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Home / Business

Colgate-Palmolive is a target of counterfeiters.

By Stephanie Bodoni, Hugo Miller and Naween Mangi
19 Jun, 2007 05:00 PM6 mins to read

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KEY POINTS:

Belgian customs official Chris De Buysscher intercepted a shipment of 20,000kg of fake Lipton tea from China last year.

He discovered 800,000 knockoff Oral-B toothbrushes because the accompanying paperwork was vague about their final destination.

De Buysscher, head of the port of Antwerp's counterfeit-hunting squad, is on the
front line of a new battle in the war against knockoffs: fake brand-name items including tea, shampoo and soap.

Colgate-Palmolive last week warned US consumers that counterfeit toothpaste that may contain a chemical used in antifreeze was found at stores in four states.

Fraudulent products hurt sales of companies such as Nestle, Procter & Gamble and Lipton tea owner Unilever and may pose health risks.

Companies in general lose about 10 per cent of sales to counterfeiting, says Guy Sebban, secretary-general of the International Chamber of Commerce.

That would translate to US$20 billion ($26.5 billion) a year for the three corporations combined.

"It's gone from being a local problem to a multinational problem," says Richard Heath, Unilever's global anti- counterfeiting counsel, based in London.

"All the investment the counterfeiters make is in the packaging and not what goes inside and that's the worrying thing."

Last year European Union customs officers seized 253 million fakes at the external borders of the bloc, up from 85 million in 2002. Seizures of personal-care products and perfume rose to 1.6 million items from 112,132 in 2002. Officers caught 1.2 million food and beverage products, up from 841,000.

The damage to companies is immeasurable because seizures represent a tiny portion of counterfeit goods and lost sales are only one part of the equation, says Bryan Roberts, an analyst at Planet Retail in London.

"Any attempt to quantify it seriously will underestimate the extent of the problem. But obviously they will suffer in terms of the reputation of their brands."

Colgate-Palmolive, the world's biggest toothpaste maker, said it was co-operating with the US Food and Drug Administration to identify the makers of toothpaste falsely packaged as Colgate.

It was discovered at discount stores in New York, New Jersey, Maryland and Pennsylvania and may contain the toxic chemical diethylene glycol, the New York company said.

The influx of bogus consumer goods began raising concerns in Europe in late 2003, says Christophe Zimmermann, anti-counterfeiting head at the World Customs Organisation. "It's a problem that becomes worse every year as they've taken on industrial proportions," he says, citing seizures of Nestle's Nescafe and Maggi stock cubes.

De Buysscher displays the best booty in his tiny office. It includes Gillette Mach 3 razors and Head & Shoulders shampoo, both P&G brands, and Colgate toothpaste.

"Ten years ago, it was luxury products," he says. "Now it's consumer goods, and the number increases every year."

The boom is being driven by the internet, which makes it easier to find customers, and the development of cheap, high-quality printing equipment that allows criminals to mass-produce packaging, says Unilever's Heath.

Increasing trade with Asia, where trademark rules are less rigorously enforced, is also contributing to the trend.

Those changes, combined with a lack of consumer awareness, make copying household goods less risky than targeting luxury handbags and watches, he says.

The potential danger of counterfeit food was driven home in 2004 when at least 13 babies in China died after they were fed fake infant formula that had no nutritional value, China's state-run Xinhua news service reported.

Nestle, which wasn't involved in the China incident, says fakes risk hurting its reputation.

If there are "counterfeit products which do not correspond to the quality and the safety of our products, and some of our consumers are mistaken, this undermines trust", said chief executive Peter Brabeck at a January briefing in Geneva. Nestle is the world's largest food company.

Companies are ratcheting up efforts to fight counterfeiters.

Unilever's strategy is to stop the goods before they enter Europe or North America, where it's trickier to track them down, Heath says.

The company registers brands locally and depends on salespeople and distributors in Asia to gather evidence of fakes.

New York-based PepsiCo works with national authorities to protect its brands, spokesman Dick Detwiler says.

Red Bull, maker of the world's most popular energy drink, has a global network of samplers who seek out rip-offs, says Jennifer Powers, global trademark counsel for the Austrian company. She says illicit use of Red Bull's trademark colours and logo is rising.

In February, French customs officers at Le Havre seized 7776 soft-drink cans labelled Gold Cow and stamped with the Red Bull logo.

The EU is trying to stem the tide. The European Parliament on April 25 backed a law that prescribes four-year prison sentences and fines of ¬300,000 ($533,000) for organised gangs dealing in counterfeit goods that endanger consumers.

The law still must be approved by the national governments of the EU's 27 member countries.

While seizures of all counterfeit products in the US leapt 78 per cent last year, household items were less of a problem, says Lynn Hollinger, a spokeswoman for US Customs and Border Protection.

Shoes accounted for 41 per cent of goods intercepted, clothing 16 per cent and health-care products 2 per cent.

Unilever officials in Pakistan have witnessed how sophisticated some counterfeiters have become.

Sometimes the packaging is so good that company officials struggle to determine whether a product is genuine, says Amar Naseer, Unilever's legal counsel in Karachi.

A factory in the eastern trading town of Multan has 20 people making at least a tonne of counterfeit tea a day.

Copies of the company's Brooke Bond tea often contain sawdust or dyed wood chips.

At Karachi's Boulton Market, a warren of dirt alleys, a young vendor hawks Unilever's Dove soap, four bars for 70 rupees ($2.30). That's a bargain compared with a retail price of 115 rupees for just one bar.

Asked where it was made, the boy laughs and says, "It's made somewhere in Lahore, I think." The label, whose quality Naseer says belies a fake, states "Made in Germany".

Another stall sells sacks of candy packets featuring cartoon character Dora the Explorer, ready to be stuffed with whatever a buyer pleases, and bulk rolls of plastic packaging for PepsiCo's Lay's potato chips.

"See how easy it is?" Naseer says. "You can just decide to make potato chips at home, come here, buy up a bunch of Lay's packets, fill them and sell them. It's that easy."

Pakistan's Intellectual Property Rights Organisation, established in 2003, is pushing companies to register patents and trademarks so it can encourage the police to take action, says director-general Yasin Tahir.

In Antwerp, De Buysscher says he combs through fashion magazines and strolls through supermarkets to study the latest designs and keep up with items most likely to be copied.

The bulk of his work involves poring over shipping documents for hints that something is not quite right, such as a destination that is vague or neatly rounded values for the goods being shipped.

De Buysscher must work quickly. Containers stay put for less than 12 hours. His team seized 106 containers with more than 20 million counterfeit products last year.

-BLOOMBERG

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