By Larry Barrett  |  Posted 2003-03-01 Print this article Print

To thwart counterfeiting, golf-ball maker Acushnet now stamps each ball with an invisible digital fingerprint.

-Market Blues">
Gray-Market Blues

Acushnet's profitability is at stake. A dozen Pro V1 balls sell for between $48 and $56 at golf shops and authorized retailers. If pallets of product end up in the hands of unauthorized resellers—at one time Target fell into that trap, according to Acushnet—the balls can sell for closer to $30 a dozen. Moreover, the authorized retailers miss out on sales—and thereby profits—altogether.

The value of the brand also suffers. The image of Titleist balls can go from superior to inferior, if Acushnet does not intervene.

The risks of damage are skyrocketing. "This market has been exploding over the last three years," says Jeff Unger, cofounder of GenuOne, the technology firm behind the security system. "There's an enormous amount of counterfeit products moving over the Internet and from other sources, essentially stealing your brand and your sales."

According to the International Anti-Counterfeiting Coalition in Washington, D.C., counterfeit and gray-market products account for more than $500 billion a year in lost sales. Every conceivable industry—from pharmaceuticals to designer handbags to lightbulbs—faces losing not only sales but also credibility with customers.

With the Pro V1X due to hit courses this spring, Acushnet was determined to find a better way to achieve supply-chain control in a global, networked market.

With its new system, Acushnet enters each item produced and its destination into a database that can be updated, as golf balls move toward retail outlets. Progress can be viewed over the Internet from any spot in the world, on either Windows or Linux computer systems.

The project took several months longer than the 34 weeks originally expected. Some of the problems involved the scanners, which are similar to the those used at grocery store checkout lines. Early in the implementation, Acushnet found the infrared beams could not always read the ink because some colors in packaging, for instance, rendered the dye illegible.

"You learn a lot from every implementation," says Acushnet CIO Peg Nicholson.

Also, GenuOne's TraceGuard software, which tracks the balls and packaging all the way to the outlet, had to be integrated with Acushnet's cash-to-order software so the company could track which customers received the balls and when they received them.

"Knowing the steps required to implement any changes... took a lot of trial and error," Nicholson says. "Over time, taking notes on what was tried to make things connect, we were able to put together a list of steps that would consistently get the connection when changes were implemented."

Nicholson says the project was further complicated by both Acushnet and its contractors' relative inexperience with the Distributed Component Object Model, a protocol that enables software components to communicate directly over a network in a reliable and secure manner. Programming errors that resulted caused more delays.

Nicholson says pinning down where errors occurred was the biggest obstacle. Programs that worked fine during testing would fail on implementation. An error would indicate a problem somewhere within the system, but finding the specific line of code to fix was difficult.

"Error specifics were almost never given so it was difficult to know which object was the cause of the problem," she says.

Acushnet, a subsidiary of Fortune Brands, wouldn't confirm how much the project cost but GenuOne officials say similar implementations cost between $500,000 and $3 million, depending on the number of units tracked.

To check whether legitimate balls are being sold by a retailer, any one of Titleist's 100-plus sales representatives can go to any authorized or unauthorized retailer and purchase a dozen. The balls are then shipped back to the Acushnet plant where they are scanned to determine, first, if they were manufactured by Acushnet, and then to track the entire journey of the balls from production to distribution, and finally to the retail shelves.

If Acushnet finds that one of its distribution or retail partners has violated the terms of its redistribution policy, it could warn the perpetrator, discontinue its partnership or bring legal action against the offender.

Michael Kessler, president and CEO of Kessler International, a computer forensics and forensic accounting investigation service in New York, says technological improvements such as molecular labeling alone aren't enough to stop counterfeiters and purveyors of gray-market products.

"A lot of prevention comes down to old-fashioned detective work," he says. "The criminals will always be adapting to the technology no matter how sophisticated it gets. You need to also get out on the streets and interact with these guys to keep them from ripping you off."

Kessler International provides corporate investigation services and technology to some of the world's largest manufacturers. The firm uses its proprietary Web.Sweep software to search the Internet for counterfeit goods, questionable marketplaces and specific instances of trade either online or on the streets.

"Over the years, we've found that distribution networks are part of some larger organization," he says. "The software allows us to make these connections for our clients and then track them down." Once caught, Kessler usually can get a court order to force the illegal manufacturer to stop production and allow it to confiscate the counterfeit products.

For example, an organized group counterfeiting high-end wristwatches often has the knockoff faces manufactured in one country, the bands in another and the moving parts in a third. All three parts are then shipped to the U.S. where they are assembled by a fourth group.

Web.Sweep systematically searches key phrases that compare closely to a client's intellectual property materials. Using a multiple-language system, the software is then customized to search and filter for copyrighted materials, trademarks and any other name or brand. For example, the software could be used to check for "Kate" and "Spade" in any language as well as any phrases involving handbags and purses. Once the system finds the sites containing any elements similar to a client's intellectual property, they are tagged for personal review by investigators.

"The sophistication of these counterfeiters would amaze you," Kessler says. "It's so huge that Customs and the Treasury Department are just overwhelmed. And there's a lot of evidence showing that much of this money ends up in the hands of organized crime outfits and, most assuredly, terrorist organizations."

Carratu International, a corporate investigative firm based in the United Kingdom, reports that the sale of counterfeit T-shirts helped fund the first bombing of the World Trade Center in 1993. The firm also has unearthed evidence that terrorist groups including Al Qaeda and Hezbollah have received funding from proceeds generated from the sales of counterfeit goods.

In fiscal 2002, the U.S. Customs Service confiscated $98 million worth of counterfeit goods, or less than 2% of all counterfeit goods sold, according to the International Anti-Counterfeiting Coalition.

It's not just money that's being lost.

According to the Centers for Disease Control (CDC), a recent survey in Southeast Asia determined that 38% of samples of the malaria drug artesunate purchased at retail outlets contained no active ingredients. The CDC concluded that at least 30 malaria deaths in Cambodia could be linked to inadequate treatment due to counterfeit drugs.

In 1991, a General Motors investigation discovered that a woman and her child were killed in an auto accident when a counterfeit brake made of wood chips failed.

And then there's the unpredictable loss of lives, like that of Roberto Alvarez.

Senior Writer
Larry, of San Carlos, Calif., was a senior writer and editor at CNet, writing analysis, breaking news and opinion stories. He was technology reporter at the San Jose Business Journal from 1996-1997. He graduated with a B.A. from San Jose State University where he was also executive editor of the daily student newspaper.

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