Don't Brake for Fakes

From SkyNews, a spotlight on fake auto parts. Imagine trying to make a sudden emergency stop with fake brake pads made from compressed grass clippings and wood chips. Really, could there be anything more dangerous?

Fake Grass

If you click on the image to the right, you will read an excerpt of an interview with Phillip Jennings, founder of Phillip Jennings Turf Farm. Mr. Jennings has successfully developed golf turf for areas normally considered too dry or inhospitable for normal grass. When asked what his biggest competition is, he says, "Piracy."

Milking Profits from Fakes

Tainted milk from China has sickened more than 53,000 children while killing 12. While a food safety issue for sure, the recent tainted milk scare is likewise a counterfeit issue. These evil counterfeiters dilute the milk and add industrial chemical melamine to cover their tracks. Milk tainted with melamine masks dilution by tricking protein detectors into detecting the right amount of protein in the milk. Unfortunately, ingestion of melamine causes kidney failure in babies. Parents think they are buying "real milk" for their children, but are instead buying counterfeit milk.

As with many other industries, milk is a good where counterfeiters flourish due to the large payoff and small risks of detection and punishment. Bee Wilson explains in this New York Times Op-Ed piece that the milk tampering problem today in China is in some ways an echo of 19th century New York City. Lack of refrigeration and high demand in densely urban New York gave rise to temptations to dilute milk and cover up the tampering with flour - or worse. The deaths from bad milk sparked a movement that ultimately led to government reform and the establishment of oversight agencies. The American food supply chain, while not perfect, is a heck of a lot better today because of the reforms.

Many of the same conditions occur in China today. Chinese regulatory agencies are still nascent, and are often easily bought off. Children are dying. Popular rage is simmering. But perhaps like 19th century New York, the recent scandals could spark reforms necessary to safeguard the food supply chain from counterfeiters.

Excellent and fascinating piece. Read the whole thing.

Real Tanks Defeat Fake Goods

Ah, the Russians. As an American growing up in the Age of Reagan 80's, the Soviet Russians made for the perfect villains - powerful, ruthless, cunning. Armed with nuclear weapons and commanding an enormous Red Army, the Communist hordes would stop at nothing to defeat the West and subvert democracy under the yolk of Lenin and Marx. Or so my teenage mind believed.

With a new Cold War of sorts starting following Russia's partial annexation of Georgia, it stands to reason that the Russians might want to encourage activities to undermine the capitalism of their old foes. That part might be true, but we see that counterfeiting harms the Russians, too. The Class 46 blog shows some photos of powerful Russian T-80 tanks rolling over unspecified counterfeit goods. The goods, ground into dust under the 42-ton tank, never stood a chance.

Now that's some law enforcement.

False Religion

Alana Semuels of Tribune Newspapers penned this article concerning the rising trend in counterfeiting luxury blue jeans. Brands such as True Religion are routinely faked, and the article delves into some of the reasons why and steps taken to counteract the problem.

Video - Counterfeit Drugs

From Euronews, a longer version of a video I had previously blogged about. Counterfeit medicine is often made from nothing more complex than brick or cement dust, but the markups and profit margins are incredible. Given the disparity between penalties for narcotics and counterfeit drugs, many criminals are turning towards counterfeiting medicines as a means to make large profits with relatively little risk. For sick patients relying on the medication for survival, the risks are of course much larger.

The money quote is from Mick Deats from the UK Medicines and Health Products Regulatory Agency, who says, "This is high profit, low risk, and we have to change the risk balance so that this becomes too risky to operate."

Your Invitation...

Dave Wieneke, the strategic internet brain behind the aptly-named "Useful Arts" blog, is hosting a free webinar regarding the seminal Tiffany v. eBay decision. And you're invited! Noted trademark guru Martin Schwimmer is among the luminaries scheduled to offer his thoughts.

Increased Counterfeiting Linked to Inflation

In Italy, rises in prices linked to increased purchases of counterfeit goods.

The Sun Never Sets on Counterfeiters

The $600 billion per year counterfeiting problem is detailed in this New York Sun piece by Liz Peek from last week. The article summarizes the problem succinctly:

"Designer goods are just the tip of the iceberg. Sales of all counterfeit goods are estimated at more than $600 billion annually, up from $5.5 billion in 1982.... sales of counterfeit pharmaceuticals now total some $70 billion a year worldwide. Some 35% of the software installed on computers in 2005 was fake, more than $12 billion in copied auto parts are sold annually, and there have been more than one hundred airline crashes caused by fake (and faulty) parts. This is a serious and huge business, threatening the health and safety of people everywhere."

The article then details a two-pronged strategy to deal with counterfeiting. While enforcement at the production level is difficult in China (the epicenter of the counterfeit trade), consumers can be made aware of the counterfeiting link to drug trafficking, child labor and terrorism, while technology can enhance interdiction of counterfeit goods by law enforcement and merchants. Eastman Kodak is specifically noted for its secret innovation that enables law enforcement to distinguish between authentic goods and even "perfect fakes" with a handheld scanner. Noting the $10 billion per year market for such technology, Peek surmises a windfall for those security experts able to stay one step ahead of the bad guys.

Mmmmmm...... beer.....

Although not the beloved Duff Beer of mythical Springfield, even the über-parochial Homer J. Simpson would object to counterfeiters entering the beer realm in China.

Hat Tip: Sybeeritic

Loose Threads

AgResearch, a New Zealand-based research institute, has announced a technological breakthrough to help combat counterfeiting in the apparel industry. This new technology, called Verifi TT, allows its user to distinguish between identical items of clothing, even when the two garments are indistinguishable in fabric, color and pattern.

Costing less than 0.1 percent of the total cost of the fabric Verifi TT can distinguish between two identical articles made of the same fabric, colour and pattern through detection of an otherwise undetectable and unique high-tech thread woven into the garment. The thread can then be read by handheld scanners. AgResearch expects Verifi TT to be on the market within the year.

Counterfeiters' Depraved Bedfellows

As a native New Yorker, I have seen my beloved city transform from the filthy and crime-infested Gotham of the 70s and 80s to the gleaming and relatively crime-free Metropolis it is today. This transformation came about largely from the political will to implement police counters to "broken windows." According to the Broken Window theory, enforcing the law on small crimes such as vandalism (breaking windows) not only improves the quality of life for city residents, it also nets criminals wanted for other crimes. If someone is willing to jump bail for a large crime, why wouldn't he also be willing to commit a more menial sin, such as jumping a subway turnstile? As the NYPD began to enforce the law for smaller crimes, they suddenly netted a large number of criminals wanted for larger crimes. Scofflaws of misdemeanors and flouters of felonies turned out to be largely the same people. So as law enforcement took action enforcing the smaller violations, all crime dropped steeply.

In the Philippines, Emil Jurado writes in the Manila Standard of a similar phenomenon encountered by Optical Media Board Chairman Edu Manzano (scroll to the bottom of the page). Manzano's job is to enforce anti-piracy laws, but he has found that the raids conducted by the OMB have captured large amounts of child pornography. As Manzano has no legal authority to enforce child pornography laws through his agency, he has decided instead to form the Anti-Child Abuse and Pornography Foundation, a public-private partnership to address his new-found concerns. God bless him.

But the larger point is this - counterfeiting is a criminal problem. Perhaps the public is not sympathetic to the enforcement of anti-counterfeiting laws on some items because the sellers are rich and the items expensive. But even counterfeiting these items is a crime. What Manzano has shown is that counterfeiting and piracy are gateways to the greater evils of child pornography. And while his actions and increased counterfeiting enforcement may not be solely paving Manila's transformation from Gotham to Metropolis, they are providing lifelong solace to those children who might otherwise have been victimized by these counterfeiting, molesting monsters.

Real iPod / Fake Design

From Andrew Wise, some photographic evidence that Apple borrowed elements of its new iPod Nano model design from Chinese knock-off versions of previous iPod models. The photo angles and quality make Wise's case somewhat inconclusive, but if true, Wise's assertion is richly ironic.

History is Written by the Winners

A comprehensive look at the recent Tiffany v. eBay decision by R. Bruce Rich and Mark J. Fiore, eBay's outside counsel from the deluxe legal salon Weil, Gotshal & Manges, who successfully defended eBay in the suit.

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.