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For Companies, Counterfeit Battle is Never-Ending

Counterfeiting is a multi-billion dollar business infiltrating the United States borders at an alarming rate. Watches, handbags, footwear and medicine made up more than $260 million in counterfeit products seized at US ports in 2009. And it's a growing problem.

"In 2000, we seized about $47 million worth of counterfeit," says Therese Randazzo, U.S. Customs and Border Protection'sdirector of Intellectual Property Rights. "So that's like a 475 percent increase."

Fighting back has become a major focus for companies such as athletic shoemaker New Balance, which has a "zero tolerance" policy for fake goods, spending an estimated $2 million each year combating counterfeiters.

"You'll see them paint on technology instead of actually inserting it, and you'll see other types of copycat methods to make it look like the actual product," said New Balance CEO, Robert DeMartini.

"The consumer gets a substandard product (when a counterfeit New Balance shoe is purchased)," he continued. "Our customer loses some of their proposition because they can't count on us for the business they are expecting us to deliver, and our associates that work hard to make these products high quality—we feel like we are breaking a promise to them as well."

In 2002, New Balance discovered a group in China advertising itself as "American New Barlun (Hong Kong) Limited" conducting business and promoting a relationship with the "American New Balance" company. New Barlun had acquired trademarks similar to those of New Balance and combined them with packaging, advertising, and slogans imitating the brand.

And it went well beyond the making of similar products. New Barlun was selling franchises and opening retail stores throughout China. New Balance took immediate action, working with China's Administration for Industry and Commerce with limited success.

In 2003, New Balance discovered that New Barlun was a front established in Hong Kong by a Chinese company called Qiuzhi Footwear. New Balance then sued Qiuzhi in the court of Hangzhou.

After almost three years of litigation, the court agreed with New Balance and found Qiuzhi liable for trademark infringement and unfair competition. The court agreed that New Balance's use of an "N" logo on footwear is particularly connected to New Balance products, and although Qiuzhi owned a similar trademark, their use of an "N" was confusing and deceptive to consumers. The Court also agreed that Qiuzhi's use of the name "New Barlun" infringed on the New Balance trademark.

"We're not afraid to lose," New Balance's DeMartini said. "What we're afraid to do is not go after and protect those trademarks". However, just a few years after winning this case, New Balance's investigators see signs that the scam is back in business.

"We (recently) got a call from our distributor in China that they found a New Barlun-type product in the marketplace," Edward Hadad, New Balance's VP of Intellectual Property said.

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  • Carl Quintanilla is an Emmy-winning reporter and co-anchor of CNBC's "Squawk on the Street," broadcast live from the NYSE.