Counterfeiting challenges manufacturers both online and off

There's real money to be made in counterfeiting—no pun intended. The U. S. Chamber of Commerce estimates that counterfeit products make up 5 percent to 7 percent of global trade—roughly $450 to $500 billion a year that should be going to the brand owners. Now manufacturers are looking for automated strategies to fight back.

The burgeoning market in fakes—everything from drugs to car parts—is nurtured by three factors, says Jeffrey Unger, CEO of brand-protection software vendor GenuOne. "Globalization and outsourcing spreads intellectual property all around the world. Then there's supply chain leakage. Finally, you have the Internet."

And the Internet has changed the dynamics of fakery. "It's a great place for distribution. You can sell anything counterfeit overnight on auction sites or trade boards," says Unger.

For example, Philadelphia-based Mitchell & Ness sells vintage athletic apparel at prices from $250 to $500 per piece. But knock-offs available on eBay and other auction sites at deep discounts erode the brand's value and damage relationships with legitimate distributors and customers.

Now Mitchell & Ness uses GenuOne's GenuNet Auction, a proprietary hosted service that monitors auctions, chat rooms, and Web sites to identify sales of fake products, track suspicious sellers, and shut down infringing auctions.

The software searches for suspicious keyword combinations, filters the results, and presents them so Mitchell & Ness can determine if the products for sale are legitimate. "We eliminate words like 'used' or 'pre-owned' and look for things like '100-percent authentic' and 'deep discount.' We check for actual images as well," says Unger.

A company can ask the auction site to stop offending auctions automatically by clicking the "request shutdown" button in GenuNet. The auction site is notified by email of the details of the infringing listings. Reputable auction sites typically close down auctions of suspicious goods at the request of legitimate brand owners.

GenuNet also tracks the total number of shutdowns made over time to track progress and to identify patterns among repeat offenders.

Using the system, Mitchell & Ness closed down 36,000 auctions with an estimated value of $11 million in brand erosion in less than a year, according to Unger.

Keeping counterfeit items off auction sites is not the only tactic required to protect brand equity, says Unger. Offline protection involves a combination of strategies: marking products, tracking them, and securing the supply chain.

Manufacturers mark labels with RFID tags, security bar codes, or special inks, thread, or holograms—anything that makes copying the label harder. Authentication strategies include RFID, serialization, and other track-and-trace technology to guarantee that delivered product is produced by the legitimate brand owner.

Securing the supply chain is a more complex matter. Companies must leverage their detailed knowledge about the entire supply chain—contract manufacturers, logistics providers, warehouses, and distribution centers—because counterfeit products can enter the supply chain at any one of these points, says Unger.

"Companies have to know that factories and distributors are producing and selling what they're supposed to. They need to know what was produced, where, and when," he says.