Who uses them? Nocopi's client list is as confidential as the winners' list for the Oscars.
``We can't tell you who the customers are,'' said Norman Gardner, founder of West Conshohocken-based Nocopi. ``If we told you, they'd stop using us.''
This is how the technology works: A designer T-shirt manufacturer sews on a label treated with a patented Nocopi colorless dye. To determine if the shirt sold in a discount department store is real, company officials can use what looks like a felt marker to rub the tag. If it's the genuine article, the tag will change colors.
Compact disc and CD-ROM manufacturers can add a Nocopi substance to the paint applied to the product. When activated by a chemical in a special felt pen, the substance causes the paint to change color. This technology is aimed at combating the widespread software and music piracy taking place mostly in Asia.
People in the consumer products business say their losses from piracy and counterfeiting are huge. (Piracy is making bootleg copies of a copyrighted product such as software or music. Counterfeiting is making an item that looks like the original.):
* Counterfeiting costs U.S. companies more than $200 billion each year, according to the International Anti-Counterfeiting Coalition in Washington.
* Losses to the software industry due to piracy were estimated at $11.4 billion worldwide and $2.7 billion in the United States, according to the Business Software Alliance in Washington.
* The clothing industry loses about $2 billion in worldwide sales due to counterfeit goods, according to the International Trademark Association, also based in Washington.
Some experts say such numbers are exaggerated because many people would not buy certain products if they had to pay full price. But lots of companies are spending time and money trying to minimize their losses.
``People hardly rob banks anymore,'' Gardner said. ``There are a lot of easier ways to make money today through technology fraud.''
The seeds for Nocopi Technologies were sewn in 1980 in Montreal, when Gardner, then an advertising executive, accidentally spilled a mixture of coffee and a few other substances he declined to identify on some paper he was writing on. Gardner could read the words through the burgundy splotches, but the text wouldn't show up on photocopies.
Gardner patented his cocktail and founded Nocopi in 1982. The company introduced a line of non-photocopiable papers and Gardner took the company public in 1985. The burgundy paper, still available, has had limited success. Most notably, some of the scripts for The X-Files television series were printed on it, Gardner said.
However, the timing for the paper was a bit off. ``The Cold War was winding down. People weren't into spying,'' Gardner said.
So Nocopi switched gears and began selling an invisible ink system that allows manufacturers to identify counterfeit products and track diverted products.
Product diversion occurs when a distributor sells a product in another market, usually for a lower price. For example, an exporter to African countries may buy aspirin from a major U.S. manufacturer for less than the standard U.S. wholesale price because the pharmaceutical company wants to enter the African market. The exporter then sells it to a distributor in the United States, who in turn sells the aspirin to flea market dealers who sell the name-brand aspirin for a fraction of the drugstore price. The same scheme often takes place with clothing, perfume, beauty products and baby formula.
``There are networks of people who move products from one part of the country to the next. It dilutes the brand and the trademark,'' said Richard Check, Nocopi president and chief executive.
Diversion has been estimated to cost business $20 billion a year. It usually involves a distributor breaking an agreement with a manufacturer. ``It's difficult to stop if you have different markets and tiered pricing,'' said Reginald Montgomery, president of R.J. Montgomery Associates, a Ramsey, N.J., private-investigation firm that specializes in tracking diversion.
Diversion can happen when the manufacturer's sales representatives don't really care what the distributors do with the product. ``The salespeople want to have their numbers up,'' Montgomery said.
When the tracking information about a product is printed on a box or other package, diverters can cut out, burn or mark over the bar code or the tracking numbers. Some diverters even repackage the product. Manufacturers use Nocopi invisible inks to mark the actual products, giving each product a hidden fingerprint.
Still, Nocopi's revenues have been flat for several years, and the company has lost money the last five years. Until this summer, Nocopi had been tied to licensing agreements with larger manufacturers. These agreements brought in a fixed amount of income, which usually declined each time the licenses were renewed. Last year, Nocopi had $3 million in sales but lost $847,000. In 1996, the company lost $408,000.
``The company never had the wherewithal to put together a full-blown marketing plan and have enough people out in the streets selling,'' Check said. Nocopi hired Check, 45, last September to turn around the company. He is a former executive with Alco Standard Corp., which split into two other companies in late 1996 - Ikon Office Solutions Inc. and Unisource Worldwide Inc.
Check said he restructured the company so that it could exert more control over its sales and try to improve profit margins. Nocopi will move its laboratory from Malvern to its West Conshohocken headquarters. At the end of last year, European investors supplied about $3 million that allowed Nocopi to pay off some of its debt.
Nocopi now has a small sales force pushing its technology. ``Now we're going after the long haul,'' Check said. ``We have a little bit more control.''
In May, Nocopi and Minnesota Mining & Manufacturing Co., based in St. Paul, Minn., terminated a supply and distribution agreement. In July, Nocopi entered into an agreement with Avery Dennison Corp., the Englewood, Colo., label company. Avery and Nocopi will work together to sell pressure-sensitive sticker labels with Nocopi's invisible printing technology. The companies would share in profits, Check said.
Nocopi's competitors range from large companies, such as Xerox, Canon and other photocopier manufacturers that have document security divisions, to several dozen companies that market technologies designed to battle counterfeiting, including 3M and Optical Security Group, based in Denver.
As long as there is diversion and counterfeiting, Nocopi officials expect to have a market for their products, especially in Asia, where international trade organizations are working on stamping out fakes.
Nocopi has signed a letter of intent with the China State Bureau of Quality and Technical Supervision to become an officially sanctioned supplier of anticounterfeiting products in China. U.S. officials have long complained to Chinese leaders about the flow of counterfeit products emanating from their country. The specifics of Nocopi's deal with the Chinese bureau should be hammered out by the end of the year, Check said.
``Their number-one concern is cigarette counterfeiting,'' Check said. ``We have a very inexpensive solution.''
