Counterfeit cosmetics pose reputation, financial, litigation risks for name brands

28-Oct-2021 - Last updated on 28-Oct-2021 at 15:01 GMT

Women looking at cosmetics product. © Getty Image - gawrav

While many industries grapple with counterfeit products, the nature of personal care products put cosmetics companies at risk of undermined reputations and litigation, but something can be done.

Within the past five years the Los Angeles Police Department has seized upwards of $1 million of counterfeit cosmetics, including a 2018 raid which included $700,000 of counterfeits which were found to contain bacteria and animal waste, according the CNN.

The raids were triggered when consumes complained to name-brand companies, saying they experienced bumps and rashes after using their products, believing they were legitimate.

Ron Ducharme, vice presidents of business development at Covectra, a security company focused on counterfeit prevention, said it’s common for consumers to discover they’re using a counterfeit product when they experience an adverse reaction to ingredients.

Because of the nature of consumer relationships with personal care products, counterfeiting is particularly dangerous for cosmetics companies.

“Brand reputation, especially in cosmetic industries, are paramount,” Ducharme said. “You’re buying a cosmetic, one, because of name brand and, two, because you’ve had luck with that brand and you like that brand, plus you associate that brand with a high level of quality. Once that brand’s got a black eye, the word spreads quickly.”

Ways to prevent counterfeiting

Ducharme said anti-counterfeiting technologies are generally either overt or covert, meaning customer facing or internally facing measures.

Among overt measures are specialized labels and devices like RFID tags. While they can communicate authenticity to consumers, Ducharme also said those measure are most likely to be replicated by counterfeiters.

He said an example of covert measures would be micro-tags in iPhones, in which a very small, specialized tag imbedded in the device can tell the company whether an item is authentic or not but is not designed for the consumer to see or utilize.

Devices like RFID tags also require devices to talk to each other in order to be effective and are fairly easy for counterfeiters to duplicate.

“Counterfeiting is everywhere, and the higher priced the product, the higher quality the product, the more of a target it becomes,” Ducharme said. “The security required has to be smarter than the counterfeiters.”

Aprisa image — Aprisa Skin Care with Covectra StellaGuard labels, courtesy of Covectra

Covectra was recently selected by skin care brand Aprisa to provide anti-counterfeiting labels using the security company’s StellaGuard technology, which Ducharme said employs both overt and covert methods.

The labels include holographic stars and a QR code which, paired, make the label impossible to replicate, he said. He compared the pattern on each label to throwing pepper on a tablecloth, which would be completely random and irreplicable every time.

Using the StellaGuard app, the labels are meant to be scanned by consumers so they can know their product is, in fact, authentic and the company receives information on where the product was open, so they can know if a shipment was diverted from the location it was ordered to.

Cost of counterfeit security

Ducharme said the greatest cost in counterfeit security can often be the staff to do the policing. Typically, counterfeiting prevention programs require staff to actively seek out bootleg products and hunt down their origins.

In some programs, like an anti-counterfeiting program Covectra was asked to develop for a pharmaceutical company, the cost of policing counterfeits exceeded the loss from revenue diverted by the false products.

“Security costs money, but the risk of not having security is even greater,” Ducharme said. “Think of somebody having a very bad anaphylactic issue with a cosmetic they’ve been using, then they get a counterfeit substitute. If that happens, their first reaction is a lawsuit.”

However, he also said the cosmetics industry is at an advantage because consumers are often actively interested in insuring they are using authentic products. The StellaGuard app works because enough customers are interested in scanning the QR code, which acts as a free policing service for a company, Ducharme said.

For larger cosmetics companies, he said investing in anti-counterfeiting can prevent loss of revenue and jobs, but for smaller, indie level companies it could mean the difference between succeeding and being taken down by counterfeit-related lawsuits.