Some counterfeiters are learning the hard way that you can't fool Mother Nature. In February alone, FBI agents confiscated ``$38,000 worth of counterfeit recordings at California flea markets,'' jubilantly reports Ronda Espy, business director of Chrysalis Records. The confiscations are the direct result of the small label's pioneering use of a novel protection system.
This state-of-the-art approach, developed by Light Signatures Inc. (LSI), relies on the ``snowflake principle'' -- the uniqueness of natural materials -- to deter counterfeiters. In this, it differs from other anti-counterfeiting techniques. Instead of using special papers or inks, holograms, or other devices that are difficult to duplicate, the system shines a bright light through the material in a label, measures light intensities in a random, microscopic pattern, and converts this into a numerical ``fingerprint'' for each product that cannot be counterfeited, explains LSI's president, Ronald Katz.
The technology is the newest weapon in the arsenal of legitimate companies waging a fierce, behind-the-scenes war with modern-day pirates. The Commerce Department's Office of Consumer Affairs estimates that $22 billion in bogus goods was purchased in 1982.
``We don't know exactly how badly we've been hurt,'' Ms. Espy explains. But she thinks the damage has been substantial, costing up to 20 percent of the total sales for the label's major artists like Pat Benatar. Ms. Benatar's first album was a smash hit. But sales on her second album were disappointing. ``Some people say it was because the album wasn't as good, but I think a big part was that the pirates were ready,'' Espy says. Supporting her argument is the fact that sales of Benatar's third album, the first to be protected by the new system, were up significantly from the previous release.
Each legitimate copy of Benatar's third album includes a warranty card which can be returned for a special certificate of authenticity. Each card is fingerprinted by LSI. When a buyer of a record or cassette returns a card, Chrysalis sends it to LSI for verification. If a counterfeiter reproduces a card with its long identification number, it will fail the test, because the pattern of fiber in the paper will not match that specified by the ``ID.''
In the garment industry, Levi Strauss & Co. was the first to adopt this new technology. ``We looked at 25 different systems and decided this was the best,'' says Peter Phillipes, the company's associate general counsel. Before turning to the system, the company had experienced several outbreaks of counterfeiting which were ``not large, but annoying,'' he says. In the two years it has been using LSI it hasn't had any problems, he says. The company's own security officers have repeatedly tried to break the system without success. ``We're convinced it's non-counterfeitable,'' Mr. Phillipes says.
As attractive to industry as its protective capability is LSI's ability to encode all sorts of information for a reasonable price. This permits Levi to incorporate product ``bar codes'' in its labels, so retailers can keep track of stock without adding their own tags.
The newest use of the snowflake principle is in the stock market, where there is a growing problem with counterfeit stocks and bonds, says Ronald Readman of Alex. Brown & Sons Inc., a member of the Financial Industry Securities Council.
Although it's concerned about present-day problems, the council is even more alarmed about the prospects for the near future, Mr. Readman explains. For instance, the newest color photocopiers are so good they could soon turn stock and bond counterfeiting ``into a crime of opportunity. No skill will be required,'' he says. So the group has been lobbying the New York Stock Exchange to adopt preventive measures.
LSI's prevention consists of special certificate printers and readers, explains Mr. Katz. The printers will be registered with LSI, and their programming must be updated over the phone daily. The readers will be able to tell if a certificate is genuine, but they cannot be used to produce unauthorized copies.