Cry Foul Over Spoiled Milk

As predicted in our previous entry, the melamine-in-Chines-milk scandal continues to grow - and it's too early to say the problem is behind us. The initial reaction of "don't worry, Chinese dairy products can't be sold in the US" has now been replaced with "non dairy creamer recalled in US". It also appears that Chinese dairy ingredients, blended into other food components, can be a pathway for contaminated products to get into cookies, sauces, and packets of dried pizza cheese around the world.

There are still a lot of questions unresolved.

1. The Chinese government ordered a crackdown on food adulteration after the pet food poisonings, and created a new agency to oversee testing. In a classic case of bureaucratic incompetence, however, Sanlu and 21 other companies considered in good standing were exempt from inspections by the General Administration of Quality Supervision, Inspection and Quarantine.
2. How many dairy farmers adulterated their products this way? How did they discover the adding melamine method, and did they know of the consequences of adding melamine?
3. How can consumers know whether their products contain potentially contaminated products?
4. What is China going to do to rebuild trust in its products - trust that is currently battered and shredded? Adding regulation and reactive testing are unlikely to be sufficient.

Expect more revelations before the week is out.

Yet More Bad Milk

The pernicious nature of food contamination is such that it's only over when it's over. Every headline about the melamine contamination of dairy products in China increases the count of children affected. First it was 1,000, then 6,000. Yesterday it was 12,900, now it's 50,000.

However, this is more than just the unpredictable nature of contamination. The counterfeit milk (it was diluted and then treated with melamine to fool protein tests) has affected 22 brands, not just one as originally believed - and shattered China's efforts to create a trustworthy food supply. The recall was late and sluggish.

The Sanlu company, China’s largest producer of powdered baby formula, received complaints months ago about suspected problems, but the company waited until Aug. 2 to tell local authorities, who waited until Sept. 9 to tell provincial authorities, the provincial authorities said. Sanlu finally recalled 700 tons of the formula on Sept. 11.

One can only wonder why testing for melamine is not a standard practice for manufacturers receiving milk - apparently it takes only minutes. Brands could then provide independent testing certification, and make the information available to consumers to verify. Without this sort of transparency, trust will be tough to rebuild.

Adulterated Baby Formula Haunts China's Children Again

Once again, tainted infant formula has shown up in China, killing at least two babies and sickening at least 1,200 more. This time melamine was been added to milk powder to disguise the fact that it had been watered down. (The melamine fools the tests done to check the formula's nitrogen content - but is highly toxic and causes severe kidney damage). A similar scam killed thousands of American pets, after melamine was substituted for a pet food ingredient (gluten) from China.

Back in 2004, thirteen babies died of malnutrition and almost 200 were hospitalized in eastern China's Anhui province after being fed substandard milk. The counterfeit milk powder, coincidentally the same Sanlu brand as affected in this recent scandal, contained no nutrition, causing infants' heads to swell while their bodies starved, according to Chinese media reports then.

A staggering proportion of food ingredients are imported from China. For example, China manufactures 90% of the world's vitamin C. Chinese pharmaceutical companies also dominate much of the world market in the production of antibiotics, analgesics, enzymes and primary amino acids. China makes 70% of the world's penicillin, 50% of its aspirin and 35% of its acetaminophen (often sold under the brand name Tylenol), as well as the bulk of vitamins A, B12 and E. [see here for reference]

The majority of these factories meet global safety standards - but many at the bottom certainly do not. While country of origin labeling is finally being mandated in certain foods (albeit, not processed food - which often contain added vitamins) ... the factory of origin is not.

Waiter! There's a tilapia in my tuna

Using a simple DNA fingerprinting test, a couple of students have been able to determine that a lot of fish-eaters are having the scales pulled over their eyes. This report in today's New York Times described how the two sent samples of fish from restaurants and stores in New York to a lab for DNA testing.

They found that one-fourth of the fish samples with identifiable DNA were mislabeled. A piece of sushi sold as the luxury treat white tuna turned out to be Mozambique tilapia, a much cheaper fish that is often raised by farming. Roe supposedly from flying fish was actually from smelt. Seven of nine samples that were called red snapper were mislabeled, and they turned out to be anything from Atlantic cod to Acadian redfish, an endangered species.

Turns out that counterfeiting is not limited to semiconductors, consumer electronics, pharmaceuticals, toys, tobacco, wine, apparel, golf clubs, luxury goods, auto parts, aircraft spares, and cosmetics after all!

Perhaps in the future restaurateurs and retailers will have to prove to their clientele that their sushi is not fishy!

The Ersatz Medicine Shoppe

The FDA has released a warning about counterfeit drugs at a couple of The Medicine Shoppe pharmacies in Baltimore.

Is the Produce Industry Having an Identity Crisis?

Although I've tracked it very closely, I've up until now hesitated to blog about the Salmonella Saintpaul produce crisis for one reason: the culprit keeps changing.

Here's a simplified (and highly editorialized) chronology:

• People start getting sick from a rare form of Salmonella, local health sleuths hypothesize that tomatoes linked all the victims (they ate salsa? tomatoes have carried Salmonella before)
• the FDA issues a warning: don't eat Roma or Round tomatoes, on-the-vine and cherry are okay!
• widespread consumer panic ensues. What's a Roma? Aren't all tomatoes round? What's that in my Caprese salad?
• the FDA quickly narrows the crisis to Roma or Red tomatoes grown in Florida and Mexico, because only those regions were growing at the time... meanwhile the sickened count grows.
• Wait a minute. Who knows where their tomatoes were grown? Widespread panic (and tomato avoidance) continues
• The FDA posts (somewhere) a list of states that are 'cleared' ... okay, but I still don't know where my tomatoes came from. More hospital cases.
• By now the hullaballoo from the tomato industry is deafening. No contaminated tomatoes can be found and the sickness toll creeps higher. What about tortillas? What about peppers? Maybe it was cilantro in the salsa?
• Suddenly Jalapenos are under suspicion
• Then: a miracle! A lone Jalapeno pepper is found in a Texas processing plant with the Salmonella Saintpaul fingerprint (CSI: produce?). But no-one's saying where it was grown. it was the peppers after all!
• Maybe
• Then, another breakthrough... the guilty jalapeno pepper is traced to a farm in Mexico. US industry breathes an exhausted sigh of relief, the origin is finally identified.
• But wait. Hold on. It's serrano peppers! the Salmonella strain is found in the irrigation water in a Serrano pepper farm in a different state in Mexico. So there were 2 culprits! (Maybe they were working together?)
• Hold the presses again ... the Mexican growers shout. The water in that water tank hasn't been used for 2 months.

?????

At this point everyone is either sick or tired, or both. This whodunnit is more twisted than an Agatha Chritie play.

It certainly looks like tomatoes got an unfair rap. They (probably) never made anyone sick, and the industry lost a lot of money while consumers recoiled from potentially 'killer tomatoes'. It made for great headlines - but there wasn't more than a hypothesis. Panic leapt from one produce category to another with every announcement. Regulation is likely. Was it the serrano, or the jalapeno? Maybe they both went through a processing facility that somehow cross contaminated them? Or maybe Saintpaul is actually quite common ... and we're finding it because we're looking for it?

Even without the answer, what can we learn from this dreadful debacle?

1. It's impossible right now for consumers to know where their produce comes from. So they stop buying it all together until the problem goes away. Identity would be a good thing.
2. The industry demonstrated that tracing a product to its point of origin is not impossible ... but it's hard work, and you wouldn't want to do it every day if you're a grower or processor. If it was instantaneous and effortless, that would be a good thing too.
3. Other industries have proven that it is perfectly possible to trace products quickly and accurately - without the government telling them to do it. Take the semiconductor industry. End customers (like Dell or Toyota) can trace a defective chip back to the exact wafer it came from. Why the difference? Because the customers demanded it - it made sense for their business, and they have the power to demand it.
4. Other industries have also taught us that more government regulation on traceability is not necessarily effective either. The FDA and State Board of Pharmacies have been trying to force RFID-based ePedigree on the pharmaceutical industry. So far without success.
5. In spite of the millions of dollars growers and processors have invested in state-of-the-art clean facilities and HACCP practices in the US and Mexico - consumers are afraid, and in the dark. Which is the brand of tomatoes we all trust to be safe? (or put another way, who is the Volvo of produce?) Where is the "good housekeeping seal of approval" that tells consumers - these guys are traceable, and they do everything by the book?

And finally this nugget. Saint Paul is the patron saint of journalists. Too ironic, no?

From whence cometh my watermelons?

An article in The Packer today pointed the way to the future of fresh produce ... item-level traceability. Soon, consumers will be able to punch a code into a website or their cell phones and find out whence their melons came, and whether they're affected by a food safety issue. Of course, this also gives the brand owner an opportunity to share their food safety and growing practices in a rich and accessible way.

Watch this space. This is just the thin edge of the wedge. So to speak.


(Disclosure: the item-level traceability coding solution is supplied by YottaMark)

Fake Chips Are Heating Up


Okay, bad pun. Of course, overheating is only one of the threats from counterfeit semiconductors. Fraud in electronics includes: counterfeiting, re-marking, 'pulled' devices of dubious integrity, warranty fraud, FRU fraud, and diverting/gray parts. Statistics are notoriously hard to come by, and in this blog we've highlighted numerous instances (see our Feb 22 blog, for example). Here's some more anecdotal data:

• One of every 10 tech products sold is counterfeit, leading to an estimate of a direct loss over $100 billion a year. Direct losses include recalls, increased warranties, rework.
• High-tech products account for four of the top ten border seizures, according to U.S. Customs.
• Last year, the U.S. and European customs officers seized more than 360,000 fake computer chips in a joint operation. Under “Operation Infrastructure,” the fake goods seized carried more than 40 different trademarks.
• A $2 fake part leads to losses of $20 if detected at the manufacturing board level. It costs $200 if detected in the market.
• KMPG will release a white paper in May that estimates the profits lost due to the gray market. It will be posted here, along with KPMG's previous white paper.

This blog entry on VentureBeat by Dean Takahashi, the former Tech Talk Columnist at the San Jose Mercury News, frames it nicely: "Electronics counterfeiting has hit an epidemic level. Surely, there have to be opportunities for start-ups in fighting this problem."

A recent article in Purchasing magazine found that 42% of procurement professionals felt counterfeiting was now a 'serious problem'.

YottaMark has been working on the SIA and SEMI anticounterfeiting task force to establish an industry standard for detecting fake components. The topic will be covered in a session at this year's Semicon West in San Francisco in July.

Oh No! Fake OMO!

We've been talking about the trend for counterfeiters to target ordinary branded consumer goods - not just luxury items. This news article from Australia is a great example: counterfeit washing powder.

The general counsel for Unilever, Mary Weir, said the Omo case was representative of a rise in the number of counterfeit consumer products entering Australia.


A recent trademark conference in Sydney, highlighted examples of the rise in fake consumer goods and foods and their risks:

■ Sunglasses made of cheap plastic without the graduated lens to prevent optical damage, causing headaches and blurred vision when worn.

■ Fragrances made with acetone which not only stains clothing but can cause skin allergies and asthma attacks.

■ Toys made with unsafe plastics, rubber, paints, glues, dyes and loosely fitted parts.

■ Clothing. About eight million counterfeit clothing items are brought into Australia annually, costing the local fashion industry $1 billion a year.

■ Food. Battery-farmed eggs labeled as free-range, basmati rice bags diluted with inferior varieties, and false claims on the organic status of fruit, vegetables and meats.

■ Electrical goods. Small appliances that do not comply with Australian standards and which short-circuit, leading to electrical hazards in the home.

Knocking Off Chips

Even 'though manufacturing integrated circuits (ICs) is one of the most costly and complex processes known to man ... chips are still susceptible to counterfeiting. Sometimes devices are painstakingly reverse engineered, other times these are simply cheap devices re-marked to make them look like expensive ones.

EU and U.S. senior officials said on Friday they would crack down on counterfeiting of computer components after they seized over 360,000 fake items in just two weeks in a joint operation at the end of last year. ICs and computer components of over 40 trademarks including Intel, Cisco and Philips, worth more than $1.3 billion, were seized during the operation, the officials said.

All kinds of devices are affected - military spec, consumer electronics, end-of-life products, simple components, complex ICs, assemblies (like Network Interface Cards), and devices (such as phones and routers).

SEMI, the Semiconductor Industry's standards body is developing a global standard to detect and deter counterfeit product. Contact us to find out more about how this will work.

The Latest Hall of Shame

The German Plagiarius Awards call attention to the most flagrant fakes product imitations and raise awareness about the dangers of piracy. In addition to look-a-likes of chairs and salt & pepper shakers, were medical devices, pens, children's toys, and faucets with 200% too much lead in them. This is a wake-up call to those manufacturers who think they're too small, or their products are too complex, to attract counterfeiters.


Perhaps the US Chamber of Commerce, as part of its CACP activities, should do the same?

Fake Pesticides and Fertilizers

For farmers in poor countries, often their biggest outlay is for pesticides and fertilizers. A recent report from the Indonesian Anti-Counterfeiting Society (MIAP) and CropLife Indonesia found that up to around 20 percent of the 1,500 registered pesticide brands fell victim to counterfeiting last year. Not only do the cheaper fake pesticides and fertilizers not deliver the benefits expected - leading to failed harvests - but they can also actually lead the farmers to far greater financial losses, as their produce can contain excessive amounts of pesticide residue ... making them unsaleable.

No Laughing Matter

Fisher Price's Tickle-Me Elmo is an icon of the Christmas rush. Always in high demand - it frequently sells out. Now, shoppers have the opportunity to buy a fake instead. This news item shows just how brazen the counterfeiters are. They've changed the name from "Fisher Price" to "Handsome" and called it (rather unimaginatively) "the Laughing Toy"... but it's a clear knock-off. The BBB rather curiously explains that copying trademark and trade dress is not illegal unless the Trademark holder pursues it.

These Batteries are HOT!

Once again, counterfeit laptop batteries are making news. This week, IBM filed a lawsuit against an online retailer, ShenTech, that sells replacement laptop batteries over the Internet, claiming that the batteries are knockoffs that have a tendency to catch fire. Our review of the site found some batteries claiming to be Lenovo (which purchased IBM's laptop business in 2005), and others being "Replacement" IBM. IBM says it did a sample purchase of 12 batteries from the site, and claims they are all fake. It was following up on an instance of a customer's laptop battery overheating.

Elsewhere on the ShenTech site, one can purchase an iPod Nano alike MP3 player ... that looks a lot like an iPod Nano ... but of course isn't.

In the past, IBM has recalled batteries in the past for overheating. In 2005, for instance, there were four notebook battery recalls--from Dell, Hewlett-Packard, Apple, and Battery-Biz. These weren't necessarily counterfeit - only incorrectly manufactured.

Tiffany vs. eBay ... what next?

Each side has presented its closing arguments. Although the Judge gave little indication of how he might rule, he pointed to legal precedents that have found that if a distributor continues to supply a product knowing it is engaging in trademark infringement, that distributor is "contributorily responsible" for any harm done as a result of the deceit.

If Tiffany prevails, then eBay is faced with the challenge of verifying the authenticity of products on its site (or ban their sale). There's no way eBay can guarantee the authenticity of products its customer sell online, but a number of possibilities are:

- insist upon the seller showing a receipt of purchase (of course the receipt could be fake, too)
- have a third party physically inspect and authenticate the product (expensive, and currently there aren't trusted third parties who do this), such as an escrow service
- authenticate the products internally, and be the trusted third party (expensive, tough to scale and not core to eBay's value proposition. There is a company that is trying this: elady.com)
- Provide sellers with a means to display to buyers some other form of authenticity (this would require Tiffany to provide its customers with some kind of proof of authenticity, such as a secure code or certificate)

All the News (and QR Codes) That's Fit to Print

Today marks a watershed in QR Code history. There's a QR Code in the New York Times, as part of a Blue Nile ad.

Now, the QR Code has been around for years, of course, and is fabulously popular in Japan (where it was invented by Denso Wave - who made the technology freely available, but still own the trademark). Something like 50% of the installed base of cell phones in Japan can read the QR Code, and it shows up on bus schedules, magazine ads, McDonald's wrappers - even the sides of buildings. Scanning barcodes has been tried a lot in the US (this blog has a good history), but as of yet, there's not been much traction. The main stumbling block has been the tight control that cell phone operators maintain over the handset design and applications.

Now it looks like things may be changing. Nokia has launched a couple of (high end) handsets that work in the US and can read barcodes, as well as a microsite devoted to barcode reading. Even more significantly, the NY Times ad the first sign that Google is dipping a toe in the water. It makes good sense - now Google can detect whether someone responded to an Ad posted in 'dead tree' media. A model like AdWords is conceivable - the advertiser pays one amount to publish the ad, then again every time someone clicks on the QR Code. There's a long way before QR reader adoption reaches critical mass in the US - but Google's GPhone will likely support development of QR Code readers (to enhance the value of the ads). Maybe the next gen iPhone will sport a macro lens and barcode reader too? (that's just wishful thinking, of course).

As a cautionary note, let us not forget the hapless CueCat ... but the difference now is this uses a cell phone, not a cat-shaped barcode reader.

(In case you're wondering - the QR Code conbtains: http://google.com/gwt/n?u=bluenile.com)

Watch this space...

This week, Tiffany & Co. is suing eBay, Inc. in a New York court. (see article here) This case will likely set a precedent whatever the outcome. Tiffany maintains that eBay should be responsible for policing its site for counterfeit goods. eBay maintains that it does everything that it is obligated to do to prevent counterfeits being posted, and provides brand owners with a mechanism (VeRO) to take down suspect postings.

In our opinion, this case highlights the problems facing brand owners - that there is currently no way for anyone (Tiffany, eBay, or the end consumer) to quickly and confidently determine the authenticity of a product. No matter who wins in this case, the problem of detecting counterfeits will remain. If eBay were to lose, then it is hard to see how they could possibly check the authenticity of the millions of items posted every day on its site. The best example of how this can be achieved is on eBay Motors - where every vehicle is checked against a third party VIN database - thereby determining its authenticity, and whether it is a lemon. Unfortunately, there aren't currently equivalents to the VIN database for any other products. But, perhaps this could be a lesson for how to protect products in future?

Infringing, Moi?

We've occasionally shared photos of bad fakes on this blog. This French website has some great photos of appallingly shameless Trademark infringements.

Here's my latest favorite (unless of course Google is indeed branching out into fragrance):

Exploding Phones, worm-infested chocolates and Chisco

In the last week we've seen news on exploding fake Nokia batteries in India. According to The Indian Cellular Association more than 75% of the cell phone batteries sold in India are fakes. Even more disturbing was this news clip of Taiwanese brand chocolates that turned out to be counterfeits that had a filling of moth larvae. [warning: not for the squeamish]. Finally, a new term: Chisco - which refers to the ever-increasing appearance of counterfeit Cisco equipment from China. This article gives a convenient "how to spot a fake" guide.

Here are some images:

Is your food un-COOL?

With the continuing acrimony over contaminated or dangerous products coming from China, it's perhaps not surprising that Consumer Advocacy Groups are demanding more information for shoppers, such as country of origin labeling, or COOL. Not so fast. Industry players such as food processors, packers and grocery chains are resisting the requirement to provide this information - claiming that it would be 'onerous'.

An amazing 82% of U.S. shoppers want to know their food's country of origin, according to a survey released in March by the consumer advocacy group Food and Water Watch. And a Consumers Union survey in June found even stronger sentiment: 92% of respondents said imported-food labels should identify the country of origin.

This recent article in The Washington Post details the complex wrangling over several different bills, and the inconsistent application of COOL (e.g. fish vs. chicken vs. peanuts vs. produce).

Simultaneously, but independently, the Chinese authorities just announced a new mark, the CIQ mark, that will supposedly help consumers tell the difference between real and fake food.

The "CIQ" mark, which stands for China Inspection and Quarantine, guarantees that products have passed quality tests, according to a regulation unveiled by the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ).

It's not yet clear to us what would prevent the counterfeiter simply copying this mark... watch this space!