By Julia Boorstin

(FORTUNE Magazine) – IN THE HARSHLY LIT BACKROOM OF A storefront in New York City's Chinatown, there hangs what appears to be millions of dollars' worth of merchandise. Hundreds of bags bearing the Louis Vuitton logo are crammed onto metal hooks. The purses look nothing like the shoddy knockoffs sold for $10 on street corners. Only a close inspection reveals that the zippers are just a bit too shiny and the leather is too rough. These fakes aren't just sold to tourists; undercover bag dealers from around the country order them in bulk from makeshift catalogs.

Thanks in part to this backroom business, New York City was home to an estimated $23 billion counterfeit-goods market in 2003, costing the city more than $1 billion in taxes and vexing luxury-goods companies. The police have been jailing and fining vendors for decades, but the problem seems to be getting worse--the value of U.S. Customs seizures of counterfeits leaped 48% last year. Which is why knockoff favorite Louis Vuitton has stepped up its fight against the faux. Last year it spent more than ever--15 million euros--to battle counterfeiting, conducting 6,000 raids and 8,200 legal actions worldwide. But instead of just going after counterfeit sellers --who, like cockroaches, tend to spring up elsewhere --LVMH has developed a novel legal strategy: It's going after landlords.

On April 19, Louis Vuitton won a preliminary injunction against the owner of seven storefronts on Canal Street in Manhattan, a renowned mecca for counterfeits and a gateway for fakes entering the U.S. Landlord Richard E. Carroll (who declined to comment) agreed to take unprecedented action to prevent the sales of counterfeit Louis Vuitton goods on his properties. He is beginning eviction proceedings against seven tenants and is prohibiting the sale of counterfeits in new leases. He will also post signs saying that the tenants aren't authorized to sell LV merchandise. Perhaps most dramatically he's splitting with Louis Vuitton the cost of hiring a monitor to make weekly searches of his properties. If Carroll violates the agreement, he'll be subject to fines or imprisonment. The ruling affects only Carroll, but it will undoubtedly be used as a precedent in other counterfeit cases, starting with another Canal Street landlord suit Louis Vuitton has pending.

"No one has used this type of injunction before," says Steve Kimelman, a lawyer for Louis Vuitton. An intellectual-property expert familiar with the case adds, "The only way to make progress is to target anyone who turns a blind eye, including the landlord."

True, on its own this legal victory is minor. But from Louis Vuitton's point of view, if fakes are even a bit harder to come by, the real thing is more exclusive. In the battle to keep up an image, every purse matters. -- Julia Boorstin