Ever since EBN reader Rich K made a comment in response to one of my articles on counterfeiting, I have been considering the nuances of his statement, which in reality was a joke but one with an ironic twist. Rich said: "News Flash: Investigators today discovered that the entire mainland United States had been counterfeited and packaged to look like the original." (See: Calm Down: Counterfeiters Can Be Stopped.)
Now either he was just being silly or he was really making a serious statement. So, I went back into the EBN archives and read his stuff. He is very funny most of the time, but he is also a lucid writer with some serious chops. So I let myself ponder his statement. Here are my thoughts.
Counterfeiting implies deception: Make something that looks exactly like the higher valued, genuine article. Phony, imposter, knock-off, not genuine, bogus, forgery, and other words and phrases come to mind. But follow me down Counterfeit Lane and we may discover road signs and landmarks that justify, in part, what Rich has said. Let's look at just a few industries and practices that are targeted by counterfeiters.
Pharmaceutical, including medicine and supplies:
The FDA has a sub page on its Website that lists the medicines that were found to be counterfeit, including: cancer fighters, birth control (uh-oh), weight loss pills, Viagra, Adderall, Vicodin, Avastin, Tamiflu, and Alli, among others. These are some pretty heartless counterfeiters. Imagine using an anti-cancer drug that at best does nothing to combat cancer and at worst causes additional damage or even death by being some other contraindicated drug that has been rebranded.
Clothing:
Applied DNA Sciences is helping to fight this front with DNA marked threads tagged with the designer's and manufacturer's custom ID. Gucci handbags, wallets, and other high-end designer items are knocked-off all the time.
Jewelry:
In 1984, I bought two Rolex watches in Taiwan for $20. I believed they were genuine and thought the guy who sold them to me really "did me a solid." Back in the US, I took the watches to a watchmaker who had to study them for a while before concluding their counterfeit status.
Music and movie CDs and DVDs:
Entertainment media is a major target for counterfeiters.
Software:
It looks like MS, plays like MS, even works like MS, but it is BS.
I continue my pursuit of counterfeit worlds closer to home. Recently, a friend told me that when I go in for a consulting interview, I should dye my hair a darker color so I look younger than I really am. He said that this change alone would help me land some clients. He also said I should "doctor up" my résumé with some advanced degrees so it tailors more to what any particular prospect is looking for. I did consider his hair-dying suggestion for about 10 seconds, and then I projected myself forward in time and saw myself being locked into a routine of dying my hair regularly in order to keep up the rouse.
I concluded that I was not going to keep pouring chemicals on myself in order to keep a job while tacitly lying about my age. In electronics terms, this type of counterfeiting is called "blacktopping." And my résumé? It remains unchanged. My résumé and I are the genuine articles. My friend's heart was in the right place, but if I had taken his advice, I would have made myself into a counterfeit employee or consultant.
A LinkedIn group leader I know decided to do a background check on his members claiming to be degreed engineers. Let me add that he has several hundred profiles to review. He told me that 40 percent of the degrees were bogus. May I suggest that this may be the very pathos behind our casual acceptance of counterfeiters' goods. Why pay 600 dollars for a real G wallet when I can get one that looks like the genuine article for 20 bucks? "It ain't hurtin' anybody and G won't miss my dollars because they make plenty of money anyway."
See what I mean? It is to live a dishonest, counterfeit-laden life. I am sorry to say, but comments very close to the above were made on replies to my article. Rich K may have been semi-serious when he made his unique remark, but I assure you that counterfeiters are deadly serious because, in some cases involving bogus electronics and medicine, they are real merchants of death.
It is good for ADNAS, b/c now they can milk the industry with their outrageous license fees. They won't even have to tell anyone that their 'field test' has nothing to do with detecting DNA, but instead detecting green upconverters (available online form China) that are mixed with DNA.
And what about the fact that the Applied DNA "Signature DNA" product is named in at least two patent infringement lawsuits in the US? Ironic.
I assume you are employed in some way by ADNAS GMan?
Did you happen to notice that DLA issued a mandate that requires suppliers of microcircuits that are deemed at high risk of being counterfeited to become a customer of Applied DNA Sciences and use their DNA SigNature product to mark chips.
you are right on that point, I want to say that that is another major factor that encourages counterfeiters because based on this point, some of them justify their inferior products in the name of making available to the masses what seems reserved for the few.
All, I thought about not citing this study from 2008 and then it occurred to me that since the problem is much worse today, it actually may serve to provide a graphic understanding of what we are up against. SAE International and the International Anti-Counterfeiting Coalition (IACC) published some eye opening statistics. Since 1982 where global trade in illegitimate goods was $5.5 Billion, as of October 2008, that number increased to $600 Billion. Of that, the cost to the US economy was about $250 Billion and contributed to the loss of 750,000 American jobs. (FBI Estimates) As of2008, the ERAI received complaints and confirmed that 2800 brokers were selling counterfeit components. I read tonight that the Global Broker's membership is close to 3500 so that means that the brokerage houses are replete with counterfeit goods and are passing them on through illicit to llicit supply chain channels. Well, here we are 4 years later with an increasing problem and so it is safe to say, we are still losing jobs over the counterfeit phenomena. Buying a knock-off G wallet may seem harmless, but we have to ask ourselves, wh doesn't have a job today because of the counterfeiting situation. I don't know how the FBI could have made that determination, but there it is. The paper I am referencing was entitled "Counterfeit Electronic Parts; Avoidance, Detection, Mitigation, and Disposition" SAE AS5553 Standards Development Progress. Phil Zulueta, October 2008.
I see what you are saying. When I mentioned "no harm", I was trying to say no harm is done to the consumer (unlike the harm done to a consumer by a counterfeit drug). Obviously, the manufacturers of the genuine brands do suffer as a consequence of counterfeiting.
Also, on another note, when the value of an item gets cheaper, isn't it true that the motivation for counterfeiting declines? If that is true then as in your example, when a person who cannot afford a real Rolex goes and buys a fake one, Rolex's business is not harmed at all. However, if the counterfeiters sell the fake Rolex for the price of a real Rolex, then there is a big problem there because the consumer is directly exploited and financially harmed. I think the counterfeiting problem with the big brands is exactly that.
@Douglas Personally, I don't care about displaying brands, but in our consumerist world people do size up others by their labels. One other interesting thing about luxury logos: in one book I read, it said that even within the same label, the higher the price on the item, the smaller the logo. The cheapest of such items is usually a T-shirt, which has a fairly large logo, but that logo gets smaller and smaller on more costly items. In part, it's part of the assumption that those people who are truly in the know will recognize the brand form the style and so do not need a big logo to tell them that it is a designer piece.
@Ariella, great coverage! There are many worlds out there and some are not worth visiting. Power, position, and appearance should not be a measure of a person's true value. But in some venues, sad as it is, if someone wants to go higher on that ladder, then the top level is forged from perceptions and not reality. What one possesses is not an indication of character, but there are professional counterfeiters who also target character as a mode of profit. These crooks are called con men and women. They are themselves counterfeit. I can't help but think that our value systems are all screwed up when people have to put on aires to get ahead. False resumes turn a lot of people into con artists. False purses and jewelery are just external symbols of internal insecurities. OOOOOOOOOOO I know I am going to get roasted for that.
There are two customers for the fake Rolex: the one who knows it is fake and the one is under the delusion that he has found a great bargain. Most fall into the former category. The same applies to designer handbags sold on street corners throughout the city of New York. Some of those sellers will even let you select which brand logo you want applied to which bag. Because of this, whenever I see one of those bags, I assume it is fake, though I do live in an area where women wouldn't hesitate to spend a couple of thousand dollars on a bag, and where men would do the same for a watch.
Less than a month ago, The Economist ran an intersting piece on knock-off luxury good, particularly in China:
A Prada handbag is a bundle of two things: a well-made product and a well-marketed brand. But some consumers value prestige, not quality. Fakes allow shoppers to "consume" the prestigious brand without buying the high-quality good, as Gene Grossman of Princeton and Carl Shapiro, now of the University of California, Berkeley, pointed out in a seminal 1988 paper. This unbundling no doubt drives Prada and others mad, but it would seem to be a boon to consumers.
Or is it? As Messrs Grossman and Shapiro also point out, a luxury brand confers status only because it is exclusive. It has to be "widely popular but not widely accessible", as one marketing professor puts it. People who buy Prada are paying for exclusivity. The devils who wear counterfeit Prada erode that exclusivity, imposing an "externality" on owners of the genuine article.
As counterfeiters rush to replicate a brand, the brand owners fight to distinguish themselves from the fakes. In a recent paper, Yi Qian of Kellogg School of Management studies the response of branded Chinese shoemakers to an influx of fakes after the government shifted its enforcement efforts to more urgent things, such as stamping out counterfeit food, drugs and alcohol. Many shoemakers reacted by improving the quality of their footwear, importing Italian pattern-pressing machines and using pricier materials, such as crocodile skin. Their response contradicts the popular notion that fakes inhibit innovation and investment. But firms also raised prices by more than was warranted by their extra costs. Buyers of fakes therefore impose a cost on people who want to buy the real thing. They make brands less exclusive-or more expensive.
But it is possible that buying genuine luxuries imposes an externality of its own. Status, after all, is a "positional" good. To be top of the social heap, it is not enough to have fine things. Your things need to be finer than everyone else's. Someone who buys a more expensive watch or car to climb up the social ladder forces other social climbers to spend more to stay ahead. In making their purchase, they will carefully weigh how much prestige their big spending will buy. But they will not take into account how much extra everyone else will now have to spend to preserve their social position. As a result of these "arms races", China may be overspending on luxury goods.
@cryptoman... Well stated, however, I do take issue with the "no harm" clause. Human nature, character, and behavior is all over the map and so while we can justify to ourselves almost any action, theses "harmless" counterfeits are violating a moral principal at its root. The 2800 employees and families at Rolex are losing the full return on their investments every time another counterfeit watch is sold into the marketplace. Even as I write this, I am saying to myself, "well, those people who are buying the bogus watches couldn't afford a real Rolex anyway so Rolex isn't really losing any sales." But, Rolex is an extreme example and the principle that is being violated applies to less costly items that have definitely robbed the genuine OEM and their employees as the market for any single product is only just so large and bogus parts flowing into that market space, leave a smaller slice for the rightful producers. So we cannot truly say there is no harm done.
While I agree that counterfeiters are evil, I cannot help thinking they may not be the only ones to blame.
Counterfeiters are in business because there is a market for counterfit out there. Who creates this market? Basically, people who want to show off by pretending to own a G wallet or a Rolex. Some people are so desparate to earn a credit that although they cannot afford to be a part of the real club, they still want to look like a member of the club by faking it. While hoping to become one of the few special, (probably without even realising) they become one of many ordinary who are fakes!
I must make one distinction at this point. My statements above do not refer to the counterfeiters who sell fake drugs, medicine and medical supplies. Those people are the true merchants of death in my opinion too. The buyers of counterfit drugs are not doing it to show off obviously but they become the unfortunate victims of a crime while struggling to restore their good health.
So when it comes to counterfit, there seems to be two main trends:
1 - Counterfitters provide the goods for consumers who are happy to fake things (no harm done to consumers)
2 - Counterfitters "push" fake goods to market to trick innocent people. (directly and severely harms consumers)
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RFID makes it possible not only to increase the quantity and types of products streaming through the supply chain, but also to build higher-level products and services.
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