Firms boost technology arsenal in piracy war

Hi-tech processes are the norm as copycats become more sophisticated

For the executives of Golden Glass, it was like going the wrong way on a moving walkway.

The company's share of the market for fire-rated glass, which can resist unusually high temperatures, had slipped to 50 per cent from 80 per cent over five years, despite growing acclaim for its products, specified by name in many building tenders.

'In the end, our people discovered that there were buildings using fire-rated glass with the Golden Glass brand, but which had never placed orders with us,' said sales manager Alvin Kwong Wan-keung.

'Mainland competitors were making counterfeit products using our brand and charging at least 50 per cent less than we did.'

In a country as big as China, even such blatant violations of intellectual property rights can be hard to stamp out.

'It's difficult for us to check every building, and every factory that might be producing counterfeit Golden Glass,' Mr Kwong said.

'Because the glass is sold all over the country, you have to complain to different local authorities. And sometimes those authorities are not very receptive to complaints.'

In the past, most complaints about intellectual property fraud in China have come from United States and European firms, especially from companies using proprietary technology.

However, as Chinese manufacturers grow more sophisticated they are discovering that they too have a lot to lose from counterfeiting.

Golden Glass, which has Chinese, Hong Kong and German investors, is looking at a number of anti-fraud technologies, including radio frequency identification, or RFID, in which a computer chip is applied to the product. Using a scanner, the purchaser can quickly know whether the product is genuine.

These days, nothing seems to be immune from counterfeiters. Even toilet bowls are being copied, said Ian Shelley, managing director of QTrac, a Hong Kong provider of RFID technology.

The problem of knock-offs was serious enough that many companies are willing to contemplate the high cost of RFID, Mr Shelley said.

The cost of placing one chip on a product ranges from $3 to $10. The advantage, however, is that the chip is almost impossible to counterfeit, he said.

Since each chip has a unique serial number, counterfeiters would need their own chip production line to keep up. And RFID can also be correlated with extra data contained on a server.

'You have to counterfeit the chip and the data on a server,' Mr Shelley said. 'That puts the barrier against counterfeiting very high.'

A less expensive alternative is high-security printing, which employs anti-fraud techniques similar to those used in banknotes. The typical cost of a high-security printed label is $1.

Chinese consumer product packaging used to be much more basic, generally devoid of high-tech features such as holograms. However, its sophistication has greatly increased in the past four years.

Even Chinese cigarette packets contain more security features than imported tobacco packaging, said Andrew Hui King-chun, chairman of Kith Holdings, a Hong Kong-listed firm that makes packaging for mainland tobacco, drugs and liquor brands.

'China has many counterfeit products in cigarettes, drugs, liquor, even milk powder and soy sauce. Any consumer product that sells well bears a high risk of counterfeiting,' said Mr Hui.

Dayton Carpenter, a lawyer at DC Consulting, said that based on estimates by mainland tobacconists, about 10 per cent of the cigarettes sold in China are fakes.

Cigarette sales in China totalled 250 billion yuan in 2004, according to official data, so a 10 per cent counterfeiting rate implies an annual loss of 25 billion yuan for legitimate manufacturers.

'It's lucrative for small operations off the radar screen to manufacture fakes. You can imagine what they're stealing in profits,' said Mr Carpenter