Counterfeiting is big business. People say that the negative impact on global economies from fake products could be north of $600 billion. We’ll talk about the numbers further along, but it’s fair to say that the bad guys are pretty smart about getting their knock-offs into the supply chain, so much so that customs and other government officials the world over work full time to try to stop them.
Counterfeiting is also a clumsy English word. It comes from Latin contra facere, which meant “to make in opposition or contrast, hence, in opposing imitation,” according to the Oxford English Dictionary. Over the centuries it moved from Old French to Norman to Old English, and by the time it got here somebody should have taken out the second “e”.
I live in Connecticut, the third smallest US state. We were big counterfeiters back in the day, according to legend. For more than a century, the state’s unofficial nickname has been “The Nutmeg State.” Clever Yankee peddlers from Connecticut would travel up and down the Atlantic coast selling a myriad of wares, cures, tools and other home needs, including spices. The tale goes that a jar or a bucket of nutmegs would contain half of the little spice nuggets and half wooden balls of the same size. A good example of an alternative fact, perhaps.
Labels are a subset of the packaging industry, and packaging is a subset of retail, commercial and industrial product markets. All of these are subsets of the counterfeiting industry. Labels and tags, it turns out, made up 2% (540) of all counterfeit seizures (28,092) in 2014 by the US Department of Homeland Security. Those product categories above labels were, in order from the largest seizures: wearing apparel and accessories, consumer electronics, pharmaceuticals and personal care, handbags and wallets, footwear, watches and jewelry, optical media, and computers and accessories.
The value of those seizures is where this gets murky. Homeland Security came up with a value of $1.23 billion for the total, based entirely on manufacturers’ suggested retail prices. That’s the amount of money that the products – if they were legitimate – would have sold for at retail. (Few labels, of course, are sold by themselves to consumers.) The top three categories in the value list were watches/jewelry, handbags/wallets, and consumer electronics/parts.
Counterfeiting is an ancient practice, according to Peggy Chaudhry and Alan Zimmerman in Protecting Your Intellectual Property Rights (2013). Creating bogus coins was a popular pastime in Roman times, they say, but product counterfeiting might even be older. “Babylonian and Egyptian priests placed inscriptions from earlier civilizations on monuments to increase their proceeds and legitimacy. The advent of trademarks used to identify manufacturers of particular products certainly created the opportunity for counterfeiting,” they wrote.
During the Middle Ages, bakers put identifying marks in the crusts of their bread loaves, and still they were forged and sold with impunity. Counterfeit cacao beans entered the marketplace during Aztec rule in North America. Chinese art forgeries were noted in the 15th Century. An Englishman named Samuel Slater came to the new USA in 1789 and reproduced an entire British cotton mill from memory, to the alarm and chagrin of the English. Copying patents and trademarks was not yet illegal in the US at the time. Charles Dickens, wrote Chaudhry and Zimmerman, was irate to find copies of his works in Boston bookstores.
The US government in 2008 estimated that counterfeiting was a $500 billion business. The International Anti-Counterfeiting Coalition said in 2012 that it was “a $600 billion a year problem. In fact, it’s a problem that has grown over 10,000% in the past two decades, in part fueled by consumer demand.”
Quite a few sources dispute these figures, citing several reasons. “Since there is little agreement on definitions and serious problems of measurement, it is not really clear what the right number is,” wrote Chaudhry and Zimmerman. It is difficult to measure because it is illegal, occupying the shadow world of organized crime.
The only measurable data to compute into a value are the reports of seizures of counterfeit products. Surely that’s a fraction of the total; the size of that fraction is unknowable. Nobody agrees on the other factors that might go into the calculation. “Should the estimate include sales lost by specific brands and at what prices, damage to brand equity, total sales of counterfeits, or some combination of these factors?” the researchers asked.
The US General Accountability Office says that commonly cited figures for counterfeit products come from the FBI and the Customs and Border Protection Service. But the FBI has said it doesn’t have source data on the problem, and Customs didn’t know where its figures came from.
Methods of figuring the scope of the counterfeiting business include extrapolation from seizures, surveys of supply and demand, use of economic multipliers, and the “rule of thumb,” say Chaudhry et al. “Each of these methods faces daunting challenges to accuracy and none can be relied upon.
“Some economists even question the idea that there are losses associated with counterfeiting.”
Well, sorry. We know that there are losses, starting with fake drugs, which hurt and kill innocent people. “Overall, global estimates of drug counterfeiting are ambiguous, depending on region, but proportions range from 1% of sales in developed countries to more than 10% in developing countries. In specific regions in Africa, Asia and Latin America, chances of purchasing a counterfeit drug may be higher than 30%.” That’s from Michael Green of the US Centers for Disease Control and Prevention.
Throughout the decades that I have been studying the packaging industry, I’ve wondered many times about the people who run businesses to deliberately falsify information, containers and ingredients. Their motive is apparent, but what are the mechanics of the operation?
Where do they buy narrow web and wide web presses, dies, platemaking systems, inks, rewinders and substrates? Do they walk the aisles of Labelexpo? How do they get the finished fakes into the legitimate product stream in such vast quantities? How are they not caught?
Several times I thought about trying to locate one of these companies, set up a clandestine, way off-the-record meeting, disguise its identity, and publish the answers that everyone would like to know. Those were fleeting thoughts, for two good reasons: I’d probably spend the rest of my life behind bars for breaking a host of laws, and I don’t fancy being fitted for cement shoes.
The packaging industry spends big money fighting counterfeit products, and so do all the others who are victims of the dark art. Security measures are well established, and new ones are developed year by year. They work, but the bad guys find ways around them. The struggle continues, but there is so much that we just don’t know.
The author is president of Jack Kenny Media, a communications firm specializing in the packaging industry, and is the former editor of L&NW magazine. He can be reached by email –at firstname.lastname@example.org.