Market Focus

Security Labeling

July 11, 2005

Product fraud and counterfeiting have made security labeling a big business.

The Global Anti-Counterfeiting Group, which represents the interests of brand owners around the world, estimates that fakes cost them some $368 billion. While some are obvious and carry a sort of kitsch value, it is becoming increasingly harder to tell them from the genuine article. Predictably, the Internet is now a growing source for this fraud. Many high-value fakes, especially fragrances, are sold on web sites even though brand owners do not sell the genuine article this way.

Brand piracy and product diversion are related large-scale frauds, but it is the counterfeiting of fast-moving consumer goods and computer software that attracts the headlines. Many people still feel that counterfeiting is a “victimless crime,” often compounded by the lenient sentences to those judged to be involved. But while brand owners may lose billions of dollars annually, government agencies lose sizeable tax revenues, and legitimate jobs are lost. Also, such fraud can kill in the shape of fake automobile parts or phony prescription drugs. Moreover, organized criminals, drug syndicates and even terrorist groups can be heavily involved because the practice conceals money laundering scams.

Counterfeiting might include faking the entire product and its packaging, falsifying a package or container to give the impression that the contents are genuine, using a brand name in an unauthorized manner, or using a brand name on a false product. Other familiar fraudulent applications include forgery/fraud, where a document or ticket with intrinsic value contains altered or imitated information. Included in this unsavory mix are the huge losses caused through retail theft among both staff and customers.

Corporate brand owners are now more inclined to tackle these problems, backed by a vast array of covert or overt security features applied to labels, tags and packaging. Complimenting them are the more affordable “smart” label products. As will be seen, they are primarily intended to monitor product distribution trails, but they also help to reduce the diversion of goods to gray markets. Both categories have seen rapid technical progress in recent years. Most experts acknowledge, however, that the scale of the problem grows faster than the pace of product development.

For label converters and materials suppliers this represents a market with huge growth potential and the prospect of good profit margins. But with the exception of the more basic tamper evident labels, relatively few converters are actively involved.

Possible reasons include the need for a high level of technical competence in converting expensive materials and consumables that can be difficult to process. Customer service may include a strong consultancy element centered on the suitability and sourcing of solutions, especially as most applications require more than one covert and/or overt security feature.

Companies need specialized marketing skills to find and attract potential customers and assure them that confidentiality is not a problem. Sometimes Catch-22 applies. Smaller converters often find it difficult to land that first big contract, but without a track record in a fragmented industry it is hard for them to make progress. Many soon give up. This situation also applies to the smaller, single-product suppliers of security products, which is why so many good ideas fail or only slowly become accepted.

More complex holograms
In terms of sheer innovation, it’s hard to beat the dynamic brand protection market. Among the most conspicuous, literally, are holograms or kinetic gratings, which pedantically are types of diffractive optically variable devices (OVDs). This market works hard to overhaul the efforts of hologram forgers by constantly introducing ever more complex proprietary origination processes in their OVDs for both label and packaging applications.

The latest thin-film types defeat reproduction on color copiers or scanners, or by conventional photographic and printing processes. They are available in wider widths, while improved hot stamping carrier foils give brighter results and better release. Some holograms include tamper evident features and can be sequentially numbered. The latest laser-resistant foils for variable data printing offer great potential, while cold foils are available for direct thermal ticket papers.

Batch tracing of consumer goods using a secure holographic label is possible using holographic bar codes, created from white diffusion patterns that emulate a printed code. Other techniques include using sets of surface diffraction gratings to create movement features, such as rotations and oscillations when tilting the image. Splitting the viewing channel horizontally into several channels gives different multiplex images, while the more complex stereogram type uses up to 200 separations to give an impression of continuous movement.

The latest developments includes de-metalization, which offers intricate design shapes and fine-line features in transparent and semi-transparent overlays. Adding UV fluorescence to the adhesive offers a second line of defense.

This area has seen some large-scale alliances and mergers. The most notable resulted in the Applied Optics Technologies (AOT) group, formed by the $75 million acquisition of Optical Security Group Inc. (OpSec) by the U.K.-based Applied Holographics plc earlier this year. The deal included Bridgestone Technologies, a turnkey security label and brand protection service supplier that OpSec was in the process of acquiring. The consolidated group claims a 5 percent global share of this $600 billion industry sector.

The newly-formed OpSec Security Technologies division has manufacturing plants in Parkton, Maryland, and in the north of England and makes diffractive OVDs for security labels and authenticating high-value documents, including bank-notes. Applied Films & Foils looks after premium packaging and metalizing operations. OpSec’s products include the existing Advantage security product with a green/orange/ transparent color shift used for protecting passports, ID cards, licenses and self-adhesive security labels and tapes. It also supplies holographic microstrips, fluorescing tracers and tamper evident films and papers.

Of interest to note is that the new company dropped “holographics” from its name because it was considered too limiting, according to Astrid Mitchell, AOT’s director of marketing: “We are also going to move into other high security technologies and services. Holography provides an anti-counterfeit solution, but not one for product identification, tracking and variable information.”

Another recent Anglo/U.S. deal involves LG International, a label converter from Portland, Oregon. It has formed a partnership with De La Rue Holographics of Basingstoke in England. LG intends to provide anticounterfeit, tamper evident and product tracking products for major brand owners in the U.S.A. and Canada through its Secur-Icon Division.

The parent De La Rue company is widely known for its international banknotes and postage stamp operations. The holographics division is developing several projects including machine readability. This relates more to batch coding and tracing using holographic bar codes, created from white diffusion patterns that emulated a printed code.

Stop the tampering
Tampering of goods in stores tends to go in headline-hitting cycles, but tamper evident labels and seals are almost mandatory for a large range of retail products, from baby foods to pharmaceutical products. Typical polyester, acetate or destructible vinyl constructions may include security edge cuts that cause the label to tear if removed. Plain or metalized labels that expose a residual message in the adhesive layer, such as “void” or a company logo, when removed illicitly are commonplace. These labels can also protect against fraudulent warranty claims and are widely available from major label stock suppliers.

Holographic films coated on brittle materials give more protection and may have customized designs combined with non-transferable materials. Higher end devices can include hidden messages, which users activate with pens containing special chemicals, or simply by rubbing.

Some vendors offer proprietary products that licensed converters may incorporate in their own security offerings, including tamper evident frangible seals and labels. Examples include optically variable materials that changes color when viewed from different angles. Advantage Technology Inc. supplies a transparent type with an orange to green shift that cannot be duplicated, as well as a range of labels that incorporate the special coating.

Smart products
Retail theft has become so critical to store groups that many have designated senior-level staff to examine anti-theft technology. Others have grouped together to call for the application of anti-theft labeling and packaging to all products sold retail within a few years. The resulting Electronic Article Surveillance (EAS) sector is now a huge business involving the incorporation of electromagnetic, radio frequency, microchips or other data inlays electronic article surveillance systems into labels, tickets or tags. Again, this opens a wide range of opportunities to enterprising label producers working with EAS suppliers.

An interesting development involves radio frequency identification (RFID) systems for so-called smart labels and tags. The transponders for the various programmable types are either microchip inlays with a read/write capability or lower cost magnetic films, foils or arrays of magnetic wires for embedding in label stocks. High cost tags have a unit cost of $1 upwards, while the expanding low cost RFID market involves thin-sheet products with unit costs of between 1 cent and a dollar. It is a market that could reach $10 billion worldwide in 10 years, say some experts.

RFIDs can exist with bar coded labels and are difficult to copy or simulate in order to protect goods against theft and counterfeiting. However, supply chain tracking and other logistics applications to replace bar codes are really driving this growth. They include airline baggage labels, express parcel labels, and tickets for leisure events and mass transit.

Like all new technology, RFID acceptance is conditional upon overcoming hurdles to gain high-volume production. Internationally acceptable standards are now in place, but other factors include the cost of capital equipment and consumables, as well as compatibility with existing numbering and data capture products. To smooth this path, major RFID makers have formed partnerships with suppliers of hardware, software and materials.

Motorola’s BiStatix smart label venture involves a tie-in with International Paper (IP) to promote packaging and labels using read/write microchips. Instead of passive bar codes, manufacturers and retailers can track products using radio signals, while a unique identifier protects high-value goods against gray market theft and counterfeiting.

Bill Slowikowski, IP’s senior vice president of consumer packaging, claims this marriage of electronics and paper enhances customer service and eliminates many supply chain inefficiencies. “In the U.S. alone there is an estimated $250 billion in yearly waste attributable to inefficient product distribution from manufacturers to customers. Retail counterfeiting was responsible for approximately $70 billion in losses in 1999.”

Texas Instruments has formed an international Team Tag-It Program involving nearly 30 companies to develop smart label applications. As a resource forum it helps hardware, software and licensed converters to develop marketing, sales and networking opportunities for RFID smart labels. Philips has a partnership with Raflatac, the global self-adhesive laminate group, to develop markets for its I.Chip semi-conductor products.

Mikoh Corporation allows Poly-Flex Circuits Inc. to produce RFID label transponders using Mikoh’s tamper indicating SmartANDSecure process. Under a related agreement, Poly-Flex also acts as a channel distributor for SmartANDSecure transponders and labels.

SmartANDSecure can be applied to any smart label to make it tamper intelligent. The process enhances existing RFID transponders to detect and warn of any type of product tampering using an RFID reader. Polyflex will initially create SmartANDSecure transponders for use at 13.56MHz, 915MHz and 2.45GHz frequencies. It will add other frequencies and protocols as needed.

OVDs and RFIDs are just a few of the main weapons in a growing arsenal of anti-fraud and logistical weapons. Fluorescing, magnetic, thermochromatic and color shift security inks and coatings alone make up a substantial market, deserving of separate coverage in themselves.

Other ingenious proprietary products involving labeling will correctly identify whether products and/or individual batches of products are genuine. For example, Biocode’s covert method (OpSec is one international licensee) uses bio-engineered recognition molecules to detect inert chemical markers added to both liquid or solid products. Marked products are identified in the field using antibody-based test kits. This method can support OVD verification to detect, say, counterfeit goods or forged documents.

Similarly, microtaggants comprise microscopic particles of plastics, each with a series of layers of different colors visible with a small microscope. The color selection and their sequence (in up to 10 layers) make up a unique code for authorised usage. Licensed users can mix the microtaggants within a clear overprint varnish for printing on a document, carton or label.

The whole area of security and smart labels represents a fascinating category, one which offers some good business opportunities for those prepared to work hard at it over the long haul. The good news is that industry experts talk of double-digit growth levels for each year over the next five years. Perhaps crime does pay after all.