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Firm Sees Red Over Knockoff Smokes

Cigarette giant Philip Morris aims to stamp out counterfeiting by suing small retailers.

March 04, 2003|Myron Levin | Times Staff Writer

The lady had an orange van and a plausible story: She was closing her store and offering good prices on cigarettes. So Adel Simon, owner of a gas station and convenience store in Los Angeles, bought 25 cartons of Marlboros and Marlboro Lights for about $650 -- $100 less than he would have paid at Costco.

It may have been the worst business decision of his life.

Soon after, an undercover agent for Philip Morris USA dropped in on Simon's Chevron on Los Feliz Boulevard to buy a couple of packs. He sealed the cigarettes in zip-lock bags and shipped them by courier to Philip Morris in Richmond, Va., where, according to the company, lab tests revealed that they were counterfeits.

Before long, Simon was sued in U.S. District Court in Los Angeles for trafficking in knockoff smokes.

Exasperated, Simon believes "he could have murdered someone and had less problems," said his lawyer, Ronald Schy.

Simon, a Syrian immigrant in his 60s, told Philip Morris lawyers through an Arabic translator that he had no idea he was getting counterfeits from the lady in the van -- and still has only the company's word that they were fakes.

"I didn't do anything that's fraud," he said.

For The Record
Los Angeles Times Wednesday March 05, 2003 Home Edition Main News Part A Page 2 National Desk 1 inches; 45 words Type of Material: Correction
Counterfeit cigarettes -- A photo caption in Section A on Tuesday incorrectly described packs of counterfeit Marlboro cigarettes as having been seized by federal agents. The packs actually had been bought by private investigators employed by Philip Morris.

Simon has plenty of company. Determined to guard its huge cash flows from the world's most popular brand, Philip Morris has charged 415 retailers with illegally selling imitation Marlboros and Marlboro Lights.

Greater L.A. Targeted

Simon was caught in a first wave of suits, filed last fall against nearly 90 small merchants. Philip Morris ramped up the offensive Monday, suing an additional 325 retailers in Los Angeles, San Francisco, San Diego, Sacramento and eight other cities around the country. Nearly 90% of the defendants are California merchants, most of them in Greater Los Angeles.

The lawsuits are the centerpiece of a ferocious campaign to protect the powerhouse brand from ingeniously made knockoffs from China and other countries. Marlboro last year provided Philip Morris parent Altria Group Inc. with about $7 billion in operating profit.

The merchants were snagged in a nationwide dragnet involving undercover buys at thousands of stores. Rather than pushing for damages, Philip Morris is squeezing the defendants for information. Company lawyers are debriefing the small fry one by one -- sometimes using Hindi, Farsi, Arabic, Korean, Cantonese, Mandarin, Vietnamese or Spanish translators -- in hopes of catching the big fish.

The targets, including many operators of small central-city markets, say the company's tactics are heavy-handed. They contend that they were tricked into buying the fakes and would gladly have assisted the probe without being hauled into court.

Philip Morris is running the campaign through a newly organized strike force called the brand integrity group. With a staff of about 20 -- including former agents of the FBI, the Secret Service, the U.S. Customs Service and the Bureau of Alcohol, Tobacco, Firearms and Explosives -- the group feeds investigative leads to law enforcement agencies and files lawsuits after being assured that they won't compromise criminal probes.

The unit has retained Pinkerton Consulting & Investigations Inc., which sent out scores of agents last summer and fall to make the undercover buys.

Philip Morris also has held at least 450 briefings for law enforcement officers in 19 states on how to identify the counterfeits, which cannot be distinguished from the real thing with the naked eye. Separately, the company has filed lawsuits against Internet sites offering discount prices on "gray market" smokes -- genuine Marlboros produced for foreign consumption but illegally redirected into the U.S.

"We are trying to fight illegal activity that criminals are engaged in," said John E. "Jack" Holleran, Philip Morris vice president for brand integrity.

Some tobacco foes say the company is just getting a taste of its own medicine.

Global tobacco firms, including Philip Morris, have been dogged by charges that they knowingly funneled huge volumes of cigarettes to smuggling rings in Europe, Asia and Latin America during the 1980s and '90s. According to allegations in various lawsuits, the companies colluded with black marketeers to penetrate new markets and boost consumption by creating a glut of cheap, tax-free cigarettes.

"They're getting hung on their own petard," said Matt Myers, president of the Campaign for Tobacco-Free Kids, a leading U.S. anti-smoking group. "The only thing they seem to be objecting to is the illegal behavior that's cutting off their market share."

Philip Morris executives say they are committed to fighting contraband in all its forms. Even critics who impute the worst motives to cigarette makers concede this may be true -- if only because the risks of the illicit trade to the companies exceed the rewards. The rise of counterfeiting, which steals away sales, is a major reason.

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