Apps Help Fight

By Sean Gallagher  |  Posted 2003-12-11 Print this article Print

Meanwhile, toymakers arent the only ones getting Grinched by counterfeiters. The worldwide market for counterfeit merchandise—everything from faux-Prada bags to airplane parts--is estimated to be 7 percent of all world trade (about $350 billion in 2001), according to the International Chamber of Commerce. The quality of these counterfeits is increasingly close to the products they mimic—and sometimes come from the same factories. As companies outsource manufacturing to factories in China and other parts of Asia, they have found suppliers "over-running" manufacturing of their products—and selling the extras themselves.
New Balance Athletic Shoes has encountered just such a problem. In 2000, one of New Balances manufacturers, a Chinese plant owned by Taiwanese businessman Horace Chang, made more shoes than authorized and sold them abroad. When New Balance broke off its relationship with Chang, he continued to make the shoes and Chinese authorities refused to shut him down.
To prevent another Chang, New Balance employs a host of defenses. According to Ed Haddad, vice president for international operations at New Balance, the company monitors auction sites for counterfeit shoes, has its own high-powered law firm and uses a specialized search engine to find counterfeit peddlers online. New Balance called on GenuOne to stop counterfeiters like Chang. Using GenuOnes SourceGuard product marking technology and software, New Balance regulates how many shoes its overseas suppliers make by rationing the number of product security tags. The tags are small white pieces of fabric embedded with security features. These include invisible inks and metal "nanoparticles," almost molecule-sized traces of metallic isotopes that can be detected with specialized equipment. The tags are issued to each manufacturer by GenuOne based on electronic purchase orders that New Balance sends them—one pair for every pair of shoes, according to Haddad. While the tags themselves dont protect New Balance from overruns, they do help New Balance keep grey-market shoes out of countries with customs agencies that cooperate with New Balance. New Balance wouldnt comment on its returns or what it is paying GenuOne. Based on available market data, New Balance is paying an estimated $250,000 for GenuOnes software services, less than 5 cents a tag and roughly $100,000 for scanning equipment at factories and portable units for investigators. Actual amounts vary by approach, number of products and volume. A new version of the SourceGuard tag and software is giving New Balance more control by scanning its products at manufacturing and distribution checkpoints. Using tag data such as the number of each lot scanned coming off the assembly line, GenuOnes software can trace what has transpired to the product, from where it was manufactured to what store it ended up in. "Its not as much data as you would get from something like radiowave tags, says Jim Sciabarrasi, New Balances corporate manager for sourcing, purchasing and logistics. "But it has data, and more visual info for consumer to recognize this as genuine." Another GenuOne application is helping to guard against online sales of fakes. GenuNet, a specialized web data mining tool, can search Web sites selling New Balance branded products and compile product numbers, prices and stock-keeping numbers for analysis. Using data from GenuNet, New Balance can investigate possible counterfeiters or knockoffs. The database generates reports showing who is selling product under the New Balance name online and under threshold prices. If the sellers are not authorized New Balance dealers, or the price is well below suggested retail, New Balance can sic its law firm on them. The software also mines data from eBay, and can be used to message eBay to shut down questionable sales. Next Page: Hunting the criminals with lawyers and Web surfing.

Sean Gallagher is editor of Ziff Davis Internet's enterprise verticals group. Previously, Gallagher was technology editor for Baseline, before joining Ziff Davis, he was editorial director of Fawcette Technical Publications' enterprise developer publications group, and the Labs managing editor of CMP's InformationWeek. A former naval officer and former systems integrator, Gallagher lives and works in Baltimore, Maryland.

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