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Counterfeiting – A Matter of National Security

No matter how you look at the problem, counterfeiting is a serious issue. Counterfeiting affects companies, it serves as a means of funding of terrorist activities and it preys on the unknowing customer who is victimized by faulty products, phony documents or worse, substitute ingredients or parts of products whose quality is assumed and depended upon by the purchaser. The strange thing is that there are really no products that are immune to the counterfeiter.

Market globalization and the spread of technology have combined to create an environment where piracy is widespread and highly sophisticated. In this environment, manufacturers and intellectual property owners face increasing threats of counterfeiting, product diversion, licensing/royalty fraud and intellectual property theft.

According to the International Anti-Counterfeit Coalition, U.S. corporations alone lose approximately $200 billion annually. The breadth and danger created by counterfeiting is described in the IACC White Paper, ”Facts on Fakes.” If there is any doubt about the connection of counterfeiting to terrorism, here are a few important points:

· On February 28, 2003, Mohamad Hammoud was sentenced to 155 years in prison for helping to lead a cigarette smuggling operation that sent money to Hezbollah.

· The INTERPOL document presented to the Congressional Committee indicated that a wide range of groups - including Al-Qaeda, Hizbullah, Chechen separatists, ethnic Albanian extremists in Kosovo, and paramilitaries in Northern Ireland - have been found to profit from the production or sale of counterfeit goods.

· There have been recent media accounts reporting a link between the terrorist organization Al Qaeda and the trafficking of counterfeit goods. An investigation, involving several countries, into a shipment of fake goods from Dubai to Copenhagen, Denmark, suggest that Al Qaeda itself may be funding itself by trafficking in counterfeit goods. Danish customs, using sophisticated risk analysis software, examined one of the containers on board and discovered that it contained over one thousand crates full of counterfeit shampoos, creams, cologne and perfume. The goods were ultimately bound for the United Kingdom. The United Kingdom later revealed that the sender of the counterfeit goods was a member of Al Qaeda.

Additionally, according to the International Federation of Pharmaceutical Manufacturers Association, counterfeit drugs represent over $6 billion in lost sales per year. A study by the World Health Organization (WHO) indicates that counterfeiting of medicines has greatly increased in recent years. The WHO study estimates counterfeit drugs average as much as 10% of the worldwide trade in pharmaceuticals, generating billions of dollars in annual revenue for illegal traffickers. Other studies suggest counterfeit drugs comprise over 60% of all drugs in some foreign countries and encompass most classes of over-the-counter and proprietary medicines.

The U.S. International Trade Commission has stated that piracy costs the U.S. economy between $43 and $61 billion per year. The dollar impact is worsened by market share losses and loss of reputation with consumers/customers resulting from perceived product quality issues attached to brand name items. Fortune 500 companies are reported to spend approximately $1.5 billion per year to combat counterfeiting and protect brand names and trademarks.

On May 13th, I will be presenting a paper at the 2008 IEEE Conference International Conference on Technologies For Homeland Security.

With Technical Assistance from the Department of Homeland Security, Science & Technology Directorate, the eighth annual 2008 IEEE International Conference on Technologies for Homeland Security (HST 08) focuses on novel and innovative technologies addressing pressing national security problems. The Conference brings together over 300 innovators from leading universities, research laboratories, Homeland Security Centers of Excellence, small businesses, system integrators and the end user community to discuss emerging technologies in priority areas of interest to federal and state governments, and fosters technology commercialization by providing a forum for networking with government and business leaders.

Of course, as any self-respecting entrepreneur would do, my paper discusses application of my company’s anti-counterfeit solution for homeland security, specifically in this case, identity credentials and papers. Our technology exploits random patterns of optically readable materials that are then matched to a machine-readable code making each and every protected item uniquely identifiable (essentially by its digital fingerprint) and able to be authenticated in real time. My associates and I see our anti-counterfeiting approach as both overt and covert, and as providing both a standalone technology, as well as one that can be combined with others. IEEE copyright restrictions prevent me from providing access to my full paper. However, the one-page abstract that was submitted in the pre-screening process, and was later accepted for presentation of a full paper, is shown below. While at the Conference (at least for the day that I will be attending), hopefully, I will also be able to bring back information about some of the exciting new technologies that are being developed.

“Exploiting Random Patterns of Optically Readable Materials to Ensure Authentication of Documents, Media and Substrates”

Despite attempts of first and second-generation technologies to address product and document counterfeiting, the problem persists. Further, most of these solutions either require infrastructure build-out or have shown security vulnerabilities. The patented and proprietary anti-counterfeiting system being developed by Tracer Detection Technology Corp provides theoretically foolproof ability to confirm the authenticity of a document or product label/package, even if the “past-gen” technologies have been compromised. Tracer expects its product to be market ready before end of 2008.

Exploiting non-deterministic random patterns of optically readable material(s) embedded into paper or substrate, Tracer’s solution provides highly reliable authentication of genuine documents and product labels, drastically reducing, if not mathematically eliminating the possibility of unauthorized duplication. The system’s ease of use permits manufacturers’ or government inspectors to check document or product authenticity in real time using Tracer’s reader. A prototype system exists and is the basis for the development of a reproducible commercial reader to serve as a standalone unit, or be adaptable to integration into existing readers for travel and identity documents, and brand name labels.

The random optical pattern is illuminated by a polarized light source and imaged by a high-speed scanner during the production process. The resulting fluoresced image includes the position and orientation of the optically readable material and is encoded via secure algorithm as an encrypted digital signature that is then printed on the document or label. This creates a unique, machine-readable digital fingerprint or “biometric” for each item. A barcode makes the validation process automatic. At any interrogation point, an inspector can validate the pattern with a hand-held version of the production scanner. The document or label/package is authentic only if the code appearing on the scanner matches the printed one. Tracer contemplates both wired and wireless connection to a database for a further level of security.

In a security credential, this can be on all or selected pages of the document, or solely within its cover. Strategic placement may play a role in the overall security afforded by integrating Tracer’s solution into the document. Potentially, the optical material could be placed in proximity with other credentialing information to enable coincident or tandem interrogation of existing biometric and/or radio frequency identity chip technology. Considering the issues of cloning of the radio frequency identity chip or duplication of biometric information that have been publicized, and therefore raise questions about the integrity of such security features, incorporating Tracer’s solution into the substrate provides the ability to confirm the authenticity of the document itself, perhaps even prior to the query of the traveler identity security feature. The result is a multi-level security system based on random and non-reproducible characteristics of the arrangement of the optically readable material(s) and the proprietary and secure encryption technology. The verification process is stand alone, since the scanner is verifying a code match that could only be produced at the secure production site, but can be integrated in the existing reader infrastructure.

Counterfeiting is a serious problem that transcends law enforcement (brand protection) and clearly has entered the realm of terrorism. If we didn’t see it before the morning of September 11th, we certainly found out that morning when forged (counterfeit) documents were used by the hijackers. In fairness, my company is one of many established and newer companies working to provide a solution to this pervasive problem, one which, as my paper points out, has not been satisfactorily solved by the first and second generation (or as I write, “past-gen”) technologies. If you happen to be in the greater Boston area and can attend, or are already planning to do so, please say “hello.”