Catching Counterfeits

PM USA, Id. c-store settle; Ill. warehouse caught with fake goods

Published in CSP Daily News

BOISE, Idaho -- Cigarette maker Philip Morris USA and a Fruitland, Idaho, convenience store owner have reached a settlement in a lawsuit over counterfeit cigarettes, the Associated Press said.

In the lawsuit filed last April in U.S. District Court, PM USA claimed that Alberto Gonzales, the owner of The Orchard Store, was selling phony Marlboro and Marlboro Lights cigarettes and infringing on the company's trademark.

The two businesses reached a settlement late last week, however, with Gonzales agreeing to routine inspections and [image-nocss] hefty fines for any future counterfeit cigarette sales. He also agreed to share information about his cigarette suppliers.

As a result of the sale of counterfeit Marlboro and/or Marlboro Lights cigarettes, Philip Morris USA is suffering a loss of the enormous goodwill associated with the Philip Morris USA Marks, and is losing profits from lost sales of genuine products, the company wrote in the settlement agreement.

Gonzales did not contest the cigarette maker's claim that the cigarettes were fake, though he did not admit any knowledge that the items in his store were phony, the agreement said.

These guys are as duped as anybody else, said Frank Dykas, Gonzales' lawyer. Lots of products are counterfeits where the store owners have no clue, and neither do the end users. They're as much an innocent victim as the big companies are.

The settlement calls for fines ranging from $500 to $5,000 if Gonzales sells counterfeit cigarettes at his store in the future, with the amount increasing for each subsequent occurrence and topping out at $100,000. Additionally, Gonzales agreed to let PM USA workers inspect his cigarette stocks during business hours as needed.

The companies aren't really after the store ownerswhat they're after are the guys who are producing this stuff, Dykas said. It's everything from perfume to ink cartridges to cigarettes to videotapes. Sometimes I wonder, with color scanners and color photocopiers and printers, just how difficult it is to produce a counterfeit.

PM USA claimed it discovered the counterfeit cigarettes after someone hired as a purchaser for the company bought some packs from The Orchard Store and sent them to a company facility for proprietary testing, according to court documents.

Mike Neese, a spokesperson for PM USA, said he couldn't comment on any specific cases, but that counterfeit and contraband cigarette problems are widespread and lead to lost tax revenues for state and federal governments. Contraband cigarette-related activity is a very complex and ever-changing problem that affects many businesses, he said. Since 2002, Philip Morris USA has identified the existence of counterfeit cigarettes at retailers in 20 states.

Contraband cigarettes include counterfeits as well as smuggled cigarettes and cigarettes sold without proper tax payments, Neese said. In 2001, U.S. Customs & Border Protection estimated the value of contraband cigarettes seized by the department at $4.5 million; by 2004 the estimated value was more than $24 million, Neese said.

In related news, an Elk Grove Village, Ill., wholesaler is facing trademark counterfeiting charges after undercover Cook County Sheriff's police discovered counterfeit batteries, shampoo and shoes in his warehouse, reported the Pioneer Press.

Wei Yao, owner of Oranda Inc., a wholesale warehouse that distributes to small c-stores throughout Cook County, Ill., was arrested June 15, indicted July 21 and charged with two felony counts of counterfeit trademarks, said the report.

Police found 60,000 counterfeit batteries, some containing mercury. The batteries are AAA, AA and D batteries and can be identified by the flimsy packaging and light weight. Authorities told the newspaper that Duracell officials tested the batteries and found .49% mercury inside. Further investigation by sheriff's police confirmed that the batteries could explode upon use due to improper venting, according to Penny Mateck, spokesperson for the Cook County Sheriff's Department. According to the Centers for Disease Control & Prevention in Atlanta, mercury is a hazardous material, even in small amounts. Duracell said it no longer uses mercury in their batteries.

Mateck said none of these counterfeit batteries have been found in local c-stores, although police have not yet confirmed that they were not distributed prior to the investigation.

Further investigation into Yao's warehouse revealed nearly 600 bottles of Head & Shoulders shampoo. After testing by Procter & Gamble officials, the shampoo was determined to contain several types of Gram-negative bacteria, which also poses serious health risks, especially to immunocompromised people, the report said.

Police also confiscated 1,200 pairs of counterfeit Louis Vuitton shoes, the report added.

The ongoing investigation into Yao's warehouse began in early May, after police received a tip from an informant, Mateck said. Yao will appear August 31 at the Cook County 4th District Circuit Court in Maywood.