Commentary: The threat of counterfeits

He may be only 10, but you need to be thinking about my son's friend Dubs.* Dubs and his mom were shopping at the local thrift store one afternoon, when he found an empty Rolex box on the shelf. It was selling for US$1. Dubs asked his mom if he could buy it and try to sell it on eBay. To humor him, his mom agreed. When she listed the box for him on the popular online auction site, she made it very clear that it was empty, posting many pictures that clearly showed that it was just a box. The last I heard, bids for that empty box were up over US$100.

It's possible that the buyers were collectors of Rolex watch boxes or were looking for a box to sell their used Rolex watch in. But it's also likely that counterfeiters were hoping to buy the box, put a fake Rolex inside, and resell it. As I found out researching an article on packaging and labeling for our sister publication, DC Velocity, this is a common counterfeiting tactic. Although in many cases the source of the packaging is not an enterprising 10-year-old with a good eye for a deal. Instead it's someone who works for your packaging supplier and decides to run off a few extra packages—complete with your product's bar code—at the end of his or her shift.

Counterfeiting is a huge problem. The International Chamber of Commerce estimates that counterfeiting and piracy will drain US$4.2 trillion from the global economy annually by 2022. And that's not just from fake Rolex watches, Louis Vuitton bags, or prescription medicines. Counterfeiters are even targeting common household goods like shampoo, toothpaste, extension cords, and honey.

Dubs and his empty box show how cost-effective counterfeiting can be. When I was doing research for my story, I learned that counterfeiters in China only face a misdemeanor charge and a fine. Once caught, they will shut down manufacturing fakes for one product, pay the fine, and quickly shift to another. For them, the risks are low.

The temptation when you discover the market harboring knockoffs of your product is to find a quick solution like slapping a hologram sticker on all your products. But that would be a mistake.

"The most important first step is to conduct an assessment, to look into exactly what is happening and how the fraudsters are getting their product into the marketplace," says John Spink, head of the Food Fraud Initiative at Michigan State University. "Without an assessment, it's like a medical doctor giving you medicine because you are 'sick' but not knowing whether you have a broken leg or diabetes."

Tony Rodriguez, chief technology officer of the invisible-bar-code provider Digimarc, agrees. Rodriguez has worked with many companies hoping to reduce counterfeiting and says that the ones that are most successful are those that understand the origin of the threat as well as how and where in the supply chain it's happening, and that then set an objective for stamping it out.

If your company doesn't have a comprehensive anti-counterfeiting strategy like this, you need to start formulating one now. After all, there may be a 10-year-old kid somewhere out there making an incredible profit off of your empty packaging.

*Editor's note: Obviously "Dubs" is not my son's friend's real name.