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Counterfeiters are costing plastics processors millions of dollars in lost revenue and endangering the jobs of countless workers.

Matt Defosse

April 1, 2005

21 Min Read
Thwarting counterfeiting takes special processing savvy

Counterfeiters are costing plastics processors millions of dollars in lost revenue and endangering the jobs of countless workers.

Ruth Orchard, director general of the Anti-Counterfeiting Group (ACG; High Wycombe, England), a lobby of more than 200 companies in 30 countries that aims to heighten awareness of the dangers of counterfeiting, says that in 2003 piracy and counterfeiting cost U.K. firms an estimated £10 billion (about €14.5 billion), and is responsible annually for putting more than 4000 people out of work. More than 50 million fake products were seized by EU Customs in 2003.

"Legitimate manufacturers and retailers pay taxes and have other overheads which criminal gangs do not have to pay in bringing their illegal copies to the market," says Orchard. The U.K.''s National Criminal Intelligence Service estimates that 26% of counterfeiters are involved in serious criminal activities such as money laundering and drug dealing.

"Product piracy and counterfeiting is nothing less than a global assault on consumers, businesses, and governments," says Tim Trainer, president of the International Anti-Counterfeiting Coalition (IACC; Washington, DC). Trainer says the IACC has been active in tracking the increasing influx of terrorist organizations into the lucrative underworld of criminal counterfeiting and piracy. The IACC is convinced that genuine and credible links exist.

"I do not know if the proceeds from counterfeited goods have funded terrorism, but I do have first-hand knowledge that individuals and families with direct ties to terrorists groups have been involved in product counterfeiting and have profited from selling counterfeit goods," states Larry Johnson, formerly with the CIA and U.S. State Dept.''s Office of Counter Terrorism, now running an international consulting firm, when questioned before a U.S. House International Relations Committee hearing.

Bryan Lewin, of the British Trade Standards Institute, says counterfeiting is seen by crime gangs as an easy way to launder money. Speaking to BBC News he said, "Some of these groups are involved in some pretty awful types of crime, such as people trafficking, drugs, and in some cases terrorism." He said the practice was particularly widespread in Northern Ireland.

The list of pirated plastics goods, or goods packaged in plastics, includes contact lenses, power tools, toys, home appliances, automotive parts, pharmaceuticals, and electronic products. But there are numerous measures plastics processors can incorporate in their products or packaging to help stymie fraud. "Anti-counterfeiting is a growth market, the objective being to identify luxury or high-value products in a way that minimizes their fraudulent reproducibility," says Andrew Jackson, applications marketing manager, at Sherwood Technology (Widnes, England).

Sherwood Technology has come up with a color-change additive, DataLase, to provide brand protection by providing products with a permanent, discreet mark triggered by low-power (about 10W) CO2 laser light. It can be embedded in laminates. The additive is compatible with all polymers except polyurethane, but Jackson says the company is working on a solution.

Goole, England-based injection molder Sherwood Plastic Products (no business relation to Sherwood Technology) uses DataLase to code polypropylene container plugs because the marker is indelible.

Sherwood Plastic says it previously used a YAG laser and ink-jet printers to mark sequential numbers and logs on tamper-evident plug seals, enabling containers to be tracked and logged. Unfortunately, the ink rubbed off. DataLase, sold as a masterbatch, can be dosed directly during processing. The additive undergoes a color change when exposed to CO2 laser light, and an image can be employed to authenticate products.

James H. Rittenburg, VP pharmaceutical at anticounterfeit solutions provider Authentix (Addison, TX), says his company has also developed protective devices. The method is based on phosphor technology that includes overt and covert multilayer marking, the latter readable with an IR pen that initiates a reaction, revealing different colors on the seal. The additive is added to the melt via gravimetric dosing. Developed under a contract from the U.S. Homeland Security Dept., the technology is being used to prevent tampering with 20- and 40-ft shipping containers.

Customers of such products are generally OEMs that want to authenticate their products, Rittenburg says, and they direct their processors to add such protective measures during processing. "The successful combination of our industry experience and technology has [resulted in recovery] of nearly $3 billion for clients in the last three years," he says. Companies that use this molecular recognition technology, which is based on marker molecules and monoclonal antibodies to detect the markers, target value-added products where the most illegal money is to be made, he says.

This is not always so, says Brian Brogger, VP at Microtrace (Minneapolis, MN), producer of Microtaggant, a microscopic, identifiable particle. Although anti-counterfeiting measures are touted for luxury goods, Brogger says, "Companies with low-margin, high-commodity items are also interested because these items are often a target of counterfeiters as well."

Based on various layer structures and colors, Microtrace can produce more than 37 million unique codes. They are delivered as compounds, produced by toll compounders including RTP (Winona, MN). The particles are not affected by processing heat (standard Microtaggants remain stable up to 350ºC while the high-temperature variety take the heat up to 430ºC). The technology enables brand owners to distinguish their plastic products from counterfeits via scanners and readers. Let-down ratios depend on wall thickness, color, surface area, and other features, says Brogger, but applications using ratios of 1¼100 or 2¼100 (particle/matrix material) have been used with success.

Frauds threaten world health

Serious counterfeiting is occurring in the pharmaceuticals sector. The World Health Organization estimates that fake drugs account for 10% of global drug trade. Therein, 16% have wrong ingredients, 17% contain inaccurate amounts of ingredients, and 60% are nothing but placebos. The cost of lost sales in the sector is an estimated $21 billion/yr.

"Packaging is the key [to protecting drugs from counterfeiting]," says Don McMillan, VP marketing at West Pharmaceuticals Services (Lionville, PA). "It is much easier than making changes to the drugs themselves, which can take a very long time to obtain FDA approval." West''s solution is a packaging protection program called Decoration-Identification-Differentiation (D-I-D).

It consists of a molded polypropylene button attached to an aluminum seal that covers a drug vial. The plastic button can be pigmented, printed, embossed or debossed with information for the user. Its matte surface accepts invisible inks readable under black light. Micro tagging agents can also be incorporated.

West molds these closures at its plants in Stolberg, Germany and Montgomery, PA. The U.S. facility has 47 Milicron and Netstal injection units with clamping forces ranging from 110 to 500 tonnes. West also has captive tool shops in Erie and Upper Darby, PA and sources supplemental tooling from specialty shops, says McMillan.

One problem encountered by drug companies, he says, is that used vials are retrieved from the trash, refilled, and packaged to look like the original. To counter this, one of West''s customers, Johnson & Johnson, has opted for seven different colored buttons and matching aluminum seals to indicate differences in strength for one of its medical products. If the colors of the cap and seal don''t match, the user should suspect that the authentic drug is not in the vial.

The U.S. Food and Drug Administration (FDA) just announced its initiative to promote radio frequency identification (RFID) technology as a way to track and trace drugs from point of manufacture to sale. It wants to have this system in place by 2007. This should open up benefits for processors. McMillan thinks so and West is currently testing a molded-in RFID chip and antenna set to launch by June.

"It''s not an easy thing to process and it takes considerable molding know-how," is all he will divulge of the company''s patent-pending process. He says he knows of competitors who have reject rates of up to 30% for their RFID devices but says West has a substantially lower rejection rate.

German molder Wilden (Regensburg, Germany) also says it is ready to integrate RFID tags into its manufacturing operations. Andreas Knie, Wilden''s head of planning and sales engineering, says the firm would like to work with its customers to develop the means to inject around the tags so they form a permanent piece of the final product and negate the need for post-process tagging.

Other anticounterfeiting measures recently announced include a yet-to-be-commercialized polycarbonate film enabling data storage by means of holography, from Bayer MaterialScience (Leverkusen, Germany). The Makrofol ID web could eventually change the way memory sticks, check cards, and other data storage products are made. The films are coated with a polymer, and holographic information can be written on this layer via laser beam.

Security of a different sort is offered by the Lumilux luminescent pigments, supplied by Honeywell (Morristown, NJ), which can be compounded into most thermoplastics. They absorb energy and emit it as visible light or as infrared or low-wave ultraviolet radiation. Emission begins immediately after light exposure. RC, MD

Putting a wall around your intellectual property

A country''s intellectual property could very well be its most precious resource, and the fact that China is beginning to acknowledge that concept as it moves from a nation that copies to one that innovates, is an encouraging sign to Ben Goodger.

"The Chinese government gets it about intellectual property [IP]," Goodger says. "It realizes that IP is something it''s going to have to deal with to really take its place as a serious economy." Although high-profile cases would suggest otherwise, the Chinese government has created a statutory apparatus targeting IP infringement, which is on par with global standards. Enforcement of that legal framework is lagging, but the fact that it exists is progress, according to Goodger, an attorney whose firm, Rouse & Co. Intl., is a global consultant on IP matters with four offices in China. "There are a lot of misconceptions about China," Goodger says. "One is that it''s a complete black hole. It''s kind of the Wild West. There are no laws and you can''t protect anything. That may have been true 20 years ago, but it certainly is not true now."

As part of an action plan created in part as a response to criticism from the U.S. and other western countries, China has promised to reduce IP infringement levels by increasing penalties; placing more IP violations under criminal investigation; charging those involved with the import, export, storage, and distribution of pirated goods; and criminalizing online piracy. Within two months of launching the initiative, authorities have prosecuted more than 1000 cases involving goods valued at $66.5 million and pursued 9800 trademark infringements, confiscating or destroying 10 million pirated goods, according to The China Daily.

The national campaign even features press events, seminars, and print and television ads to educate its populace about the deleterious effects of IP infringement and counterfeiting.

Those effects are already known in the U.S. where the International Intellectual Property Alliance estimates that American companies lose $1.8 billion annually to China in the form of copyright piracy. Last October, the U.S. Trade Representative, working alongside the departments of Commerce, Justice, and Homeland Security, created a government-wide initiative dubbed the Strategy Targeting Organized Piracy (STOP) to block the importation of pirated goods into the U.S.

Beyond looking to what your government can do, Goodger and others say companies must proactively protect themselves by registering patents and trademarks in China, and by creating contracts with nondisclosure and confidentiality agreements that safeguard their hard-earned technological edge. Speaking at the Society of Plastics Engineers Polyolefins Conference in Houston (Feb. 28 to March 2), Kelly Nowak, a lawyer with ExxonMobil (Baytown, TX) admitted, however, that patents, trade secrets, and other methods of securing intellectual property can be used offensively and defensively. "The right question is not, ''Will this technology get a patent,''" Nowak said. "The right question is, ''Is there a chance my competitor will get a patent.''"

Bad press

For all the media attention it''s gotten, the cases involving Pfizer''s Viagra and Chevrolet''s Spark illustrate cases where China is working through the courts to resolve issues, even if the American companies aren''t happy with the results thus far. In the case of Chevrolet, the release of its $9000 Spark at the 2003 Shanghai Auto show was undercut by the debut of Chery''s QQ, nearly identical to the Spark, priced at $6000, and created by a company owned in part by Shanghai Auto, which is General Motors'' joint-venture partner in China. GM, however, neglected to file for a design patent on the model, opening itself up to the infringement.

Pfizer''s Viagra patent was ruled invalid after a consortium of Chinese pharmaceutical companies pointed out that the Viagra patent filed didn''t disclose enough information about the production of the drug''s active ingredient to determine if it was indeed novel. Pfizer continues to fight this, obviously not wanting to disclose such a secret, but again, courts and laws are being used, not payoffs and backroom deals.

Dotting "i"s, crossing "t"s

When Milacron announced last spring that it would manufacture machines in China through a 70/30 joint venture with minority partner Jiangnan Mould & Plastic Technology Co. Ltd., it sought to avoid Pfizer''s and GM''s headaches with iron-clad agreements, according to Jay Woerner, Milacron VP of global manufacturing and sourcing.

Chinese management was sent to Germany for training, and Milacron used local knowledge gained from its 15-year sales-and-service presence in China to evaluate and screen supplier candidates for locally purchased parts. Once suppliers were found, confidentiality and purchase agreements were signed, according to Woerner, and the shops were given limited access to design and technical drawings.

Woerner says the company has not run into problems yet, and although it perceives differences in enforcement between the local, provincial, and national levels, Woerner says a willingness to pursue significant IP infringements is key. TD

Piracy for some B2B software makers a big concern

IQMS, a leading enterprise (ERP) software solutions firm in Paso Robles, CA and developer of EnterpriseIQ, recently opened an Asian subsidiary,

IQMS Asia, to develop the market, effect sales, and handle implementation and service for the company''s software systems. IQMS, whose ERP software provides manufacturing solutions for repetitive, process, and discrete manufacturing environments, now has a new office in Kaohsiung, Taiwan, the first of three offices planned for the region. A second is planned for Shanghai in March, and a third for Hong Kong before the end of 2005.

Does the threat of intellectual property theft in China bother the top executives at IQMS? "What we have going for us is that you need more than just our software to operate the system," says Terry Cline, executive VP. "You also need an Oracle database, and you need a license file as well, which is encrypted-and only we have the key."

Cline notes that most of the products he sees being pirated tend to be popular items sold in large volumes, such as purses, clothing, cigarettes-high-end, trendy items. "We sell a limited number of systems per year that are company oriented. Even with little R&D, the amount of time and energy required to truly reverse engineer everything a system like ours might do, just might be prohibitive.

"On another level," Cline adds, "to actually sell our system would be a major endeavor. You don''t have to show cost-benefits when you sell a fake Louis Vuitton purse, but you sure as heck do when you try to install or replace an ERP system. So maybe we are ''protected'' by simple economics."

CAD software, on the other hand, is a different story. In a recent issue of upFront.eZine, an online newsletter for users of CAD software, the editor noted that pirated copies of popular design software such as AudoCad and Pro/Engineer can be bought on the streets of China for $5, and that the software actually operates pretty well.

Brian Shepherd, senior VP, product management for PTC (Needham, MA) acknowledges that the company''s ubiquitous product design software, Pro/Engineer, is highly coveted by counterfeiters. "Pro/E is used all over the world, and piracy is a big issue for the company," says Shepherd. "We are being quite aggressive in fighting it."

PTC takes a three-pronged approach to fight counterfeiting of its popular software. First, the company invests in efforts to make it at least more difficult-"you can''t make it impossible"-to copy and use Pro/E. "That has been in place for years and we continue to strengthen it," says Shepherd.

The second prong is educational. "That''s important, especially in what I''d call emerging product development countries," Shepherd says. "Increasingly, a large amount of product development is being done in countries that don''t have a lot of respect for intellectual property. We employ educational campaigns and enlist the help of our customers to enforce our intellectual property rights by encouraging them to ensure their suppliers are using authorized Pro/E software. We remind them if their suppliers are using pirated copies of our product, what is to say they won''t copy their product and manufacture it? It makes them stop and think."

The third prong is a legal one. "Where we find rampant piracy, we go after them legally and recover monetary damages," says Shepherd, "and we have been quite successful at that. They quickly get the message that we have a zero-tolerance policy." PTC has recovered more than $4 million from companies using Pro/E software illegally; it''s doing so with the help of government agencies that recognize that counterfeiting is a barrier to their country''s economic growth.

IQMS''s Cline adds that he doesn''t have an answer to this problem, "other than to keep an eye on things, make sure contracts clearly spell out our intellectual property rights-not that that would stop someone from trying-and make sure we know where our software is and what is licensed."

PTC''s Shepherd concludes that no one approach to combating counterfeiting is enough all by itself. "All three of the steps we''ve taken make a good barrier, and we''ve also joined the Business Software Alliance, which has a strong publicity and enforcement arm to help us and other industry leaders to strengthen our battle lines in this ongoing war." CG

TimeWarner joint venture looks to deep-six DVD piracy

Warner Home Video announced on Feb. 24 that it would form CAV Warner Home Entertainment Co., a joint venture with China Audio Video, making Warner Bros. the first U.S. studio to establish an in-country DVD/VCD distribution and marketing operation in China. Based in Shanghai, CAV Warner Home Entertainment officially launched operations on Feb. 24 as well.

The JV follows extensive analysis by Warner of the dynamic Chinese home video market, and aims to capitalize on China''s enormous consumer demand, expected to exceed one billion units in 2005.

"China has been an important market for years," said Jim Cardwell, president of Warner Home Video, in a prepared statement. "But too often Chinese consumers have had to choose inferior products on the illegitimate market that were available sooner but with poor quality. CAV Warner Home Video is committed to creating a better consumer experience and increased demand for legitimate products via world-class quality, reduced pricing, Mandarin dubbing and subtitles, enhanced content, and shortened release windows."

Wang Xiaoran, president of China Audio and Video Publishing House-and president of the JV-said that the potential for legitimate sales in China is extraordinary. All product will be replicated locally in China. CG

Fakes earn boos

Counterfeiting has turned into such a plague for honest producers that Rido Busse, designer and founder of Busse Design (Ulm, Germany), decided to initiate a negative award, the "Plagiarius," as a means to inform the public about the problem of fakes and their impact on the economy.

The prize for lack of creativity and greed for 1:1 copies is presented annually at the world''s largest consumer goods fair, "Ambiente," in January (Frankfurt). The jury of Aktion Plagiarius consists of high-powered names in the industry including Johannes, count of Esterházy, director of brand integrity for Philip Morris International Management (Lausanne, Switzerland); Lisa Maria Franke, managing director of Bayern Design (Munich); Karlmann Geiss, former president of the German Federal Supreme Count; and Antje Sedemund-Treiber, former president of the German Federal Patent Tribunal (Munich), to name a few.

A total of 30 prizes were awarded to companies the jury found guilty of the most flagrant design imitations. Although not all "winners" come from the plastics sector, this year saw the third prize go to Sagad S.C., based in Kobylka, Poland, which the jury says processed an exact copy of an injection molded server "Etagère Babell" from Koziol>>Ideas for Friends GmbH, (Erbach, Germany; photo, original at left). Koziol has often been stung by counterfeits of its household item designs. Busse presents a prize consisting of a black-painted garden gnome with a gold nose to signify "illicit earnings from product imitation." Previously the Aktion Plagiarius ran the Plagiarius Museum in Berlin where originals and copies were displayed next to each other, but lack of funds forced its closing. RC

China has promised to get tough on the intellectual property theft plaguing global companies manufacturing there. Although not yet known as great innovators, the Chinese are certainly great imitators, and in some cases Chinese knock-offs even appear on store shelves before the genuine article. Recently, China has started beefing up its protections for intellectual property by extending criminal penalties, but, according to a Dec. 22 Wall Street Journal report, China has ignored "widespread lack of enforcement" that allows piracy to flourish.

In many cases, says the report, Chinese companies that produce pirated goods merely write off the penalties as a cost of doing business. Now, however, the prospect of jail time looms larger because the threshold for such sanctions has been lowered for intellectual property theft. Under the new law, implemented on Dec. 21, 2004, "violators who counterfeit copyrights and trademarks, and produce or sell at least $6000 of such goods, face prison terms of three to seven years."

Still, the proof will be in the pudding as to whether or not Chinese officials uphold their own laws and really start cracking down on counterfeiters and copycats. Until such time, innovators are coming up with new ways to prevent counterfeiting and copying. A report by the International Intellectual Property Alliance, which represents U.S. movie, music, and software interests, ranks China as by far the world''s largest scofflaw on copyright enforcement. More than 90% of all copyrighted goods sold in China are counterfeit, the group said in a recent report.

GE Advanced Materials, a $7 billion unit of the General Electric Co., and Plextor Corp., a leading developer and manufacturer of high-performance digital media equipment, announced last year an exclusive joint development agreement to make and market a 52X CD-R/RW optical disk drive that can recognize GE''s SecurOQ resins on disks. Designed for digital rich-media kiosks, the highly specialized drives and disk media form a system for the secure delivery of digital content, such as music and movies, to paying consumers.

The Plextor optical disk drive is capable of validating several SecurOQ security features that GE has designed into SecurOQ materials. The optical drives, manufactured and sold by Plextor, and SecurOQ disks, enable OEMs and kiosk integrators to create secure music-distribution kiosks.

"Our joint development agreement will result in a more secure solution for the music and video industries, where content providers want confidence that their content is made available through a secure system and not subject to compromise," says Greg Adams, general manager, Global Marketing for GE Advanced Materials. "Now consumers will have even greater access to the titles and content they want, when and where they want it."

Howard Wing, VP of sales and marketing for Plextor, adds, "While the SecureOQ system was originally designed to protect content providers, it will also give other industries a means to control the authorized download of sensitive data to include software, drawings, manuscripts, and other sensitive datasets."

Steve DeHoff of Stress Engineering, a Cincinnati-based consulting firm, says that in his experience, very few companies are really concerned enough to take steps to prevent their products from being stolen. "Fundamentally, nobody is doing anything," he comments. "[OEMs] take tremendous risks, but the desire to get that money is so big that they go [offshore] anyway." DeHoff says he has been in on a couple of discussions where the question of intellectual property safety is mentioned, "but I''m not getting any indications that anyone is doing anything about it."

To reverse-engineer a plastic part it is a no-brainer, unless there''s a patent in the way or it''s molded of some unique material. "The only thing people can do other than patent their product is keep it under a roof someplace," he says, noting that one large consumer-products OEM uses a tightly controlled U.S. supplier base, and when it comes to a new product it keeps it tightly under wraps until it''s released for sale. "The main constraint isn''t technological, it''s legal. Laws control peoples'' inherent behavior."

DeHoff adds that intellectual property theft is not a topic coming up often in conversations about where in the world a company will manufacture its products. "There''s no indication that they want to spend the money to put `markers'' in their products to trace the origins of manufacture. Still, many large companies don''t take their first generation products to China for manufacture because there''s really no way to protect them." SM

Contact information



Bayer Materials Science  





Sherwood Technology  

West Pharmaceutical Services  

Rouse & Co. International  


Aktion Plagiarius  

Koziol>>Ideas for Friends GmbH  

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