[Attack of the Counterfeits]⑦Pinocchio Lab's AI Detects SS-Grade Fakes[Interview]

Interview with Lee Sung, CEO of Pinocchio Lab
Development of a Customs Counterfeit Management Platform with TIPA

Editor's NoteThe global counterfeit market is valued at 2,000 trillion won. Fake products are becoming more sophisticated, and their distribution is growing bolder. It is not only high-end luxury brands that suffer damage. While consumers remain silent about counterfeit goods, K-brands expanding into the global market are also being replicated. Local brokers preempt trademarks, blocking market entry, and companies are frustrated by massive legal costs. In the borderless online marketplace, there are clear limits to enforcement and monitoring. Asia Economy investigates the reality of the counterfeit market, which has grown explosively since the COVID-19 pandemic, and explores countermeasures to prevent copycat products of K-brands that have made a splash in the global market.

"While running a parallel import business, I suffered a lot from misunderstandings about counterfeits and distrust from consumers. There was no proper authentication system, so I decided to conduct the verification myself. By utilizing analytical artificial intelligence (AI), we can detect even the smallest differences."

Sung Lee, CEO of Pinocchio Lab, said in a recent interview with Asia Economy, "Interest in counterfeit detection technology will only continue to grow in the future," expressing these views.

Pinocchio Lab is a startup that supports companies in protecting their intellectual property rights (IPR) at customs clearance and distribution stages through AI technology. Currently, the company operates the Trade-related Intellectual Property Protection Association (TIPA) customs counterfeit management platform (TIMS) in collaboration with TIPA, which is under the Korea Customs Service. TIMS enables two-way communication between customs and brand owners (rights holders) on the platform. When customs detects a suspected counterfeit, the rights holder is notified in real time, and AI-based verification is also possible.

Sung Lee, CEO of Pinocchio Lab, is explaining the TIMS platform. Photo by Minji Lee.

The TIMS platform was first introduced in 2018. After leaving a position in a large corporation's marketing team, CEO Lee entered the parallel import business, but repeatedly became embroiled in counterfeit controversies, spending significant time proving product authenticity. This was due to ongoing counterfeit sales by some parallel importers. CEO Lee explained, "Consumers could not trust sellers enough to purchase products," and added, "After reading an article in 2016 about AI being commercialized in the United States to identify counterfeits, I entered the authentication business to provide certification of genuine products."

Since 2012, CEO Lee had worked in parallel import operations and built a relationship with Hyukgyu Kwon, head of TIPA, joining forces to develop the platform, which began pilot operations in November 2018.

The core of TIMS is speed. In the customs clearance system, when X-ray screening flags suspicious cargo, customs officers open the package to check the trademark and quantity, then request verification from the rights holder. After the rights holder receives the suspicious cargo and conducts verification, the results are sent back to customs. It typically takes about a week from the time the rights holder receives the item to when the verification results are returned.

TIMS has drastically reduced this time. By uploading product photos to the platform, rights holders can quickly verify items, and the results are rapidly shared on the platform as well. This has eased the burden on customs, where speedy clearance is essential.

TIMS proved its value during the COVID-19 pandemic, when the volume of small parcels surged. At that time, the biggest global challenge was the influx of counterfeits via small parcels, driven by the boom in overseas direct purchases. TIMS served as a "gatekeeper" with its rapid processing speed. At the time, South Korea was the only country in the world operating an integrated platform between customs and rights holders. As of last year, the number of counterfeit detections reached 140,000 cases, overwhelmingly higher than in other countries.

Pinocchio Lab and TIPA plan to equip TIMS with an AI verification system. The goal is to allow AI to filter out clear counterfeits without direct involvement from rights holders, thereby improving efficiency at the customs clearance stage. CEO Lee explained, "AI mechanically analyzes subtle differences in detail that people might miss," and added, "We are planning to enable inspection and certification of genuine products at the customs clearance stage, and are advancing the TIMS platform so that the AI inspection system can be seamlessly integrated."

Pinocchio Lab is already applying AI technology to its "IPR infringement inspection" system for distributors to detect counterfeits. The company provides services to E-Land Group, the Chinese e-commerce platform Aliexpress, and Emart. For products imported by distributors, AI determines whether they are counterfeit, and if judged genuine, a digital inspection certificate is issued for the product.

Lee Sung, the representative of the opposite sex, stated that above all, active interest from small and medium-sized brands is necessary to eradicate counterfeit products. Photo by Minji Lee.

Pinocchio Lab is confident that analytical AI can deliver a faster and more accurate screening system. Analytical AI learns the stitching, material, pattern, and logo placement of genuine products, making it effective in determining exactly where a counterfeit differs from the original. In fact, the AI developed by Pinocchio Lab was able to instantly identify subtle differences in "SS-grade" counterfeit products, which had troubled global luxury brand headquarters for a year and a half due to the difficulty of detection. Recently, inquiries about AI technology from global brand companies have also been increasing.

CEO Lee predicted that as the volume of counterfeit products entering the market through online channels grows and more K-brands (brands based in Korea) gain value in overseas markets, the scale of the counterfeit market will expand even more rapidly. CEO Lee stated, "It is extremely difficult to completely eradicate counterfeits," but added, "In addition to strengthening the system at the customs clearance stage to prevent counterfeits from entering the country, it is also important for small and medium-sized brands to proactively recognize the need to protect their intellectual property rights."