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Flood of knockoff merchandise triggers a wider crackdown across US

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Everyone agrees that trade in "counterfeit chic" has exploded over the past five years, expanding to include many more products and flooding the US market. Not everyone is united, though, on what to do about it. Manufacturers want an even more aggressive attack on patent and copyright violators, citing billions of dollars in lost sales. Others, however, suggest such crackdowns can go too far, impeding free enterprise, crimping artistic license, and even devoting too many taxpayer dollars to protecting the market position of corporations.

Many economists trace global counterfeiting from the open-air markets of Shanghai to places like Watson's Flea Market on the fringe of the Tar Heel capital, a sprawling, dusty yard that on weekends becomes a sort of low-income Mall of America. Some 15,000 people pack in to browse what state officials say is $1 million in counterfeit designer jeans and Kate Spade handbags.

The Watson's raid was the biggest in a series of flea-market busts organized by North Carolina's secretary of State, Elaine Marshall. Infractions of trademark and intellectual- property law caught the state's attention a few years ago, when licensed NASCAR vendors complained that fake Jimmie Johnson and Matt Kenseth hats and gear were being sold at races. Since then, officials have cited concern about public health and public safety, as counterfeiters expanded into appliances and other electrical products and even baby formula and pharmaceuticals.

What's more, counterfeiting undercuts states' tax revenues, because counterfeiters don't pay sales taxes on their illicit gains. In a 2004 report, New York State's comptroller said the state lost about $1 billion in tax revenues from counterfeit goods. Such reports are helping to drive enforcement efforts in North Carolina.

"Global competition is hard on us, and counterfeiting is another hardship. Legitimate businesses with licenses are saying, 'I'm paying taxes and following the rules, and I'm getting ripped off,' " says George Jeter, spokesman for Secretary of State Marshall. "Law enforcement is definitely more and more alarmed about what they're seeing."

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