Counterfeit goods from China a continuing problem that costs billions a year

In 2011, customs officers seized more than a billion dollars in phony sneakers, handbags, and electronics.
CBS News

(CBS News) ELIZABETH, N.J. - The Justice Department said Friday it shut down a number of web sites that were selling counterfeit sports jerseys made in China. Agents said they also seized $1.5 million dollars in illegal profits. But this is just one victory in a never-ending battle against Chinese counterfeiters. CBS News correspondent Bob Orr looks into this problem.

It's a search that plays out every day inside this cavernous warehouse in Elizabeth, New Jersey -- customs officers looking for counterfeit goods such as phony Louis Vuitton handbags.

"If you had to guess, based on your expertise, this looks to be fake," Orr asked Paula Heacock, who oversees the inspections at the Port of New York and New Jersey.

"This looks to be counterfeit, yes," she said.

Two and half million containers arrive here each year. Mixed in with legitimate cargo are knock-off iPhones and imitation Ugg boots churned out by Chinese counterfeiters.

"China is still our number-one source country for counterfeit and pirated goods. About 62 percent of our seizures are from China," said Heacock.

The losses from counterfeit goods are enormous. Last year, customs officers seized more than a billion dollars in phony sneakers, electronics and handbags. Yet no one knows how much is still getting through.

In California, Beachbody, a producer of workout videos, knows how much it is losing. Company executive Jonathan Gelfand said thieves copy his exercise discs and peddle the fakes at half price.

"Piracy is absolutely leveling our bottom line and it is really hurting the company," he said.

Gelfand estimates Beachbody is losing $75 million a year to counterfeiters. He arrived at that figure by pretending to be a counterfeiter.

"We put up some replicated sites. We just copied what the pirates were doing. We sold it for what they were selling it for and we did it for a very long period of time. And it was well over $75 million," he said.

Other counterfeit goods like purses and sneakers are sold on the black market and on street corners.

Heacock said the counterfeiters are also adaptive, constantly changing their schemes in an effort to pass inspections. For example fake Nike manufacturers have tried hiding the signature swoosh behind tear-away panels.

"It is a cat-and-mouse game," she said. "They are always trying to stay a step ahead of us to get their products in."

Heacock likes to think she's winning. But with billions of dollars in corporate profits, and U.S. jobs on the line, it's a battle with no foreseeable end.