June 23, 2008
Supply Chain Digest: Companies Pulling Out All Guns to Thwart Counterfeit Goods
By SCDigest Editorial Staff
Through a special arrangement, what follows is an excerpt of a current article from Supply Chain Digest, presented here for discussion.
The International Anti-Counterfeiting Coalition estimates that the level of counterfeiting has grown more than 10,000 percent over the past two decades, spurred on by globalization – which has produced more sophisticated production capabilities outside Western countries – and rising economies among developing nations, which fuels demand.
The dollar impact is difficult to measure, but the number is certainly in the many billions of sales of fake products, even at low-ball prices, and there are also multiple risks to a company’s brands.
Eighty percent of all the items confiscated last year by U.S. Customs authorities as counterfeits were produced in China. But the distribution of those goods is truly worldwide – and a nightmare for companies to control across global geographies, hundreds of countries and jurisdictions, and wildly varying laws, enforcement and resources. In many parts of the world, counterfeiting of Western goods is not seen as law breaking, but as smart business.
According to a recent article in CFO magazine, companies are taking dramatic action and adding substantial resources to combat this scourge. Examples include:
- New
Balance, the athletic shoe maker, limits access to its trade show booths at
various events, to prevent would be counterfeiters from taking samples and
pictures, and has significantly raised its annual budget for brand protection
programs and resources to as much as $2 million per year; - Apparel retailer Abercrombie & Fitch hired Shane Berry, a former special
supervising agent with the FBI’s global intellectual-property program, as
its first senior director for brand protection. The company also incorporates
tight controls over the use of its IP in its contracts with its vendors,
including language that prescribes who is allowed access to their facilities
and how excess labels, buttons, logos, and other trademarked identifiers
are stored and managed; - Juniper
Networks Inc., the computer networking equipment maker, now adds technology
into some of its products that detects counterfeit and other illegitimate
hardware on a customer’s network.
Companies must certainly do the basics, like registering brands and trademarks in every country on the planet. Many are also providing a variety of new mechanisms (websites, 800 numbers, etc.) for consumers to report fake goods and, in general, being more aggressive about prosecuting alleged counterfeiters, rather than just stopping the flow – which is usually temporary.
That’s a bit of a change, because supporting a full prosecutorial action or civil suit can cost hundreds of thousands of dollars, which in the past may have caused companies to be satisfied with smaller victories. However, the stakes are getting too high now for that strategy to continue, even though it may take years to pursue legal action.
Discussion Questions: Just how bad is the counterfeiting problem? Is it beyond the scope of most companies to really deal with it? What strategies do you see as being most effective?
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This is a huge issue. Counterfeit goods are readily available on street corners in every major North American city, on the internet and in some cases, actual retail stores. I don’t like pointing fingers but as a whole, the problem originates in China and Russia. Piracy and counterfeiting flourish there because of lax enforcement of international copyright and trademark laws. It is unfortunate but this problem will not go away as long as there are buyers for fake goods.
Should we punish the customer? I would say no but the root of the problem lies with demand. Here’s a good marketing idea: A campaign by luxury brand makers visualizing how counterfeit goods are made and the conditions workers have to endure to product such items. If you want someone to change, you need to tug at the heart a little.
Funny thing about this. I was just writing a piece on RFID, and how one of its ultimate most valuable uses will be in determining merchandise provenance.
Maybe the same factory making the real sneaker for New Balance will also make the counterfeits, but they’ll be pretty easily identifiable with an embedded RFID, lack of one, or duplicate ID.
Counterfeiting is a major issue for brand (and private label) companies. It also is an issue that many don’t understand. Yes, China is the major source of counterfeit goods. But it isn’t the only source and as more things go global the source of counterfeiting is going global.
Counterfeiting also isn’t a brand names priced too high issue. Counterfeit goods frequently are inferior in quality, and with some products often present safety or health hazards. Combating counterfeiting is enormously expensive and resource intensive. Often, it takes months to shut down one operation only to have it restart within days somewhere else. The challenge in China is the enormous hit to its economy if counterfeiting truly was shut down.
Has anyone ever gone to Hong Kong and not bought a fake Rolex? Yes the counterfeit problem is huge. Just this last week I posted a project on a reputable international trade website in order to check out my manufacturing options. Literally within minutes I had about 20 companies in China offering to sell me anything I wanted–Gucci, Tiffani, Nike, you name it. None of these offers had anything to do with my project but that’s another issue.
I’ve had intellectual property stolen by others so I’m sensitive to this issue. It is unequivocally wrong. That said, I have a couple of politically incorrect thoughts.
The first is that some of these ‘knock-offs’ are darned good at a small fraction of the price of the original. Especially when it comes to uncomplicated things like handbags. When you can’t tell the difference between a $600 handbag and a virtually identical $6 one from one of these companies in China it does make you wonder about the ethics behind some of this elite ‘branding’. And where do you think the originals are made anyway?
My second thought is that we all have a graduated scale of what is ethical. Illegally duplicating a whole movie is at the worse end of the scale because almost no work goes into doing that. Mimicking a piece of jewelry goes in the middle because that takes quite a bit of work. At the ‘perfectly OK’ end of the scale is the article from Harvard Business Review we copied and circulated through the office instead of paying for reprints. So too, the Faith Hill CD we burned for a friend. But how is this not counterfeiting? Or is it all a matter of scale as in over a 1,000 units it becomes wrong?
When my stuff gets copied it’s a crime punishable by eternal damnation. When it’s other people’s stuff well….
I see counterfeiting as nothing more than a free market reaction to overpriced goods. Regardless of your opinion of counterfeiting, the fact is that low cost knock offs are being purchased by people who want the brand but don’t want to pay for it.
Perhaps the manufacturers need to address the problem by realigning their prices. After all, if a product is has a markup of over 400% based solely on its brand name, that leaves a lot of room for others to create their own “version.”
In addition, there is often a huge discrepancy in quality. If the people buying knock offs don’t care about that, then they were never potential buyers anyway.
Oops, gotta go. My Galvin Klein jeans just split.
Counterfeiting is an old problem with new dynamics. Pirates need two things: an original and a market. Supply chain globalization and the Internet give pirates more opportunity to do their thing.
Restricting entry to trade show exhibits helps keep new designs secret for a while, but pirates go to stores too. They also like to rip off art work. Products and designs can be protected by patents and trademarks, but intellectual property owners must file in any country where a problem could arise.
Smaller companies can mount surveillance programs on the Internet. Pirates use the Internet to market their counterfeits, often using stolen graphics. Although buyers find it difficult to discern legitimate from pirated goods, this practice makes it easier for IP owners to identify culprits and take action.
Steps to stop distribution of counterfeit goods usually involve attorneys with international IP experience. Notification letters can be effective in getting counterfeit goods delisted from responsible Websites, but that doesn’t necessarily keep them off for good. IP owners need to routinely watch the Websites where they find rip-offs. Unfortunately, the only solution seems to be vigilance and action.
As noted, this is an age old issue: movie fans may remember the tainted penicillin in “The Third Man”, the word “shoddy” came into use during the Civil War…I wouldn’t doubt knockoff papyrus rolls were sold downriver from the Pharaoh.
And, as noted, two developments have made this worse: (1) the growth of Third World – or perhaps Second-and-a-half World – economies where enforcement of intellectual property laws is lax, and (2) the growth of (overpriced) brands whose selling point isn’t quality or uniqueness but image. The fact that only “some” of these items are inferior is a telling point.
And the solution: none. (Convincing people that the sweatshop conditions of workers who make counterfeits are even worse than those of legit producers – even if true – strikes me as a cause below hopeless.)
Counterfeiting isn’t only about branded, consumer goods. The damage there is to a brand, and probably a miserable existence for the individual worker in the sweatshop where the item was produced.
A bigger concern is in the counterfeiting of both prescription and OTC drugs, baby formula, and other products where the damage is to a human life. If it is a matter of resource allocation for enforcement, this is where I want my money spent.
The demand for counterfeit products is great and accessibility is nearly everywhere. The urge to get a perceivably better deal, whether or not on the fair and square, lurks in the hearts of many, many folks. That’s why street corner vendors are constant merchants. To wit: If one can get a Rolex, or a Reflex Rolex; a Gucci, or a Hootchie Gucci; at a cheap price, then that temptation creates the market and the counterfeiters’ industry continues to flourish and regulation seems lost in the mist.
I agree that counterfeiting of edible or pharmaceutical products is more troubling than mere counterfeiting of brands, intellectual property or product designs. Medicines that fail to work, or worse yet cause harm, are the nightmare scenario.
The recent history of product safety recalls that had to be painstaking traced back to their points of origin argues strongly in favor of a system to track consumer products through the supply chain. Batch and serial numbers and (for higher ticket items) RFID may prove instrumental in this. And of course, this consciousness should make life more difficult for product counterfeiters.
Intellectual property owners often cry loudest on this issue. But movie studios, record companies and software publishers don’t elicit a great deal of sympathy from the masses–especially when they try to control fair use. Treating customers like potential criminals tends not to win them over.
Counterfeiting is costing the entertainment industry billions of dollars each year. No sooner is a film released in theatres than it is available for purchase on DVD in Asia and other areas of the world. For years the government of China has looked the other way or made token efforts against video and music pirates.
In the past 8 years, the Internet has become a haven for digital pirates.
The studios and record companies, both individually and through industry associations, have tried many tactics to combat piracy, but few have had the intended results. Government action has been necessary.
Counterfeiting and piracy will continue to plague the entertainment industry. There is no panacea to this problem on the horizon.
Counterfeiting hasn’t hurt American shoppers. They know when the item they’re buying isn’t real. If the brands really cared, they’d have to spend real money to stop counterfeiters. What brands really want is to spend some money on press releases to get the governments to spend the big bucks. The folks who own the Rolex factory, the Hollywood studios, Bill Gates, etc. all want the government to spend your tax money to make them richer. Let them do it on their own.
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This is a huge issue. Counterfeit goods are readily available on street corners in every major North American city, on the internet and in some cases, actual retail stores. I don’t like pointing fingers but as a whole, the problem originates in China and Russia. Piracy and counterfeiting flourish there because of lax enforcement of international copyright and trademark laws. It is unfortunate but this problem will not go away as long as there are buyers for fake goods.
Should we punish the customer? I would say no but the root of the problem lies with demand. Here’s a good marketing idea: A campaign by luxury brand makers visualizing how counterfeit goods are made and the conditions workers have to endure to product such items. If you want someone to change, you need to tug at the heart a little.
Funny thing about this. I was just writing a piece on RFID, and how one of its ultimate most valuable uses will be in determining merchandise provenance.
Maybe the same factory making the real sneaker for New Balance will also make the counterfeits, but they’ll be pretty easily identifiable with an embedded RFID, lack of one, or duplicate ID.
Counterfeiting is a major issue for brand (and private label) companies. It also is an issue that many don’t understand. Yes, China is the major source of counterfeit goods. But it isn’t the only source and as more things go global the source of counterfeiting is going global.
Counterfeiting also isn’t a brand names priced too high issue. Counterfeit goods frequently are inferior in quality, and with some products often present safety or health hazards. Combating counterfeiting is enormously expensive and resource intensive. Often, it takes months to shut down one operation only to have it restart within days somewhere else. The challenge in China is the enormous hit to its economy if counterfeiting truly was shut down.
Has anyone ever gone to Hong Kong and not bought a fake Rolex? Yes the counterfeit problem is huge. Just this last week I posted a project on a reputable international trade website in order to check out my manufacturing options. Literally within minutes I had about 20 companies in China offering to sell me anything I wanted–Gucci, Tiffani, Nike, you name it. None of these offers had anything to do with my project but that’s another issue.
I’ve had intellectual property stolen by others so I’m sensitive to this issue. It is unequivocally wrong. That said, I have a couple of politically incorrect thoughts.
The first is that some of these ‘knock-offs’ are darned good at a small fraction of the price of the original. Especially when it comes to uncomplicated things like handbags. When you can’t tell the difference between a $600 handbag and a virtually identical $6 one from one of these companies in China it does make you wonder about the ethics behind some of this elite ‘branding’. And where do you think the originals are made anyway?
My second thought is that we all have a graduated scale of what is ethical. Illegally duplicating a whole movie is at the worse end of the scale because almost no work goes into doing that. Mimicking a piece of jewelry goes in the middle because that takes quite a bit of work. At the ‘perfectly OK’ end of the scale is the article from Harvard Business Review we copied and circulated through the office instead of paying for reprints. So too, the Faith Hill CD we burned for a friend. But how is this not counterfeiting? Or is it all a matter of scale as in over a 1,000 units it becomes wrong?
When my stuff gets copied it’s a crime punishable by eternal damnation. When it’s other people’s stuff well….
I see counterfeiting as nothing more than a free market reaction to overpriced goods. Regardless of your opinion of counterfeiting, the fact is that low cost knock offs are being purchased by people who want the brand but don’t want to pay for it.
Perhaps the manufacturers need to address the problem by realigning their prices. After all, if a product is has a markup of over 400% based solely on its brand name, that leaves a lot of room for others to create their own “version.”
In addition, there is often a huge discrepancy in quality. If the people buying knock offs don’t care about that, then they were never potential buyers anyway.
Oops, gotta go. My Galvin Klein jeans just split.
Counterfeiting is an old problem with new dynamics. Pirates need two things: an original and a market. Supply chain globalization and the Internet give pirates more opportunity to do their thing.
Restricting entry to trade show exhibits helps keep new designs secret for a while, but pirates go to stores too. They also like to rip off art work. Products and designs can be protected by patents and trademarks, but intellectual property owners must file in any country where a problem could arise.
Smaller companies can mount surveillance programs on the Internet. Pirates use the Internet to market their counterfeits, often using stolen graphics. Although buyers find it difficult to discern legitimate from pirated goods, this practice makes it easier for IP owners to identify culprits and take action.
Steps to stop distribution of counterfeit goods usually involve attorneys with international IP experience. Notification letters can be effective in getting counterfeit goods delisted from responsible Websites, but that doesn’t necessarily keep them off for good. IP owners need to routinely watch the Websites where they find rip-offs. Unfortunately, the only solution seems to be vigilance and action.
As noted, this is an age old issue: movie fans may remember the tainted penicillin in “The Third Man”, the word “shoddy” came into use during the Civil War…I wouldn’t doubt knockoff papyrus rolls were sold downriver from the Pharaoh.
And, as noted, two developments have made this worse: (1) the growth of Third World – or perhaps Second-and-a-half World – economies where enforcement of intellectual property laws is lax, and (2) the growth of (overpriced) brands whose selling point isn’t quality or uniqueness but image. The fact that only “some” of these items are inferior is a telling point.
And the solution: none. (Convincing people that the sweatshop conditions of workers who make counterfeits are even worse than those of legit producers – even if true – strikes me as a cause below hopeless.)
Counterfeiting isn’t only about branded, consumer goods. The damage there is to a brand, and probably a miserable existence for the individual worker in the sweatshop where the item was produced.
A bigger concern is in the counterfeiting of both prescription and OTC drugs, baby formula, and other products where the damage is to a human life. If it is a matter of resource allocation for enforcement, this is where I want my money spent.
The demand for counterfeit products is great and accessibility is nearly everywhere. The urge to get a perceivably better deal, whether or not on the fair and square, lurks in the hearts of many, many folks. That’s why street corner vendors are constant merchants. To wit: If one can get a Rolex, or a Reflex Rolex; a Gucci, or a Hootchie Gucci; at a cheap price, then that temptation creates the market and the counterfeiters’ industry continues to flourish and regulation seems lost in the mist.
I agree that counterfeiting of edible or pharmaceutical products is more troubling than mere counterfeiting of brands, intellectual property or product designs. Medicines that fail to work, or worse yet cause harm, are the nightmare scenario.
The recent history of product safety recalls that had to be painstaking traced back to their points of origin argues strongly in favor of a system to track consumer products through the supply chain. Batch and serial numbers and (for higher ticket items) RFID may prove instrumental in this. And of course, this consciousness should make life more difficult for product counterfeiters.
Intellectual property owners often cry loudest on this issue. But movie studios, record companies and software publishers don’t elicit a great deal of sympathy from the masses–especially when they try to control fair use. Treating customers like potential criminals tends not to win them over.
Counterfeiting is costing the entertainment industry billions of dollars each year. No sooner is a film released in theatres than it is available for purchase on DVD in Asia and other areas of the world. For years the government of China has looked the other way or made token efforts against video and music pirates.
In the past 8 years, the Internet has become a haven for digital pirates.
The studios and record companies, both individually and through industry associations, have tried many tactics to combat piracy, but few have had the intended results. Government action has been necessary.
Counterfeiting and piracy will continue to plague the entertainment industry. There is no panacea to this problem on the horizon.
Counterfeiting hasn’t hurt American shoppers. They know when the item they’re buying isn’t real. If the brands really cared, they’d have to spend real money to stop counterfeiters. What brands really want is to spend some money on press releases to get the governments to spend the big bucks. The folks who own the Rolex factory, the Hollywood studios, Bill Gates, etc. all want the government to spend your tax money to make them richer. Let them do it on their own.