The Wine Collector

The counterfeiting of any item is more likely when two conditions exist:

1. The item is substantially more valuable than the cost to fake it.
2. The identification of fakes is difficult or inherently subjective.

Unfortunately, fine wine easily satisfies both conditions. E.g. counterfeiters can refill empty authentic bottles or digitally print almost any label at low cost.  Identification of fake wine is more of an art form using various clues instead of based on an objective assessment.

Authenticating fine wine - What matters

What ultimately matters is the wine itself - not the label, bottle, or capsule. Anti-fraud technologies which successfully authenticate the contents of the bottle such as Prooftag (see my prior post from 2007) are all that's needed.  If the security seal isn't broken, then the bottle has to be authentic. Other methods like adding DNA markers or invisible ink to labels, or engraving bottles, only help authenticate the bottles not the contents.

Step 1: Producers must enable objective authentication

Deploying a security seal like Prooftag's solution is a fundamental requirement to eliminating fake wine as it introduces an objective test which may be relied upon with 100% certainty.  I'm not sure what the current cost of using a Prooftag solution is but I have seen a range of 30 cents to $1.50 per bottle in other articles (no doubt driven by the volume of tags).  As a consumer, I would rather see a security tag on the bottle than buy fancy packaging like overweight, over-sized bottles if producers need to find a means of paying for it.

Step 2: Permit anyone to validate authenticity of bottles

Just as with identifying counterfeit currency, the only way to spot wine fakes is to cast a wide net by educating and empowering members of the trade and consumers on how to validate bottles.  If the anti-counterfeiting technology is "non-forgeable" (as Prooftag claims), then disseminating information publicly is safe and does not "train" criminals in how to counterfeit the wine.

Without an objective test (as with older vintages pre-dating use of anti-counterfeiting measures), however, sharing information on how to identify authentic wines may be tantamount to publishing how to make a fake successfully.  This is exactly why Step 1 should be adopted ASAP by any producer interested in preserving their brand's integrity and resale value in secondary markets.

Overt vs. covert systems

A September 2009 feature story in Wines & Vines titled New Ways to Fight Counterfeiters opens with the question of "Overt or covert?"  Covert systems seem pointless - almost akin to creating laws without enforcing them.  The only reason a system is covert is because of the fear (or reality) that a dedicated criminal could copy it.

Open systems like Prooftag's can be even more effective by providing members of the wine trade with access to automated "readers" to verify authentic bottles in an efficient manner.  These readers should be provided at no charge to qualified fine wine retailers and auction houses willing to use them to help choke off any trading in fake wine.

Wine anti-counterfeiting standard needed

Various winery and producer trade organizations should endorse a common standard of anti-counterfeiting technology.  If the industry adopts a multiplicity of approaches, enforcement will become near impossible as trade members would not only need to support all technologies but know which one was used by which producer and starting with what vintage. It's unworkable.

Bottom line: Stamping out wine counterfeiting starts with producers taking preventive measures.  Assessing fakes without an objective capability to determine them is just educated guesswork at best.  Consumers are exposed to financial loss, fine wine retailers and auction houses may get unfairly blamed or accused of complicity, and producers' reputations are at risk when consumers drink poor quality fakes and think it's the real thing.

Other recommended reading:

1. Vinography post: Do we have Ebay to thank for all that counterfeit wine?
2. Dr. Vino post: High stakes and alleged fakes - Koch sues Kurniawan.  In particular, read Koch's legal complaint which goes into some interesting details (especially first 5-6 pages).
3. Jancis Robinson's robust series of articles in her fake wine category on her information-rich site
4. Billionaire's Vinegar.  Quite entertaining and superbly researched.

The press has been filled with stories about counterfeit wine in the past few months.  Any solution for absolute authentication needs to start with the wine producer for obvious reasons.  But for a solution to be workable for the trade and consumers, a simple method for them to verify the wine's authenticity is needed.  A security seal called Prooftag (adopted by Blankiet Estates and some Burgundy/Bordeaux producers) meets this test whereas Kodak's offering (adopted by Colgin, Vineyard 29 and Staglin, see press release) does not.

Overview of Prooftag technology

Prooftag is tamper-evident strip (about 1 cm wide and 5 cms long) which is applied to run from the foil capsule onto the bottle.  The technology works on a three dimensional signature called bubble tags that are made from a clear resin which create bubbles in unique (random) patterns during a hardening process.  Read more about why these tags are impossible to reproduce.

Tags also have a unique number assigned and both are then scanned with optical readers when created (by the manufacturer, French company Novatec) and recorded in a central database. 

The key advantage of Prooftag - Easy verification

There are 3 levels of "controls" to verify tags.   The first level is based on a quick visual inspection.  See example to right where the top image is an original strip and the lower one has been tampered with.  The strip might also be ripped.

The second level of control requires using the identifier on the tag to retrieve the unique bubble pattern image from the company's database.  Simply visit this authentication page, and enter the identifier (click here for the animated tutorial).  According to the company, over 99.95% of people tested can complete a visual authentication in a few seconds.

For the trade, optical readers that use an algorithm to calculate a signature for each bubble tag (analogous to how fingerprint readers work) can then be connected to the company portal for electronic authentication.

Possible issues with Prooftag's solution

I presume simply peeling off the strip (even if it remained unripped) would create the damage shown in the second image above (although I didn't see this scenario proactively addressed on the company site).

What about the long-term "stickiness" of the label in varying cellar conditions?  If for some reason the Prooftag came off accidentally, it could render the bottle valueless.  It seems likely this use case has also been considered.

Potential flaws in Kodak solution?

Kodak's system is based on applying invisible markers to printing inks, paper, and other packaging elements.  But these invisible markers are only readable with proprietary handheld readers.  Putting aside the low probability of an individual collector ever buying a reader, trade members might still do so if they care about selling authentic bottles.  The problem is when Vinfolio inquired about obtaining a reader for this purpose, we were told that they're available only to customers!  Huh? This virtually defeats the benefit of marking the bottles at all.  

Bottom line: Wine producers deciding between these and other anti-counterfeiting options need to consider how the trade and consumers will interact with the technology.

P.S. Here's a link to the Decanter.com article which prompted this post.

Today's Wall Street Journal (WSJ) had a front page story on wine counterfeiting titled "U.S. investigates counterfeiting of rare wines" (WSJ online subscription required).  When I arrived at the office today, I had a voice mail from Robert Frank, the writer of The Wealth Report blog at the WSJ (which is billed as covering "the lives and culture of the wealthy").  He wanted to discuss how wine buyers could avoid fakes.  My comments are incorporated into his blog post today titled "Oenophiles see double."

In the discussion with Robert, I noted that buying wine sourced directly from the chateau (which is called "ex-chateau") or from individuals who bought it upon release is the ideal defense against fakes, as the "chain of provenance" is fully known (including storage conditions). 

Quantifying the value of buying ex-chateau 

I realized when making this point that I potentially had a method for quantifying the market pricing premium for authenticity. The other day when reviewing the price list of a very reputable British wine wholesaler (Farr Vintners) specializing in Bordeaux, I noticed that they listed certain Bordeaux wines with a notation that the wine was "ex-chateau."  If they happened to also offer the same wine, vintage, and bottle size without the ex-chateau designation (and in otherwise excellent condition), then an analysis of the price differences might reveal at least this firm's educated view of the price premium for authenticity (as storage conditions of non ex-chateau wine from Farr is typically impeccable).

The outcome 

In examining Farr's full Bordeaux price list, there were 18 examples that met the criteria which spanned the 1986-1998 vintage time frame including wines from Latour, Mouton-Rothschild, Haut Brion, and Pichon Lalande as well as less expensive Bordeaux such as Lafon Rochet.  The chart below displays the results with a trend line based on a linear regression approach.  A few observations:

1. The trend is for an increased premium for older wines which makes sense as the risk of fakes intuitively is greater the older the wine.
2. Only 1 of the 18 examples had no price premium (and this was for the cheapest wine).
3. Absolute price levels were less correlated with price premiums than vintage in this limited data set.  E.g., the five most expensive wines (priced at $2,000 to $5,000 a case), had 3 examples in the 9-10% premium range but also one at 5.6% and one at 2.8%.
4. The overall median premium in this sample was 5.7%.

One way of interpreting the authenticity premium is as a measure of the potential liability that an auction house or other seller of fine wine exposes itself when selling such wine.  If one extrapolated the trend line to 1947 (as an example of a great wine year), the premium (or potential liability of selling non ex-chateau wine) rises to 32.2%.  That's about the total gross margin percentage between buyer's premiums and seller's commissions that a major auction house would earn when selling a wine of that vintage.

Bottom line: Pay attention to provenance and be prepared to pay more for when it's solid -- it's worth it.