White Paper
the Counterfeit Problem
The Ideal Counterfeiting Environment
In addressing the problem of counterfeit we considered the simple question - from the point of view of the counterfeiter - "what is the ideal environment in which to create counterfeit goods?"
The answers we came up with were these:
1 The potential profits must be attractive.
2 There must be a minimal risk of being detected and caught.
3 If caught, the penalties must not be too harsh.
4 There must be sufficiently high demand for the product to sustain the
additional supply created by the counterfeiter
5 It helps if the law is confused, too complex, too expensive or deters
legitimate research into security weaknesses
6 Ideally the consumer should feel they are getting a raw deal when buying
the authentic product.
Consider the supply of tobacco products in the UK for example. It meets all the above conditions almost perfectly. In fact, the extent to which the consumer perceives the "raw deal" (caused by the UK imposing the highest duties on tobacco products in the world) has led to a massive confrontation between the UK government, its own citizens and the EU courts, in which the UK has just had to back down and change its own rules. Counterfeiting is not necessarily the issue here. Although counterfeits are being detected, the main "offenders" are actually cheap cigarettes produced in the UK, shipped out to low duty regions like the Middle East and then brought back in again. This involves the closely related problems of smuggling and "grey market" goods. In the process the UK customs estimate losses of £3.5 billion pounds.
The lessons of this example are many. Both the smuggler and the government have decided to exploit the insatiable demand for an addictive product. The Government are widely perceived to have overstepped the mark and produced a situation in which otherwise law abiding citizens consider it reasonable to try to avoid paying the excess taxes. So the consumers collaborate with the smugglers and/or counterfeiters to beat the system. Meanwhile, the Brand Owners are virtually indifferent. Most of the time, its their own product being smuggled back in and they've already been paid. They lose nothing.
The result is that the only countermeasures that can be taken are widely seen to be repressive illiberal policing by the State, resulting in organised opposition to the state, growing hostility to the machinery of government and a general reduction in support for all crime fighting measures.
And this tendency is not limited to cigarettes and the UK. In the USA, the DMCA (Digital Millenium Copyright Act) has stirred up a hornets nest of opposition, In short the DMCA tries to tackle the issue of piracy by making it illegal not just to circumvent countermeasures - which is no more than a reasonable recognition of the intellectual property embodied in the product - but even to RESEARCH ways of circumventing the countermeasures. Not to put too fine a point on it, only the technically illiterate support this approach.
It is known, in the technical community as "security through obscurity" and is based on the naive notion that if your enemy doesn't know your protection methods, then your defences are safe. This is, of course, sometimes correct. Once. And, if you only anticipate having to fight a battle once, its a reasonable strategy. However, in the world of counterfeit and piracy, the battle is being fought millions of times each day and, as we discuss in "The Limitations of Taggants", once your adversary is made aware of those defences as a result, for example, of a successful prosecution, those defences are open for all to see and can be exploited by intelligent attackers at will.
The point here is that in these two high profile cases, the State itself is working to create the conditions which produce an ideal environment for the counterfeiter. In the first case, the UK government has raised taxes to such an extent that they have made the potential profits from counterfeit or smuggling an irresistable attraction. In the second case, the ill informed US political establishment is - with the intention of defeating counterfeit and piracy - actually making the Pirate's job much easier. How so? Well, for a start, the law has no bearing on the intent to commit piracy. That is already illegal and the Pirate is, presumably, already committed to it. It remains the more serious offence, so the additional offence of breaching protection is irrelevant to the Pirate. However, the threat of prosecution will ensure that no legitimate security experts will probe the defences and find weaknesses which can then be repaired before serious damage is done. The Pirate, therefore, has the field to himself. As soon as he finds the weakness, he can exploit it until his activities are discovered.
Codel offers no solution to the State shooting itself in the foot. The CC Market is already an intractable problem without Government's stepping in to create new ones.
We can, however, offer reassurance on the "security through obsurity" issue. We ensure that our own product is open for peer review and we invite testing and criticism. The main attraction for Brand Owners to follow that path is mainly financial. Having invested $X million dollars in countermeasures, the last thing they need is someone publishing a 5 cent workaround which destroys their efforts. The Codel method can protect those efforts, or in some cases, replace them.
For example, it makes sense for a pharmaceutical company to put its products in tamper-evident packaging. It also makes sense to use a visible means of marking the product in such a way that the consumer can easily recognise it as "the real thing". If possible, it is also useful to mark the products in such a way that either the marking itself is impossible to counterfeit or at least too expensive to copy. That is the holy grail of taggants. But, for the reasons we discuss there, unless the marking system is so simple that any consumer can easily spot the differences between a real one and a fake, the mark does nothing to reassure the public. And, if they are that simple, then they are almost certainly too easy to counterfeit.
Codel adds a simple method by which any consumer can validate the product at the cost of a short online web session. In one simple to apply countermeasure, we undermine Pirate's ideal environment. All we need, to make our technique effective, is the desire, on the part of the consumer, to validate their purchase. In other words, the consumer must WANT to know that they have bought a legitimate product and, perhaps even wish to register their ownership (anonymously). Clearly this will only ever be true within what we defined earlier as the FD market. In the CC market - whether it is caused by over-enthusiastic government interference or by "normal" market conditions, the consumer will not co-operate with a mechanism which will result in their having to pay more and getting what they see as a worse deal.
