Planes, pills and perfumes—every industry is impacted by counterfeiters. Back in the 1990s, the Federal Aviation Authority estimated that 1-2% of airplane parts were counterfeit. According to the National Association of Boards of Pharmacy (NABP), 95% of the 40,000 online pharmacies in the world engage in counterfeit drugs. These eye-opening statistics are courtesy of Systech, a global firm specializing in thwarting counterfeit products in a range of industries.

“Prince died after taking a counterfeit pill,” recalled Stephan von Schilcher, global strategic account manager, Systech. “Counterfeit cosmetics are just as dangerous as pharmaceutical or food counterfeits. They’re a health hazard and directly impact the bottom line of cosmetic brands, costing them substantial lost sales.”

Counterfeiting Impacts Many Industries

The Systech executive explained that while footwear and apparel industries are most impacted by counterfeits, they’re followed by pharmaceuticals and cosmetics. In fact, counterfeits have become so problematic in the dermatological space that the American Academy of Dermatology earlier this year issued a statement on counterfeit Botox products. The AAD said it was alarmed by reports of patients suffering from illnesses resembling botulism after undergoing procedures using possible counterfeit botulinum toxin (Botox).

“The concerning rise in counterfeit injectables poses a grave threat to patient safety, potentially resulting in severe complications such as visual impairment, blindness, infection or even stroke. These complications underscore the urgent need for patients to carefully understand who they are selecting to perform Botox procedures,” explained AAD in a group statement. “Dermatologists pioneered the use of Botox to relax wrinkles and to address conditions such as hyperhidrosis, and they have a long track record of safety and effectiveness. Botox injections are a medical procedure and should only be performed in a medical office by board-certified dermatologists or an appropriately trained non-physician clinician, under the direct on-site supervision of a board-certified dermatologist.”

The Academy cautioned patients about the safety risks of seeking cosmetic treatments and encouraged them to carefully consider the expertise of those providing care and the environment where that care is administered.

Also in April, The US Food and Drug Administration (FDA) issued an urgent alert to healthcare professionals and consumers regarding counterfeit Botox products in several states. The counterfeit products were administered for cosmetic purposes, leading to adverse events including hospitalizations. Patients who received the counterfeit botulinum toxin reported symptoms such as blurred or double vision, difficulty swallowing, dry mouth, constipation, incontinence, shortness of breath, weakness and difficulty lifting their head. These symptoms mirror those observed when botulinum toxin spreads beyond the intended injection site.

The FDA is working with the Centers for Disease Control and Prevention (CDC), state health departments, and AbbVie, the manufacturer of Botox, to identify, investigate and remove the suspected counterfeit products from the market. As a result, tracking and tracing the validity of pharmaceutical products with anti-counterfeiting technology has seen a boon in recent years.

This isn’t the first time that counterfeit Botox caused health issues. According to the Dermatology Times, an iatrogenic botulism outbreak occurred in Egypt between June and July 2017 due to the use of botulinum neurotoxin type A (BoNT-A) injections. Nine patients developed botulism symptoms after receiving BoNT-A injections for conditions such as cerebral palsy, spastic dystonia and hyperhidrosis. Symptoms included muscle weakness, dysphagia, dizziness, dyspnoea, dysphonia, dysarthria, fatigue, diplopia and blurred vision.

Counterfeits Are a Global Issue

While counterfeit cosmetics are an issue in the US and Europe, the problem is even more pronounced in Latin America and Asia, noted Happi Columnist Valerie George, founder and CEO of Simply Formulas, a consultancy. She recalled that during her time in the salon professional industry, counterfeiters rubbed off existing lot codes and applied new ones.

“We would get the product back that was off. It didn’t look right or smell right. It might have been our product inside, but it was obviously several years old and we couldn’t tell the actual date of production,” she explained. “We could see where counterfeiters had tried to remove the inkjet batch code on the bottom and they put a new one over it that was very close to the stylization that we had.”

In other cases, counterfeiters retained the real lot number, but it wasn’t that actual size that was produced. They would get the lot number from a different size in stock, or it would be a newer lot number that matched that product.

“But it would obviously be an old product because the packaging was outdated,” said George.

In other instances, counterfeiters actually duplicated bottles, tubes or whatever container the product was packaged. They matched the artwork, the font and the color—as best they could.

“Maybe the color of the packaging would be a little bit off, but a consumer or salon would complain that the product didn’t look right, feel right or smell right,” said George. “Sometimes the product inside would be close, and sometimes it would just be a completely different product inside the bottle—a different fragrance, a different color.”

When George and her team reviewed quality control records, they discovered the lot in question was never produced anywhere. The product inside was, obviously, different. After some detective work that included chemical analysis, they could deduce that the lot was never produced, the size was never filled or the combination of artwork and lot code didn’t match.

Under these circumstances, two types of fraud occurred. Counterfeiters were taking old product, erasing lot codes (to avoid traceability) and reselling it. Or they were just completely fabricating brand new product. By checking quality records, packaging sizes, artwork, lot records and more, George and her team solved counterfeit issues.

“We had an employee whose only job was to track diversion,” George recalled.

“It was our packaging and our artwork, but not our product inside,” recalled George. “The plastic color was slightly off or the plastic itself was a different thickness. There was always something a little bit different about it, and we could never trace where that was coming from.”

Counterfeits and Cosmetics

von Schilcher estimates counterfeits are a $4.6 billion issue in the cosmetics industry. How do counterfeits impact cosmetics? von Schilcher provided three simple answers:

• Revenue Losses: Counterfeit and lookalike products lead to significant revenue losses for brands. They undercut sales by offering cheaper alternatives, which may appear almost identical to the genuine product.

• Brand Reputation: These fake and mimicking products often lack the quality and safety of the original items. This discrepancy can lead to consumer dissatisfaction, damaging the reputation of the genuine brand.

• Consumer Safety Risks: Counterfeit cosmetics often contain harmful ingredients, posing severe health risks to consumers. Cases of allergic reactions, skin irritation, chemical burns, eye infections and even more severe health repercussions have been linked to counterfeit cosmetics. Products may also be manufactured in unsanitary conditions.

von Schilcher noted that Olaplex’s reputation was impacted by a counterfeit product. Just one consumer took to social media complaining of hair loss and filed a lawsuit. Turns out the product was counterfeit or diverted. But the impact on Olaplex was enormous. The suit is still in litigation.

Prior to the suit, Olaplex was on a roll, setting new revenue records on a regular basis. That kind of success is exactly what counterfeiters, well, count on.

“Counterfeiters often target the industry due to high consumer demand for legitimate products,” explained von Schilcher. “Brands such as MAC Cosmetics, Urban Decay and Estée Lauder, among others, have been targeted, with fake versions of their products circulating in various online marketplaces and on social media platforms.”

Olaplex has been aggressive in its efforts to educate consumers about counterfeiters and diverters. On its website, Olaplex notes that all of its consumer products contain QR codes on the bottom back side. If a QR code is missing, scratched off or tampered with in any way, do not buy it as the product could be fake, expired or diluted, the company said.

“We do not sell in unmarked sample bottles,” the company noted. “If a product is sold in an unmarked sample bottle or sample bottles with labels that are hand written or not our professional labels as featured on our website, it is not a genuine product.”

For its part, the Personal Care Product Council appreciates the efforts of US House of Representatives Darrell Issa (CA-48), Jerrold Nadler (NY-12), Ben Cline (VA-06) and Hank Johnson (GA-04) for introducing the Stopping Harmful Offers on Platforms by Screening Against Fakes in E-Commerce (SHOP SAFE) Act of 2024. PCPC strongly support its passage.

“E-commerce platforms create opportunities for legitimate companies to grow and reach new consumers, providing them with more choices and greater convenience. However, the current structure is vulnerable to exploitation and contributes significantly to a rise in illicit trade,” said PCPC President and CEO Tom Myers in a statement issued in June. “Counterfeit personal care products damage businesses, disregard regulatory protections and more importantly threaten consumers’ health and safety.”

Myers said consumers should have the same assurance that the products they purchase online are as safe and effective as the products they purchase in a brick-and-mortar store.

“Our member companies invest substantial resources to ensure the safety and quality of their products and US laws hold our members accountable for doing so. The SHOP SAFE Act would even the playing field.”

PCPC is encouraging Congress to establish a system that makes online marketplaces and others responsible for ensuring that products on their e-commerce platforms comply with US laws and regulations. According to PCPC, legislation should also establish a minimum threshold for submission and validation of identification, banking and product authentication documentation to provide consumers greater confidence that the products they purchase are authentic and safe.

“We look forward to working with members of Congress and other stakeholders to raise awareness and develop solutions to combat the online sale of counterfeit products and establish stronger consumer protections,” concluded Myers.

The Problem with Cosmetic Lookalikes

von Schilcher told Happi that counterfeiters target lookalikes, mimic the branding, packaging and marketing of authentic products, leading consumers to believe they’re purchasing genuine articles from online sellers.

“These products may not be classified as counterfeits since they don’t claim to be the original brand. However, they leverage the brand’s goodwill and recognition to boost their sales, resulting in revenue losses or in some instances, even dilution of the brand,” he explained. “Most of these sales are on social media platforms like TikTok and Instagram.”

Brian Ecclefield, founder and CEO of Validated Claim Support, a testing company, said the sweet spot for a counterfeiter is a mid-size, high-end skincare brand—not a billion-dollar luxury brand with a cadre of lawyers at its disposal.

More companies take the threat of counterfeiting seriously. But formulators can do their part by ensuring good quality assurance at their companies, according to George. One way to do that is to diligently track lot codes. Unfortunately, lot codes actually aren’t legally required in the US and other countries.

The ideal lot coding system includes where the product was made, the sizes filled and the artwork used. Still, the best counterfeiters excel at trademark infringement, too. As George noted, sometimes, with exceptional dupes, beauty company employees must put on their detective hats and ask, ‘to whom did we sell this lot?’

“Cosmetic chemists can work with their quality assurance department and even the sales team,” advised George. “Having good documentation control in the manufacturing and packaging department and tracking distribution through the sales team is the really the only way to do it.”

But sometimes, companies need outside help.

Some Solutions via Systech

von Schilcher explained that Systech offers several brand protection solutions including:

• Serialization to enable brands to assign unique identifiers to each product for real-time tracking and monitoring, making it challenging for counterfeit and/or diverted products to go unnoticed.

• Track and Trace capabilities for manufacturers to monitor the movement of their products throughout the supply chain to identify fakes.

• Digital Product Authentication with a non-replicable, non-additive, covert digital solution that works with existing 1D and 2D codes and packaging to deliver immediate counterfeit detection.

“Systech offers cosmetics brands comprehensive solutions to help combat counterfeiting and product diversion,” said von Schilcher. “Our brand protection platform enables consumer connectivity and self-authentication of products by scanning the QR or UPC code on the existing product packaging with a smartphone.

Systech’s e-Fingerprint technology turns the mark into a unique digital ID, giving the consumer visibility of the supply chain. Fast authentication lets the user know they are purchasing the real product.

“This can also help manufacturers understand where their products are being bought and engage more with the consumers, building brand loyalty and trust,” he added.

Despite these tools, von Schilcher predicted that counterfeit issues will only get worse before they get better.

“Until we start doing more to solve the problem, it won’t get any better,” he told Happi. “When I began my career, no company had a brand protection department; now there are 100 of them.”

Unfortunately, as every law enforcement officer will tell you, there are more bad guys out there than there are good guys to stop them.