How Blockchain can Tackle Retail Counterfeiting in SEA Regions and Beyond

Efforts to address the global counterfeiting problem have faltered due to industry inaction caused by a lack of applicable technologies

Illegal counterfeiting of retail goods is a booming industry for those who ply their trade on the black market. Solid data on black market activities rely on broad estimates given the nature of the subject, but some estimates suggest that 10% of all branded retail goods may be counterfeit, and that $600 billion per year is being surrendered by big brands to cheaply replicated knock-offs of their products.

A study by the UK Intellectual Property Office suggested that as much as 40% of all global counterfeits were made in SEA countries, while other analysis places the figure at more than 75%. China's customs IP border protection system is the most efficient of ASEAN's (Association of Southeast Asian Nations) regional members, but even after more than doubling its seizure rate from around 25,000 to 50,000 between 2018 and 2019, the majority of counterfeit exports still make it through Chinese ports.

The ASEAN pact has taken action in response to the rising prevalence of fake exports. ASEAN's 2004-2010 Intellectual Property Rights action plan contains no mention of the word "counterfeit", while the 2011-2015 action plan mentions it once. But 2021 updates to the most recent action plan introduce eight clear strategies for defeating the spread of counterfeiting in the region.

Thus far, an efficient system of manually validating the legitimacy of branded goods has not yet presented itself, while gathering reliable data on the extent of the problem relies mostly on seizure rates which portray only a fraction of the true size of the black market.

Blockchain – Lighting Up the Black Market

Numerous governments from as far-flung places as the United Kingdom to Vietnam have already begun exploring how blockchain-based digital identity can assist in the creation of national digital ID cards. Blockchain's ability to track and confirm events transparently, without the possibility of tampering, makes it an attractive solution for industries along every stop of the supply chain. Indeed, blockchain technology is predicted to save the global supply chain as much as $450 billion per year in logistics-related costs.

The same cost-saving measures can be applied to targeting the counterfeiting industry, where lack of accountability and verifiability has until now foiled any such restorative measures. What's more, a lack of participation by brands themselves has only exacerbated the problem, as noted by Phill Arnold, director at IP rights investigation firm CISAA, in WorldTrademarkReview.

"World Intellectual Property Office (WIPO) dictates that brand owners find their own evidence," he says. "So it's not up to the government to go out there and find counterfeiting, unless it's to the public danger; it's up to brand owners. But brand owners sit up there in their chairs with their cigars and expect that the counterfeiting problem is going to go away, provided that the government takes a stance," said Arnold.

Despite a lack of action by big brands, Intrepid explorers of the blockchain sphere have started to bridge the communication gaps between brands, regulators and the end consumer by applying their transparent, verifiable tools to the counterfeiting issue.

Blockchain technology acts as a decentralized ledger that's owned by no one and secured by thousands of computers running and maintaining its database concurrently. These decentralized attributes make it a trusted resource for autonomously confirming a transaction or an event without third-party intermediaries.

Creating "Digital Twins"

Some blockchain projects have begun to build out technologies that tie the registration of a real-world product to a digital identity marker on a public blockchain, which can then be viewed by the end user to verify that their products are genuine. Companies verify their identity on the blockchain network and then scan their products' Global Trade Item Number Barcode for it to be published on the blockchain. Once there, the user can verify their own identity and confirm they have received a legitimate product. If the owner wants to resell the item, any prospective buyers can likewise verify the product's authenticity.

The data derived from an authentication process that tracks items from conception to disposal (blockchain could be used to track a product's recycling status) could prove crucial in painting a clearer picture of the lifetime of a brand's products, and data analysis could help narrow down the source of counterfeit creations.

One project working along these lines is Ownify, an app for iOS and Android that tags barcodes as NFTs on the blockchain to create a "digital twin" of the item that can be transferred and verifiably authenticated across the lifespan of its ownership.

Ownify CEO, Khaled Samin, pointed out the failure of manufacturers to address the counterfeiting problem, but noted the lack of practical technologies that could be applied to it until now.

Khaled Samin said, "The counterfeiting industry has, unfortunately, been allowed to flourish due in part to inaction by key industry players, but fundamentally because there has been no applicable technology to truly address the problem. Bringing blockchain networks to bear on the global retail industry stands to eradicate a worldwide problem, and change the way companies view product authentication. Consumers will be able to categorically verify their products are genuine without the need for input by qualified experts," said Khaled Samin.

Blockchain has been optimistically put forth as the solution to any number of problems in the past few years, and while many examples turned out to be opportunistic sales pitches, the technology still offers answers to many real-world situations where people in different parts of the world who have never met each other can interact and transact in a trusted manner without centralized, costly, manual oversight.

Blockchain has the potential to radically alter the way we authenticate our products, and offers a completely new and irrevocable level of trust between brands, consumers and resellers that lasts long after the initial purchase has been made, and continues for the entire span of a product's lifecycle. That's utility that can't be faked.