I recently read this article on the evils of the fake luxury-item industry. The author describes how poor children are forced to make faux handbags, how the profits go to terrorists, and how middle-class Americans are to blame for providing the demand for the illegal goods (illegal to sell, not buy).
The situation reminds me of the failed drug war, but with some differences. You couldn't just legalize the industry because that would be legalizing fraud, right? Any thoughts?
So it's a bad thing for poor kids to have jobs?
To paraphrase Marc Faber: We're all doomed, but that doesn't mean that we can't make money in the process. Rabbi Lapin: "Let's make bricks!" Stephan Kinsella: "Say you and I both want to make a German chocolate cake."
No, it's bad to say you're doing one thing and do another instead. Isn't that the whole basis of contract law? If I convince you I'm selling almonds, but they are really peanuts, and you buy them, isn't that fraud on my part?
I was replying to the article somewhat sarcastically.
What do you mean by that?
Lets just assume that legalizing drugs wold be legalizing "fraud"... in a free market, would the fraud go away in the long run due to market forces?
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LeeO: No, it's bad to say you're doing one thing and do another instead. Isn't that the whole basis of contract law? If I convince you I'm selling almonds, but they are really peanuts, and you buy them, isn't that fraud on my part?
Well, in some cases people KNOW it's a fake, they don't mind. It doesn't look exactly the same but it looks close enough to the real thing at much lower the cost. It's like buying a "nice" shirt at Ross or TJ Max, it looks expensive and nice but it's much cheaper than getting a similar shirt from the mall. Great deals at Ross :)
Actually the author said nothing of poor children being FORCED. It is left up to the imagination of gullible readers to just assume that. Here is what was written:
"What we discovered when we walked in: two dozen sad, tired, dirty children, ages 8 to 14, making fake Dunhill, Versace and Hugo Boss handbags.”
Now it does not elaborate how these employees were obtained. If they were corralled at gunpoint, chained down and kept as slaves, then the law broken was slavery, which is far worse than manufacturing knock-offs.
If they were not locked down, then they were there voluntarily. The fact that they were poor or dirty would have no relevance except to make the story more inflammatory. What would be interesting would be some information on what other employment would be available for uneducated 8 to 14 year olds in that town. I would suspect nothing else but prostitution and drug dealing. So these kids may find the wages (low as they might be by western standards) completely preferable to the alternatives. The fact that these stories always involve kids. is actually encouraging because it means when they grow up there are superior opportunities available for them to move on to and the so called "sweatshop " owner has to go find new entry level employees. Maybe they work there long enough to get seed money to start their own little business- who knows?
The exact same scenario happened in England in Charles Dickens days, only the free enterprise system eventually improved opportunity and lifestyles
There have been many instances where high minded westerners swoop into a town to close down evil sweat shops and six months later when they do follow up, the kids either died of starvation or were dealing drugs and selling their bodies to survive.
And if that is the case- thank god for greedy Americans willing to pay for their product.
It seems to me that laws against selling drugs (prohibition) are different than laws against selling counterfeit goods. There is a strong economic and moral argument for drug legalization - "capitalist relations between consenting adults are fine" as Walter Block would put it. But counterfeit goods are illegal not just becuase governments decide they are bad for us. The manufacturer actually engages in fraud by stamping the logo of another company on his inferior product. Legalizing the sale of faux handbags would be like legalizing the production of counterfeit money. Now, you could say that central banks engage in fraud by printing money so why should it be illegal for the general public, but that doesn't change the principle.
Good point. But I think there is a difference between the "fake" shirts at TJ Max and actual counterfeit goods. It's like the difference between someone who makes "fake" money to sell to people because it looks cool, and someone who actually counterfeits dollar bills to spend. I'm only arguing that the second type of good is an example of fraud.
Actually the author said nothing of poor children being FORCED. It is left up to the imagination of gullible readers to just assume that.
Exactly. It's strongly implied, but not actually stated. Because if the kids aren't forced, the argument falls apart as you point out.
Yes, because people would stop buying from those who cheated them. But there is obviously no fraud inherent in the sale of drugs. I'm trying to figure out whether there is fraud inherent in the counterfeit goods market. Just because the market punishes cheaters doesn't mean they shouldn't also be punished as criminals.
OK so here is what I think about the legality question:
One would hope that there is more difference between the Designer product and the version produced by 8 year olds, than just somebody stamping on a logo.
Clearly the person getting in their car and driving to Chinatown to buy a handbag for $15 (when the legitimate version sells on Rodeo drive for $400) is under no false impression that this is the real thing.
They are doing it for a lark and to temporarily trick their friends at a party or have some fantasy role-play in their heads.This product is intended strictly for wannabe girls or suburb ladies who were never fooled by the merchant. If Paris Hilton bumped into them she would be able to tell from a mile that the material is fake leather, not expensive leather, the stitching is poorly done and the paint on the logo is chipped. If this purse was bought by some rich socialite, the shame of being caught with a fake would be far more horrible than the extra $385 to get the REAL status symbol.
In that sense I don't think its illegal and I don't even see why the designer should lose any sleep over it. It is in fact a subtle compliment to his name.It does not take legitimate sales from him and it does not target his market.
If on the other hand the designer product is just as poorly made, he might have a case for fraud, but rather that calling in Big Brother to bully the competition, he can take some time to upgrade his product and make it harder to counterfeit. (Like the credit card companies now putting hologram logos on their cards.)
If the counterfeiter can still make and sell the product for cheaper than him, it would help little to throw the counterfeiter in jail. His neighbor or his brother will start a new counterfeit factory.
Rather the designer should buy him a drink and ask him how he did it for less, or buy his factory or hire him as production manager... tada the market has spoken.
I know New York City's main complaint is that they "lost sales tax" revenue when people decide to buy counterfeit goods. As if someone who bought a $20 Louis Vuitton bag was EVER going to spend $500+ on a real one. Its a shame they closed down so many stores on canal street in Chinatown here- what the hell is the point of even going there now? Ruin people's livelihoods and make everyone worse off- thanks NYC.
Yeah right?
Who's the bigger fraud, the guy from Chinatown or the city of NY?
Thanks for the response, Albert.
You're argument for legalization makes plenty of sense. I wonder what the official rationale is for the laws against counterfeit goods, and who pushes for the ban? It seems that the makers of designer goods wouldn't care, because as you said they serve a completely different market. It's probably the makers of $15 handbags and other cheap merchandise who support the reduction in competition.
I know New York City's main complaint is that they "lost sales tax" revenue when people decide to buy counterfeit goods.
And if they legalized the industry, they would get the sales tax on the $20 bag, right?
The ban on counterfeit does not only apply to things that can be easily distinguishable, (like fake purses) but things that are closer to each other.
As I understand it, if the owner of the name brand or patent allows little encroachments on their product or name, then later it can be held against them when they have to defend against a big time counterfeiter. That is how current law is applied and precedent plays a big role.
That is why you see big sports organizations like basketball teams or football teams, go after little leagues or school teams using their name without license.
I am not sure what a libertarian solution would be. Seems to me if your brand or product is not distinguishable from the counterfeiter, then maybe you don't have a legitimate brand.
I am not sure what a libertarian solution would be.
I wonder if anyone at the Mises Institute has written specifically on this topic. I know there is plenty of literature on Intellectual Property in general that I have not read...
Albert:As I understand it, if the owner of the name brand or patent allows little encroachments on their product or name, then later it can be held against them when they have to defend against a big time counterfeiter. That is how current law is applied and precedent plays a big role. That is why you see big sports organizations like basketball teams or football teams, go after little leagues or school teams using their name without license.
I can't imagine why a sports franchise would act this way. Even if they had to go after small fish to set precedent, is there an actual concern that a counterfeit NY Yankees would decrease the real Yankees' profit?
they said we would have an unfair fun advantage
I think Kinsella mentioned that this sort of thing could only count as fraud, since trademarks are positive rights. No fraud, no tort.
I'm confused. Kinsella said that counterfeit goods could count as fraud? Then whay did you say, "No fraud, no tort"? Did you mean that since trademarks are positive rights, this sort of thing could not count as fraud?
I found this quote from Kinsella, which perhaps clarifies things:
"Consider IP. Under a free market there would be no patent law at all. The existence of patent law therefore causes much waste and distortion and redistribution that would not otherwise occur. The same is true of copyright. However, trademark would exist in some form–there would be at the least a fraud claim on the part of customers that a seller defrauded by selling them bootleg goods. So there would be differences–the cause of action would be that of the customer, not the trademark holder; there would be no ridiculous state extensions of TM law such as antidilution rights–but a seller of fake goods would have legal consequences under a free market, *similar* to those he faces now. So, we can see that state trademark law, while not good, is probably not as harmful and distorting as patent and copyright law are."
"Consider IP. Under a free market there would be no patent law at all. The existence of patent law therefore causes much waste and distortion and redistribution that would not otherwise occur. The same is true of copyright.
However, trademark would exist in some form–there would be at the least a fraud claim on the part of customers that a seller defrauded by selling them bootleg goods. So there would be differences–the cause of action would be that of the customer, not the trademark holder; there would be no ridiculous state extensions of TM law such as antidilution rights–but a seller of fake goods would have legal consequences under a free market, *similar* to those he faces now. So, we can see that state trademark law, while not good, is probably not as harmful and distorting as patent and copyright law are."
And here are Kinsella's suggestions for improving trademark law:
Thanks good research Leo
Mickachussets: current law is not approved by libertarian thinkers, but here is some of the crazy consequences.
If the New York Yankees do not vigorously defend their name against all encroachment, then a future person can come and claim that name as his own and force the Yankees to pay him royalties.
The argument in court would be that there really wasn't a trademark and the yankees are just discriminating against me the new claimant because here are 15 examples of where they allowed outsiders to use their name without suing them.
(This is also the reason why the Mises institute tries to copyright protect their writings, even though they choose the most lenient form of copyright)