Are your products being pirated?

By Dalia Fahmy

updated 5:35 p.m. ET June 27, 2006

For almost a century, Mitchell & Ness, the Philadelphia-based apparel company that now makes vintage athletic jerseys licensed from national sports leagues, cruised under counterfeiters' radar.

But when rapper Big Boi wore a Mitchell & Ness Houston Astros jersey in a music video in 1999, he sparked a trend that turned the $2 million sports shop into a $40 million fashion hothouse almost overnight. To keep up with demand, Mitchell & Ness president Peter Capolino outsourced production to Korea. Within months, fake Mitchell & Ness gear made in Asia had flooded the U.S. market.

Once mainly a blight on premium brands such as Nike and Rolex, counterfeiting is now taking its toll on entrepreneurs. Like Capolino, many entrepreneurs discover their vulnerability too late, after counterfeiters have already established a booming black market. Capolino, 61, estimates that imitators now sell more of his product than he does: Last year alone, 135,000 fake Mitchell & Ness auctions on eBay were shut down.

"Fifteen years ago, counterfeiting wouldn't have been an issue for businesses that didn't have a global brand," says David Hirschmann, a U.S. Chamber of Commerce senior vice president responsible for intellectual property. "But today, counterfeiters are scouring the market for anything that sells."

The Chamber of Commerce estimates U.S. businesses lose $200 billion to $250 billion in revenue to counterfeiters each year, and pegs the global value of counterfeit goods at an annual $600 billion.

The problem is set to grow as technology continues to evolve. Counterfeiters can program machines to spit out convincing imitations of anything from toothpaste to brake pads. The explosive growth in e-commerce also makes it easier for counterfeiters to distribute goods and quickly erase their cyberspace tracks: Capolino estimates that more than one-third of all Mitchell & Ness imitations are sold over the internet, where infringers set up auctions that last a few hours and then disappear.

"The internet makes it a different problem because the ability to alter graphics or add creative lighting makes things look better than they really are," says Patrick McKenna, 27, CEO and co-founder of DMi Partners, an e-commerce venture that runs Mitchell & Ness' website and online sales. Any time Mitchell & Ness loses money to counterfeiters, DMi gets hit, too.

Globalization makes matters worse. When entrepreneurs outsource production overseas, they must hand over valuable intellectual property, such as blueprints and color codes. These resources are easily stolen or sold by corrupt local partners.

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