It’s an interesting time for brand managers. Brands and products are always most under threat during an economic downturn but, as you might guess, this is also the time when budgets are most under threat and the money needed to invest in brand security is at its tightest.

 

It’s important that brands don’t simply use the current tough trading conditions as an excuse to ease back on their security efforts. Brands face threats from a variety of angles in today’s global market – particularly from counterfeiters and brand pirates who attempt to produce credible look-a-likes and pass-off products with impunity.

 

Diversion or grey marketing of goods from legitimate distribution channels is also growing. This was evident at last year’s Olympics, when suppliers to officially licensed merchandisers produced mascots in unreported quantities. These ultimately ended up being sold by street vendors.  

 

Other threats come from the improper use of registered trademarks, ambush marketing and infringements of intellectual property – all of which exercise brand managers and teams of legal experts around the world on a daily basis. 

Many of these problems are not new of course. They are as old as commerce itself. However, they have been intensified by global brands, the worldwide nature of trade and by the growth of the internet. The lengthening nature of supply chains makes policing the whereabouts and authenticity of goods at all times very tricky. This is often a problem with goods from developing markets, including parallel imports, entering more mature markets in Europe and elsewhere.  

 

The same is true of the internet, where the explosion of ecommerce sites makes it difficult for consumers always to know the source and quality of goods before they purchase.  

It used to be taken for granted that it was only luxury and high-end goods such as perfumes, spirits and designers clothes that were most at risk from counterfeiters and pirates. However, that’s no longer the case with counterfeiters – aided by advances in technology – turning their attentions to any branded item that will generate a profit. As a result, everyday household items including foodstuffs, cigarettes, beverages and hardware items are equally targeted.

 

All sectors are affected in one way or another and popular targets include sports goods and merchandise; automotive parts; engineering components; pharmaceuticals; software and audio video parts. In many of these cases, protecting the integrity of brands can be the difference between life and death.

 

One of the effects of globalisation is that emerging areas such as India, China, Russia and parts of Africa have become black spots for the production of sub-standard goods. The danger is that without adequate policing and checks, these goods can enter the supply chain and impact on the safety and security of existing brands.

Quantifying the size of the problem has always been difficult - many cases of counterfeiting, piracy or diversion simply never come to light. However, based on past trends, the scale of the problem is indicated by recent figures which are staggering and rising:

·         Counterfeit drug sales alone will reach $75 billion globally in 2010, an increase of more than 90 percent from 2005 according to the U.S.-based Center for Medicines in the Public Interest

·         The Framework Convention on Tobacco Control estimates 600 billion cigarettes, or 11 % of all cigarettes sold globally in 2006 were smuggled cigarettes.  The loss in tax revenue worldwide was $50 billion.

·         In 2007, EU Customs seized more than 79 million counterfeit and pirated goods and handled more anti-counterfeiting cases than ever before. A total of more than 43,000 cases were dealt with in 2007, up nearly 17% from 2006

 

The latest report by the Organisation of Economic Development (OECD) estimates that the global counterfeiting market has topped $200 billion, while the Counterfeiting and Intelligence Bureau (CIB) predicts fake goods make up to 7 per cent of world trade. The rising scale of the problem can be emphasised by the fact that the number of counterfeit goods seized at the EU’s borders more than doubled from 79 million to 178 million – of which 20 million were potentially dangerous – between 2007 and 2008.

Put simply these practices threaten the revenues and profitability of legitimate companies. Credibility and reputation in the marketplace is also at stake with counterfeiting having the ability to undermine trust in even the most respected brands.

 

And if revenues are affected, manufacturers have less money to reinvest in new product development and taxes are cut. The impact is therefore felt across the supply chain with everyone from manufacturer, supplier and distributor through to wholesaler, retailer and customer at the end of the chain affected.

 

In the most extreme cases lives can be put at risk, potentially invoking legal liability claims. Sadly, there are examples of counterfeit pharmaceuticals killing people, while a number of automotive and aeroplane accidents have been attributed to sub-standard products. These cases are extremely rare but do illustrate the importance of brand security.  

Yes, managers and brand protectors are generally more attuned to product security in today’s market. Turning a blind eye is not an option. Those product manufacturers that remain unaware of the extent of the problem, or worse still ignore it, will eventually find that once the damage is done, the costs to repair it are far in excess of what prevention would have cost in the first place. In some cases recovery is impossible and the harm caused becomes fatal.

 

One of the reasons for greater awareness is the role Governments, customs officials and trade bodies like the IAA are playing in highlighting the issue. Brand security and its associated problems have risen up the global political spectrum. Worldwide efforts are being made to enhance legislation, draw up recognised standards and crack down on counterfeiting and piracy. Indeed many of the world’s leading countries are in the process of agreeing a Global Anti-Counterfeiting Trade Agreement.

 

Brand managers today also have a vast range of weapons at their disposal – from legal action to anti-counterfeiting and authentication technologies.

With threats to brand integrity growing, there is an increasing need for quick and easy ways to differentiate fake products from genuine ones. The function of authentication technology is to help examiners – customs, police and consumer protection agencies – identify the genuine product in ways that are not obvious to counterfeiters, who are increasingly adept at copying products and packaging.

 

It enables the examiner to look beyond the obvious characteristics of the product in order to determine to a reasonable level of certainty whether the item is genuine. Conversely, the absence of the non-obvious characteristics will betray a fake, even though it may look exactly like the genuine one.

Authentication can be used anywhere. Devices come in a wide range of forms and have multiple applications on products and packaging in industries and sectors worldwide. Among the most common technologies employed are:

·         Overt devices which are visible to the naked eye including holograms, colour change inks, iridescent films and reflective materials

·         Hidden devices which are revealed to the human eye through the use of a handheld inspection tool – such as a plastic film overlay, a UV light or magnifying glass. This includes ultra violet inks, micro-text, scrambled images and even holograms

·         Covert devices – such as chemical taggants, electronic identifiers, DNA, magnetic labels and embedded codes – which need a sophisticated detection tool kit.

·         And forensic devices, which require laboratory analysis of the product and any markers used.  

 

The effective deployment of these products requires close collaboration between IP rights holders and the organisations that inspect these products. It’s also important to remember that these technologies on their own can never stop people from attempting to counterfeit, but they will quickly highlight when a threat exists so action can be taken.

As brands have had to respond to the new threats – such as global supply chains and the internet – this has naturally impacted the authentication industry. As a result, authentication devices have become increasingly complicated in recent years.

 

Today’s devices are often multi-layered and used in conjunction with other features to enhance the level of security. This means that the top level is often visible to the consumer, while a lower layer contains a means of examination not apparent to the brand pirate. The examination is often a two-stage process – the first in the field, the second in the lab.  

 

A big part of this has been the increasing use of sensory technologies (such as holograms or other technologies that rely on one of our senses) alongside digital systems. The application of digital systems has grown significantly in recent years and generally relies on alphanumeric coding and connection to a digital database. The digital check is presented as a fait accompli to the person who needs to know the status of an item. Examples of this technology include track and trace systems, serialisation options as well as enabling technologies such as RFID and bar codes.

 

Using sensory and digital technologies together offers a more effective brand protection barrier. They complement each other and will allow products to be monitored through the supply chain and authenticated at the same time.

One of the big talking points at the moment is product coding and tracking systems. In particular, because they are seen as an effective means of controlling the supply chain and deterring counterfeits.

 

Pilot projects are already underway in several industries, most notably the pharmaceutical sector, which has undertaken a three year, multi million EU funded initiative called the BRIDGE project to test the viability of tracking every pharma product distributed in Europe.

 

Significantly, the pharmaceutical industry is not alone. The food and drink sector in Europe is running its own TRACE project to monitor products from ‘farm to fork’ and similar initiatives have been pioneered in America. This is also the case in the cigarette manufacturing industry. The World Health Organisation Tobacco Control Protocol includes provision for ‘unique, secure, and non-removable’ markings on cigarette packs, cartons and cases which will enable each unit to be tracked through the supply chain.

 

We therefore have some powerful alliances promoting the use of standard codes, methods of writing and reading these codes and systems to issue, store and transmit them. It will be interesting to see how these projects develop in future, particularly as the success of the BRIDGE project has demonstrated the viability of a product tracking system on a larger scale than ever before.

 

In relation to the point I made earlier regarding the combination of digital and sensory technologies, it’s telling that most of these organisations recognise that tracking the number and location of a product remains only one element of the fight. Authentication of the product is still required as a corollary. The EU’s draft pharmaceuticals directive refers to physical features as well as serialisation. This is an important message that brand managers must heed and a message the industry must promote.

The IAA represents 19 of the world’s leading suppliers and users of authentication technologies. Our aim is to reduce the global supply of counterfeits – and all the associated problems – through education, awareness and collaboration.

 

Authentication has a key role to play in brand security and the IAA is dedicated to advancing the understanding and effective use of authentication devices and technologies across society. We’re currently working with a multitude of trade bodies to achieve this by identifying problems and potential solutions.

 

Of particular significance is the work we are undertaking with governments, policy makers and standards bodies around the world to develop a robust and universal definition as to what constitutes a counterfeit product. This also includes the development of standards, codes and best practices for the use of authentication tools.

 

Defining what makes a counterfeit is a necessary precursor to the creation of an effective environment in which authentication tools can be used. Put simply, there’s no point in establishing an item is authentic is there is no understanding why it should be authentic.

The need for global standards is paramount and, if anything, has become more pressing following a recent court ruling in the UK. The judgement in question ruled a shipment of fake Nokia phones could not be confiscated and classed as counterfeit because they did not infringe Nokia’s trademark or IP - for the simple reason that they were not intended for sale in the UK or EU.

 

This is in spite of the fact the goods were genuinely fakes and sets a dangerous precedent that the only criterion for a counterfeit is that it infringes IP. It’s also confusing for authentication and anti-counterfeiting efforts in general. Brand owners use authentication systems to demonstrate if a product is a counterfeit. It will be confusing for everyone – particularly consumers – if a non-genuine product is deemed not to be a counterfeit only because it doesn’t infringe IP. 

 

This confusion comes at a time when one of the biggest challenges is in convincing brand owners of the need to invest before they see a return on investment. It’s the classic chicken and egg conundrum.

The main thing for brand and product owners is to be proactive and remain vigilant. This means installing different layers of security on products. The more layers of security you apply, the more difficult it becomes for the counterfeiter or the pirate to copy or misuse your brand. And ultimately this will very quickly lead to greater market-share, increase your profits, and most importantly of all, gain customer confidence.

 

Stepping up brand security will never stop people trying to counterfeit or pass off your products, but it will mean you have an effective deterrent; are made aware of the problem at an early stage and can take suitable action.

 

Brand security can be turned into a positive for your marketing image and, used wisely, can be very effective for your bottom line. The end game, however, is that the costs of doing nothing to protect your brand far outweigh the investment in any brand security measures. This is as true for big global brands as it is for smaller ones.