Jan. 6, 2003 - Walk along the streets of almost any Asian city, and sooner or later, someone will offer to sell you a Rolex watch for $20 or so. The watches are, of course, fake, and everyone knows it. But millions of customers buy counterfeit goods -- perfumes, whiskey, airplane parts, and even bottled water -- through legitimate channels without ever knowing the goods aren't the real McCoy. In fact, counterfeit products are estimated to make up about 8 percent of worldwide trade, according to the International Chamber of Commerce. Which means companies are losing upwards of $200 billion dollars a year.

ThingMagic's Pappu

Many manufacturers go to great lengths to try to stymie the counterfeiters. Some perfume companies, for instance, use lasers to etch a serial number in the neck of perfume bottles and then match the number to bar codes printed with inks that can only be seen under ultraviolet light. Techniques like these are expensive, and they don't prevent crooks from stealing consignments of genuine products to sell to unsuspecting or corrupt retailers for a handsome profit.

Ravikanth Pappu, a founding partner at Cambridge, Mass.-based ThingMagic, may have hit on a solution to the problem. He has devised a way to create inexpensive plastic tokens randomly embedded with transparent glass beads. The tokens are virtually impossible to reproduce, and when you shine a laser through one, it creates a speckled image that can be converted into a 2,400-bit binary number. The tokens could be combined with RFID to not just identify an item, but verify its authenticity. The best part: the tokens themselves can be made for less than a penny, and the optical readers might cost less than $10.

Three years ago, Pappu was a graduate student at MIT, working with the Media Lab's Physics & Media research group. Neil Gershenfeld, the head of the group was approached by a credit card company whose smart cards were being cloned. Some of the cards stored electronic funds, so cloning them was like printing money. The company wanted to know if there was a way to obtain unique, tamper-resistant and unforgeable serial numbers at very low cost.

Pappu came up with the idea of using the physical structure of the card in some way to derive a unique serial number. If that were possible, the additional security would not increase the cost of making the card. The other advantage of using the card itself is that if someone did manage to clone a card, he would only be able to reproduce that one card. With digital encryption techniques, once a criminal cracks the encryption algorithm, the entire system is compromised.