Tracing against counterfeiting

The illegal trade in counterfeit and pirated goods poses a major challenge to an innovation-driven global economy: it damages economic growth, poses significant threats to individual and collective health and safety, fuels organised crime, undermines sound public governance, the rule of law and can, ultimately, threaten democracy and political stability.

In recent years, the OECD and the EU Intellectual Property Office (EUIPO) have been collecting evidence on various aspects of this risk. Trade in counterfeit and pirated goods estimation amounted to up to 2.5% of world trade in 2019; when considering only imports into the EU, fake goods amounted to up to 5.8% of imports. These amounts are like those of previous years, and illegal trade in fakes remains a serious risk to modern, open, and globalised economies. The Covid-19 pandemic has intensified the problem.

More impacted economies are the United States, followed by France (18%), Germany (16%), Italy (9.8%), and Switzerland (4%). Other OECD countries whose companies also suffer from counterfeiting include Denmark, Japan, Korea, Spain, Ireland, and Sweden.

According to the global customs seizure data, China was by far the largest provenance economy of counterfeit perfumery and cosmetics between 2017 and 2019. Indeed, China was the origin of 78% of the total seized value of worldwide counterfeit perfumery and cosmetics. It was followed by India, Hong Kong (China), the United Arabian Emirates (UAE) and Turkey.

According to these results: why should industry and brands bother to track every single cosmetic product unit? The main reasons are law compliance, brand protection, ‘made in’ protection, trademark protection, investment protection, consumer protection, consumer information, and environmental protection.

Law compliance

Among the obligations of the responsible person (Regulation EU 1223/2009) there is in fact also the traceability of the entire production and distribution chain of each individual product. The traceability of a cosmetic product throughout the supply chain helps to simplify market surveillance and improve its efficiency. An efficient traceability system facilitates checks by market surveillance authorities and the task of tracing economic operators while also ensuring greater transparency for citizens. 

Regulation EU 1223/2009 details the responsible person obligations (articles 4 and 5), defines the requirements for the supply chain (article 7), and asks for in-market surveillance (articles 22, 23 and 24). To have an idea of the amount of new cosmetic product put on the market every year, during year 2020, 300K of new products have been notified in Eu CPNP (Cosmetic Product Notification Portal), meaning 800 new products per day.

Brand and trademark protection

Recent analyses show that cosmetics and personal care products are the most affected by fakes and this causes big losses of sales across the European Union and other regions. The exponential growth from in-person to online shopping during the pandemic has encouraged criminals to churn out more and more counterfeit cosmetics. 

It is necessary to strengthen the guarantee and safety of the origin of the product and therefore its ­recognition through physical and digital security elements to prevent third parties from using its intellectual property without permission, as this may cause loss of revenue and, usually more importantly, destroys brand equity, reputation, and trust.

The brand should protect consumers and products from a violation of the right to security, violation of intellectual/industrial property rights, violation of consumer rights/workers’ rights and violations of environmental protection re­gulations.

Consumer protection

Beauty products’ aim is to make us more beautiful, but fakes can do the opposite. Statistics reveal a worrying threat: many of the counterfeit products in international trade seized by customs authorities pose a serious risk to consumers.

Most of the registered counterfeit goods were considered as a source of serious risks. These are mainly dangers caused by exposure to chemicals, allergic reactions, product instability, presence of non-permitted substances (i.e. hydroquinone), microbiological pollution, presence of metals in risky quantities, defective packaging, wrong directions of use, lack of specific country language…

The consumer has the right to have the guarantee of transparency: there are many market studies that show how consumers across Europe have become increasingly demanding, they want to know the products they consume, they want this information to be simple, reliable, and transparent.

Consumers no longer want declarations, they need evidence. We need to substitute storytelling marketing for evidence marketing.

Solutions for transparency

Brands should take serious care about this issue, designing secure computing protocol to provide customers with a digital certificate that gives direct access to the history of the product they bought, from design to distribution, and to its authenticity certificates.

The blockchain, for example, is a specific tool for consumers to have easy access to safe information on products (formula composition, packaging, origin of raw materials, biodiversity protection, PCR plastic supply chain in the case of recycled plastic, Corporate Social Responsibility…). It guarantees the information is accessible to all, anytime, anywhere, but cannot be modified.

The blockchain helps go back upstream, from sourcing to the product, but above all, since the information is provided by each of our suppliers, not us, it is given in an independent, safe, immutable way: it is true. It empowers consumers who want evidence, facts and to minimise the environmental impact.