Defeating Counterfeiting*

What’s the problem?

Counterfeit goods cost businesses -a lot. An FBI assessment from 2002 said that US businesses lose between $200bn and $250bn to counterfeiting annually.1 According to the World Customs Organisation, counterfeit goods account for between five and seven percent of world trade. As I write this, I have just received spam entitled “Prada, Chanel, Louis Vuitton, Gucci, Givenchy.” Even these big brands have difficulty dealing with increasingly professional counterfeiters, who are directly in touch with everyone’s customers via the Internet.

Counterfeiting affects anything of value: medicines, DVDs, fine art, banknotes -even engine components. You can’t watch a legitimately rented movie these days without a sermon on how copyists are spreading viruses, killing entertainment and supporting terrorism.

Yet some authors and software engineers claim that giving away their product makes it significantly easier for them to make money from special editions and related services. Rip-offs can also function as free advertising for genuine products eg those Prada handbags.2

We also have to recognise that whatever the World Trade Organisation may think, not all cultures fully accept the idea of intellectual property protection.3 Shanzhai is a Chinese word that translates literally into “mountain fortress” -a term for counterfeiting that is good enough to take genuine pride in.4 This certainly applies to corners of the international art market in which hyperfakes5 are engineered to be indistinguishable from originals.

What are the solutions?

There are three basic approaches, that I’ve come across, to limiting counterfeit: legal restrictions, technical countermeasures and commercial tactics. Smart businesses are having to adopt a mix of all three to protect their products and brand investment. It’s getting particularly challenging now that a lot of value resides in software, which is inherently copyable. Soon, the designs for hardware will be just as swappable online and executable by your domestic 3D printer, so a micron-perfect Rolex may become just as accessible as a knock-off copy of Windows is now.

1. Legal restrictions-patents and copyright and trademarks

These legal rights can be very powerful if you have the cash to obtain eg patents and pursue infringers and copyists around the globe. I tend to agree with Arthur C Clarke though: “Getting a patent is just a way to get sued”. The Internet is shortening product lifecycles so that the standard approach to obtaining patents is now too slow anyway. Even national governments have withdrawn granted patents when they failed to provide the expected benefits (eg certain pharmaceuticals in Thailand).

I should really hold up my hands at this point (again) and say that I think we should all stop acting as if ideas were property -in the same sense as cars, or land or jewellery. Aside from global corporations, SMEs are often the source of really game-changing inventions6 but patents, for example are “virtually useless,” as a defence against counterfeiting, unless a company has access to the significant funds needed to police and defend them.7

2. Technical countermeasures
To limit counterfeit goods, the genuine article needs ideally to be easily identifiable as such, preferably to a buyer the identifying features need to be hard to replicate by a copyist

Software, electronic content, etc can be hidden within various hardware devices (digital rights management technology) and code obfuscation makes reverse engineering less than cost effective (even if automated cracking tools are used). Conditional access technology (smart cards, encryption, etc) limits the ease with which a hacker can gain access, but in practice, very few companies can invest enough per product to stop counterfeiting absolutely.

Counterfeit documents are a special category in themselves. Here are a number of recent exotic attempts to limit illegitimate copying: glowing bacteria in steganographic watermarks,8 paper fibre fingerprinting9 and patterns formed within the text on naturally fluorescent paper.10

Hardware products are harder to hide from reverse engineers. Here, genuine products may carry overt features such as holograms11, codes or covert features such as embedded images and DNA tags.12 Intelligent chips embedded in certain components can signal their authenticity to a system they are correctly connected to.13 These also enable items to be traced back through the product supply chain -just as bar codes or RFID tags do (A duty-free retailer has recently launched an authentication kiosk in its Hong Kong Airport store. The kiosk allows customers to scan a product’s label and follow its supply chain history to verify authenticity.14 )

Some complex electronic products even make use of ‘wires and gravel’ techniques, whereby they contain surplus circuit components in order to confuse a reverse engineering team.

An academic I knew once developed a security technology which was based on the fact that CDs were then factory-printed on only six machines in the world. Discs contained invisible statistical imperfections so that, using lots of gear and maths ability, you could identify the machine of origin and thus spot fakes.

Tamperproof (or at least resistant) packaging is a popular solution for pharmaceutical and food applications.

3. Commercial tactics
I spend a lot of time thinking up possible routes to competitive advantage which don’t require startups to have a small fortune on hand. Chief among these is to make sales and reinvest any income in future product and brand development. (I recently bought some running shoes. It turned out they were made by some company in China, but copies. The box was a work of art, but the shoes were a poor reflection of the originals. The solution was to turn the branding approach against the copyist. Ironically, he is terrified that his Ebay seller reputation will be harmed by negative reviews and so provided a full refund.)

Designing products using hard-to-get, tailored components may increase costs but can limit counterfeiting. Similarly, working with suppliers of specialised capital equipment to create a barrier to entry has some merit.15

Some companies are now using their brand to supply services, rather than having to worry so much about product counterfeiting. Personally, I favour investing in trust-based supply chain and customer partnerships, as well as in employees, to maintain as secret any special know-how.

Having a clear strategy to enable policing and to deal with accusations of infringement is also essential (no-win no-fee suits allow speculative litigation against even genuine manufacturers16)

An additional suggestion

In terms of clever new approaches to anticounterfeiting, I’ve just read about fake branded clothes being handed in to churches, stamped with a church logo and then sent to Africa as charitable donations. I’m not sure that’s a solution for manufacturers, but at least it results in some good.17

Notes and references

16. id=16280&ch=infotech
* A version of this article originally appreared in the IET’s E&T magazine