Components of Counterfeiting

Counterfeiting has been evident in our world for thousands of years, dating back to medieval times, but why is it such a prevalent problem? This could be due to the fact that in general, counterfeiting is seen by societies around the world as a crime that merely provides alternative quality products to buyers in a manner that is unjustifiable referred to as, “victimless.” In many cases the reality is that counterfeit products and documents actually are quite damaging. Not only is the damage seen in terms of brand trust and protection, but more importantly, it is widely seen in terms of safety and security. In addition to this skewed perception about the actual impact of counterfeiting, there is simply not enough legislation or regulation and criminals see getting caught is a low risk compared to potential profits. In order to better understand the complex system of counterfeiting, we will examine some of the components of this trade, particularly the trends that occur and the impact it has on our societies.

Many experts believe that this societal phenomenon originated in medieval France, with the counterfeiting of bread. At the time, the king was in charge of legally mandating a regulated recipe for bread in a given month. Due to the lack of abundant crop ingredients (i.e. wheat, oats, etc.), the legal kingdom-wide recipe for bread was determined by the supply of crops. In order to regulate such a law, the king would license certain bakers to be the official bread provides, in accordance with the particular recipes. As a result, there was a high demand for bread and a low supply, only coming from a few bakers. Before too long, counterfeiters emerged, producing their own recipe of bread- fraudulently marked with the king’s insignia to pass inspections. Although this example is quite outdated, it tends to mirror the emergence of any counterfeit product. Whether it is a designer bag, a Rolex knockoff, or even a prescription drug, counterfeit products generally enter the market due to a high demand and low supply. This is why we generally see otherwise expensive, well-known brand names being replicated. Simply put, if you want to convey the image of an economically sound person by using certain brand products, such as a Rolex watch, but you can’t actually afford the real thing, then why not buy a $20 fake on the side of the street if no one can really tell the difference? At first glance, you might not think that such a purchase can do any harm, but there are untold amounts of repercussions. What if I changed the scenario up a bit and added that your $20 would eventually wind up in the hands of global terrorists…would you still buy the watch? How about if you knew that that knockoff watch was made by child slave laborers? Organized crime units cut any corners possible to maximize their profits and with over 66% of world-wide counterfeit goods coming from Asia, particularly China; it is often the case that extreme minors are doing the counterfeit assembly. You can already start to see how that little side-street purchase can have a ripple effect on the other side of the world, and we didn’t even mention how it hurts the brand-holding company.

Intellectual property crimes or IP crimes consistently cost businesses and the public literally hundreds of billions of dollars every year. In fact, some estimate annual global losses due to counterfeiting to be between 500 and 600 billion US dollars! Now, you might be saying to yourself, that’s nothing compared to our national deficit, but think about the implications of such a loss to businesses world-wide. The amount of jobs that could be created with that lost money, alone could drastically affect unemployment numbers. In addition, many companies spend a tremendous amount of money on brand protection, sometimes accounting for one-fifth of revenues. Without anti-counterfeiting expenses, products could be produces for much less, ultimately making them more affordable for the public. Furthermore, since counterfeit goods are usually smuggled or cleared with forged documentation, they often escape any taxation; so clearly the counterfeit market has a great impact on economies: nationally, internationally and in terms of business operations. However, businesses aren’t only hurt financially by counterfeit products, there are many non-monetary damages. In particular, counterfeiting can really hurt a company’s brand trust and image. In the example of the Rolex watch, it is well-known that you can get a cheaper version, undetected by the untrained eye. So, rather than going directly to a Rolex outlet and spending thousands of dollars, the consumer might be inclined to pull a fast one and get a knockoff. This seems like it is another case of economic impact, but what if these Rolex knockoffs become so prevalent in our society that when you see someone wearing one, you automatically assume it’s a fake? In that case, why would anyone want to own a Rolex to convey their economic status, if it merely indicates that they support the purchase of counterfeit goods? Without doing anything wrong, you can see how the Rolex Corporation could easily evolve from a luxury status symbol to that of one that delivers the opposite message. To prevent such an event, businesses are forced to invest in the protection of their brand and even lobby stricter enforcement, ultimately sidetracking them from their regular operations.

Counterfeiting also has a tremendous impact on the consumer as well. As discussed previously, the integrity of individual consumers can be compromised if they are known as a person who supports the purchase of counterfeit goods, favoring price over authenticity, but they can also be duped in the opposite way as well. In this case, consumers genuinely intend to buy an authentic product, but rather they are tricked into paying too much for a mere fake. This brings about the distinction of types of counterfeiting. On one side of the coin, counterfeiters are attempting to essentially duplicate a brand product, offering a close alternative at a much cheaper price. On the other side of the coin, counterfeiters are attempting to duplicate the product so precisely with attention to detail, that they can pass it off as an original and charge much more than it actually cost to produce. The former is less dangerous, as the consumer generally knows that they are engaging in a counterfeit purchase, and treat the product as such. The latter, however, can lead to many dangerous results. One wide-spread example of this is car brake pads. The consumer, or even sometimes the retail outlet thinks they are buying a genuine brand brake pad, paying what it would normally cost, but in actuality, they are only receiving a cheap knockoff of compressed plastic or fiberglass. The danger is pretty obvious at this point, as the consumer and others could be seriously injured or killed while using such brake pads. But unfortunately, the dangers of counterfeit products doesn’t end there be any means. There has been cases of counterfeit baby formulas being seized that proved to contain possible allergens, which, if not stopped could have killed many babies. But oftentimes, the problem is not realized until it is too late. In 1990, over 100 children died after taking a counterfeit pharmaceutical, which was made to only look like the drug, but contained harmful ingredients. There have also been cases of girls unintentionally becoming pregnant because they were using fake birth control. Unfortunately, there are stories like this all around the world, occurring across the board. It really makes you think about how ignorantly we trust certain products to be safe for us, without any hesitation.

So how can we attempt to control the counterfeiting problem? Well, first and foremost, we need to invest the necessary funds into anti-counterfeiting technologies. There are currently two widely-used anti-counterfeiting practices: ‘track and trace’ and authentication technologies. ‘Track and trace’ refers to practices such as the implementation of RFID, which can be used as the name implies, to track products throughout their shipping process. This would entail incorporating an RFID tag into each product package, setting up RFID scanners at strategic check points and monitoring progress to ensure all products are delivered according to plan. The weakness with this technology is that is only serves to ensure that authentic products make it to their destination without being pirated. It does not, however, help much when it comes to smuggled counterfeits, which often travel in unconventional manners and it could be too expensive to implement in enforcement outside of trade routes. The second method, known as authentication consists of three different types: overt, covert and forensic. Overt methods are generally visible to the naked eye, and are fairly difficult to reproduce (holograms, color shift inks, and watermarks).Covert methods, as the name implies, are generally not visible to the naked eye and require special equipment to authenticate (fluorescent inks, infrared, scrambled graphic encryption). Forensic methods implement chemical and biological properties to secure products and documents, requiring special equipment to analyze. Each of these methods varies in terms of cost and security, depending on how they are implemented. High security items, such as currency often implement more than one type of authentication technology, as seen in newly circulating US bills. Despite the seemingly secure nature of each of these methods, counterfeiters are usually not too far behind. In fact, newly developed anti-counterfeiting measures are often defeated within 18-24 months of being introduced. This leads to the inevitable cycle and trend in global counterfeiting.

With our world innovating technology at the rate we do, in addition to the rapid sharing of information over the internet, there is a constant battle between counterfeiters and anti-counterfeiters. First of all, there is a globalization of consumerism, which is the driving force. Now, people all over the world want to own and be seen with the top global brands. They also want to enjoy the popular forms of entertainment such as music and movies, and they will pursue any means necessary to do so, often without any care of where it comes from. This, in addition to the low cost of international trade and the high earning potential for such a market leads to an explosion of counterfeiting. With sophisticated technologies readily available to the masses, and the ability to ship cheap or sell online, it costs much less to run a counterfeit operation and make a hefty profit. Additionally, it costs more for manufacturers to develop highly secure products and it is difficult and slow to push for the proper regulation to crack down on counterfeiting. Essentially what emerges, is a cyclical situation where manufacturers implement a new anti-counterfeiting technology, counterfeiters defeat it within two years, so manufacturers then come out with a yet another new anti-counterfeiting technology, and so the process continues. In terms of regulation, if a counterfeiter is caught, the sentencing is generally very minimal. In non-federal or non-governmental cases, they can usually post bail for ten thousand to several hundred thousand dollars, depending on the scope of the crime and usually don’t face more than a couple months to a couple of years in jail. On a federal level, however, the bail generally starts in the hundreds of thousands of dollars and goes up, while the jail time might be a minimum of twenty years, also depending on the scope of the crime. While these punishments may seem life-changing and drastic to you or me, it is generally seen as a ‘business expense’ for large, organized counterfeiting operations. As you can see, this is a problem that is extremely difficult to contain, even with harsh punishment standards. In the 1800’s and earlier times, counterfeiters were publicly defamed, by having their ears clipped and their faces branded-forever labeled as a criminal counterfeiter. Although barbaric from our modern perspective, it was really quite an effective method to addressing the counterfeiting problem.

As evident, we are all impacted by counterfeit products at some point in our lives; in fact you have most likely already come into contact with some form of a counterfeit product. Although sometimes reduced to a minor infraction that is often confused with ‘finding a good deal’, counterfeiting has a tremendous impact world-wide, whether financially or in terms of our safety or integrity. I can only hope that this examination of the components, trends and impact of counterfeiting will have you thinking twice next time you see a tempting $20 "Rolex"!