Market Focus

Security Labeling

July 20, 2005

Keeping ahead of counterfeiters through technology and communication.

In 1993, the world was introduced to a line of plush toys known for their plastic pellet filling, or “beans”. Although originally marketed as toys, it wasn’t long before Beanie Babies left the realm of child’s play and became sought-after collector’s items. Retail price is around five dollars, but certain retired versions can currently fetch thousands of dollars.

The huge profit margins did not go unnoticed by counterfeiters. Before long, knock-off versions surfaced, packed with pellets and finished off with an imitation of the company’s recognizable hang tag.

In an effort to stem the tide of counterfeiting and assure legitimate buyers that their purchase was authentic, Beanie creator Ty Corporation fought back with security features in its hang tags and tush tags. In direct response to counterfeiting, hang tags with holograms were introduced to the market in January of 1998. The company also added holograms printed on its fabric tush tags.

How effective were these security measures? Scott Wehrs, VP of strategic development for Ty Corporation in Oak Brook, IL, saw definite improvements. Although hang tags with holograms were still counterfeited, he says, “counterfeits were more easily recognized. The holographics also aided our customs and border control programs. Counterfeits from Canada and Europe were reduced dramatically through these labeling efforts.”

The tush tags proved even more invaluable. The tags featured holograms on fabric and also included covert security features. “Holograms were almost impossible to reproduce and we were the first to develop the technology to print a hologram on fabric. Within the hologram was security content, further making the counterfeiting difficult,” says Wehrs.

Increased concerns about counterfeiting is one of the driving forces behind added security features. And while Ty chose to add security features on tags, many brand marketers are turning toward security labeling for added brand protection.

Despite popular opinion, counterfeiting is a problem for low and high value items alike.

Counterfeiters are widely known to reproduce items such as clothing, watches and pharmaceuticals; but there are also documented incidences of low value counterfeits, such as shampoo and toothpaste.

The face of counterfeiters also varies. “It’s everyone from the guy at home producing counterfeit T-shirts on a silkscreen, to people in very sophisticated, international operations, where they control everything from the production down to the street level,” says Darren Pogoda, staff attorney for the International AntiCounterfeiting Coalition in Washington, DC.

Reasons for security labeling
The first impetus for investing in security labeling is to guard against the financial damage and brand deterioration caused by counterfeits. When a company’s product is counterfeited, financial loss can be great.

“Some firms are spending upwards of $800,000 each day in litigation defense costs for counterfeit products that have caused damages,” says Jim Parker, engineering manager for Graphic Solutions International in Burr Ridge, IL.

Polypropylene security film from Appleton features covert authentication through UV printed logos and other marks. The features become visible under UV black light.

He adds, “It should be noted that these hard costs of litigation are in addition to the inestimable soft goodwill damages suffered by the same firms. Profit losses by a firm are also often severe. For example, a new toy sensation may have taken many years and millions of dollars to bring to market, but counterfeit clones that can be sold much more cheaply create a severe erosion of the market — and profits — for the original firm.”

Consumer safety concerns due to counterfeits are also driving the growth of security labeling. The pharmaceutical field is especially wary about consumer safety, and with good reason. According to a report, Facts on Fakes, published by the International AntiCounterfeiting Coalition, the World Health Organization estimates that 10 percent of the world’s pharmaceuticals are counterfeit. In developing countries, the figure can rise to as much as 60 percent.

Counterfeit drugs at their worst can contain poisonous ingredients. The report details examples, including a 1990 incident in Nigeria in which counterfeit cough syrup was actually anti-freeze. Even when the ingredients used are not poisonous, the consequence can still be severe. For instance, a counterfeit AIDS drug found in the United States in 2000 proved to be ineffective.

Pharmaceutical companies are far from the only businesses concerned about counterfeiting. Consumer safety issues have also spurred security labeling in other industries.

“There have been a lot of incidences where counterfeit lighters have blown up when people try to light them. The government is stepping in and making these companies that are marketing lighters put a hologram on it for authenticity. If an inspector goes into a shop and sees a lighter without a hologram, they immediately pull them off the shelf,” says Jim Brown, salesperson for Holographic Label Converting in Eden Prairie, MN.

Although anti-counterfeiting initiatives are receiving a lot of attention, there are other reasons a company will add security labels. Preventing product tampering ties into the consumer safety concern. Preventing diversion and inventory shrinkage guards against financial loss. In the pharmaceutical industry, labels that protect a patient’s personal information are also gaining in popularity.

Overt security features
The technology related to security labeling is vast and varied. Neil Sellars, director of product development and marketing for National Label Company in Lafayette Hill, PA, divides security features into three broad categories, calling it a security triangle.

Level one, Sellars says, is overt technology. “Overt features are probably the most important because they convey a message to the consumer that the product is authentic.”

Aside from its usefulness for consumers, overt technologies can also be advantageous in terms of cost. “Overt technologies are highly desirable for the clients because they don’t need inspection technologies to be able to look at it and verify it. If you have something which requires a special light, or a microscope or magnetic scanner [to authenticate], that adds to the cost and the complexity,” says Rick Steenblik, chief technical officer for Nanoventions in Roswell, GA.

Sellars says the two most common overt features are holograms or optically variable devices, and variable effects inks. Thread is also well known for its use in U.S. currency. But this is far from an exhaustive list, and the emerging overt technologies cannot be forgotten either.

These Nanotaggants, created by Nanoventions, feature a portrait of George Washington that measures
approximately 1 mil x 1.2 mil. Seven taggants fit at the end of an average human hair.

For instance, micro-optic film supplier Nanoventions is pioneering the use of wave guide optics in security film. The company is working on “putting optical circuits into thin films. That can allow you to do things like gather light from one part of the material and move it inside the film through a wave guiding core, then redirect it back out again in another location,” says Steenblik. “You can collect light from a large area, and then squeeze it out through a small area, and it will make the little area light up.”

Covert security features
According to Sellars, overt technology is only the first tier to a security triangle. The other two tiers involve covert technology in varying degrees of sophistication.

“Level two is what can be easily distinguished with devices that can be readily purchased,” he says. “It’s something that at the point of distribution to the consumer, the product is verified. But it’s verified through equipment attainable in the market. It’s available technology.”

Several types of coatings, for example, can fit into this covert category. As John Signet, marketing manager for Water Ink Technologies in Lincolnton, NC, explains, “There are clear coatings that go down, which are invisible until activated.” These coatings, he says, can be activated by a special pen or can react to black light. Similarly, inks can also be manufactured to react to certain stimuli.

Level two technology is not limited to inks and coatings, however. Also included within the boundaries of level two is microprinting that can be read by a magnifying glass. “Microtext is where you can incorporate type and numbers that are so small that the naked eye can’t see it. It just looks like an image,” says Brown.

For the particularly secure label, covert security features can reach another level of complexity. As Sellars explains, “Level three is at the forensic level. It’s a method of identifying the product so that you as a manufacturer can tell it’s your product. That means you would need some type of forensic device to read that.”

Taggant technology is one way a manufacturer can verify the authenticity of its product. “Taggants have been around for quite a number of decades as invisible or minute particles that would be used to authenticate. They are typically a covert or forensic device for being able to authenticate the origin of something,” says Steenblik.

Taggant technology varies considerably. Microtrace manufactures microscopic taggants that use a color code. “The particle is constructed of alternate color layers. Essentially we’re making a number in color sequence form by translating the color to its numeric equivalent,” says Bill Kerns, president of Microtrace in Minneapolis, MN. “We’re creating that numbering in color sequence form and we read that by use of a microscope.”

Nanoventions is experimenting with taggants that contain what the company terms Ultra Microprint. “We can put information down at a resolution of better than 100,000 dpi. Typically, one of these particles would carry a micro-bar code, some kind of alphanumeric information, or it could be an image or graphic,” says Steenblik. Although not available yet, the taggants would come in powder form and could be mixed with inks or coatings.

Taggants can also be simplified to fit into the level two category. A common example of this would be a taggant that reacts to black light.

When it comes to covert technology, these features are only the tip of the iceberg. “There’s so many different types of technologies. The covert technology that’s available — it’s mind boggling how much is out there,” says Sellars.

Preventing diversion and tampering
In addition to anti-counterfeiting labels, security labels are also used to prevent diversion and shrinkage. Radio frequency identification (RFID) is a technology tied to the field of security labeling. “RFID is a huge part of the overall security labeling effort. The newest generation of Electronic Product Code compliant labels will allow enough information for individual item tracking. However, the EPC RFID labels are initially entering the market on the pallet and carton level,” says Parker.

While RFID offers great potential for its ability to track and trace, there are still barriers to overcome. “There is progress being made. The major concern is the cost factor, but advances are being made. The costs are coming down. Another major issue is the infrastructure necessary to support the use of RFID,” says Kerns.

RFID is not the only technology used to prevent diversion. SICPA Securink Corp. has developed invisible ink used to create invisible bar codes.

“Invisible bar codes are applied to labels, and sometimes directly onto product. Anyone with a special scanner can scan that bar code,” says Tom Jay, VP of sales & marketing for SICPA Securink, Springfield, VA.

Security features are also used to prevent tampering. Products include tamper evident seals and label stock. Spinnaker Coating, for example, creates a product used specifically for tamper evidence. “It is a very aggressive adhesive in combination with a very low bond strength paper so that once you have applied the label to the authentic product, there is no way it can be removed by anyone else and reapplied,” says Brady Glett, VP of roll products for the Troy, OH, company.

Is cost a barrier?
The security technologies available today are innovative and exciting. But they also come with a price. For companies that have not felt the sting of security breaches, cost can be a barrier.

“When you get into anti-counterfeiting technology, some of it can be extremely expensive. If your product has been counterfeited, then suddenly that cost doesn’t seem like a big deal. But until your product has been targeted and counterfeited, you have a hard justification adding packaging cost without knowing if it will directly increase the sale of the product,” says Sellars.

While the reluctance of end users is noted, suppliers argue that adding security features to labels needn’t break the bank. “From an ink and coatings standpoint, I don’t think cost is a barrier. The amount you are putting down on a label and what that adds to the cost of the label itself is minimal. Ink by itself is 2 to 4 percent of the cost of the label. When you are talking about 2 to 4 percent, adding this stuff won’t make a big difference,” says Signet of Water Ink Technologies.

Others agree. “One of the main misconceptions about security labeling is that it must be expensive and difficult. It doesn’t have to be expensive and difficult. It’s very economical to add some security measures into products,” says Glett of Spinnaker Coating.

Effectiveness of security labels
Using security labels is not a guarantee that a company will be free of problems. But it’s a good start to a security program, and there are ways to increase the label’s effectiveness.

“Counterfeiters are considerably slowed by security labels, but eventually not entirely shut out. Increased, multiple levels of security protection in a security label increase the time it will take to create a counterfeit label and get a counterfeit product to market. Yes they work. Their degree of effectiveness increases with the levels of security used,” says Parker.

In addition to increasing the levels of security, pairing multiple features is also a common technique. As Jay explains, “There’s not one specific security feature on the market today that will stop anything. You have to incorporate elements of design, inks, substrates and equipment. That gives you a very good start to a program.”

For example, one converter pairs overt and covert features. “We do a hologram with a six digit [covert] number on it. Once you shine a laser beam onto the hologram, it reflects the number onto a wall or where you aim the beam,” says Brown of Holographic Label Converting.

Although impressive, technology is not the only measure of security label effectiveness. Even if the technology was impossible to duplicate, there are still other variables to consider.

Overt technologies can communicate to the consumer that a product is authentic. In order for overt features to be effective at the consumer level, consumers need to be aware of the technology employed and they need to care about receiving legitimate product.

If the consumer doesn’t care, for instance, that the hat he or she bought on a street corner is not licensed by a sports team, the point is moot. On the flip side, “If you are dealing with consumers who want to make sure they are getting legitimate items, security labels are going to be very useful. They are going to pay attention to it,” says Pogoda.

Consumers must also know what to watch out for. “Security technology is a double-edged sword. There’s no doubt about it. You have to be cutting edge and constantly changing so you are staying one step ahead of the counterfeiters. But you also have to make it realistic so that the consumer recognizes it as an authentic product,” says Sellars.

Consumer education is key to increasing the effectiveness of security packaging, and of anti-counterfeiting campaigns in general. Some consumer product companies recognize this and educate through web sites and hot lines. Pfizer, for example, launched a public awareness campaign on its Viagra web site to warn of the dangers of counterfeit drugs and to help consumers “avoid fake Viagra”.

One more consideration when looking at the effectiveness of security labeling is the integrity of the supply chain. Printing a security label also involves security in the label converting plant and among suppliers.

“Having the right equipment to manufacture security labels does not necessarily mean a commercial label printer should be considered as qualified to do so. Any producer of security labels must make the financial investment to better secure their physical facility from within, through improved controlled access in the plant, and outside the plant to prevent the possible theft of materials,” Jay says. “Background checks on employees must be completed, too.”

Jay also asserts that suppliers need to know the label printers they are selling to. “When we sell our proprietary security ink products, like optically variable inks, we go in and do a physical audit of the printing facility,” he says. “We need assurance from the printer, through the audit process, that the secure supply chain remains intact for the benefit of the end-use customer.”

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