quality brand-name handbags often sell for $1,000 or more in Japan, so a price of $100 or $150 looks like a real bargain to most Japanese tourists, even if they know, as they usually do, that they’re buying a fake.

Cheap look-alike handbags can sometimes be purchased for as little as $5, but tourists usually pay at least $50 for quality fakes, and some shopkeepers say they demand higher prices from Japanese.

The sales clerk with a decade’s experience in the business said she earns about 40% more than she would for similar work in a fancy department store. No outsiders really know what the manufacturers’ profits are. But the government’s attempted crackdown, by shutting down part of the fake-goods business, has reduced competition and thus caused profit margins to rise, she said.

Fake-goods manufacturers protect themselves by being all but invisible to their retailers.

“The shop owners don’t know who supplies them or where the goods are made,” the clerk explained. “The guy who takes the order doesn’t give even a telephone number or address. He gives only a pager number. The person who delivers the goods doesn’t know the seller’s address, much less the location of the factories.”

Another trick used by the factories, insiders say, is to make the products, the labels and the logos at different locations. Labels and logos can then be attached at the last minute--or even be sold separately, for the customer to attach after returning home.

Yet for all their caution, manufacturers show plenty of chutzpah. Fake Chanel bags, for example, sometimes come with a French-titled “Carte D’Authenticite” that declares in English, German, Japanese and French: “We certify the authenticity of this item and confirm that it has been subjected to the most exacting quality control. Its high quality is a symbol of the fine reputation of the Trademark.”

Coach products are the most visible fakes because they have a fig leaf of legitimacy, and the manufacturer is known.

In 1990, an opportunist named Choi Sang Kyu, aware of Coach’s growing popularity in the United States, registered the Coach trademark under his own name in South Korea. Three years later, he sold the rights to Haedong Bag Co. Since then, Haedong has flooded Seoul markets--especially Itaewon--with Coach handbags that are virtually indistinguishable from the U.S. product.

The American company’s court battle for the right to the Coach name remains inconclusive.

In South Korea, “whoever registers a trademark first gets it,” but this can be restricted if a foreign trademark is already well-known among South Korean consumers, Boatwright explained.

“I’ve had three or four cases where a [foreign] company will come to Korea and naively start negotiating with a Korean company [for a distribution or licensing agreement], and the Korean company will go off and register that trademark in its own name, then use that as leverage in negotiations, or if the negotiations fall apart, sell it back to that company,” Boatwright said.

Some South Koreans involved in the pirating business say they suffer occasional pangs of conscience.

Bae In Soon, who ran a fake-goods store with her husband until two years ago, said she “knew it was wrong” but “the temptation of good money was just too great.”

“I convinced myself with the theory that unless we offer good-quality fake products like Gucci or Chanel, how can ordinary people afford to enjoy the originals, when they cost 10 times the price we offered?” she said.

Times researcher Chi Jung Nam in Seoul contributed to this report.