Tens of thousands of fake luxury watches with a street value of $1.5 million have been seized and a major U.S. watch-counterfeiting ring dismantled following raids and federal court actions, including a $4.8 million penalty, all prompted by a Cartier investigation.

The watch-counterfeiting ring, involving several companies in New York’s Chinatown section, is one of the biggest ever broken in the United States. The penalty, issued April 15, is believed to be the largest contempt-of-court judgment ever levied in a U.S. trademark case. The federal court also was expected to issue a multimillion-dollar damages award to Cartier and associated watch brands affected by the counterfeits by early summer.

According to Marc Frisanco, counsel for protection of intellectual property rights for Richemont International, the Swiss luxury group that owns Cartier, the companies involved allegedly were responsible for at least 50% of the fake luxury watches sold annually in America, including those sold on the Internet.

‘Significant breakthrough.’ The breakup of the ring is “a significant breakthrough in our ongoing fight against counterfeiters,” said Stanislas de Quercize, president and chief executive officer of Cartier Inc., Cartier’s North American division. Noting that the case focused on the owners and operators of the companies, de Quercize said that “for the first time in the United States, we’ve been able to target higher-level wholesalers and importers rather than just street-level vendors.”

“These are the big guys, and big money was involved for at least the 10 years they’ve been operating in the United States,” Frisanco told JCK. “It’s taken a huge effort on our part to make them give up this business, including an 18-month investigation here and in Asia—working with local Chinese authorities to close plants there and legal actions here. But it shows we can hit the big guys making the money both inside and outside the United States.”

The raids occurred in New York City in October 2002, but details were not released until April 2003 when case documents were unsealed. The $4.8 million contempt-of-court penalty was issued because the companies allegedly kept making and selling counterfeit watches in violation of the federal court restraining order.

The case is ongoing. As of press time, no criminal charges had been filed, although the FBI reportedly has become involved in the investigation.

From China to NYC. The case began almost two years ago. In early 2001, as a result of another Cartier investigation, the U.S. Customs Service shut down fakegifts.com, which sold “replicas” of high-end watches online. Information from fakegifts.com—as well as dozens of other Web sites Cartier was able to shut down—resulted in a new inquiry, conducted for Cartier by George Arnold Associates, a private investigation firm in North Carolina. The trail led to Hong Kong and mainland China, where local authorities working with Cartier investigators fined or closed a number of counterfeit watchmakers based on evidence provided. It also led investigators to New York City companies that allegedly imported, assembled, stamped, and distributed fake luxury watches.

In August 2001, after months of investigations into the multinational ring—which moved counterfeits from China through Hong Kong to New York City—Cartier and all associated Richemont watch brands filed a multi-page complaint with the U.S. Court for the Southern District of New York. It accused several companies in New York City, their owners and operators, and various unidentified persons and companies of violating U.S. and New York state trademark laws by making and selling the fake Richemont brand watches.

Search and seize. In early October 2002, following another year of investigations and after Cartier gathered additional evidence to support the complaint, U.S. District Judge Thomas P. Griesa issued orders halting production, sale, and distribution of the fake watches. He authorized seizure of the companies’ merchandise and assets, including $500,000 held in bank accounts.

Raids by U.S. marshals took two days and occurred at six locations within a two-block radius in the Canal Street area of New York City’s Chinatown. More than 124,000 phony watches—including not only Richemont brands like Cartier and Montblanc but also brands such as Gucci and Rolex—were seized, along with fake dials with brand names, blank dials waiting to be imprinted, logos, documents, and other materials. It was “an impressive collection of evidence,” said Frisanco in May. With it, “we hope to have broken this assembly and distribution operation.”

The raids also were significant, he noted, because they substantiated “suspected close ties” with online sellers of counterfeit products. The people and places raided in October 2002 were major suppliers of fakegifts.com and other Web sites, as well as of street vendors in New York City, Los Angeles, and other U.S. locations. So, the raids “confirmed what we believed,” Frisanco said. “There’s no difference between online counterfeiting and traditional counterfeiting, in terms of the actors involved and the problem’s dimension. Counterfeiters have simply taken advantage of the possibilities offered by the Internet.”

$4.8 million penalty. In March of this year, Cartier returned to court with new evidence that the six companies allegedly continued to make and sell fake watches, despite the court’s restraining order. On April 15, Griesa ordered the defendants to pay $4.8 million to Cartier and the other plaintiffs in the original complaint. “The objective of the court is to stop this counterfeit operation wherever these people are carrying it out,” he wrote, “and the court will pursue this every way within the law that it can be done.”

The defendants, all U.S. citizens, have challenged Cartier’s allegations in court, and their companies were, at press time, still open. Judge Griesa was expected to render a verdict on the Cartier/Richemont August 2001 complaint by early summer.

Based on the substantial evidence submitted, the annual volume of the defendants’ companies (“at least $1 million annually,” says Frisanco), the court’s actions in authorizing seizure of merchandise and assets, and the contempt-of-court penalty, Frisanco predicted a judgment awarding “millions of dollars in damages” to Cartier and its associate brands.

Despite this substantial success, Frisanco—who has pursued counterfeiters for Cartier for more than 20 years—is not naïve enough to think this will end the counterfeiting problem in the United States.

“We’ve dismantled a major network,” he told JCK, “but you can be sure that due to the big money involved and greed, new people will come to fill the vacuum that has been created.”

The October raids marked the second breakup in 2002 of a major counterfeiting ring in New York City. In May, law enforcement officials cracked a ring near Chinatown that made fake watches, handbags, sunglasses, videos, computer games, DVDs, and CDs.