Counteracting Counterfeiting

Product counterfeiting is a huge problem, costing manufacturers an estimated $450 billion each year, yet pursuing criminal charges against counterfeiters is tough.

Many European and North American companies off-shore their manufacturing operations, often to Asian countries where anti-counterfeiting laws are weak to non-existent. These contract manufacturing locations sometimes copy or counterfeit branded products, knowing there is a great deal of profit to be made with little potential penalty. These counterfeiters often have label copies printed locally to add an aura of authenticity to the products.

The cost to manufacturers is heavy: Not only do they lose sales revenue, but the integrity of the brand is compromised when inferior products that masquerade as the real thing fail to live up to consumer expectations. The Department of Homeland Security is the law enforcement agency in charge of counterfeiting cases; however, brand integrity cases aren’t topping DHS’s to-do list these days.

To combat the problem, manufacturers send representatives around the world to examine products sold under their brands to try to determine whether they are authentic. If the goods are counterfeit, the employees try to track down the sources and, if possible, put together a case that can be handed to the authorities on a silver platter in order to improve the chances of prosecution.

Identifying Counterfeits
There are often telltale signs that a product is counterfeit, and experienced brand investigators have traditionally looked for poorly copied labels as well as inferior manufacturing or items that are available in colors that the company doesn’t officially manufacture. Some differences jump right out, while other fakes are simply unauthorized overruns, making detection difficult or impossible.

Technology is catching up to the counterfeiters in the form of asset tagging, which employs the application of a security mark to a product. The security mark is a unique identifier that provides proof of ownership or source and can facilitate the detection of fraud or theft. Security marks range from the overt, such as holograms and ultra-violet luminescent material; to invisible, inorganic substances; to organic DNA codes.

Taggants are substances that can be incorporated into a wide variety of liquid and solid materials, such as fibers, inks, varnishes, paints, plastics, metals, fertilizers and even explosives. They can be used to identify items as varied as pharmaceuticals, apparel, consumer goods, sporting goods, petroleum products, antiques, documents, stamps and currency. Taggants can be used for inventory control and tracking and tracing in addition to brand authentication.

The costs vary, depending on the type of taggant used and the scope of its application. DNA marking is the most expensive, both because the technology itself is expensive and because laboratory evaluation adds to the cost. Synthetic DNA is the most costly method, with a cost of about 2 cents per item, while DNA runs about 1 cent per item.

Both coded taggants and RF-fibers, which are added to paper pulp, carry a price tag of about 1 cent per item. Other taggants cost anywhere from one one-hundredth of a cent to one-tenth of one cent, to 1 cent per item.

Label Authentication
Creo, a subsidiary of Kodak, manufactures the Traceless™ taggant, which can be used to create unique optically and forensically invisible identification codes that are identifiable only with the use of special readers. The company has forged an exclusive agreement with label stock manufacturer Acucote Inc. to produce security label printing stocks, which combine the Traceless taggants into the adhesive layer of Acucote label materials. These stocks are sold to label converters for the manufacture of product labels.

“These new label stocks will allow genuine brand owners to regain control of their brands and stop brand-equity erosion resulting from counterfeiting,” said Lynn Crutchfield, Acucote executive vice president. “In the future, we can expect to see customs agents using Creo readers to find authentic labels produced from Acucote’s materials on everything from high-value luxury goods to inexpensive consumer products.”

Security First
According to Creo, these label stocks provide non-breachable product authentication when used to produce a specific number of authentic labels by trusted label suppliers in the country where the brand company resides. Crutchfield said the label converter (his company’s customer) must consent to abide by strict policies and procedures in order to maintain the security of the stock: “The customer has to agree to adhere to an acceptable procedure to account for waste, scrap and overrun.”

Acucote fiercely protects information regarding the use of the taggant-coded labels, to the point that the company will not disclose the name of any end-users, or even the type of manufacturers using the labels. “Every agreement we enter into with a customer is done strictly under non-disclosure. The basic premise is that these types of solutions must be kept strictly confidential. The more people who know what’s going on, the less secure the process becomes,” Crutchfield said.

Return on Investment
In addition to the security element, part of the reason that companies such as Acucote are so tight-lipped may be that there just aren’t that many manufacturers who are in the taggant game yet. The taggant technology is approximately three years old, but it has been commercially available for only about a year.

Another reason that asset tagging companies keep data under wraps may be that fact that it is difficult to demonstrate a clear return on investment. In other words, what is counterfeiting costing the manufacturer, what will the tagging cost, and how much will asset tagging help the manufacturer save?

“That’s the $64,000 question,” Crutchfield said. “The industry is struggling to come up with an ROI model.”

The problem is more complex than just plugging numbers into a spreadsheet, Crutchfield pointed out. “The manufacturer knows the size and scope of counterfeit losses, but how much is brand-integrity erosion really costing the company? How much less will it cost the company to locate counterfeit merchandise once asset tagging is incorporated? These are some of the variables that make this question difficult to answer.”

To help formulate some answers, Creo requires periodic reviews of the program from the brand owners. “If they won’t comply, we won’t get involved because we can’t be effective long-term if we don’t get input as we go along,” Crutchfield said.

Liz MartA­nez is a leading security expert and the author of The Retail Manager’s Guide to Crime and Loss Prevention: Protecting Your Business from Theft, Fraud and Violence (2004, Looseleaf Law Publications). She is a member of ASIS International and is an instructor at Interboro Institute in New York City, a two-year college with a Security Management degree program. She is delivering a paper on Business Continuity in the Retail Sector at the CPM East conference in Orlando in November. Ms. Martinez can be reached through her Web site at www.RetailManagersGuide.com.

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