How Good Are the Counterfeiters, Really?

This recent article in BusinessWeek contains a lot of data we've blogged about here already - but leads with an intriguing sub-headline: "Faced with a tidal wave of counterfeit goods, companies are turning to secretive sci-fi technology. But crooks catch on fast". This raises a good question: how quickly do counterfeiters really copy or beat new technologies?

"The half-life of a security system is a year or six months before someone is nipping at your heels," says the director of business development for JDS Uniphase Corp.'s Flex Products Group (which makes color shifting inks, such as those used in banknotes) in this article. Doesn't it seem like the security industry is doing itself a dis-service by making sweeping statements about how vulnerable solutions are. Where's the data?

The answer is: no-one really knows. But where there's evidence, it's not overwhelming that the counterfeiters are that good. The best public example is the multiple iterations of fake holograms on counterfeit Guilin artesunate ... they are somewhat convincing, but by no means perfect. The trained eye can spot them. We've seen a lot of fake holograms, and when compared to the original, it's usually possible to spot the fake. The latest holograms with advanced features - such as those from Kurz or DuPont - have yet to be copied at all convincingly. Nanotechnology is certainly extremely hard to fake .(but it's also impossible to check for ordinary users). The point is ... it doesn't have to be perfect to fool most ordinary consumers, only good enough.

The BusinessWeek article rightly makes a lot out of the emergence of unique, encrypted codes, such as those proposed by AstraZeneca for Nexium. These have the advantage of being unique at the unit level, and databases can easily determine whether a code has been copied and read before. However, it pays to be precise when talking about them. While the article quotes AstraZeneca's director of product security as saying: "We believe [the numbers] cannot be copied," this is either a misquote or misleading. The numbers themselves are trivial to copy ... what cannot be done is (one hopes) generate valid numbers without having to collect and copy thousands of valid numbers. By combining codes with other features on the packaging - AstraZeneca should be able to deter, diminish and measure counterfeiting.

The appearance of unique codes on products is a very good thing... as long as they are thoughtfully deployed and very securely generated. There are already too many broad-brush statements made about the size of the counterfeiting problem which is understandable given the paucity of data collection; however, the industry should strive for more accuracy when talking about the strength (or weakness) of countermeasures.

This is NOT Donald and Minnie

Some counterfeit efforts are so egregious that they beggar belief. This state-run amusement park in China was billed as being "closer than Disneyland". Too close, it turned out, in terms of IP similarity. When challenged on the unlicensed use of Disney characters, park officials claimed that this was not, in fact, Minnie Mouse ... but a cat with very large ears. Right.

After a visit from Disney lawyers, the park began to remove and demolish the most offending items... such as the statue of a dark-haired woman surrounded by 7 short men carrying pick-axes ...

Lying About the Size
We have heard of counterfeit condoms before - often being made from substandard materials and leading to health risks. But this is the first time we'd heard of the fake condoms claiming to be larger than they really were. Counterfeit Trojan Magnums, an extra-large brand of condoms, were smaller than the actual brand. They were also wrapped in plastic, rather than the authentic foil.

Putting Some Teeth into Anti-counterfeiting Law
Congress is considering a new law that imposes stiffer fines and sentencing on counterfeiters - particularly if the fake product potentially causes harm to life. The lack of teeth in US law to punish counterfeiting has been a thorn in the side of brand owners - who recognize there is very little consequence to getting caught for the crime.

They Canna Handle the Stress Capt'n ...

A recent news report highlighted the danger from counterfeit bearings. Bearings are often used in safety critical situations, and operate under high stresses and loads. Companies such as SKF, Timken and NSK manufacture their bearings with specialty materials and to tight tolerances ... suffice it to say that the counterfeiters don't bother.

Formula 1 driver Mika Häkkinen had to retire early from the San Marino Grand Prix in 1998, when he was leading the race. The reason was found to be a counterfeit ball bearing that did not survive the stresses of the race. "Häkkinen was lucky that things didn’t turn out worse," Schulz says. "He climbed out of the car unhurt."

The German tool manufacturing trade body estimates that each year 3,500 industrial accidents are caused in Germany alone by fake products.

Getting into the Popular Psyche

In the last few years, the number of articles on counterfeiting in the popular press has seemed to be increasing dramatically (although I haven't measured it). Whether this reflects an increase in counterfeiting activity, or simply an increased awareness of the problem is debatable... but here's a short summary of recent newsworthy items getting air time in widely read media:

• Harpers Bazaar has launched a website to highlight and engage luxury goods buyers in the fight against fakes. They've even launched a competition to design a T-Shirt to vent your concern - click here to enter!
• The New York Times ran a chlling front page article (and 2 page inside spread) on the trail of counterfeit glycerine that's responsible for hundreds of deaths in Panama.
• The UK's New Scientist magazine ran an article (sorry - it's subscription only) on the wide ranging problem of fakes, and some (very scientific) technological solutions. As we have often observed in this blog, several of these required sophisticated lab equipment to authenticate.
• The UK's Independent newspaper ran a scathing article on counterfeit drugs, accusing major drug companies of "turning a blind eye" to the problem in Africa. The WHO held a conference recently in Prague to begin to address the problem and search for solutions. The conference was attended by representatives from several drug manufacturers and Ministries of Health from a range of countries. The WHO estimates that 200,000 of the one million malaria deaths every year would be prevented if all the drugs taken were genuine.
• May's IndustryWeek ran a front page article on the scourge of counterfeits. It included some interesting new data points (always hard to find): Bendix estimated violations of IPR cost an estimated $10 million to $20 million per year in its valves portfolio alone. Worse than the direct revenue loss of course is the potential brand damage and liability from the risks associated with inferior-quality counterfeit parts range from premature wear all the way to catastrophic brake failure.
• In this April article in Forbes, Zippo estimated it had lost a whopping one third of its business to counterfeits, and was having to downsize its US operations as a direct result. Even worse, Eastman Machine, in Buffalo, New York, saw its production moved to China without ever leaving home. A manufacturer branding itself "Westman" reverse-engineered Eastman's $2,000 fabric-cutting machines, even using the same model numbers and paint colors. Eastman has lost more than half its sales and laid off nearly two-thirds of its workforce.
• And just this week, the US Senate voted to preserve current restrictions on importing prescription drugs ... in part because of fears of a flood of counterfeits.

... so, are consumers starting to ask themselves "is this product fake? how can I tell?".