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Lululemon seeks a leg up on knockoffs

The Lululemon storefont will be familiar to many, but its battle with counterfeiters is focused on sales conducted through websites.

Fred Lum/The Globe and Mail

Lululemon Athletica Inc. has filed a lawsuit in a U.S. federal court in Illinois targeting a sealed list of unidentified defendants that it says are China-based knockoff artists selling fake versions of its ubiquitous yoga pants and other merchandise online.

The Vancouver-based clothing maker said in a court filing dated July 17 that the defendants create websites "by the hundreds" and "design them to appear to be selling genuine Lululemon products, while actually selling counterfeit Lululemon products to unknowing consumers."

The lawsuit is the latest move by a major retailer against the murky multibillion-dollar world of counterfeit merchandise, which is increasingly fuelled by the global reach of online commerce. Luxury brands, including Canadian parka-maker Canada Goose, are often targeted by counterfeiters, who experts say have moved their business away from storefronts in sketchy neighbourhoods and instead sell on networks of thousands of websites.

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A spokeswoman for Lululemon – which is also facing its own problems as legitimate competitors increasingly move into similar yoga-themed athletic gear – declined to comment on the lawsuit.

In its court complaint filed in the U.S. District Court for the Northern District of Illinois, Eastern Division, Lululemon says websites selling all manner of counterfeit goods are estimated to generate more than $135-billion (U.S.) a year in sales.

The company, which has annual revenue of $1.4-billion, says the online stores it alleges are producing fake Lululemon goods accept payment via PayPal, credit card or Western Union, and ship their goods by mail in small quantities in order to avoid attention from border officials.

According to Lululemon's complaint, the brand's "overwhelming success" has resulted in "significant counterfeiting," prompting the company to launch a "worldwide anti-counterfeiting program" that investigates suspicious websites and has discovered hundreds selling fake Lululemon products. In this case, it says the defendants are "an interrelated group of counterfeiters" but their identities are virtually impossible to trace.

The lawsuit resembles a similar case Lululemon quietly launched last July in the U.S. District Court for the Southern District of New York that named a long list of "John Doe" defendants, but included possible names of Chinese individuals or businesses the clothing maker believed were behind a web of Lululemon counterfeit websites with addresses such as Lululemon-Shop.com, LululemonStore.com or CheapLululemon.com.

In that case, Lululemon secured a default judgment last November, after the defendants, served via a list of e-mail addresses, failed to show up to respond to the allegations. The court demanded $23.3-million from a list of nine defendants, and banned them from selling counterfeit goods or creating new businesses or websites to do so.

Online payment processors and service providers and shippers were also barred from dealing with the defendants. It is not known if any of the orders were complied with, or if Lululemon ever received any money, although legal experts say it is highly unlikely the company ever received a cent.

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In the lawsuit filed in Illinois, Lululemon is demanding the legal maximum of $2-million for each infringement of its trademark. The company is also asking for online marketplaces, social media platforms such as Facebook and Internet search engines such as Google to block the defendants' websites.

Toronto lawyer Lorne Lipkus, who specializes in acting for companies trying to crack down on counterfeit goods, said the focus for counterfeiters has increasingly moved from stocking shelves in stores with fake goods to simply selling online through networks of hard-to-trace websites.

"The Internet is on fire," he said in an interview, adding that counterfeiters are increasingly using Facebook and Twitter to advertise. "It's giving them the ability to access the marketplace in a much easier way than if you just have a sign on a store."

And trying to chase the money through seizing accounts with U.S.-based PayPal or other online payment processors can also be difficult, he said, as counterfeiters are increasingly careful only to leave small amounts in their accounts at any given time.

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About the Author
Toronto City Hall Reporter

Jeff Gray is The Globe and Mail’s Toronto City Hall reporter. He has worked at The Globe since 1998. He spent six years as the law reporter in The Globe’s Report on Business, covering Bay Street law firms and writing about fraud, insider trading and corporate tax avoidance. More

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