Say the word “counterfeit” and most people think of minting money on a homemade printing press.
But law enforcement officials say the real money is in counterfeiting products, not currency. The International Chamber of Commerce’s Counterfeiting Intelligence Bureau estimates the overall cost of product counterfeiting is as much as 5 percent to 7 percent of total world trade – roughly $500 billion (USD) a year. From electronics to high-end handbags, sunglasses, cigarettes and even pharmaceuticals – nothing is immune from counterfeiting.
On the surface, counterfeit products may seem relatively harmless – and perhaps even a bargain to some consumers. In particular, manufacturers of luxury goods have been extensively victimized as sidewalk and backroom vendors lure consumers to buy copy products at a fraction of the original’s retail value. Consumers often see this as a victimless crime and rationalize their action by saying, “Well, it’s only a copy and I’d never to able to afford the real article so no one has lost anything.”
Unfortunately, this rationalization widely misses the mark. Counterfeit products support organized crime, international terror, undermine companies’ financial health and steal jobs. If the product is a counterfeit pharmaceutical severe medical consequences can be the result. There are plenty of victims to go around.
Counting the cost
According to the International Anti-Counterfeiting Coalition, the global trade in illegitimate goods has increased from $5.5 billion in 1982 to approximately $500 billion annually today.
The indirect costs of counterfeiting are less tangible, but just as destructive to the corporate bottom line.
Company brands and commitment to quality – worth millions more than a company’s physical assets – are easily destroyed by counterfeit products that do not meet consumer expectations. Brand names associated with subpar performance or serious safety issues can be detrimental to a company’s long-term viability. Even more destructive are counterfeit products that are so unsafe they taint an entire industry in the public’s eye.
There are also legal ramifications to consider. If a counterfeit product bearing a brand name causes injury, the victimized organization could be the target of legal action even though it had nothing to do with the product’s manufacturing
Combating Counterfeiters – An Example
For more than a decade Underwriters Laboratories (UL), the independent safety testing organization, has taken an aggressive stance against counterfeiting the UL Mark.
About 20 billion legitimate UL Marks appear on products entering the stream of commerce each year. Although counterfeit UL Marks have been detected on imported electrical products, this represents only a small fraction of all UL Marks used annually. However, because of safety concerns involved in the certification of electrical products, UL employees believe even one counterfeit UL Mark is one too many.
Through a comprehensive program that involves law enforcement agencies from around the world, UL works closely with U.S. Customs and Border Protection (CBP) personnel to provide them with the information necessary to distinguish between authentic and counterfeit UL Marks.
Since 1995, there have been more than 1,500 seizures of products with counterfeit UL Marks at entry ports from coast to coast, preventing millions of counterfeit products from reaching consumers. UL also conducts ongoing training for CBP and Immigration and Customs Enforcement (ICE) at key ports of entry throughout the United States, and the organization works closely with the Royal Canadian Mounted Police (RCMP) in Canada.
In addition, since customs officials identified increased issues with some products imported from China in 1993, UL has mandated the use of difficult-to-reproduce holographic labels on various product categories, such as holiday decorations, seasonal lights, power supply cords, lamps, and fans. Today, UL requires holographic labels on 57 categories of products manufactured in China and around the world to combat counterfeiters.
Determining Risk – who is a target and who isn’t?
Many company leaders believe their organization is safe from counterfeiting, but no one should assume so without first analyzing the overall industry risks. High-volume, low-cost, easily copied products are frequent targets for counterfeiters. Likewise, products with high profit potential are attractive for counterfeiters.
New items that are in heavy demand also rank high on counterfeiters’ hit lists. For example, each generation of a popular video game console brings a new round of counterfeit games and accessories flooding the market.
The supply chain is also an important cog in the counterfeiting machine. The less control one has over the suppliers and distributor network, the more opportunities exist for counterfeit products to enter the market.
To determine whether a company has a counterfeiting problem, managers need to be aware of what’s happening in the marketplace and ask questions of key people throughout the product chain, from sales to distribution to retail outlets.
Even if a company doesn’t currently have an obvious counterfeiting problem, establishing a comprehensive anti-counterfeiting program can reduce future risk.
Manufacturers also need to know there is no “off-the-shelf” solution that can address each organization’s unique needs. Anti-counterfeiting is a complex undertaking and many manufacturers don’t know where to begin or what type of resources to put against the problem. Seeking guidance from an independent third-party — an organization with expertise in developing anti-counterfeiting programs and one that maintains relationships with global authorities to help stem the tide of counterfeiting activities — can help put companies on the right track.
A comprehensive, anti-counterfeiting program is only as good as a company’s commitment to that program. Manufacturers must take a zero tolerance approach to counterfeiting. It’s not just a matter of getting counterfeit products off the shelves; it’s also supporting law enforcement, up to and including testifying during prosecution, if necessary.
In the end, manufacturers have the most to lose from counterfeiting. The first step in combating counterfeit products is determining if an industry or organization has a problem and implementing anti-counterfeiting measures. It is also a good strategy to work with other manufacturers, both within the same industry and in other industries, and anti-counterfeiting agencies to develop a solution.
Counterfeiting is a serious crime that affects entire industries, erodes the bottom line, and leaves the public exposed to significant safety hazards. By implementing a thorough anti-counterfeiting program, partnering with other organizations, and working with the authorities, manufacturers can protect their brands, their reputations and help combat this worldwide problem.
Keith Williams was appointed President and Chief Executive Officer, Underwriters Laboratories, May 1, 2005. Prior to this appointment he served eight years with Medtronic, Inc. in successive roles as President – Asia/Pacific Operations, President – Neurological and Spinal Business, and Chief Quality/Regulatory/Strategy Officer. Recently, he was elected secretary/treasurer of the U.S.-China Business Council.
Founded in 1894, Underwriters Laboratories is a global enterprise committed to improving safety for people in their homes, schools and places of work.
UL provides conformity assessment and factory support services, Water Quality, Electromagnetic Compliance testings, Quality Registration Services
and Medical Device Registration Services. Visit www.ul.com.