A Sports Clothing Company Wins the Battle Against Counterfeiters

Mitchell & Ness deals with Asian counterfeiters, then stops thousands of fake eBay sales dead in their tracks.

At Mitchell & Ness headquarters two blocks south of Philadelphia's City Hall, Wendy Novick scoops up an armful of athletic jerseys from one of five boxes, and then dumps them onto a leather couch. Wildly popular with the hip-hop crowd, the jerseys are a sports fanatic's dreamfully licensed, exact replicas of shirts worn by superstars such as Michael Jordan. That's how Mitchell & Ness can justify the $300 price tags.

Except for one problem. The jerseys Novick just spread out are all fakes.

"We don't make a Michael Jordan shirt," says Capolino, president of the 100-year-old sporting goods manufacturer. "And Michael Jordan didn't wear [a shirt like that]. The white shirt with the 23 on it never had the word Chicago on the front. It had the word Bulls on the front."

"If you look at that price tag, it's not a hologram," adds Novick, head of trademark enforcement. "It's a sticker."

"Those are made in Korea," says a consultant we'll call Danny, who's visiting from Seoul. "I recognize all the tags and everything. I could take Peter into shops in Korea, and people would be sewing Mitchell & Ness labels onto jerseys right there in the storefront. You can get a tag for two or three cents."

These threeplus a woman we'll call Suzy who manages counterfeit investigationsare Mitchell & Ness's makeshift anticounterfeiting team. (CSO is using pseudonyms for both Suzy and Danny because revealing their identities would compromise their ability to do their jobs.) Danny, who was born in Korea but raised in Philadelphia, offered his consulting services to Capolino years ago after seeing stores in Seoul crowded with fake jerseys. Suzy, a sports fan whose roommate is Capolino's cousin, got hired after sending Capolino eBay listings that she thought looked fishy. Novick, whose father used to sell Mitchell & Ness jerseys, started as Capolino's assistant but taught herself how to navigate the legal waters of trademark protection. Together, the group is fighting one of the world's biggest counterfeiting problems, with only the resources of a family-owned business with just 77 employees.

"I don't need anybody to answer the phones," Capolino says. "I need people to work on the counterfeiting problem."

Pssst, How About a Business Model?

When sports and hip-hop fans spend hundreds of dollars on a Mitchell & Ness jersey, they're actually paying for four brands: Mitchell & Ness, the league, the team and the player, each of which gets a cut. Take those licensing fees out of the equation and counterfeiters can produce a high-quality shirt for $35, sell it for $100 on the street or online, and pocket the difference. No wonder Mitchell & Ness is such an attractive target for counterfeiters that the International Chamber of Commerce ranked it 65 on the 2005 list of the world's most counterfeited brandsright alongside Cartier and Dolce & Gabbana. Oftentimes, the only difference consumers can discern between a fake jersey and the real thing is the price. "There's almost no pleading with the consumer, because they feel that counterfeiting is one way of getting back at big corporations for charging so much money," Capolino says.

Add to that the fact that Mitchell & Ness has outsourced its manufacturing overseas, making it cost-prohibitive for the company to police its factories. In July, Capolino's crew found its new line of John Elway jerseys available on eBay from sellers in Korea before those same jerseys were available in Philadelphia. "They weren't counterfeitsthat was the worst thing," Capolino says. "They were going out the back door of one of the factories. When that happens, I'm really dead in the water."

The U.S. Chamber of Commerce Anti-Counterfeiting and Piracy Initiative puts the annual cost of counterfeiting in the United States at $250 billion, and Executive Director Caroline Joiner says small and midsize businesses are hit especially hard. "Larger companies are investing tens of millions of dollars in fighting this, and companies like Mitchell & Ness can't do that."

Joiner knows of one family-run tool manufacturer that's lost its entire market share in China to fake versions of its own products. A few brand owners have even pulled their manufacturing back to the United States, deciding that whatever they saved by manufacturing overseas was being lost to counterfeiting and product diversion. The counterfeiting problem, Joiner says, is "one of the ultimate effects of globalization."

Capolino says he can't afford to move his manufacturing back to the United States. His jerseys already cost more than the competition's. And partially because of counterfeiting, he says, his revenue has dropped from a high point of $36 million in 2003 to an anticipated $20 million in 2006. In response, he's doing everything he can to fight backwhich often means handling the problem one jersey at a time.

A Sisyphean Task

For someone intimately familiar with the product line, fake Mitchell & Ness jerseys are easy to spot. They're the wrong sizes. The wrong colors. The wrong designs. In Pittsburgh, Suzy sifts through 5,000 to 6,000 eBay listings every workday, with the help of a software tool from the brand-protection company GenuOne.

"I go really fastboom, boom, boom, boom," says Suzy, describing her work. "If it is a counterfeit, I hit a button, and GenuNet fires off a note to eBay to shut the seller down."

Suzy estimates that over the past two years, she has shut down 270,000 eBay auctionsalmost 2,600 a week. On a single day in July, she shut down one seller who had listed 3,000 fake jerseys.

Novick sends out cease-and-desist letters to those who violate the Mitchell & Ness trademark, filling in a template designed by Mitchell & Ness's law firm and hoping for the best.

None of them is naive enough to think those sellers will just disappear, but their options for doing anything else are limitedand expensive. "We've just been trying to knock off as many people as we can and hope that it's a deterrent," Suzy says.

Novick keeps in touch with an anticounterfeiting group established by the sports leagues, and also with U.S. Customs and Border Protection, which has on occasion seized and destroyed thousands of counterfeit jerseys. Capolino and his crew have trained Customs agents on spotting fake jerseys. And Capolino is trying to get trademarks filed in several European and Asian countries, after having to fight off an entrepreneur in Korea who registered the Mitchell & Ness trademark (Capolino hadn't) and tried to collect royalties on it.

Meanwhile, Capolino sent Danny to a factory in Seoul posing as someone who wanted to purchase overstocks. So far, Danny hasn't found any takers.

The overarching problem for Capolino is a lack of resources. He would like to have an in-house attorney take some of the sellers to court, for instance, but he can't afford the salary. He would like to set up raids of wholesale distributors, but must instead count on the sports leagues fighting the upper echelons of the distribution channels. He would like to have tighter control of his manufacturing facilities, but can't afford to hire the security. Indeed, despite the fact that the problem isn't getting any smaller, his anticounterfeiting budget is going downnot upas revenue falls. Capolino estimates that the company spent $600,000 to $700,000 fighting counterfeiting in 2003, but can only afford half that this year.

Asked if he's making progress or pushing a rock up a hill, Capolino doesn't even pause. "Pushing a rock up the hill," he answers. Turning to Novick, he asks, "Do you think we're making any headway?"

"There's just so much of it," she answers.

"I'll do what I can to slow down the pipeline," Capolino continues. "As my company has done less volume, I've had to shrink my budget, but I'm never going to stop fighting counterfeiting. If my retailers believe that I'm fighting the counterfeiters, they'll keep buying Mitchell & Ness. If I let them know that the counterfeiters have beaten me, they'll quit selling my product.

"I'm never going to give up," he says. "There's no alternative."

Send feedback to Senior Editors Sarah D. Scalet and Scott Berinato.

Copyright © 2006 IDG Communications, Inc.

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