Fighting fakes: don’t judge a book by its cover—or a bottle by its label
In early February, police seized more than 9,000 bottles of fake Moët & Chandon champagne from a workshop near Padua in Northern Italy. Officials also found 40,000 labels that were due to be put on cheap bottles of sparkling wine.
While the counterfeiters’ motivation appeared to be profit it could have been so much worse for the duped consumers who thought they were buying one of the most famous alcohol brands in the world. Other alcohol brands have not been so lucky. In an incident in 1986, for example, a fraudulent winemaker in Italy blended toxic methanol with cheap low-quality wine, resulting in the deaths of 23 people.
Last year, authorities in Essex discovered a dangerous mix of alcohol and chloroform being passed off as vodka and sold at a discount, while in Manchester 130,000 litres of vodka laced with anti-freeze was found on sale. Fake alcohol kills hundreds of people every year, so news of the bust in Italy should be of concern to any brand owner that produces spirits. In the UK cases, the criminals used made-up brands rather than labelling bottles with known brand names. While a minority of consumers will deliberately seek out counterfeit goods, many more are duped into buying them.
Counterfeit wine accounts for some 20% of international sales, according to unofficial wine industry estimates published in the French newspaper Sud Ouest. According to a 2012 report by HM Revenue & Customs in the UK, alcohol fraud results in losses of up to £1.2 billion ($1.7 billion) per year to the taxpayer. Beer fraud is currently the most significant of all alcohol frauds affecting the UK, with 2012 estimates indicating that between 5% and 14% of all beer consumed is illicit, but fake wine is still a major concern, especially when consumers do not know they are drinking something that isn’t what the label says. In a survey by PwC in 2013, approximately 18% of UK residents admitted to purchasing counterfeit alcohol.
During the first half of 2013, Staffordshire County Council in the UK visited 400 local businesses during a ‘fake booze crackdown’, finding counterfeit alcohol in 73 stores and seizing more than 1,800 bottles. Nottinghamshire County Council’s trading standards officers seized 34 bottles of counterfeit wine labelled as Jacob’s Creek during an inspection at a store in Mansfield. It followed a tip-off from a member of the public who spotted a large number of spelling mistakes on the labelling including ‘Shardonnay’ instead of ‘Chardonnay’.
"Gartner predicts that by the end of 2018 intellectual property losses due to the increase in access to 3D printing by counterfeiters could total $100 billion."
In one of the largest seizures of counterfeit wine in London, a shop based in Edgware was fined £1,000 in 2013 and ordered to pay £750 in costs for being in possession of 249 bottles of fake Jacob’s Creek wine. Once again, design faults in the label alerted the authorities that the bottle’s contents weren’t what they seemed.
The biggest threat to fast-moving consumer goods brands is the access to technology that counterfeiters have. Advances in printing techniques and quality mean that fraudsters can produce authentic-looking labels and packaging for most products. Consumers, looking for the familiarity of the packaging, have no idea whether the ingredients inside actually match the description on the outside.
Brand owners can spend significant amounts of money educating their customers on the warning signs of buying counterfeits, but if the packaging on any product looks legitimate, it becomes so much harder to detect and remove.
Drug trade
One of the most-infringed market sectors is pharmaceuticals, where fraudsters control a significant amount of the annual trade in drugs. In the “Counting the Cost of Counterfeiting” report published by NetNames in 2015, it is estimated that up to 30% of the pharma drugs in circulation around the world are counterfeit. It’s not just the cost in lost revenues for the drug companies that’s concerning—up to one million people annually, according to a report by capital markets advisory firm Sophic Capital, are estimated to die due to the effects of counterfeits.
While the major growth in counterfeiting has happened through online channels, with consumers feeling more at ease buying certain drugs such as Viagra or Cialis anonymously online rather than face to face, a number of brand owners have faced the real concern of fake drugs being surreptitiously inserted into the supply chain and ending up on the shelves of high street stores. Five years ago Reckitt Benckiser, the maker of Nurofen, had to recall hundreds of thousands of packets of the painkiller after another drug had been maliciously inserted into genuine packets before they hit the shelves.
The dilemma caused by technological advances hasn’t been ignored by the authorities. Michael Ellis, head of Interpol’s Trafficking in Illicit Goods and Counterfeiting programme, was quoted in a report published by Zurich Insurance in 2014 as saying “developments in technology have allowed for better quality printing and packaging, resulting in much higher quality counterfeits”.
Add into the mix the emergence of high quality and cheaper 3D printers and any organisation can start to see that in years to come the lines between physical and digital counterfeiting will start to blur. Research and advisory company Gartner predicts that by the end of 2018 intellectual property losses due to the increase in access to 3D printing by counterfeiters could total $100 billion, as 3D printing will allow the transfer of physical objects as digital files. These can then be fabricated layer by layer by anyone with access to a 3D printer. Who will be the winner in this case: the IP owner, the consumer—or the counterfeiter?
Stuart Fuller is director of commercial operations at NetNames. He has experience in brand protection, in both retail and corporate re-sale markets. He can be contacted at: stuart.fuller@netnames.com
