Coach, Inc filed a multimillion-dollar lawsuit against Chicago, alleging that the City’s failure to crack down on vendors who sell counterfeit goods at an outdoor market amounts to a violation of the Lanham Act. The lawsuit, filed in Illinois federal court, seeks $2 million per violation, an injunction halting the sale of fake Coach products, and punitive damages.

According to the complaint, a Coach investigator visited Maxwell Street, a local market, in August 2009. Within plain view he observed roughly 300 vendors selling counterfeit Coach products, the suit claims. City police officers later returned to the market with the investigator, who purchased an $18 fake Coach bag at one booth and a fake Chanel bag for $24 at another booth. The two vendors were arrested and 351 fake Coach products were found in the two booths.

Coach sent a cease-and-desist letter to the City, asking it to curb activity at the market, but the City did not respond, the complaint alleges. Another investigator returned to the market earlier this year and found that little had changed from the prior visit. The suit names the two vendors who were arrested along with 100 John Does and the City of Chicago as defendants.

Over the last year Coach has filed almost 200 lawsuits as part of a nationwide program called Operation Turnlock, the company’s attempt to use civil litigation to fight the distribution and sale of fake products. The suit against Chicago is the only one against a municipality. The City is named because vendors pay a $50 annual license fee in order to display their goods at the New Maxwell Street Market, two miles from the well-known downtown Loop. The City’s inaction to stop the sale of knock-offs constitutes trademark and trade dress infringement under the Lanham Act, trademark dilution, and unfair competition under state law and copyright infringement, the suit alleges.

To read the complaint in Coach v. City of Chicago, click here.

Why it matters: The suit is unusual in its attempt to hold a municipality responsible for the sale of counterfeit products. Coach will argue that by issuing licenses to the vendors who made the allegedly illegal sales, the City can be held liable. The company will rely upon the arrests of vendors and the cease-and-desist letter it sent, claiming that it put the City on notice that the illegal activity was taking place.