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

1. http://www.thepublicdomain.org/2010/12/01/fantasy-reality-in-intellectual-property-policy/
2. http://www.boingboing.net/2011/06/06/counterfeiting-can-b.html
3. http://www.guardian.co.uk/business/2011/dec/04/dyson-intellectual-property-rights-china
4. http://www.nytimes.com/2010/08/22/magazine/22fake-t.html?_r=1&th=&emc=th&pagewanted=all
5. http://www.boingboing.net/2007/12/19/village-of-reproduce.html
6. https://iotd.patrickandrews.com/2011/06/04/inventive-incentives-and-the-myth-of-ip/
7. http://www.telegraph.co.uk/finance/businessclub/8200861/Tech-body-patents-are-useless.html
8. http://www.nature.com/news/2011/110926/full/news.2011.557.html
9. http://www.boingboing.net/2009/03/13/fingerprinting-blank.html
10. http://www.gizmag.com/go/7361/
11. http://www.nytimes.com/2010/11/07/technology/07piracy.html?pagewanted=1&_r=3&nl=todaysheadlines&emc=tha25&adxnnlx=1289150271-I2qEbPRuaqgoFd7G8G18Cg
12. http://www.treehugger.com/clean-technology/butterfly-biomimicry-can-curb-counterfeiting-of-banknotes.html
13. http://www.aviationtoday.com/am/issue/techfocus/28617.html
14. http://www.springwise.com/life_hacks/barcodeplus/
15. http://www.telegraph.co.uk/finance/businessclub/8530911/Look-beyond-patents-trademarks-and-copyright-manufacturers-told.html
16. http://www.technologyreview.com/read_article.aspx? id=16280&ch=infotech
17. http://www.bbc.co.uk/news/uk-16058275
* A version of this article originally appreared in the IET’s E&T magazine

Open innovation?

What’s so open about Open Innovation? Big companies realised some time ago that maintaining a sizeable internal ‘Arrandee’ department was painfully expensive and usually not very productive when up against commercial deadlines.

Often, that issue was representative of a failure to understand that R and D are fundamentally different activities (Research is stumbling across new knowledge by repeatedly testing your ideas about how the world works -by watching how the world works. Development is making new products to a defined specification and within a fixed budget and timescale). Get this wrong and all your resources get expended on smart people playing limitless mind games. Even large corporations find it too costly to maintain patent portfolios arising from ideas which might become products ‘one day’.

Instead, they spotted that many of their best new product ideas were being suggested by outsiders, off the payroll. Acme Ltd’s usual policy is to say “send us nothing because we don’t want to be accused later, by some lone inventor, of having copied his idea…ie pretty much the same one we may have already been working on in-house”.

Avid customers however are persistent and, in the case of eg Lego’s robotics kits, they were actually improving the system by hacking its operating system. After 18 months or so of prosecuting their best customers for their temerity, the company realised that those people were a source of expertise and sheer creativity that you usually can’t get by waving a paycheck around.

Listening to customer ideas is the foundation of Open Innovation. Sounds a bit like Open Source, but it’s vastly different. It turns out of course that some companies are more open than others. Many choose to use online aggregators, such as Innocentive.com, to publicise problems they’d like to see dealt with. There aren’t that many people capable of suggesting new sulphurisation reactions for polycyclic aromatic morpho-heterachromes, or whatever…offering prizes online is a way to attract them.

Here’s the deal. You have to sign up to multiple pages of legal bumf before even getting access to the guts of the problem. It’s almost always a very narrowly defined one which is limited by the imagination of an already embarrassed head of Arrandee (see above). Then, you get a chance to write some detailed solution and send it to them. If they choose it as a winner you might get $20k. If they don’t, then you have shared your idea with some folk who have decided not to pay for the privilege. This may well hamper any of your subsequent attempts to obtain legal ‘protection’ for your solution.

P&G have managed to reduce their new product failures from 80% to 50% by this kind of process, so it clearly works -for them. As for the external Inventors, they may get some satisfaction and even recognition but it’s mostly free consulting in return for a small lottery ticket.

If you have a really good cure for a significant commercial headache, why not try talking direct to potential corporate licensees? (after having decided whether to invest in your own patent application). Contact me for some guidance about how to make this kind of approach. pra@break-step.com

InvitedInventor

Here is an idea from fellow Inventor Bill Steell.

An Emergency ‘Zorb‘ type ball, for those caught in an avalanche.

Scenario:- Avalanche warning (or see it coming), Deploy your personal Zorb (double layered skin, large ball), emergency inflate using canister and clamber inside.

Avalanche arrives and sweeps ball onwards like a beachball in the tide, due to the rush of air from the force of the avalanche.

On ideas

Here is an interesting posting about the fragility of ideas…

There are two things in this world that take no skill:
1. Spending other people’s money and
2. Dismissing an idea.

Anyone who thinks ideas are ten-a-penny should perhaps ‘give it five minutes’.

Shock news: patent agents like patents

I recently read yet another advert-dressed-up-as-a-letter by a patent attorney in the IET’s E&T magazine.

I’m a member of the IET, so it galls me that
a) they aren’t banging the drum in support of restricted access to the title Engineer.

b) they continue to publish articles talking about the need to ‘recruit’ over two million new engineers by 2017. No chance, at current fee rates…and they mostly mean technicians anyway.

c) the magazine, and the profession, uncritically accept that patents offer a way for inventors to make money from ideas.

Anyway, here is my ranting response:

Patently obvious

Fraser Brown writes to defend ‘our’ patents system. It is not surprising that, as a patent attorney, he regards it as both fair and fit for purpose. Those of us who have ideas know better. Only established companies can even begin to consider paying the costs associated with hiring members of Mr Brown’s profession. Lone inventors are almost completely excluded from the benefits he mentions.

It’s nonsense to suggest that it’s even possible for the UK’s most inventive people to ‘take on the big boys’ via patents. Leaving aside drafting costs, we simply can’t afford policing or litigation. In practice, and in the absence of rich friends, the only way is to form an alliance with a corporate and tolerate the comparatively poor deals that that entails (if you can even find one that will listen). Otherwise, UK inventors have to use their creativity to skirt around existing patents or spot opportunities for quick sales of uncontended product ideas.

Patrick Andrews CEng

Happy fifth birthday, IOTD!

This is just a note to say that tomorrow will be the fifth anniversary of this blog.

I’ve managed to post something new on 98% of the 1826 days since 21st November 2006.

Many thanks to the readers and commenters who have helped support my efforts. It’s greatly appreciated. Special thanks also to Kona for suggesting it in the first place.

There are many more ideas in the pipeline -as well as a forthcoming book detailing the methods and mindset which I rely on to maintain creativity.
Cheers,
Patrick

(I should also have expressed my thanks to everyone at SXC, whose photos I’m very grateful to be able to use)

Inventive incentives and the myth of IP

I received some interesting comments lately on the general theme of ‘How can small companies and lone inventors possibly survive if they don’t have patents with which to defend their intellectual property?’ What follows is a response to that, as well as an extension of my earlier posts on this subject.

The declared purpose of patents is to promote innovation within a given country. An inventor is supposed to obtain a period of monopoly, in return for publishing his or her invention in detail (so that, later everyone can make use of it).

Governments thus seem to believe that:

  • it’s their role to promote innovation…although I’m not sure I’d accept that
  • a monopoly is necessary because, without that, no one would invent (which is just nonsense).
  • Patents work pretty well for big companies (even if the implementation details form a bureaucratic nightmare). These organisations can afford to play the game and, if they find themselves opposed by an inventor with a patent, then they can choose to ignore it in the knowledge that he or she can’t afford access to meaningful legal support. (There are alternatives to the patent business, such as prizes, but these have many difficulties of their own. Governments can declare that they seek eg a cure for cancer but then have to apportion rewards to a variety of different, competing part-solutions).

    When trying to design a fair system for promoting and rewarding inventiveness, the first thing to get clear is that Research and Development are fundamentally different things. Here comes the Science part…

  • Research happens when you stumble on discoveries (even if you are hoping to find a cure for cancer or a replacement for the petrol engine at the time).
  • Development occurs when you work to deliver a product to match, as closely as possible, a multidimensional specification derived by marketing experts.
  • In that sense, coming up with an idea is very much more like research. Nobody knowingly ‘invests’ in research. What I mean by that is twofold:

  • investors, who always want to see a return, don’t tend to put money into the random walk that is the research process
  • it’s actually not possible to do anything other than spending on research. “Shell out the money, wait and hope” is not an investment strategy. Investment and Spending should not be confused.
  • So when someone has a brilliant idea, I’d argue that whoever is paying them, or whoever trained them, or whatever their declared objective, the idea was never ‘invested’ in -in that no sane investor would apply their funds without seeing a credible plan for how they would create a significant surplus.

    Hire a group of creative, well-educated people and they will come up with 1000s of ideas; maybe 1% of which will ever be any use to anyone. It doesn’t mean that their funder invested in the ideas. He or she simply spent a lot of money. Societies recognise the benefits of research, so they spend money on Universities.

    When an inventor comes up with something novel, lots of people start saying “I invested in that person, so I own the idea (because it wouldn’t have happened without my money/facilities/lectures)”. I see it all the time, when universities start demanding to own a % of their students’ inventions.

    Ultimately, we can’t trace the causality within a creative process, so I’d argue the ideas aren’t where the value is, it’s in the people. In a sense, and inventors really get this, when an ‘aha’ moment occurs, the person to whom it happens can’t really take credit for it. It’s not something they willed into existence.

    Ideas aren’t a form of property. We should stop acting as if they were like cars, or land or jewellery. Intellectual property, including patents, is an expedient construct, rather than as fundamental to innovation (Richard Stallman has commented on this blog in a similar vein).

    So what would it mean for business, if we stop granting patents for example?

    Wouldn’t corporations stop innovating and cause the end of civilisation? Well, large industrial companies almost never come up with novel ideas ideas anyway. Their gameplan is to compete on the basis of efficient marketing, product design, development, manufacture and distribution. Think for a moment about why Open Innovation has become such an attractive option for many corporates. Also-

    Since the second world war 95% of all the radical new inventions have come from businesses employing less than 5 people. The formation of those businesses is critical to our economic success
    David Irwin DTI 2001

    If a company launches products that others can copy, then it seems to me that red-blooded capitalists should accept that they need to compete at the things they do best -not try to threaten and close-down the opposition.

    Instead of controlling ideas, they should do temporary, exclusive deals for the (future) creativity of people who seem able to have good ones (as evidenced by competitions, publications and yes, blogs like this). It’s accepted among venture capitalists that a great idea is largely worthless without a great team of people and that, similarly, a super team can be later reassigned to work on someone else’s genius idea.

    Ideas, it’s often said by those who don’t have them, are ten-a-penny. The people who can actually have a good idea, capable of underpinning a profitable product, are however, relatively few. If companies have to compete to sign contracts with these folk, the Inventives, let’s call them, then the fee rate for their work will soar and companies will increasingly be forced to behave ethically, for fear that the talent will go elsewhere.

    SMEs may have an advantage under this regime by being able to deal with their Inventives in a more personal, responsive way. A few great ideas will also keep an SME going with product development for a longer period than would be the case for a multinational with numerous product lines to support. Even if ACME Corp. can re-engineer and undercut SME products, SMEs will often be better placed to react fast, with highly personalised products and services and thus sustain international customer relationships.

    Not convinced? Just think for a few moments about the effect of the Internet. Now, garage-startups can design, advertise, remotely manufacture and sell high-value, products -without themselves ever needing to build a factory or hire a ‘workforce’. Increasingly, big corporates are only service-based brands at the head of a pyramid of small manufacturers anyway. If you are a smart SME, you clearly won’t take on corporate competition head-to-head, but you’d never have succeeded at that -with or without patents. SMEs have always had to defend their niches without patents.

    What’s in all this for big companies? First, they get to stop pretending they do research or inventing and can cut the associated costs. They also save on all of that potential litigation and all those retained lawyers. Best of all is that they can hire, on fees, the best Inventives they can afford and end up paying much less per successful product than they would ever have done if they had had to negotiate with an external patent-holder.

    How about academe? Well Universities are currently plagued by guilt at their inability to commercialise the ideas they generate. Professors, under the new patentless system, would be free to act as Inventives for companies and not have to worry that they might be ‘giving away ideas worth a fortune’.

    The incentive for Inventives would be improved too -by avoiding all threat of infringement suits and their crippling costs. People who can invent one good thing can repeat the process. It’s part of their DNA and they do it for fun, to become respected, to be useful and to make some money too.

    My solution would therefore be to:

  • stop awarding patents, since they discriminate against the most innovative
  • launch some very high-value competitions so that our best Inventives can be identified and
  • start negotiating deals for the future value they can create.
  • In 20 years, we can have removed forever the brake on progress which patents represent.

    2011

    Happy New Year readers (and very many thanks for the comments and donations towards InventorCentre in 2010 ).

    I’ve made a list of the ideas that I most enjoyed having (140 ish -the ‘aha moment’ juicy stuff). That’s about 10% of the total. Of these, I guess about 10 have some commercial potential (I’m determined to make some money from one of them in 2011, despite having no ‘protection’).

    I’ve added some pictures and fixed some typos, identified a couple of inadvertent reinventions (via the comments) and calculated that about 97% of the days since November 2006 have seen me inventing something. It’s still important to post daily, even if the idea is not very good. Maybe it will spark a better invention in your own mind.

    If you discover any additional errors or omissions please let me know via pra@patrickandrews.com -all suggestions are very welcome as usual.

    Cheers,
    Patrick

    The Business of Invention

    Mark Sheahan (Inventor In Residence at the British Library) recently gave me some tips on how to make more money from inventing.

    Here is the checklist he uses when advising Inventors via the British Library ‘Ask- an-Expert’ service:

    Best solution: Is their idea the best solution to solve the problem for the target market?

    Patent search: The importance of getting a professional patent search carried out, before spending significant amount of time and money on the idea -and who to use.

    Market and size: Ways of finding details on the market and its size, to gauge whether it is worth commercially pursuing. Also, how they intend to reach this market, or help with it.

    Manufacturability: If a physical product, can it be made, is the cost sustainable and is it fit for purpose? Getting ‘proof of concept’. Maybe showing them how I think it should be made can help.

    Adding value: Most new ideas are generally better or cheaper – ideally both. I look for ways of adding value to the invention, so it offers more.

    Reality check: I talk about “Getting off the train” now and again. An objective approach asking yourself the question “Is this worth continuing and, if so, am I moving in the right direction?” can often lead to a fresh perspective.

    IPR strategy: Securing strong defendable intellectual property rights (IPR), be it a patent, registered or unregistered trademarks and design rights, copyright or, more commonly, a strategic combination (advice and direction).

    Avoiding sharks: Avoiding invention promotional companies and doing proper due diligence on everyone – companies or individuals – that you intend to do business with (how to do this).

    Business Models: What is the best way to set up the business, taking into account the product or service they are offering and how they want to exploit it?

    The Business Plan: Best way is to compile a Business Plan with a focus on the most important commercial elements of their venture.

    Contracts: The various contracts you will need to understand in this business, for example NDA’s, shareholder, licence, distributor and agency agreements etc. and maybe many more.

    Funding options: How to get investors and/or available grants.

    Negotiation: Getting the best deal, whether negotiating for a cost of something small or in a full blown licensing deal (some of the basic tricks to use).

    Licensing: Why license? Plus the general terms and conditions of a licence.

    Timeframes: Being realistic about the timescales involved in having an idea and making money from it, plus coming up with an exit strategy, if things go wrong, or right.

    Objectives: What do they need to do to get the outcome they want? Clarity of intent can help direct them.

    Re-motivation: This involves encouraging them to move forward, but may be in a different and more focused way, e.g. ‘’I like it, but …’’.

    On-going support: Advise joining Inventors’ Clubs/organisations. Aside from providing a peer group where many find themselves ‘in the same boat’, they offer an opportunity of sharing experience, advice and expertise on many aspects of invention development.

    I’ve also attached a related article Ask A Expert British Library Mark Sheahan. Contact me for further details.