The Issue of Counterfeiting in the Digital Age

Dec 20, 2011

Ceci Guicciardi

It is a modern-day consumer reality that where there is demand for luxury goods, there is ample supply of counterfeit options. Counterfeiting is one of the fastest growing crimes, and shows no signs of slowing down. The World Customs Organization estimates annual global trade in illegitimate goods is about $600 billion, and this figure is expected to rise to $1.7 trillion by 2015. It is estimated that between 5% and 7% of worldwide trade is from the counterfeit market.

Luxury brands take counterfeiting seriously. Almost all brands affected are actively engaged in combating the problem, working with the relevant customs authorities and investigators to enforce a zero-tolerance policy against counterfeits. During the recent Brand Protection and Anti-Counterfeiting Summit in Amsterdam, Guido Baumgartner, Vice-President for Global Brand Protection at Coty, reaffirmed that the digital landscape has created a new dimension in the issue of counterfeiting.

But while the online space tends to be lambasted as having created fertile breeding ground for cybersquatters and counterfeiters to multiply, could it also prove to be an asset in the fight against such crimes?

After all, to successfully eliminate supply one must fist eradicate demand, and, without a doubt, social media and online marketing play an important role in educating consumers about the dangers of counterfeiting. Through social media platforms, actual and aspirational customers alike can achieve an unparalleled access to brands, which can in turn be channelled to learn more about the its heritage, product quality, artisanal know-how, and legitimate points of sale. Meanwhile, initiatives like Harper Bazaar’s Fakes Are Never In Fashion can help raise awareness and remind consumers of the uncomfortable realities behind counterfeiting, in order to help them distinguish real from fake.

Where social media fails is in helping current consumers distinguish between an authentic or counterfeit good at the point of sale.  Increasingly, a new generation of counterfeit goods, using better quality raw materials and finishing, are fooling even the most sophisticated of shoppers. According to Elizabeth Bernstein of Portero, the online second-hand luxury-goods retailer, counterfeiters are improving the quality and feel of knockoffs steadily: “They’re making better and better fakes every day.”

Clearly, though, the traditional authentication number approach – a serial number sewn into a product certificate of origin – is simply not going to cut it. Fake Louis Vuitton bags are already being produced with the proper stamps of the year, week and location where the bag was produced, mimicking the authentic Vuitton bags and replicating a real serial number sequence.  Holograms – which gained currency in the mid 2000’s, with fashion houses such as Fendi stitching them into garments and accessories – allow customs inspectors and officials to determine the legitimacy of products, but ultimately may be heading into the same authentication graveyard, as counterfeiters were quick to follow suit.

One important concern is that by focusing as on corporate or institutional authentication, these traditional approaches are disconnected from the end-consumer and ultimately, hold little meaning for them. Most customers are probably thinking, yes, I see a hologram or a serial number, but so what?

Six Degrees Counterfeit Protection, based out of Los Angeles, believes it holds the solution. The company has developed a new technology that combines the advantages of location-based mobile technology with its own secure and proprietary cryptographic algorithm. The end result is to effectively put product authentication in the hands of consumers, in real time, at the point of purchase.

Essentially, the company uses an exclusive, non-mathematical encryption to store relevant product data, which might include date of manufacture, product number, production line, destination code, etc. This data is then repurposed into a QR code, which may be applied to virtually any type or size of surface. The rest is easy – the consumer downloads a QR reader directly on his or her smartphone and scans the QR code located on the product to reveal its authenticity. The inclusive nature of the verification process means that, ultimately, consumers are empowered in the identification of counterfeit products. Want to know if that Chloe bag is the real deal? Scan it with your phone.

According to Six Degrees’ CEO, Eddie Cohen, the strength of this technology is it cannot be reverse-engineered or corrupted. This certainty stems from two important factors. First, barcode technology encrypts data following a mathematical algorithm that, no matter how complex, is open to be reverse-engineered using pattern analysis.  By contrast, Six Degrees employs an encryption system that is based on pure human randomness – that same mathematical principle that governs the famous butterfly effect – so, in theory, it cannot be breached.

Second, barcode technology supplies a serial number that must be matched up against a database, which, following the recent barrage of high-profile corporate hackings, we know cannot be deemed totally secure. Instead, with Six Degrees, the actual encryption generates the key, which is logged in a text file and is unique to that specific product. This database-less nature means any counterfeiter wishing to hack the system has no reference point to enter. So far, the only real drawback of Six Degrees remains the systems’ reliance on a one-time end-user authentication, although ownership can be transferred to allow a new user to verify the product’s authenticity.

Nonetheless, from a brand standpoint, this technology is tantamount to a million extra eyes and ears on the ground. Each time a product is scanned, the location and result of the scan is also relayed to brand owners, who are thus able to keep track of authentic purchases. They are also able to alert authorities if there are a bunch of fake or stolen goods cropping up at a particular location.

From a consumer perspective, the scanning and subsequent registration provides an extra level of ownership of the item. Moreover, it provides brand marketers with unparalleled opportunities. First, it means considerable insight into product movement across the value chain, from production through to the end-consumer.  In turn, this might lead a brand to discover that the reason for low sales in “country A” and phenomenal sales in “country B” is caused by customers from “country A” travelling to “country B” because of lower import duty. Second, it allows brands to forge closer ties with its customers, by turning the transaction into a powerful marketing opportunity. If done correctly, brands can drive brand engagement, develop more targeted strategies and reward loyalty.

After all, such strategies work by re-establishing the link between the purchases of authentic luxury goods and superior service. Stellar customer service is not something that counterfeiters are not able to replicate.

Certainly, anti-counterfeiting technology in and as of itself is not going to stop counterfeiting altogether. Nevertheless, Six Degrees offers an interesting example of an authentication system that changes the rules of the game and revolutionizes the way brands can protect their IP – from a defense game to an offense game. And in the process, the system has the potential to bring about a considerable shift in how consumers shop and engage with brands, to the detriment of counterfeiters.

Counterfeiters should consider themselves warned.

Photo Credits: Fashion’s Collective, Rome