What do an off-colored Coach bag and a sugar pill have in common? They are part of the hundreds of billion dollar counterfeiting industry that innovators such as Dr. Ashifi Gogo are trying to bring down. Dr. Ashifi Gogo is the CEO and co-founder of Sproxil, an award-winning company that offers counterfeiting solutions for manufacturers, and is a Dartmouth Ph.D. Innovation Fellow. Last May, Jones gave a Jones Seminar on the topic of counterfeiting, from its long history to modern-day solutions.
The phenomenon of counterfeiting is by no means a new one. Societies have been fighting counterfeiters for hundreds of years, even before the development of representational currency. In fact, the Aztec empire is believed to have faced counterfeiters of cocoa beans, which were an important commodity in pre-Colombian Mesoamerica. Also, in late 17th century Europe precious metal coin currency emerged, only for the unscrupulous to shave off edges of the coins for additional profit. In fact, this is what led to coins, even modern-day examples, having serrated sides, since this makes it a great deal easier to spot shaved edges.
The effects of counterfeiting can be devastating to a national economy. For example, in 1925 a Portuguese man named Alves Dos Reis once used fake contracts to order the printing of legitimate money; he printed off a staggering 1% of Portugal’s entire GDP before being exposed. The result was a major economic crisis in Portugal along with hyperinflation. Meanwhile, in 2004 a group of four Canadian counterfeiters led the Canadian government to change their currency system itself at a cost of 300 million dollars. During World War II the Nazis even tried to use counterfeiting as a weapon of war; they planned to flood Britain with fake notes to cause economic disruption. Today, the issue of counterfeiting is even more relevant than in the past. Estimates peg that 10% of drugs in developing countries may be counterfeit, leading directly to the deaths of hundreds and and indirectly to the deaths of countless more through lack of proper medicines (1). From fake bills to knock-off luxury goods, counterfeiting is pervasive in our modern world, and may even be increasing.
Unfortunately, consumers themselves may help counterfeiters, something known as deceptive counterfeiting. In this form of counterfeiting, the consumer realizes that a good is counterfeit but chooses to purchase it regardless. A good example of this would be someone buying a knock-off Coach bag for an obviously too low price. Dr. Gogo said that these actions are explained by Conspicuous Consumption Theory; we try to sometimes go out of our way to create or reinforce an image for ourselves. Meanwhile, non-deceptive counterfeiting is when the consumer is unaware that a purchased product is counterfeit; this is often the case with fake medicines. In both situations, the counterfeiters have made a large profit from very low production costs, and so counterfeiting is wildly profitable.
In response, Dr. Gogo founded Sproxil, initially to combat counterfeit drugs in developing parts of the world. In order to solve the problem of discerning fake goods from real ones, he invented a revolutionary new system based on SMS messaging. It works like this. When a consumer goes to buy a Sproxil-protected good, they will find a scratch label on it, similar to the kind lottery tickets often use. In order to check the legitimacy of the product, the customer will then send by text the label-unique product number to the Sproxil phone number, also on the label. Since all labels have the same phone number, counterfeiters cannot simply slap on their own tags displaying the wrong phone number. The text message will be processed through secure servers until it reaches Sproxil’s secured cloud network. The system will then verify that the number on the label matches the number for a legitimate product and send back a reply. The system’s two main advantages are low cost, since most of the world already owns a cell phone, and ease of use, since the customer simply needs to scratch the label and text the product number. This counterfeiting solution has already been adopted by over 160 million products worldwide.
However, Dr. Gogo believes that the fight against counterfeiters is not over, and may actually never end. Citing history, he explained that every time a new technology is devised to fight counterfeiters, they quickly develop a solution and the cycle continues. He feels that it is only a matter of time before even Sproxil’s SMS system is cracked. Indeed, counterfeiters have already taken aim at Sproxil’s system, embarking on misinformation campaigns and attempting to set up parallel systems to intercept text queries. Dr. Gogo stated that the best way to protect goods is to embrace new technologies quickly and as much as possible, in effect putting distance between you and the counterfeiter. Also, he recommended that consumers stay with what they know best; it may not be a good idea to switch from a trusted drug or product to another. Finally, if it seems too good to be true, it probably is, according to Dr. Gogo.
Counterfeiting remains a major concern throughout the world, and Dr. Gogo describes it as “a game that few win and many lose.”
1) Khazan, Olga. Here’s why 10% of the Developing World’s Drugs are Fake (2012). Available at http://www.washingtonpost.com/blogs/worldviews/wp/2012/11/14/heres-why-10-percent-of-the-developing-worlds-drugs-are-fake/