Another Vodka Shot

Here is an interesting entry from the sporadically updated yet highly intelligent Trading in Words blog detailing the counterfeit vodka economy. Because high-end vodka tastes so smooth and low-end vodka tastes so awful, counterfeiting the low-end booze is more common than counterfeiting the higher-cost product, because consumer expectations for the cheap stuff are so low.

Unlike the case with other counterfeit products, consumers don't see much of a price difference between real low-end vodka and fakes. Retailers and bootleggers, on the other hand, do see the difference and rake in the money. The lack of price differential between real low-end vodka and its fake counterpart is a real problem for discerning consumers, who often use out-of-line price signals to discern between real and fake products. And consumption of fake vodka is unsafe and unwise at any price. With retailers purchasing from shady sources to achieve their windfalls, Trading in Words suggests automatic prison sentences for any retailer caught with a counterfeit bottle. Tough words, but a compelling case. Read the whole thing.

Heralding the Perils of Counterfeits

From the Calgary Herald, Paula Arab explains why buying counterfeits is such a bad idea. Using a recent Calgary police raid that netted over 7,200 counterfeit items as a starting point, Arab relates how buying counterfeits and knock-offs costs consumers in both long-term quality and consumer safety, all the while encouraging social ills such as child labor, organized crime and gang violence. It is a well-written piece - check it out if you can.

Authenticating Africa

Africa is a continent rich in beauty, culture and natural resources but plagued with poverty, war, famine and disease. Lately, Africa has found itself ill-equipped to combat a new torment - counterfeit products. With so many problems to address, the temptation for Africans to find bargains in everything from drugs to electronics can be overwhelming. However, Africans are beginning to understand the scope of the counterfeiting problem, and calls for more rigorous enforcement is a good first step to helping fight counterfeiting in Africa.

Blind Drunk

The counterfeiting scourge is a global trade phenomenon by and large, but its applications are always local. Someone in your community has purchased fakes and knock-offs, and while most fakes do not cause danger to their purchaser, many do.

In Britain, the Cheshire Trading Standards Office has issued a warning concerning fake Imperial Vodka. The counterfeit vodka contains methanol, a fuel causing warming of a very different and fatal sort.

The last line of the news item hints at one cause of the problem - murky supply chains. Purchasing vodka from supermarkets is safer than from small liquor stores or bodegas. No reason is given regarding why, but supermarkets buy in bulk, meaning that they can often command superior wholesale pricing directly from the manufacturer. This relationship ensures authenticity in the products supermarkets sell.

Smaller stores, alas, often cannot buy on the same terms. To compete with the bigger outlets, these stores sometimes enter the shadowy secondary market to purchase consumer goods.

And even when wholesale pricing terms are the same, a large supermarket will have corporate marketing and legal departments that are typically more risk-averse than their entrepreneurial counterparts. This caution is for good reason. One news item about counterfeit consumer products at a supermarket could destroy millions of dollars of supermarket brand equity, a problem not faced by anonymous bodegas and smaller retailers.

Video - How to Tell a Real Golf Ball from a Fake

Courtesy of the Boston Globe, a video and accompanying article that neatly encapsulates the problems of fake golf equipment. Globe reporter Jenn Abelson looks at the counterfeiting issue through the prism of Acushnet, the Massachusetts-based manufacturer of Titleist golf balls and equipment. Acushnet spends more than $2 million per year on an enforcement division that expends considerable time and resources in China investigating golf equipment counterfeiters.

The article explores the difficulty in enforcing rights in China, where counterfeiting operations often only temporarily close down. And those are the good outcomes - prosecutors often decline to prosecute, and factories are often tipped off before raids and investigators approach.

In addition, the article mentions the accelerating trend of using online marketplaces to ship counterfeit goods into the United States, bypassing customs and inspections. The risk of obtaining a counterfeit in such a transaction is still either discounted or not perceived yet by the consumer.

To me, the most interesting part of the article was the trend in some Asian markets to sell fakes alongside genuine golf equipment, showing the price differential between the two. If brands are the hallmark of quality, why would a consumer pay any value for a fake Titleist rather than a no-name brand?

And check out the video for a quick guide on how to tell a real Titleist V1 golf ball from a fake. Like a great smile, it's in the dimples.

Diplomats on Drugs

Not what you think, but the august and aptly-named Foreign Policy details some foreign policy implications of counterfeiting (paid registration may be required).

The article details the culprits (China and India are the biggest) and introduces the reader to several law enforcement figures who are simply overwhelmed at the sheer volume of the problem. Some enforcement may also require individual acts of heroism. In Nigeria, Dora Akunyili, a 54-year-old pharmacy professor, took over Nigeria's drug watchdog industry in 2001 and fought hard to reduce the percentage of counterfeit drugs in Nigeria. Akunyili succeeded. The Nigerian drug supply chain from 70% in 2001 to close to 10% today. Her efforts are helping to prevent counterfeit drugs from killing innocent Nigerians, like her own sister who died after taking fake diabetes medicine in 1988. These efforts have also endangered Akunyili, who narrowly escaped assassination, had her office blown up, and now lives with round-the-clock bodyguard protection.

On the demand side, humanitarian groups seeking to provide drugs to treat third world health problems are left with a stark choice. Either these groups purchase expensive medications through legitimate sources, or they go through more shadowy channels to purchase drugs that may be counterfeit and do not work.

And publicizing the counterfeiting of any drug is often a losing proposition for these drug companies: when counterfeiting of particular drugs is publicized, the public demand for the drug drops even through legitimate channels.

The World Health Organization (WHO) has taken a lead in trying to stem the tide of counterfeit drugs in the world pharmaceutical supply chain. They face real opposition - often, the governments they attempt to influence are also directly involved in profiting from the trade of counterfeit drugs. And even a powerful and influential organization like the WHO is not immune to political pressure. Quoting from the article:

The WHO has been vocal about combating fakes, but even it hesitates to embarrass member countries who allow fake drugs to enter the market. Unfortunately, many observers believe it may take large-scale casualties for real action to occur. As one British drug-security expert put it to me in April, “Action against al Qaeda really only took off after September 11.”

Scary stuff. Read it if you have the chance.

Fake My Ride, Part II

From Autoweek, the Authentic Foundation's Chairman, Frederick Mostert, describes some drawbacks of owning a fake Ferrari. Besides the peeling paint (a malady not typically endured by owners of real Ferraris), fake Ferraris have the unfortunate and deadly weaknesses of exploding gas tanks and failing brakes.

It would be a painful lesson to learn firsthand, but fake sports cars can be real death traps.

Fake My Ride

From PR Newswire, a recent report that the counterfeit auto parts industry is worth $16 billion and is growing at 9-11% per year. Some information on how to spot counterfeit auto parts can be found at Autotrends.

Allegations...

Via Liliana at Harper's Bazaar, the United States government is adding a new tool to its counterfeit-fighting repertoire - e-Allegations. By submitting an online form or by calling 1-800-BE-ALERT, a person with knowledge of counterfeit activities can alert U.S. Customs of the shadowy activities.

e-Allegations operates as something of a catch-all, its nets cast broadly for other trade, health and safety violations in addition to intellectual property crime. Given the level of organized crime involved in counterfeiting, the site offers a nice anonymity options for online submissions. Unfortunately, the heavy disclaimer (including an explicit warning of government monitoring of traffic and submissions) may well dampen the anonymity effectiveness. Check it out if you have the chance (or, if you know of some counterfeiters).

More Belgium Waffles!

Actually, waffles is not an accurate headline. More accurate would be a headline describing a split in the EU between the friendly decisions for rights holders (France) and for online marketplaces (Belgium). The judicial split is reminiscent of how different state and district courts in the United States can disagree, which promotes a de facto experimentation between regions but is also messier (and more profitable) for the lawyers. Seems like an issue big enough for the EU to grapple with legislatively.

Perhaps instead of waffles, the European decisions are more like a double-layered cake.

Summaries of the decision can be found here, here, here, and here.

Belgium Waffles on EU eBay Stance

A court in Belgium has ruled that eBay was not required to police its website for counterfeit goods. L'Oreal had sued eBay in Belgium for damages relating to counterfeit L'Oreal products being sold on eBay. The Belgium court ruled that eBay had no duty to keep its users from selling counterfeit items apart from the measures it has already taken.

This stance puts Belgium in agreement with the recent American decision in Tiffany v. eBay, but opposite the stance taken by a French tribunal in awarding damages to LVMH against eBay.

Developing.....

Tiffany appeals eBay Decision

Tiffany vowed to appeal its loss in federal district court, and made it official on Monday.

Can't Be Careful Enough

Some fakes are just darn scary.

Gold Medal Counterfeiters

Even with increased law enforcement, knock-off shops flourish at the Beijing Olympics.

UPDATE: Counterfeiting the Nazi Olympics.

Food Adulteration

Radio Mensa offers this podcast about the history of food adulteration, a sibling of today's counterfeiting. The podcast focuses on 19th century Britain, where the foolishly class-obsessed masses aspired "to eat the white bread of the rich and to feed their children an array of multi-colored candies once the preserve of the wealthy, but where almost no one asks how their bread could be so cheap yet so white or why their children's sweets can be colored in shades not known to nature."

Consuming the counterfeits of such luxuries was often fatal. Adulteration of beer was also a major problem, and it wasn't until after 1820 when the Western World made a concerted effort to combat the "swindlers" of food adulteration.

Fakeup

A blog post from Makeup Blog illustrates the confusion sown by counterfeit makeup products.

Counterfeiting May Be a Crime!

Courtesy of Counterfeit Chic, a billboard on the eve of the Olympics in Beijing.

'Hey, it's a start."

Counterfeit Olympics

The Olympics Ceremonies have shined a media spotlight on China, and this Sky News piece illustrates the counterfeiting occurring on the streets of Beijing.

The article illustrates two main points - first, that the Chinese government treats its own intellectual property (the Olympic mascots) with greater care than other countries' intellectual property, levying stiff fines and jail sentences for violators of its own IP while mostly turning a blind eye towards other infringement. And second, that these harsher penalties barely make a dent in the trade of counterfeit goods, with Beijing street vendors openly selling fake Olympic wares.

The irony is that through routine lax intellectual property enforcement, the Chinese government has created an environment where its own intellectual property is routinely violated.

Counterfeit Corleones

The rise of British organized crime is documented in this piece from the London Times. Note the prominence of smuggling in these criminal organizations whether it involves guns, cannabis, or counterfeits.

Ink-Stained Wretches

I speak not of fellow journalists (many of whom have clean hands in this New Media age), but of counterfeiters who have been counterfeiting pens. Haco Industries of Kenya manufactures Bic pens, and has been victimized by Chinese-based counterfeiters. Haco claims that its sales of pens are down 40%, primarily due to counterfeiting activities.

This story illustrates an important point - counterfeiters don't only hurt developed countries, but in particular, hurt developing countries. In fact, they often hurt developing countries more, as they are usually burdened with some combination of weaker laws, corrupt law enforcement, limited resources, less developed supply-chain security infrastructure, and a less-informed population and business class.

Africa has long been a cause célèbre with anti-poverty crusaders. The cradle of civilization has been torn apart by war, poverty and famine, and its people have suffered a great deal. A primary goal of good anti-poverty programs is to create self-suficiency - not merely to "give men fish," but to "teach men to fish." This self-sufficiency would allow Africans to create real wealth that in turn reduces famine and the desperate conditions often necessary to stir conflict. Enterprises such as Haco Industries contribute to Africa's tax base while employing scores of young men who might otherwise be fighting and dying. The counterfeiters here are not merely duping unknowing consumers, but helping to destroy the fragile economic ecosystem that has been developing into Africa's best hope for a prosperous and peaceful future. For these counterfeiters, it is not ink that stains their hands - it is blood.