This article was first written for Essential Retail and the full article can be found online here.

Stewart James, Partner in the Commercial Team at Ashfords LLP, takes a look at how retailers can use technology to tackle counterfeit crime.

The late eighteenth century English cleric and writer, Charles Colton, is credited with saying that "imitation is the sincerest form of flattery". For the fashion, retail and creative industries, however, counterfeiting is morally and – in some instances – legally a crime; imitation devalues brands, and can stifle creativity and innovation.

In response to the counterfeit challenge, Italian fashion house Salvatore Ferragamo has announced it will embed microchips into its shoes and bags to make it easier to authenticate them. Interestingly, it is also anticipated that this will provide a collateral benefit for consumers seeking to prove authenticity and increase resale value in the booming online resale market.

Brand protection is an enforcement issue of identification and removal, ideally before counterfeit products get into the supply chain. The use of technology should make this process simpler, but it is not without legal and practical issues.

Marks & Spencer first introduced electronic tags into its UK stores in 2003 as a trial to improve stock accuracy and product availability. Since then, the use of radio frequency identification ("RFID") on product labels and sales tags has become increasingly common.

RFID is a form of wireless communications that uses radio waves to transfer information. The technology requires a tag, consisting of a microchip and an antenna, to be attached to the product, as well as a scanning device or tag reader. The retail trade normally uses the passive form of the technology, which uses energy provided by the reader to power the RFID tag. Consequently, these have a shorter communication range, typically limited to less than 10 metres, but are cheap to produce, robust to use and have a long product lifetime.

The advantage of RFID tags is their ability to store information about the product, including its source, product description and a unique identifier. This has previously raised privacy concerns because of the ability to associate the unique identifier with customer identification data. This is more than a theoretical possibility where the RFID tag is embedded in products that are used exclusively by an individual, such as a pair of shoes.

Paradoxically, these privacy issues may assist the resale market by providing a product with a history that is similar to the provenance that is used in the sale of artwork. However, to capitalise on this, potential brands like Salvatore Ferragamo will need to comply, at least in the European market, with the data protection regulations, including the requirements for fair processing and data security.

It has already been demonstrated that information stored on RFID tags when used for other applications can be read illicitly (i.e. 'skimmed') and cloned. Devices for cloning building access cards are legally available for purchase for as little as £10 on Amazon. It is, therefore, only a question of time before cloned tags will be found in counterfeit goods. The manner in which RFID tags store data can be strengthened, including the use of encrypted and dynamic information technology, provided that this is considered at the programming stage.

In any event, there is a practical issue with the proposed use of embedded RFID tags – how will the customer, or a future prospective purchaser, read the tag? Brand owners might want to provide this as a service in order to establish the provenance of their goods at the point of resale. Doing so would give them a further opportunity to remove counterfeit goods from the market, but it also raises the possibility of prosecuting a person presenting a counterfeit.

Clearly, it would be counter-productive to prosecute customers but, from the customer's perspective, chipped products might actually be seen as an implied warranty or guarantee of authenticity. This is less likely to be an issue of legal enforceability in practice but one of customer expectation and relationship management.

Counterfeiting is a game of cat and mouse with each advance being blocked by the next counter-measure. Use of electronic tagging will only give the brand owners a technological advantage for a period of time, but the collateral benefit for the resale market could provide a longer-term benefit that encourages the purchase of authentic products. Brand owners should consider how they will support this extended market.