Auctioneer, Heal Thyself!

It's not easy being the world's largest flea-market. Just like their trestle-table and tarp brethren, eBay suffers from sellers hawking fakes. eBay has come under attack several times recently from companies (such as Tiffany's) and trade groups (such as the French Luxury Manufacturers), upset at the fact that eBay makes a commission on the sale of counterfeit goods. The law is murky grey here - after all, are newspapers liable for the goods sold in their classifieds? eBay provides brand owners tools (called VeRO) to shut down suspicious auctions. "Not enough", say the brand owners, who want more proactive measures.

Leather goods maker Louis Vuitton, a unit of LVMH, the world's largest luxury goods group, last year found 235,000 examples of counterfeit articles on 340 eBay pages. In one case, it tracked more than 100 copies of the same article being sold within one hour, said Jamet, who is also a senior executive at LVMH.

In 2004, Tiffany secretly purchased about 200 items from eBay in its investigation of how the company was dealing with the thousands of pieces of counterfeit Tiffany jewelry. The jeweler found that three out of four pieces were fakes.

But is it feasible that eBay (or Yahoo, or classifieds for that matter) can authenticate the 60 million products that their members sell on their sites? Then there's alibaba.com, a positive Alladin's cave of products.

As eBay and other online auctions grow, a better method for easily authenticating products is required - certainly if buyers are to trust these sites.

More Reasons to Whine

Last week the Wall Street Journal published an in-depth article on the problem of fake wine. We've discussed this persistent problem previously (for example fake Canadian Icewine). What's extraordinary is how little manufacturers have done to protect their products. There are no security features - and all the discernable characteristics (label, bottle, foil capsule) are easy to counterfeit.

"Counterfeiting is always on the rise," says Giuseppe Fugaro, head of the Ministry of Agriculture's antifraud unit in Naples. Last month, he pulled 15,000 bottles of fake Falanghina, an appellation of white wine produced around Naples, from Italian store shelves. In 2005, he rounded up more than 6.6 million bottles of bogus Falanghina in Italy.”

“In Italy, the fakes that have turned up in recent years have forced producers of top appellations such as Chianti Classico to rack up more than $1 million in legal fees fighting fraud at home and abroad.”

“Winemakers acknowledge that no vineyard is safe. French winemaker Baron Philippe de Rothschild SA says its growth in China came to a halt a decade ago because of counterfeiters there.”

Some manufacturers are talking about embedding RF devices behind the label ... not that this is much help to the average quaffer, of course.

The New Tylenol Scare? Explosives disguised as cosmetics and sports drinks

Following the foiled plot to blow up planes leaving the UK, manufacturers of cosmetics and beverages are facing a new and unexpected threat: use of their packaging to conceal explosives. Airports have responded by not only banning liquids and gels - but also creating 'sterile' zones beyond security. The question, of course, is: how can one tell that the products haven't been tampered with? Most foods and beverages have tamper-evident packaging - but many liquid products do not. Most concerning was the revelation that one of the plotters worked at the airport. A new level of product integrity is required: the ability to determine with high confidence that a product has not been maliciously tampered with.

If you thought real cigarettes were bad ...

As if genuine cigarettes weren’t bad enough, the Irish market is being flooded with the fake cigarettes. From Sunday life in UK:

... half of all illegal [cigarettes] smoked in Ulster are believed to be cheap copies [from China], even more deadly than ordinary cigarettes and containing almost three times the quantity of tar, three times more arsenic and six times the amount of lead.

Add another item to the list of potential hazards of smoking… shoddily made, highly flammable fake lighters. This article (Fake Zippo Lighters WSJ Asia, June 2, 2006) throws light on the problem of fake Zippo lighters:

On March 15, 2005, Chinese officials received a tip from an informer that a crime was being committed on the country’s east oast. Moving quickly, officials raided a factory a few days later and found the illicit goods they were looking for: 32,980 fake Zippo lighters. Zheng Shengfen, the factory’s manager, was eventually arrested, and executives and lawyers for Zippo Manufacturing Co., who had been battling Chinese counterfeiters for years, thought they had won a major victory against product piracy. When the case went to court, the judge fined Mr. Zheng the equivalent of around US $12,500 instead of putting him in jail, upsetting officials at Zippo who had been pressing hard for, and expecting, a prison sentence.

Time to take fake seriously

This week saw another flurry of news on a wide range of fake goods - including a report from Russia on the extent of the problem of fake alcohol, that is estimated to kill 42,000 Russians a year. If fake booze doesn't kill you - the head of a fake golf club flying off, might. This article claims the problem is at epidemic proportions in the US... and gives buyers the usual platitude: if the price is too good to be true, it probably is. How long before the counterfeiters simply charge full price to defeat this technique?? The spectre of counterfeit electronics also made it into the media this week: fake memory cards. Enlightened manufacturers are finally beginning to put unique codes on products that consumers can check.

And finally, some (not new) numbers from the WSJ:

The global economy for illicit goods is massive, but by definition impossible to measure. What we do know is that it is getting bigger. The number of counterfeit items seized at European Union borders has increased by more than 1,000%, rising to over 103 million in 2004 from 10 million in 1998. At U.S. borders, seizures of counterfeit goods have more than doubled since 2001. Even allowing for improved detection rates, there is little doubt that the situation is getting worse. In the 1980s, 70% of firms affected by counterfeiting were in the luxury sector. But in 2004, more than 4.4 million items of fake foodstuffs and drinks were seized at EU borders, an increase of 196% over the previous year. In the U.S., seizures of counterfeit computers and hardware tripled from 2004 to 2005. There are also fake electrical appliances, car parts and toys.

Counterfeit medicines were reckoned to account for almost 10% of world trade in medicines in 2004. A recent study in the Lancet concluded that up to 40% of products labeled as containing the antimalarial drug artusenate contain no active ingredients. Most of these fake drugs are headed for the world's poorest countries. The World Health Organization estimates that 60% of counterfeit medicine cases occur in developing countries.

Just to prove it's not just luxury goods and drugs...

Sarah Lee, the diversified consumer goods company, successfully sued a distributor for reselling counterfeit ... wait for it ... shoe polish! Armed Marshalls raided the Pell warehouse and found 46,000 tins of fake polish imported from China and branded as Kiwi. Apparently the stuff smelled so bad, they had a sign that said "Smells Terrible But Still Works Great."

And then there's fake candy (hats off to Jim Rees for finding these pieces):

Bags, Balls and Bad Medicine

This week has seen yet more bad news about the growing problem of fakes. Is the problem an increasing number of fakes, or an increased awareness? Nobody knows for sure.

• Spalding is busting someone's balls in China (sorry) ... fake balls claiming to be Spalding's. They estimate the extraordinarily precise figure of 5.6 fake balls being sold for every real one. As we often hear, the company is not getting a lot of suport from local officials - who are reluctant to crack down. Expect this problem to get MUCH worse as the olympics near. We predict that any brand associated with the Olympics will be counterfeited.
• Once again, fakes have (allegedly) shown up at WalMart. This time, LVMH is suing Sam's Club for stocking what it claims are fake Fendi handbags. WalMart is maintaining they are real - but it's not the first time this has happened. WalMart settled similar claims by Tommy Hilfiger, Polo and Nautica. What is amazing is that retailers and shoppers cannot easily verify if the product is real or not (or diverted). WalMart's defense may well be: "we couldn't tell they were fake". Fendi obviously doesn't want its high end brand associated with the bargain basement big box retailer - so perhaps they should give their customer's a way to authenticate they're getting the real deal?
• A recent report out once again shows how enormous and tragic the crime of counterfeit anti-malarial drugs has become. While high speed drug testing equipment may work - it is pitiful that this lifesaving drug still relies on a crummy hologram (that has been counterfeiting 12 different times) for protection. We have blogged about this problem before - but the global health agencies seem slow to tackle the problem. Who will step in and save the millions of children affected by malaria, and potentially at risk from substandard, adulterated, or no-efficacy drugs?

Counterfeit Britain by the Numbers

The UK is very active in tackling its counterfeiting problem. It is the home of the ACG, as well as many respectable and innovative anti-counterfeit technology firms. High taxes on certain products make fakes more attractive - but it is reasonable to assume that the rates of counterfeiting seen in Britain are reflective of all developed economies.

According to Bob Fenton, security liaison manager for the Tobacco Manufacturers’ Association (TMA), out of 229 packs collected from trash cans after a sporting event, 14 — or 6% — are counterfeit. This is considerably higher than the rate the TMA estimates of fakes of all cigarettes consumed in Britain (2.6%).

In 2004, counterfeit Lipton teabags made up 67% of the foodstuffs seized in the UK. This may explain why your correspondent has always found a cup of Lipton tea to be a pale imposter of the decent British cuppa.

Adidas and Nike copies accounted for 27% and 26% of seized sportswear. Louis Vuitton ripoffs comprised 18% of seized accessories. Philip Morris counterfeits made up 47% of seized cigarettes. And Rolex fakes accounted for 16% of watches and jewellery.

Unilever said “We have come across our brand being used on sun-care products claiming a protection factor of 90. There are two things wrong with that — the sun-protection numbers go up to only about 50; and, worse still, this product did not contain any sun protection at all."

Counterfeit goods ... how to spot one.
The last few weeks have provided a wave of news that helps us build a clearer picture of just how bad the problem of counterfeits can get, and how hard it is getting to spot them.

• Bausch & Lomb has recalled millions of bottles of ReNu ($200 millions) and is potentially liable ($ billions) as a result of contaminated contact lens fluid - and the inevitable flood of personal injury lawyers builds (such as as the hysterical 1-800-BAD DRUG). This product was real - not counterfeit. But the case shows just how much damage a contaminated fake will do to a brand. Needless to say, counterfeiters don't worry about such things as cleanliness and bacterialogical and fungal control.
• Bosch, the German auto parts maker, has stepped up it's efforts to curb counterfeiting of spare parts - where it is particularly rampant in the Middle East. Unsubstatiated estimates suggest 30% of parts are fake. Bosch has launched a public education effort to attempt to dampen demand.
• MSNBC's Dateline ran an investigative piece on Sunday, "uncovering" the shocking facts of the counterfeit drug trade for TV viewers. Katherine Eban, of course, already uncovered this tangled web of deceit, lies, bureacratic foot-dragging, and political finger-pointing in her excellent 2005 book "Dangerous Doses" (which has just been published in paperback). Indeed, she exposed the same cases: Procrit, Epogen, Lipitor, Retrovir... and the Dateline program has updated the list with counterfeit Viagra, Arisept, Norvasc, Crestor, Vaniqa, Xenical and Tamiflu. At the end of the program they talked about RFID - about the trials with Viagra and Oxycontin... but widespread RFID is widely expected to be about a decade away and faces awesome hurdles.
  
• Virginia police busted a sporting goods retailer for selling hundreds of thousands of dollars of fake Nike and Timberland product. Once again we hear that "the fake boxes are perfect, the boots are perfect." Genuine Timberland boots have a leather shoe lace through them that are sealed with a honey wax on the end, while the fakes are sealed with plastic on the end. A representative of Nike shoes told police that for many of the counterfeits, "they have to cut the soles open to know whether they're real or not."
  

Isn't it time that consumer's had a better way to tell if their products are real or not other than closely inspecting the font on the label or cutting open the soles on their sneakers? We think so.

Shameless Fake of the Month

China's semiconductor community lost face this month when it was discovered that one of its top researchers, Dr. Chen Jin had blatantly faked his research. Dr. Chen had claimed that his home-grown DSP chip was capable of processing some 200M instructions per sec. Instead, it turned out that Dr Chen had taken chips produced by Freescale Semiconductor (formerly a unit of Motorola) and then used low-paid migrant workers to scratch its trademarks off and replace them with that of his company's, Hanxin.

Can RFID be a Security Solution?

In recent months we've heard announcements from major pharmaceutical players who are piloting RFID on their high-profile, most-counterfeited drugs. We've also reported here in the past on the costs of using RFID, and stories about their security weakenesses.

Seems like a paradox? Not really.

The FDA is pushing drug companies very hard to implement its vision of pharmaceutical security which relies on an electronic pedigree of every transaction at every point in a drugs supply chain. The Florida ePedigree rules come into effect this July, CA and NV are soon to follow. Drug companies are running pilots so they can't be accused of doing nothing - but the costs are extraordinary, and expectations are low. John Theriault heads security at Pfizer, he was recently interviewed on NPR.

JOHN THERIAULT: Is RFID you know a magic bullet that's gonna solve this tomorrow? The answer's absolutely not.

The company has tagged all bottles of Viagra that ship in the US. But Theriault says only one of the wholesalers Pfizer ships to have invested in the technology to read the tags.

JOHN THERIAULT: You have to understand that for RFID to work, there has to be technology deployed throughout the entire supply chain from the manufacturer to the point of sale. And that technology is currently expensive; it currently does not exist throughout the entire supply chain.

Wired magazine is running a piece this month on just how easy it is to crack RFID tags, replace their data, spoof them, and steal from them. Many security experts are predicting that RFID will be implemented with insufficient security, and users will have unrealistic expectations about how secure the data is.

Ari Juels, of RSA labs, has published several excellent articles on the weaknesses and challenges of RFID. In once of his presentations he makes the following observation:

1980: Not one reported incident of a computer virus in the wild

1999: Not one reported incident of a major DDoS attack on the Internet

2005: Not one reported incident of fraudulent use of RFID tags.

"IC" Might Mean: It's Counterfeit

A recent article from the IEEE throws wide open the scale of the problem of counterfeit electronic components. The AGMA has estimated that an astonishing 10% of the global technology products are counterfeit. The article rightly points out that the cost is not just lost profit, but also the warranty cost of replacing faulty equipment that may have been compromised by a single bogus component.
Some examples:

• $1.2 million of fake Compaq computer parts - including warranty cards
• Fake GFI outlets - with fake UL logos on them, and without the GFI circuitry
• Fake Philips IC's that Philips thought had been scrapped, that showed up at a military contractor

There are a couple of sites dedicated to tracking counterfeit electronics, including the ERAI as well as GIDEP (look under Failure Experience). What's astonishing is the quantity - and these are those products that have been volunteered. Manufacturers are still reluctant to go public with evidence of fakes - for fear of driving away customers. There are a lot more articles on the subject here. A worrisome lesson is the drive for more regulation in the industry (such as EU lead free legislation) creates new opportunities for counterfeiters to enter and profit.


The IEEE article discusses potential remedies to the problem. RFID is too expensive and lacks standard schemes for anti-counterfeiting, holograms are too easy to fake, taggants can work for some applications but not all. As UID gains ground in certain markets (e.g. DoD and aerospace), we think that unique part marking and scanning is a cheap and viable method. However, the UID must be secure (no serial numbers), and standardized so that anyone can easily validate it.

How Bad is India's Fake Problem?


A recent report in the Daily India claims India is fast emerging as one of the major manufacturing hubs of fake products ranging from cosmetics to electronics, software, mineral water, books, music cassettes. Interestingly, mineral water is one of the easiest products to counterfeit. It is trivial to refill empty bottles, and even acquiring new, tamper-evident closures is a simple matter.

Counterfeit products on an average constitute about 20 percent of the legal market. In case of some products, it is even 50 percent or more,' said Sachit Kumar, director of Globe Detective Agency Pvt Ltd.

We reported here earlier, that up to 50% of the "Scotch" whiskey in India is fake. Between 10 and 15% of inkjet cartridges are reported to be fake.

Fighting Fakes the French Way

The INPI, CNAC and French government have launched a campaign designed to educate the public about the dangers of buying fake goods - and who benefits from the proceeds. In inimitable French style, the website has funky, Clouseau-esque music and even funkier cut-out animation graphics.

Even if you can't read a word of French, the site is terrifically entertaining and well thought out.

Merci!

iPod has been iCopied
Apple has been warning its service partners that fake iPod Shuffles and iPod Nanos are hitting the shelves. The Nanos are pretty easy to spot, but the Shuffles are quite convincing to the untrained eye. Counterfeiters have copied the packaging and a valid serial number (wouldn't it be nice if consumers could type this serial number into Apple's website, and authenticate and register their product?!) By the way, the bogus serial number is 6U545TK2TJT.

NPR Covers Piracy

National Public Radio's Marketplace program is running a special piece on counterfeiting this week. You can listen to archived recordings of the segments on auto parts and counterfeits. Katherine Eban, author of the excellent investigative book, Dangerous Doses, is featured.

Waiter, this wine is ... fake

Counterfeit wine and alcoholic beverages continue to be a growing health and financial problem. Instances of fake wine, liquor, and beer are cropping up worldwide, and it's no longer just fake expensive French vintages.

• Recently Russia has cracked down on imports of Georgian wine, finding that 50-80% of the famous beverage is fake. Often these fakes are alcoholic cocktails laced with dyes and flavors, and perhaps a trace of fermented grape to try to fool the inexperienced nose.
• Fake Eiswein claiming to be from Canada has put a serious freeze on sales in China. Four years ago, China was a promising market for Canadian ice wine. In 2001, one Beijing-based importer was selling 50 to 100 bottles of Canadian ice wine every month, despite the high price of the product. By 2004, the importer's sales of Canadian ice wine have fallen to less than one-fifth of their 2001 level, largely because the pirated ice wines have grabbed control of the market. Furthermore, the poor quality of the fake product has ruined the reputation in this burgeoning market.
• A recent study by the State Administration for Industry and Commerce in China found nearly 60% of "foreign-brand" liquor found in four major Chinese cities is fake. Often these liquors contain industrial alcohol or formaldehyde - and can be fatal. The counterfeiters were able to copy the anti-counterfeit labels, too.

Bar(code) Brawl

Lawyers have their knives drawn in a patent dispute over the public domain 2D datamatrix technology. Originally invented by RVSI (now part of Siemens), the venerable datamatrix has been promoted as an open standard, is covered by ISO/IEC16022, and has been widely adopted as the symbology of choice by manufacturers due to its high data density, ease of marking, excellent error correction characteristics, and widely available scanners. Datamatrix is widely used on e-stamps (stamps.com), electricity bills, mailings, pharmaceuticals, UID, medical devices, auto parts, etc. etc.

Therefore it was disturbing to the industry to hear that a little-heard of legal firm was out demanding licensing fees for use of the datamatrix. A number of companies -- including Adidas, AMD, Nokia, and Boston Scientific -- have signed license agreements rather than litigate. But why, surely it’s public domain? The legal firm is allegedly seeking licensing fees in the vicinity of $400,000 -- a sum considerably less than what it would cost those companies to defend themselves in court. Therefore it’s easier to settle than to fight. This is familiar to anyone who knows the Lemelson case - in which a firm was able to extract over $1bn in license fees from companies using barcodes.

Not so fast!, says Cognex - an industry leader in machine vision - who would have a lot to lose from its customers shying away from the 2D datamatrix. “We strongly object when questionable patents are used to extort payments from companies that do not have the expertise to challenge the patents, or who, for business reasons, decide to submit to licensing demands rather than to undertake costly legal challenges," said Dr. Robert J. Shillman, Cognex's Chairman and CEO. Cognex is well positioned – they beat the Lemelson case, and believe the patents being used by Acacia are far weaker.

If Acacia is successful in “extracting” a tithe on the datamatrix, then it would be a boon to makers of proprietary code symbologies, such as VideoJet’s “Snowflake”, ORBID’s 2DMI, or Code Corp’s “GoCode”. Given the installed base and strength of the datamatrix case, however, … it looks like Acacia will be on the defensive.

Recent news on fakes

• The latest countefeit drug to be found on the internet: the anti-obesity drug rimonabant (which will be marketed as Acomplia). This drug has yet to receive EMEA approval - but is already available via the internet. It joins 169 other fake drugs already identified as being readily available on the internet in the EU.
• Cigar Aficionado reported a recent of cigar counterfeiters seems to have finally shown some teeth in federal prosecution of such cases. The counterfeiters had boxes and bands to make millions of $ of fake stogies... including: Cohiba, Hoyo de Monterrey, Montecristo, Partagas, Romeo y Julieta, Trinidad, Saint Luis Rey, Bolivar, San Cristobal and H. Upmann cigar brands. Altadis U.S.A. owns the U.S. rights to many of those brands. General Cigar Co. owns the U.S. rights to Cohiba, Partagas and Bolivar.
• GSK joins the list of pharma companies piloting RFID-tagging of high risk drugs. GSK is running a pilot on Trizivir, its anti-AIDS drug, and joins Purdue's OxyContin painkiller. Pfizer is also testing RFID to authenticate and track shipments of Viagra in the U.S., while distributor McKesson is also using the tagged Viagra in its own RFID technology pilot. These pilots are intended to iron out some of the technical and standards issues facing unit-level tagging. One issue is what information will be in the EPC tag. To protect consumer privacy, the drug name will not be stored in the tag - which will only contain a randomized serial number that references an external (secure?) database. Major drug companies met recently in Rome as part of the Healthcare User Group (HUG), to discuss the issues they're facing and to try to establish standards. Several of the presentations (which are on their public website) are very informative.
  
• Squeezing the balloon. Xiang Yang market infamous for selling fakes has been closed in China, following on from the closure of Beijing's Silk Market. However, word is already out that the new place to get fakes is in a place called Lou Yang in southern Shanghai. Watch this space.

What's In Store for RFID?

It's been a tough month for RFID advocates. Hot on the heels of the revelation at the RSA show that RFID chips can be eavesdropped with a modified cell-phone... the FDA sent a message to the industry that it was disappointed with the slow progress of RFID trials. Many industry observers have been saying that the FDA is unrealistic about the cost and complexity imposed by RFID. Pfizer's Tom McPhillips, vice president, U.S. trade group was at the FDA meeting. He said, “It would be possible to implement RFID tagging for higher risk products in three to five years. It would take several years beyond that before all drugs could get tags.” That makes 6-9 years at least from now before unit level tagging of pharmaceuticals is widespread. The problems facing RFID are not insurmountable - but they are fearsome, and include:

• cost of tags, readers, infrastructure and systems integration
• consumer privacy fears and backlash
• lack of security in low cost chips
• lack of standards (tags, China)
• reliability and physical robustness

The latest threat is that the RFID tag could potentially carry a virus, that could infect a database. Although this scenario is unlikely, it's one more battle the RFID boosters have to fight.

Scott Gottlieb MD, Deputy Commissioner for Medical and Scientific Affairs, in a recent speech to the PDA, emphasized his enthusiasm about RFID, but reiterated that there are other technologies, such as 2D barcodes, that can be used for product authentication. Indeed, manufacturers may gain much of the benefit, and a lot of the learning, about unit-level coding and authentication from solutions that don't suffer from some of the technical challenges facing RFID. At the very least, these technologies will provide the bridge for the next 6-10 years until RFID is ready and the kinks have been ironed out.