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TURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURFIGHT COUNTERFEITSBy Leah GenuarioRock-Tenn White Label Security Board has covert security features in its facestock, which is made from Appleton’s TechMark line of intelligent papers.The packaging was imperfect. Then in camean anonymous tip. It didn’t take long forJohn Paul Mitchell Systems, marketers ofprofessional hair care products, to discover itwas the victim of counterfeiting. The fakes weresold at legitimate retail outlets, but outside ofthe authorized distribution channel.The problem started about three years ago inSouth Florida. Although manufactured using adifferent molding process, the bottle shapes wereclosely modeled after the original product. Thepoorly engineered counterfeit caps caused leaks,but more upsetting, the counterfeit formulationcontained unhealthy levels of bacteria that couldcause infection.“Counterfeiting from our point of view notonly compromises the brand, but it also has thepotential of significant health risks for the consumer,”says Vikki Bresnahan, product securitymanager for John Paul Mitchell Systems inBeverly Hills, CA.Counterfeiting is a serious problem today. Itposes health risks to consumers. It has suspectedlinks to organized crime and to terrorism. Iterodes brand integrity. But perhaps more disconcertingis the scope of the problem. Considerthese statistics:• 5-7 percent of world trade is in counterfeitgoods — International Chamber of Commerce• Estimated U.S. losses from counterfeiting andpiracy in 1982: $5.5 billion; Losses in 1988:$60 billion; Losses in 1996: $200 billion —International Trade Commission• In fiscal year 2005, the U.S. governmentseized $93 million worth of counterfeitedgoods. — U.S. Customs and Border Protection(Industry experts estimate that only 1 percentof counterfeits are actually seized).The beauty industry has felt the blow ofcounterfeiting. In 2005, fake perfumes rankedone of the top ten most-seized counterfeit commoditiesby the U.S. government, with seizedgoods valued at $2.7 million. Seized pharmaceuticals,by comparison, valued $2.1 million.“Counterfeiting within the cosmetic and fragrancesector is a significant problem on a globalscale. For example, European Union customsofficials have estimated that seizures of counterfeitcosmetics and perfumes increased by a factorof 800 percent between 2002 and 2003,” says87

TURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURJoshua Paul, an attorney leading the IntellectualProperty Practice in the New York office ofSedgwick, Detert, Moran & Arnold. He specializesin trademark, copyright and advertisingmatters, including all aspects of anti-counterfeitingand IP enforcement activities.Despite popular opinion, counterfeiting is aproblem for low and high value items alike.Counterfeiters are widely known to reproduceexpensive items, but there are also documentedincidences of low value counterfeits, such asshampoo and toothpaste.“It’s across the board. We see goods that sellfor as low as a dollar that end up being counterfeited,”says Steven D’Onofrio, executive directorof the International Anti-Counterfeiting Coalitionin Washington, DC.While counterfeiting is a formidable opponent,there are ways to fight it. Luc Van Gestel,vice president of design and print management,M-real Corporation, IBP Packaging Services,offers a four-tier approach: Direct action againstcounterfeiters, support of new legislation, securitypackaging and education of the general publicand customs officers.Direct ActionFor John Paul Mitchell Systems, prosecutingcases has met with reasonable success. “The fortunatething with counterfeiting is that we canbring it to the attention of the local law enforcement,federal law enforcement, etc. We havepretty good success in the prosecution of cases,”says Bresnahan. “I’ve had one counterfeit case inthe six years that I’ve been with the company,but my understanding is that it tends to be cyclicalfor some reason. I would surmise that thepeople who did it got caught, they spend sometime in jail, they get out and try their hand at itagain. It is not as constant for Paul Mitchell as itis for a lot of other companies.”In the case of John Paul Mitchell Systems,the person involved in the latest counterfeitscheme was living in the United States.This wasfortunate. “In the United States the laws alreadyon the books are, with some exceptions, adequate,”says Paul. “The situation in some foreigncountries is very different. Unfortunately, thereare still many countries whose law enforcementstructures and personnel simply cannot — orwill not — effectively prosecute counterfeitingand other crimes against intellectual propertyrights holders. China remains a very big problem,but there are others — Russia, Mexico,Philippines and Taiwan to name a few.”Direct action is also most effective when ittargets counterfeiters higher up in the supplychain. Chasing low-level criminals, such as thosepeddling counterfeit bags on a city street, mayprove counterproductive. “You stamp out oneperson and another one appears. It’s like a cockroach,”says D’Onofrio. “The only way it reallygets addressed is through criminal enforcementat a high level.”A word of advice for brand owners whowant to pursue prosecution: “The real challengeis how to get a busy Customs agent or prosecutorfocused on your problem, on your brand. Abrand marketer needs to convince the prosecutorthat its case is especially important and deserving.Doing your homework before the first meetingwith law enforcement officials is veryimportant.The objective is to show them thatthe brand marketer has already done a lot of thelegwork,” says Paul.LegislationJoining an organization, such as theInternational Anti-Counterfeiting Coalition, thatfights for higher intellectual property rights standardsis one way to fight counterfeiting globally.Many beauty brand marketers have already takenthis step. Also important is following legislationdomestically.These efforts pay off. A U.S. federal appealscourt decision in 2000 created a setback forbrand owners. The case, U.S. v. Giles, viewed currentcounterfeit laws narrowly. The defendant88

E FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEhad been caught shipping counterfeit trademarkedhandbag labels and hangtags. But because the counterfeitlabels and tags were not attached to counterfeitbags, the court dismissed the indictment.Trademarked labels are protected in some industriesdue to another law, Section2318 of the Criminal Code, butthe beauty industry is not on theprotected list.That’s hopefully about tochange. “Congress seems to beon the verge of passing legislationthat would make it a federalcrime to traffick in counterfeitpackaging of any sort — includingprimary and secondary packagingfor fragrance, cosmetic orother beauty products. The Houseof Representatives passed theStop Counterfeiting inManufacturing Goods Act earlylast year.The Senate passed aslightly different bill inNovember 2005. What needs tohappen now is for the House andSenate to iron out the differencesin their bills so that legislationcan be put on the president’sdesk soon,” says Paul.too good. “The counterfeiters had better equipmentthan most of the conventional packagers,” he says.Despite the illegal trade’s printing sophistication,security packaging remains an effective way to combatcounterfeiting. Security packaging can act as aSecurity PackagingThe sophistication of counterfeitpackaging rings should notbe underestimated. Althoughquality runs the gamut, there aresome counterfeiters that producehigh quality replica packaging.Bob Muscat, vice president ofmarketing, paperboard division,Rock-Tenn company, recalls acompany in the beauty industrythat discovered counterfeit productsbecause the printing qualityon the counterfeit packaging was89

E FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE Fdeterrent to would-be counterfeiters. If onebranded product is protected, and another is not,there’s a good chance counterfeiters will choosethe easier target.It also aids in prosecution of cases if theproduct is counterfeited, and can help combatdiversion, which is when product finds its wayinto unauthorized distribution channels. Securitypackaging can help track information such as thepoint of manufacture and its intended country ofsale. At lower levels, as in the case of a hologramin a trademarked shape, “it would be easier toprosecute because they are maliciously goingafter your trademark,” says Brad Long, businessdevelopment director for Kurz Transfer Products,a holograph foil manufacturer in Charlotte, NC.“A lot of people in the [beauty] industry aretalking about security features, especially withinhigh end fragrances.They are looking for informationand ways to protect their brand equity,”says Tom Koslowsky, director of new businessdevelopment for printer Topflight in Glen Rock,PA. “There are many different levels of brandNow that’s security packaging!Courtesy of Kurz Transfer Productssecurity available,” he adds.Security packaging falls into three main categories,according to Neil Sellars, director ofproduct development and marketing for NationalLabel Company, a custom printer located inLafayette Hill, PA.According to Sellars, level one is overt technologyand is directed at consumers. “The packageruses something that’s recognizable, like ahologram of your logo, or color shifting ink thata consumer would recognize as being yourproduct. The consumer would validate yourproduct by looking at it.” The bonus to includingovert technology is that it is often decorative.Level two is “an easily distinguished coverttechnology with a readily available device suchas a loop for identifying microtaggants, or a UVlamp for magnifying UV florescents,” Sellarssays. Retail outlets, for example, would activatethis level of covert technology to authenticate abeauty product.Level three is also a covert technology, but itis usually a proprietary system used only by themanufacturer. This is also known as the forensiclevel of security packaging technology. “It wouldbe a closed loop system, some sort of readertechnology that can verify if the product isauthentic,” says Sellars. “The most frequentlyknown technology would be a radio frequencytaggant tied to a manufacturer’s system.”Increasing EffectivenessWhich security features are right for a brandowner? Since each level of security packaging istargeted at a particular audience for a particulargoal, sometimes the answer is a combination.Using several different technologies also furtherdeters counterfeiters.Layering technologies does not always addtremendous costs. With holograms, for example,“it doesn’t cost more to include covert featuresin holograms as they are built into the initialoptical rendering. So, most companies go withovert and covert within holograms,” says Long.Another way to increase security packaging90

EATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEA-effectiveness is through frequent design changes.“Security solution design should be altered atregular intervals to stay ahead of the sophisticatedcounterfeiter. We have to remember that hightech technology such as scanners and professionalsoftware are also available to the counterfeiter.For some security solutions, the shelf life is limitedto six months, after which it is better tochange the design or content,” says Van Gestel.Security packaging can be effective on variouslevels, but with the protection comes a pricetag. “Of all the approaches that are out theretoday, I would say most are highly effective, butinefficient.Your cost per package is relativelyhigh,” says Muscat of Rock-Tenn Company.Despite this, for those products that are subjectto counterfeiting the cost may be worth it.“They have to look at the benefits side, whichsays my counterfeiting rate will go down 20 percent,for example, and then calculate the revenues,”he adds.EducationThe fourth approach to fighting counterfeitingis through education. A key piece is educatingthe consumer.John Paul Mitchell Systems is a proponent ofconsumer education. “We have national televisionads aimed at consumers to inform themthat if they do see our products at drug, discountor grocery stores that they should know that itdoes not come from us, it is not authorized byus. It could be old, stolen, counterfeit, tamperedwith or diverted. We also have national print adsthat speak to that same issue,” says Bresnahan.For those companies that include overt securityfeatures in the packages, it is important toalert consumers to look for it. “You have to make91

TURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURE FEATURthe consumer aware to look for those things,”says D’Onofrio. “It may not always deter them,but certainly the better you can educate themthat purchasing counterfeits is both illegal andmay, in some cases, be harmful, the better.”Informed law enforcement is also important.“Some of the security features can be used forlaw enforcement purposes. Law enforcementshould know what to look for as well,” saysD’Onofrio.The Fight ContinuesCounterfeiting is a lucrative trade and thecriminals are oftentimes highly sophisticated.But becoming a repeat victim of this crime doesnot have to be inevitable. There are many ways abrand marketer can protect itself.“There’s no one size fits all solution, ofcourse, but the best generalized advice I havegiven to clients is to plan and prepare.“First, take a look at your distribution networkand make sure that your key brand namesare registered as trademarks in all major markets.Second, establish and stick to strict packagingguidelines; doing this will enhance your company’sability to detect counterfeit packaging.Third,consider the use of various overt or covert securitymeasures to track inventory through thesupply chain and to enhance your ability todetect counterfeit product. Fourth, know yoursupply chain partners,” says Paul. “Finally, maintainand update a database of information aboutincidents of suspected counterfeiting as theyoccur. Review that information periodically tomake sure that you have committed the rightresources in the right place.” ✍What about RFID?Radio Frequency Identification, or RFID, has made headlines in recent years due to mandatesfrom organizations like Wal-Mart. RFID technology allows companies to read and/or programdata onto a tag. Currently, the tags are mainly used at the case and pallet level and its heraldedbenefits are a better-managed supply chain. But can RFID offer product security?In addition to counterfeiting, diversion is a problem for many brand owners. Diversionoccurs when products are moved outside of authorized distribution channels. For example, aprestige good sold only at department stores finds its way to discount chains. Diversion canoccur when distributors or manufacturers sell to unauthorized persons, or when legitimateretailers sell products to unauthorized collectors. Products are resold and find their way to consumersthrough various means. Although the benefits of RFID are broader in scope, it can alsoprotect against diversion because it can track and trace shipments. Helpful at the case/palletlevel, RFID could become increasingly important in fighting diversion — and counterfeiting —at the item level.There are barriers to implementation at both levels, however. A complex infrastructure is oneof them. “It should be able to help with anti-diversion, but it depends on how sophisticated thesupply chain is. If you have a couple of main distributors who are controlling a significant percentageof the product from the manufacturer to the retailer, that’s a lot simpler to manage andchange over to the RFID system. If there are several transfers of ownership through the supplychain…it’s more complicated and takes longer,” says Mark Niemiec, principal of consultingcompany Global Packaging Innovations.Its cost — Niemiec says published pricing ranges from 8 to 12 cents a tag for orders of 1million — is also a barrier. Still, it’s a technology to watch, and if the cost continues to drop,item level tagging may become an increasingly popular tool for brand security. “There is anincreasing interest and use of RFID for all kinds of security and logistic issues. However, thebiggest obstacle for the time being remains the price,” says Van Gestel of M-real Corp.92

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