Is your cabernet a fake?

Wine is the latest target for counterfeiters, so technology companies like Kodak and Hewlett-Packard are getting into the act to put a pedigree on your pinot.

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By Elizabeth Strott

In vino veritas, so the old Latin adage goes.

But there isn't always truth in the wine you might be drinking. That's what billionaire businessman William Koch found out -- the hard way. Wine fraud is big business

In 1988, William Koch bought a number of rare bottles of wine alleged to be Thomas Jefferson's, found in walled-up wine cellars in Paris. Koch paid $500,000 for the bottles, which he bought from German wine merchant Hardy Rodenstock through an auction at Christie's.

After lending his collection for an exhibit at the Boston Museum of Fine Arts in 2005, Koch learned that the supposed Jefferson bottles were fakes. The engraved "T.H.J." initials on the bottles were way ahead of their alleged time, done with tools not even introduced until after Jefferson had died. The real thing: 200-year-old wine

While this might be one of the most well-known cases of wine fraud, it certainly isn't the only one.

Now wineries around the country are taking steps to protect the integrity of their wines by using new technology from companies like Eastman Kodak (EK, news, msgs) and Hewlett-Packard (HPQ, news, msgs) that help detect counterfeit wine.

Business opportunity

Counterfeiting costs U.S. businesses between $200 billion and $250 billion a year, according to the FBI. An estimated 5% of rare wines sold on the secondary market are counterfeit, according to Wine Spectator magazine. This problem has become a business opportunity for Kodak and H-P. New technology protects winemakers

Counterfeiting is "a huge problem in the industry," Kodak spokesman Dennis Kercher said. "Billions of dollars of revenue goes into counterfeiters' pockets. Wine is a big business."

Particularly for boutique wineries that count numerous collectors among their buyers, the investment in security technology pays off in branding.

"We want our customers to get a great experience every time they open one of our bottles," said Shari Staglin of Staglin Family Vineyards, which uses Kodak's technology on its Staglin Family Vineyard Cabernet, at $150 the most collectible of its wines. The security technology is "the only way we can assure it."

The two most prominent players in the industry are taking different approaches.

Kodak is working with wine label printer Tapp

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Technologies to create wine labels that are counterfeit-proof.

The price of the technology is a based on a sliding scale, Kercher explained. Companies that have a low volume of application could pay up to $1 per item. For high-volume operations like the pharmaceutical industry, it's a fraction of a penny.

Kodak is looking beyond the wine industry. "We have customers in pharma, luxury apparel, sports collectibles, consumer electronics and spirits," Kercher said.

Meanwhile, H-P's "Memory Spot" technology is a memory device that can be embedded or affixed to any surface, but is being actively marketed for wine labels. H-P is currently exploring options to bring Memory Spot to market, including technology licensing; cost will depend on the go-to market strategy, the company said.

"H-P has a very direct interest in beating the folks who want to produce counterfeit goods," said Tony Redmond, Hewlett-Packard's chief technology officer.

"The interest from the wineries' perspective is that they want to preserve the premium of their brand. The vineyard wants to make sure their wine is protected all along the supply chain."

It "contains encoded information which is then difficult for a counterfeiter to figure out," Redmond adds. "Counterfeiting has been with us since the earliest days of industry; this is not a problem that is going to go away."

Vineyard 29 is one Napa Valley winery that has started to use Kodak's Traceless technology.

"I think that counterfeiting has become an increasing problem" for the wine industry, Vineyard 29's Chuck McMinn said. "We thought it was great to take this proactive step to guarantee our customers that the wine that they buy can be certified to be real and authentic by us at any time."

Once one bottle is counterfeited, "it becomes a very visible problem," said Kodak's Kercher. "The cost of possibly having to repair a reputation down the road is way more than the immediate cost of using this new technology."

A pinot like a Picasso?

Another vintner who's using the new technology is Ann Colgin, owner of Colgin Cellars in the Napa Valley town of St. Helena, Calif.

Colgin, whose wines have been compared to works of art by devoted fans, has some 3,000-odd people on the waiting list for her wines; she uses Kodak's

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technology to protect her brand.

"I like to think that these wines are made to be drunk," Colgin said, "but I do understand that a lot of people look at this as an investment" and a consumable collectible.

Fear of fraud

Christie's auction house took in a whopping $71.6 million in wine sales in 2007, a 22% jump from 2006 sales.

For the collectors -- and the average wine lover -- spending the big bucks on liquid investments, the fear of fraud is growing.

"This is not a new problem," explained Rich Haley, sales manager at Montesquieu Wines, adding that technology to help prevent fraud is a good thing for the industry. "The problem is that the American palate is not necessarily distinguished as to determine whether they're drinking a counterfeit bottle."

With more and more people spending money on higher-end wines, Haley thinks the technology will become more commonplace with wineries. "When you get into the people who really care about what they're doing, this will be very beneficial to them."

Software engineer and notable wine collector Russell H. Frye has sued the Wine Library of Petaluma, Calif., charging that it sold him dozens of counterfeit copies of rare bottles of wine.

Frye didn't discover the fakes until he tried to sell the wine through Sotheby's, which told him that it believed his bottles were counterfeit.

The bottles in question "made up $3 million of my collection," said Frye, whose case is pending in California District Court. Wine Library did not respond to a request for an interview.

"When I was buying my wine, I really had no place to go to learn about wine that is authentic and counterfeit," Frye said. So he took matters into his own hands and created a Web site, "Now I have resources that allow me to gain much higher degree of confidence of an individual bottle's authenticity," Frye explained. "What we're doing is just the beginning of a process."

Measuring the problem

For billionaire Koch, who owns tens of thousands of bottles of wine, the concern is that the Jefferson debacle may just be the tip of the iceberg.

"We're trying to figure out how big the problem is," said Koch spokesman Brad Goldstein, who adds that

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hundreds of highly valuable collectible bottles in Koch's collection have already been identified as fraudulent.

"The whole experience has made (Koch) pause in collecting wine," said Goldstein.

Koch sued Rodenstock in federal court in New York last year, alleging that Rodenstock forged the signatures on the Jefferson bottles of wine. Rodenstock has denied the claims.

The judge ruling on the case dismissed it for lack of personal jurisdiction in January 2008, but Koch is refiling his suit. "Hardy Rodenstock is a master counterfeiter who needs to be stopped," Goldstein said. "Mr. Koch believes that this is just the first round. He will continue pursuing this matter in an effort to clean up the marketplace for fine wine." Rodenstock could not be reached for comment.

This fall, Koch filed a second lawsuit against Zachys alleging that 11 bottles he bought through the auction house in October 2005 were counterfeit; Koch also claims that 8 bottles that he bought at a 2004 Zachys auction are also fake. The total Koch paid for the allegedly fake wines: $340,000.

In December 2006, the Federal Bureau of Investigation and the Department of Justice opened an investigation into Christie's and Zachys auction houses for wine fraud.

"We can confirm that a subpoena from the US authorities was received by Christie's in December -- although it was focused on the activities of a particular consignor and not on the activities or practices of Christie's itself," Christie's spokesman Rik Pike said. Zachys responded that it has "very strict policies about wines that we will offer for sale and would never sell wines that we know or believe to be counterfeit," insisting that it inspects and tastes the bottles it sells at auction, seeking provenance documentation for older and rarer wines.

But for collectors like Koch, it may take a new high-tech approach to rebuild his confidence in the market.

"When you're talking about an auction house, like Christie's, which has a high pedigree, there is a presumption that the auction house has done due diligence and has put their experts on these cases," Koch spokesman Brad Goldstein said. "What we're finding is that that may not be the case. It is kind of sad."

Published April 11, 2008

Produced by Elizabeth Strott and Elizabeth Daza