Growing faster than the economy, global counterfeiting represents from 8 to 10 percent of world trade, or approximately $600 billion annually, estimates Philip Swinden, head of Publications and Events for U.K.-based research group Pira Intl. And, while sophisticated and innovative new packaging and supply chain technologies are increasingly being introduced to combat the counterfeiting of intellectual property and goods, there has yet to be discovered a "silver bullet" for this particularly pernicious type of theft.
Effective solutions, therefore, depend upon partnerships–between technology suppliers; between brand owners and law enforcement; between market segment leaders; between consumer goods companies and their customers; and between the various departments within a manufacturing organization.
Taking the pulse of counterfeiting
Pira's Swinden, who has been involved in publishing a number of market reports, books and newsletters dealing with brand protection issues, offers some staggering figures on the magnitude of the problem. According to his research:
• Ten percent of all cosmetics and toiletries sold worldwide are counterfeit.
• An estimated 11.5 percent of the European toy market's annual revenue is lost to counterfeiting, with China and the U.S. leading the list of countries supplying the counterfeit toys and games to the EU.
• Consumer electronics counterfeits are estimated as high as 15 percent of trade.
• The global piracy rate in 2002 for IT and software is estimated at 40 percent, amounting to losses of nearly $13 billion. (While the levels of piracy vary depending upon country, China leads the list at 92 percent, while the U.S. and U.K. are at the bottom, with 25 percent each.)
• The losses to U.S. businesses due to counterfeiting are estimated at $200 billion/yr.
• Of the counterfeit drugs seized each year, 43 percent contain no active ingredient; 24 percent are of poor quality; 21 percent offer a low content of active ingredient; 7 percent contain the wrong ingredient; and 5 percent have the wrong package.
Contributing to the rise in counterfeiting are issues such as better funding of counterfeiters; the availability of advanced technologies that can be used to duplicate products and packages; the ability of counterfeiters to take advantage of larger import flows for entry; the use of the Internet to sell fake goods; and an acceptance by the public of some forms of counterfeiting, such as film, music and software piracy, among others.
Another ongoing problem is the lethargic attitude of law enforcement toward counterfeiting. Notes Spencer Mott, European Intellectual Property & Security manager for Electronic Arts (EA), a U.K.-based software developer, "We should not expect too much help from the government. Their thinking is that we are creating the problem by branding."
Most brand security specialists agree that the effectiveness of brand protection efforts is dependent upon the brand owners' commitment to solving the problem through manpower, legal avenues and technology. Says Glyn Roberts, brand protection manager for U.K. apparel marketer Pentland Brands, "A trademark is only worth the same amount of money that you are prepared to spend in order to protect it."
Many packaging solutions
And there are plenty of places brand owners can put their money when it comes to new packaging and supply chain technology. The "most visible face of brand protection," says Swinden, is holograms, which are a $900-million per year business. Of that, $560 million is for brand protection, he adds. Hologram technology ranges from low-cost dot-matrix holograms that can be easily replicated, to high-security stereograms that are "virtually impossible" to reproduce.
Another technology experiencing noticeable growth is security inks, growing at 11.4 percent per year. These include optically variable inks, thermochromic inks, infrared and tagged inks, and machine-readable inks that can provide brand owners with either covert or overt protection, depending upon the technology.
According to Leonard Walle, director of new business development for Flint Ink, it is the ink supplier's job to work with a brand owner to develop a solution that best fits their brand security strategy. "It's the service and expertise that's being 'paid for,'" he says, "not just a price per pound of material.
"Too often, companies look at technology first, rather than looking at the problem and creating a strategy. Brand protection solutions are strategy-based, rather than technology-based."
In the area of substrates, much attention is also being given to security papers, which increasingly use security threads and taggants that are difficult to detect and to duplicate. Explains Albert Sands, security sales consultant for Appleton Security Products, "Paper and other materials are key substrates in product packaging and labels, therefore they provide an ideal avenue to incorporate security features." He adds that because paper production is a large-scale, complex manufacturing process, it is not one in which counterfeiters can easily invest.
He emphasizes, though, that the effectiveness of security substrates is very much dependent upon the paper provider's ability to ensure the security of the supply chain. "All partners must agree to follow Chain of Custody policies," he says.
The viability of radio frequency identification (RFID) technology as a brand-protection solution is still being debated by industry experts, with some viewing its use as inevitable and others still unconvinced. For many large consumer packaged goods marketers, the question is a moot one, with Target and Wal-Mart mandating their implementation of RFID in the near future. While the impetus may be supply-chain efficiencies, the technology will still aid these CPGs in building their brand-protection strategies.
In the realm of authenticating technologies, not as well-known are microwires and nanotechnology, offered respectively by Confirm Technologies, formerly Advanced Coding Systems, of Israel, and Nanoventions, located in the U.S. Because of the huge investment made by these companies to develop the technologies–10 years and $30 million, in the case of Confirm–they are virtually impossible to duplicate, but have yet to be implemented by CPGs.
Layering is key
Whatever the solution, most experts agree on the importance of using a combination of technologies, or "layering" brand protection features, for success. They also concur, as Susan McNeely, engineering consultant for Eli Lilly and Co., relates, that the appropriate technologies will depend on "where the product is being compromised, where the product will be verified, who will verify the product and how the results of the verification will be used." Much of the detection of counterfeit goods is dependent upon the extent to which brand owners educate customs workers and law enforcement agencies on how to verify the authenticity of their products.
Ultimately, though, as Barbara Kolsun, senior vp, general counsel, for luxury handbag maker Kate Spade, states: "There is no supply [of counterfeit goods] without demand. Consumers have to be educated about the serious consequences of counterfeiting, through the media, education and our culture."
More information is available:
Packaging consultancy: Pira Intl. Ltd., +44 (0) 1372 802000. www.piranet.com. Circle No. 221.
Security inks: Flint Ink, 734/622-6000. www.flintink.net. Circle No. 222.
Security papers: Appleton Security Products, 920/734-9841. www.appletonideas.com. Circle No. 223
Microwires: Confirm Technologies, +972 4 617-6647. www.confirmtech.com. Circle No. 224.
Nanotechnology: Nanoventions, 678/366-5929. www.nanoventions.com. Circle No. 225.