The global counterfeit market reached a total value of US$1.2 trillion in 2017 and is on track to climb to US$1.82 trillion this year, according to the Global Brand Counterfeiting Report, 2018. The problem is such that even large retailers don’t always know if they’re carrying genuine products, as even counterfeit parts have made their way into the inventories of original equipment manufacturers (OEMs).
Fake goods represent massive losses for businesses around the world. Estimates by the Organisation for Economic Co-operation and Development (OECD) show that counterfeit products account for 3.3% of world trade. Fake cosmetics and beauty products cost the health and wellness industry an estimated US$75 million annually, while counterfeit food and beverage goods are predicted to account for 5–10% of the $12 trillion global grocery trade over the next few years.
And while some may consider the trade of counterfeit goods to be a victimless crime, that is actually far from the case. According to the World Health Organization (WHO), bogus drugs, vaccines, and antibiotics have not only cost pharmaceutical companies US$30 billion, they’ve also led to the deaths of 250,000 children each year.
Damage caused by the counterfeit goods market
Apart from damaging businesses’ sales volumes and revenue, the counterfeiting life-cycle can also wreak havoc on other aspects of business, causing the following problems:
Lower profit margins
For counterfeiters, the high margins of selling fakes (resulting from cheap production costs) are one of their biggest draws. Whether it’s a luxury handbag or a pair of headphones, for example, all it takes is to buy one authentic example to create and sell thousands of lower-quality imitations. In turn, the spread of cheap knockoffs on e-marketplaces puts pressure on authentic sellers and brands to reduce their prices to stay competitive.
Damage to brand reputation and consumer trust
However, the cost of fake goods isn’t just financial in nature—reputation and brand loyalty are also at stake. Luxury brands like Louis Vuitton know this all too well. Despite being the world’s most valuable luxury brand (US$39.3 billion as of May 2019), Louis Vuitton’s products are also some of the most faked. The brand’s parent company has a team of 60 legal pros and spends US$17 million annually to fight the counterfeit market.
Fraudulent warranty claims
Counterfeit goods also expose brands and legitimate sellers to fraudulent warranty claims. In 2019, a former engineering student in Oregon was found guilty of making 3,000 fraudulent warranty claims using fake iPhones imported from Hong Kong.
Close to half of these claims were approved, with Apple sending brand-new replacements nearly a million dollars in total value. The student sent the genuine replacement phones to China to be sold there.
Additional product liability claims
The fallout of counterfeit goods can also extend to legitimate product warranty claims. Fuse Chicken, a smartphone accessories company, learned this the hard way after finding out that its high-strength phone cables were mixed with knockoffs on Amazon. This resulted in the brand receiving a swathe of negative reviews and requests for returns from customers who had purchased the fakes.
Going beyond traditional authentication methods
The modernization of supply chains has provided counterfeiters ample opportunities to acquire designs of authentic goods, sell imperfect goods as originals, or outright steal original products and replace them with knockoffs. A common counterfeiting tactic is to copy the packaging of original products, right down to the holographic sticker used to verify their authenticity.
In response to these problems, brands and manufacturers have turned to product authentication solutions to distinguish authentic products from imitations. Two common examples are radio-frequency identification (RFID) tags and quick response (QR) codes, but they come with their drawbacks.
As a World Economic Forum report notes, RFID tags, which contain data that can be read via short-range radio waves, are too large to be attached or implanted into smaller items—think medical and industrial components, automotive parts, and microchips. While shrinking the RFID tag is possible, this would require removing the built-in encryption antenna that protects the tag from cloning and reading.
QR codes, on the other hand, are two-dimensional matrix barcodes that can carry product information—often a URL that brings consumers to a product authentication page. But even its creator admits it now needs a security update, with it being used in payment systems in Hong Kong, China, and Japan despite being easy to produce and duplicate.
All of this underscores the need to go beyond using RFID tags and QR codes as standalone product authentication solutions. It’s here where Industry 4.0 technologies come in, providing solutions that make traditional tags more tamper-resistant by linking offline with online security.
Industry 4.0 anti-counterfeiting solutions to the rescue
Industry 4.0 solutions turn virtually any product into a smart product that manufacturers, brands, and retailers can track and trace throughout the supply chain in real-time. Examples of game-changing Industry 4.0 anti-counterfeiting solutions include:
Blockchain technology is a record-keeping technology that uses decentralized and encrypted ‘blocks’ of digital data. Often referred to as a “distributed, decentralized, public ledger,” blockchains allow manufacturers and suppliers to register parts and products on this ledger, which then carries data about their origins, records, and chain of ownership. The transparency and immutability provided by blockchains ensure that product history (i.e., product movement and origin throughout the supply chain) is shared across all relevant stakeholders.
One application of this is providing an official product registry that allows companies, distributors, retailers, and customers to verify a product item’s authenticity in the blockchain. An example is AccessReal, a bank-grade track-and-trace solution. AccessReal assigns a unique identity to every single product, allowing it to be traced from the factory to the hands of the consumer. This identity is assigned with the use of clone-proof tags (more on this in the next section).
Product owners, distributors, retailers, and consumers benefit from such track-and-trace solutions. By tracking a product’s journey throughout the supply chain, companies can ensure that the authentic product reaches the consumer, and is not replaced with a fake. Companies will also be able to gather critical business intelligence, such as product movement (i.e., when, where, and what was scanned), and consumer purchasing habits. This wealth of information can be used to plan marketing communications, inventory, and seasonal demand.
For instance, AccessReal’s maker, i-Sprint, is collaborating with an online tea trading platform in Malaysia. By assigning a unique identity to tea packages, AccessReal provides traders visibility into the products’ history, reassuring them on the authenticity of their purchase. Tea buyers can use an app provided by the platform—and connected to the AccessReal blockchain technology—to scan the product tag. This will trigger the app to display the item’s provenance information on the person’s phone.
Clone-proof tags build on the strengths of traditional authentication codes, labels, and tags, but add more layers of security. For instance, AccessReal’s AR code is a clone-proof QR code with a unique digital watermark and bank-grade digital authentication protocol. This clone-proof tag acts as an anti-counterfeiting label that allows consumers to scan the tag and verify the authenticity of a product anytime, anywhere.
The AR Code can be paired with an OVD holographic label that comes with a unique serial number and PIN hidden by a scratch panel. The serial number double-up as an additional authentication feature and should match with the result scanned from the AR code, combining both physical and digital technology to create a unique interlocking solution.