The ongoing battle against counterfeiters and thieves requires ever-evolving technology for printers and their customers.
By Steve Katz
Brand owners have a lot of things to worry about. While staying one step ahead of the competition is an obvious priority, they also have to be wary of the criminals out there – those who’d simply like to steal from them. And this kind of stealing is not simple in the least.
Counterfeiting. Tampering. These are complicated crimes committed by technology-savvy syndicates – criminals who do their homework. For brand owners, their products are their lifeblood and protecting them should be of paramount importance. Enter the label industry, where suppliers and converters are charged with having to stay at least one step ahead the criminals, incorporating a variety of security labeling options which are in a constant state of evolution.
Consumers trust that when they purchase products, they’re getting what they pay for: authentic products, manufactured and packaged as the brand owner intended. Unfortunately this isn’t always the case. It’s been a problem, and it’s gotten worse. According to the International Authentication Association (IAA), the industry body for the suppliers and users of authentication technology, counterfeiting has cost industries somewhere between $200 and $600 billion dollars per year (varying estimates from the Progressive Policy Institute). Regardless of the exact figures today, it’s a far cry from the 1982 International Chamber of Commerce estimate of $5.5 billion.
Counterfeiting is a serious crime, and its victims can suffer serious consequences. Here are some staggering statictics: The US Department of commerce estimates that losses to the auto industry are $3 billion in the US alone ($12 billion worldwide). The IAA reports that 20 percent of the auto parts in the Middle East are fake and 37 percent in India are fake. The US Federal Aviation Authority reports this unsettling statistic: that 2 percent of the 26 million airline parts installed each year are fake.
Of course, there’s more. The US Food and Drug Administration says that 10 percent of the drugs in the US are fake. And counterfeiting medicines is big business worldwide, albeit an illicit and potentially deadly one. According to the World Health Organization, annual earnings from the sales of counterfeit medicines is more than $32 billion.
The list goes on and on, and the numbers are dizzying. There’s software, music, movies, and tobacco products, and it’s billions and billions of dollars lost. So, it’s no wonder that organizations have formed, such as the IAA, and brand protection is taken seriously. The label industry does its part, as security labeling can play a key role as a major line of defense against the pirates.
Jim Williams, chairman and founder of Polyonics, a Westmoreland, NH, USA, based manufacturer of high performance label materials, discusses the different points of view that brand owners have regarding brand protection, and says that, for them, making security a priority often depends on which “state of the world the brandowners live in.” He says, “If you believe that ‘it’s a problem facing my company’, then you want to take actions to mitigate the effects on your company. You have committed resources (staff, legal, technological, investigative) to detect, avoid, and/or deter fake products from impacting your company. Most of the activity seems to be ongoing in the pharmaceutical industry, due to obvious impacts on human health and safety,” he says.
Williams notes that while some are proactive, other brand owners take more of a wait and see approach, according to a recent survey by the Brand Protection Council. He says there are some whose line of thinking is “yes, there’s a problem, but I’ll respond to it only when I have to, as it’s part of the ‘cost of doing business’.”
“About 40 percent of the respondents were in this camp, as it seems to me to be the easiest place to be, since there is an emphasis on quantifying the impact on your company first, to minimize revenue loss. However, it overlooks the possibility of liability you might face in the future, for negligence, i.e., if you are aware you have a problem, and are not taking actions to minimize it, are you negligent if a customer is harmed by fake products, unaware of the counterfeiting problem? Several court cases have shown that this may well impact brand owners.”
Further, Williams points out that there is still a large segment of brand owners who believe that they are not at risk, notwithstanding global reports of counterfeit activity across almost all industrial product sectors. A recent study by the US Chamber of Commerce stated that upwards of 6 to 10 percent of worldwide production is susceptible to activities related to counterfeiting, across all industrial sectors.
Overt and covert
It can be said that for the intrepid thief, it’s only a matter of time before the safe gets cracked or the alarm gets snuffed. And the same can be said for security labeling measures. So, in order to remain effective, the technology is constantly evolving. But here’s the thing: When wanting to learn about the latest innovations in the field, one finds it’s not so easy. Both suppliers and converters keep their security strategies – the products and methods – close to the vest. The fear being, of course, that if the criminals know how the technology works, eventually they’ll find a way around it.
Robert Sherwood, VP security programs management, Sekuworks, LLC, Harrison, OH, USA, a provider of anti-counterfeiting products and services, says there are new technologies being introduced on a regular basis. “They all fall into one of four categories: overt, covert, forensic or numbering/coding. Most fall into the covert, forensic or numbering/coding space. Given the wide variety, brands generally make their choice determined by cost and ease of authentication. Although Sekuworks provides multiple overt, covert and forensic technologies, intaglio overt print is our premier offering. Because it is used to print the currencies of the world, its availability is very limited. Limiting the availability of a technology is key to its successful use as an authentication device.”
Overt security labeling refers to applications that can be seen by everyone, including the consumer. A popular overt option is the use of holograms, although it does have its limitations. “There is always the need for overt technology. Brands understand that overt technologies build consumer confidence and provide investigators with a simple, fast determination of authenticity,” Sherwood says.
Used to print currencies of the world, certain technologies have very limited availability.
Cressman makes the point that security labels, in and of themselves, are just a cog in a larger process, and their success relies in large part on other factors. “In actual fact, any security label is only as good as the back end control and oversight by the person applying them. If they have no firm and monitored procedures for inspection, they really aren’t getting much benefit,” he says.
Tamper evident labeling is a technology that may be familiar to most converters. The consumables used to convert them are readily available, and they’re more cost-effective than some other more complex methods. Here’s how they work: They either destruct when lifted or have a hidden graphic which appears on the label surface if it is lifted, as well as leaving residue behind if removed.
Cressman says, “These are good products which other competitors of ours use, and they work for low security situations where someone doesn’t stand to gain a great deal by working to get them off without showing evidence of entry.
“What these materials do not do is prevent a knowledgeable thief or criminal with lots to gain from removing those labels and putting them back down without evidence. This doesn’t mean these materials are worthless, but it backs up my belief that given enough incentive, anything can be gotten into given knowledge and time. Even the best security seal requires an internal system to check on them and to ensure nobody has time to spend working away at them to effect removal/entry.
“An expert told me that the difference between a $40 padlock and a $200 padlock is about one minute, as that’s how fast an expert can get past a lock. He was and is concerned with high security situations such as government/military facilities and laboratories, but similar concerns can arise elsewhere,” Cressman adds.
Ink is one component of a pressure sensitive label that allows for a cost effective security measure. Jon Petersohn, manager of applied technology for Actega WIT, a producer of water-based and UV curable inks, coatings and varnishes for the narrow web industry, says, “Security inks are a relatively easy way to apply a covert or overt security feature to a label. Printed security features allow the brand owner and security printer to place the security feature where they want it, when they want it and at a specific print size. When a security feature can be placed into an existing coating specified for a print run, the security feature can be put in place without adding an additional printing deck to the job. To help control the costs of applying a security feature, the feature can be incorporated into a ‘spot’ varnish that is applied to a very small area on the label underneath an overall varnish, which helps to hide the presence of a covert security varnish,” he says.
Robert Sherwood emphasizes that there are really many factors that need to be taken into account when designing a security label. “Yes, there are a wide variety of security label types. Like any label project, the how, where, when and why needs to be determined to spec a label. This includes not just the technology, but the label materials, application methods, life expectancy, where it will be distributed, and who and how it will be authenticated. In addition, we need to determine how it interfaces with investigation, litigation, and very importantly, marketing. The label becomes part of the package design,” he says.
With all of the options available, it can be overwhelming. Jim Williams says, “There are dozens of technologies available to be used. This presents confusion for both the brand owner and the label supplier. Which one is best? The answer is, ‘no technology is best’. The technology choice must be dictated by the goals of the brand owner. For example, there are technology trade-offs to be made between the choice of having a consumer be able to see if a product is fake (an overt technology, such as a hologram), compared to a technology which will be used in litigation against the counterfeiter (such as DNA, or a forensic technology). In general, multiple technologies must be used together on a product, in a so-called layered technology approach.”
A layered approach
While the number of security methods have increased, there’s also been a proliferation in the ways the criminals can get around them, as well as the sheer numbers of perpetrators. It’s no wonder brands are taking a second look at what they’re doing to keep from being ripped off. “Brands are re-evaluating their current labels to determine if an upgrade is required or if they will need to add an additional security label. Security professionals have been advocating multi-layered technologies for some time, but now there is an added push to include smart encrypted codes rather than just a standard serial number,” says Sherwood.
Tom Hartmann, director of security/brand protection, Topflight Corp., a label converter located in Glen Rock, PA, USA, says, “Yes, many new technologies are being looked at, such as direct food compatible security features. The truly foundational security technology providers are always augmenting their features via new materials or evolution of the current technology. Evolution could involve backwardly integrating layers; that is, one security technology house incorporates other technologies (layered) and then supplies the label house with an already layered ‘single’ feature.
“In addition, taggants as well as markers are being developed that are forensically unique, and can be tailored to fit the needs of an individual customer. Another addition to the security arsenal is the use of plant DNA, which is unique and highly difficult to replicate,” Hartmann says.
Lori Campbell, chief operations manager for The Label Printers, a converter based in Aurora, IL, USA, is finding that brands are learning ways to use their consumers in the fight against counterfeiting. She says, “More brand owners are employing solutions that engage the consumer to verify authenticity as a first line of defense and to demonstrate their concern for product safety.
“There are also more fronts to attack,” Campbell says. “It’s not just the product that is being knocked-off; now it might be a legitimate product but diverted through unauthorized distribution. Or, counterfeiters are mixing in counterfeit product with good product playing the odds that they will go unnoticed at spot check points. Companies also need to secure their websites and actively search out bogus copycat sites. Finally, new security efforts, or revisions to existing ones, are being copied, or very good attempts at copying, at alarmingly fast rates. Brand owners have to be constantly vigilant and ready to respond at any time.”
Topflight’s Tom Hartmann adds that when it comes justifying adding layers to a security program, a tracking progra is critical. He says, “Security labeling should be looked at as part of a larger, consultative approach to the threats your customer is facing. Although customers may start out asking for a single technology addition to their label, it will quickly become apparent that they need to track how that feature is performing for them. Without a larger program of tracking, tracing and enforcement, it’s difficult to understand the cost-benefit tradeoff of adding security layers.”
John Leath, the owner of Acucote, Graham, NC, USA, a manufacturer of PS materials, says the economic downturn has brand owners searching for more cost effective security solutions. “As security needs start to meet the reality of the marketplace, there seems to be a move towards solutions that are affordable and flexible enough to fit the challenges of the security need and fit into traditional business models. Smaller minimums and price pressures are moving security solutions into some of the same characteristics as more mainstream products. While not completely a commodity, there is a push towards less high tech but still effective products for all but extreme security issues,” he says.
Jon Petersohn also sees a move toward more cost-friendly solutions. “Brand owners are asking more frequently for fast, cost effective ways to inconspicuously verify the authenticity of their product in the field. Slow, costly and bulky field verification is frequently not a viable option except in very specific instances. Our security printing customers are looking for us to provide more effective and efficient security solutions that minimally impact the cost of the label. Due to our technical expertise, industry contacts and our association with the Brand Protection Alliance, some of our security printing partners are relying upon us more and more to develop and manage brand authentication solutions for them.”
While any high-cost item would appear to be a logical fit as a product to be outfitted with security labeling features, suppliers are reporting the adoption of security labels for lower cost items is on the rise. John Leath of Acucuote says, “There seems to be a growing awareness of the proliferation of problems like counterfeiting in areas other than luxury goods, electronics and the other markets that have been historically connected to security concerns. Consumer goods like toothpaste, razor blades, etc., are routinely targeted. All areas are threatened by more problems as criminal elements realize the potential for profit.
“New technologies are numerous and rapidly changing. End users seem to look favorably on selecting components, that when put together, give the best effect for their particular issue and budget,” says Leath.
The Label Printers’ Lori Campbell also notices the range of markets at risk, regardless of the price per item. “We don’t have any reliable, consistent stats on this, but I always provide the evidence that we have seen of counterfeit nightlights. If someone can find money in knocking off a $2 nightlight, what won’t they attempt? For obvious reasons, the pharmaceutical industry is certainly always in the forefront of any discussion of anti-counterfeiting, as we’re all potentially vulnerable to the health and life risk anti-counterfeit medicines pose,” she says.
Finding the right fit
Considering the specific threats, and the consequences of a given product being compromised, is the key to figuring out which security labeling option makes the optimal fit. “We begin by understanding the customer’s threats and their impacts, as well as the overall supply chain,” says Tom Hartmann. “Once the business is understood, then goals can be created – e.g., absolute product identification that can be used in a court of law; assuring consumers that they are purchasing an original product; tracking of product worldwide for diversion and counterfeit analysis.
“Once the goals are established, then a feature set can be chosen that includes specific technologies. The technologies should be layered and in most cases use a combination of overt, covert and forensic options. Finally, the label should be integrated into a larger security program that includes tracking and enforcement,” he says.
Acucote’s John Heath says the security label solution provided must be targeted for the particular challenge the brand owner faces. “Product tampering or substitution requires different features from a label provided to differentiate a genuine product from a counterfeit or ‘knock off’ item. It is critical that the label provider have a detailed knowledge of the nature of the threat faced by the brand owner,” he says.
Lori Campbell says the selection process is “similar in nature to the application development of any other label – but on steroids! More than any other application, the entire business enterprise must be considered. There are a series of questions that must be answered first, and the problem must be defined – is it a matter of brand theft, counterfeit product, intellectual property theft, product diversion, etc. There needs to be a complete understanding of the supply chain so that you can identify at what points a product needs to be verified. In addition to overt features that anyone can identify (and duplicate), what and where does more definitive validation need to occur? Do you possibly need a forensic layer of security for legal purposes? This is just a small sampling of questions. After you have a complete understanding, then you can look at the requirements for the label itself. At some point you come up with a potential solution and justify the price or you move on to Plan B,” she says.
Robert Sherwood also sees the challenge in the supply chain. “The main challenge is in the supply chain space. Since many of the material components we use are security and are usually proprietary to specific companies, we don’t have a secondary supplier in the wings as a backup. Although there’s challenge in supply control, it’s what makes our products secure,” he says.
Economy down, bad guys up
While today’s woeful economy has many singing the blues, the bad guys rejoice – their business is booming.
“Economy down equals bad guys up, or more folks are at least willing to look at an easier or lower cost product/brand that may not be the real thing,” says Tom Hartmann, adding that if the economy progresses on a further down tick, there will continue to be an increase in criminal activity. “For example, in the pharmaceutical industry, not only are fake pills being produced, but the new dynamic is outright theft/disappearance of whole trucks carrying authentic product.
“In addition, consumers are increasingly cost conscious and are open to buying more over the internet. For many items they buy, they either don’t consider or don’t care whether or not the product is authentic. Until the threats of counterfeit products are better understood by the public, increased demand for low-cost goods will continue to fuel the operations of black marketers,” he says.
“The recession has certainly affected the security labeling market,” says Robert Sherwood. “Our labels are placed on consumer goods. The fewer consumer goods sold, the fewer labels needed. In addition, many companies placed many purchases on hold as corporate policy. However, we are experiencing a fast ramp up as companies replace inventory and have released approval to move forward on those projects that were stopped. In addition, the hold on new and upgraded brand protection programs allowed the bad guys to catch up, and since consumers were looking for bargains, low priced counterfeits probably increased market share.”
Lori Campbell says the economic downturn should fuel security labeling – because of the consequences. “Some customers have an even more heightened awareness and concern because – besides the public saftey issue – the fact is brand owners are losing a tremendous amount of revenue. They don’t have a choice, especially in a bad economy, not to protect their brand and their product. The companies that are shying away from spending the money on a security program are not true believers yet – they haven’t been convinced for one reason or another that they have a real problem. If they did, they wouldn’t hesitate to spend the money. Always, customers will be looking for ways to accomplish more with less and look to us to partner in that effort,” she says.
The cliche “strength in numbers” has a place in the security labeling arena. The banding together of entities has proven to be a smart strategy when combating counterfeiters as well as ensuring that the products used to manufacture these labels are the real deal.
“It is important to have a close relationship with your partners in any security labeling project,” says Acucote’s John Heath. “The information that must be shared is confidential and in some cases carries potential liabilities. Non-disclosure and confidentiality agreements are the norm. Make sure that you are prepared for a longer than normal sales cycle and that all the individuals that are in a position to contribute have had exposure to various components that can be effectively assembled into a product that addresses the needs of the brand owner.”
Like some of the other contributors to this story, Acucote is a member of the North American Security Products Organization (NASPO). The organization describes itself as “a non-profit member-supported organization that certifies that providers of security documents, labels, cards, packaging, materials and technology, operate under an agreed-upon set of operational standards and security protocols.”
One of the benefits of becoming a NASPO member is confidentiality, says Heath, who believes that it’s imperative that the technology is kept secure. “This is why Acucote decided to invest in becoming NASPO certified as a class III facility. Any company that wants to provide products in this sector must also be comfortable offering custom, layered items even if it is necessary to partner with other providers so that a product specifically tailored to the brand owner’s individual needs can be brought forth. This fact was one of the main drivers in our participation in the founding of the Brand Protection Alliance (BPA) some years ago. These solutions also must be changed regularly and not publicized widely in the open marketplace to the point they become ineffective,” he says.
Acucote is one of a handful of charter members of the BPA, whose goal is “to serve as a resource organization that will assist brand owners in designing, developing and implementing customized, secure solutions against consumer product counterfeiting and diversion.”
Both NASPO and the BPA have a series of standards required by member companies for certification. This ensures that brand owners can have confidence that they’re working with only legitimate brand protection/anti-counterfeiting suppliers that employ best practices.
Sekuworks is a NASPO Class 1 certified company, and Robert Sherwood (who serves as the current NASPO chairman) says this means that the products produced are not compromised from the very first level of their life. “If labels are not handled as identity documents, a brand may find its labels on eBay. The entire program is compromised. Worse, organized criminals now own legitimate businesses, including label companies. Purchasing brand protection from one of these companies is a counterfeiters dream. As NASPO grows, brands will recognize the importance of knowing their brand protection labels are made and handled in a secure environment, reducing liability and exposure to leaks in the supply chain,” Sherwood says.
In addition to Acucote and Sekuworks, Topflight, Polyonics and The Label Printers are also NASPO members. Learn more about NASPO at www.naspo.info and about the BPA at www.brandprotectionalliance.org.