NEWS FLASH! April 15-16, 2008: Intellectual Property Symposium San Jose, CA
This inaugural symposium is the place where those in the technology and legal arenas will meet in a communal setting to learn, analyze and engage in the issues facing the electronics industry. Co-chaired by Rick Merritt, Editor, EE Times and Mike McLean, Vice-President, Semiconductor Insights, this first annual event will be co-located with Embedded Systems Conference Silicon Valley and the EE Times ACE Awards. Tom Valliere will lead a session on counterfeiting in the electronics supply chain.
Overview: Counterfeiting in the Electronics Supply Chain
The incidence and detection of counterfeit electronic and semiconductor components has been on the rise over the last few years. Companies doing business in China are especially prone to this problem, since, in part, enforcement of laws regarding counterfeiting and IP theft is poor in China. In addition, China has been rapidly building up it's electronics and semiconductor infrastructure over the past few years with knowledgeable and experienced engineers and managers and by building near start-of-the-art semiconductor fabs. This increasing capability to produce competitive product implies, among other things, an improved capability to produce counterfeits of higher value, more complex devices. "Buyer Beware" has never been more important in the electronics industry.
Another factor is the increasing openness of China. In the past, only select types of companies were licensed to export products. China lifted the state monopoly on export trading rights in December 2003 so exports of counterfeits from China were expected to increase significantly. The independent distribution industry is, in fact, reporting a growing number of counterfeit parts from China.
Component-level counterfeiting is not limited to any specific commodity, or to any specific geography (despite the focus of the above on China). Plenty of counterfeiting is done here in the US as well as in the Far East and elsewhere. Below are reports of actual and suspected counterfeiting in :
Amplifiers
Batteries
Capacitors (electrolytic, tantalum, ceramic chip)
Circuit Breakers
Comparators
Connectors
DRAMs & DRAM modules
Lead-Free solder (in China - verbal only)
Mil-spec semiconductors
MOSFETs
Optocouplers
NVSRAM modules
PLDs
Power & Power Management devices
Printed Circuit Boards
Resistors
RF ICs
Trimmers (potentiometers)
Here are a few pointers to help you avoid, or at least minimize, your exposure to the dangers of counterfeit electronic (and other) components:
Buy direct from manufacturers or authorized distributors only.
If you must use independent distributors (aka "brokers"), require a paper or electronic trail identifying the source of the material you're buying. If you can't get that, contact the original manufacturer and provide a photo of the part/label to them for confirmation that it is not counterfeit. Otherwise, visually inspect (under a low power optical microscope, and compare to a known good device from the same manufacturer), functionally test, and/or deconstruct a sample of the part yourself or via a third party failure analysis firm to identify what it really is, and make your purchase contingent upon the outcome.
If your products must be compliant with RoHS or any other material-related regulation or requirement and the pedigree of the parts being procured is not available (the normal case), then a sample of the parts must be tested per the requirement of the regulation. For RoHS, the test must be executed on homogeneous materials which may mean that several or dozens of samples must be deconstructed in order to obtain an adequate amount of the material. Be wary of using hand-held X-ray Fluorescence technology alone; while good for identifying Pb, this has significant limitations when trying to detect hexavalent chromium (it will indicate chromium, and fail to indicate whether it's hexavalent, trivalent, etc.) as well as PBBs and PBDEs (it will detect bromine and other elements; chemical analysis is required to determine whether the bromine detected is part of a restricted substance).
Independent distributors are not all created equal. They provide a necessary function in balancing supply and demand. Component manufacturers sell directly to them; franchised distributors buy directly from them; and EMS providers and OEMs buy and sell directly to and from them as well. Understand who your independent distributor is; understand how they operate. Audit their operations and business processes. Work closely with them to put in place processes that help protect both of you. Few want to be known as a source of counterfeit parts.
If you buy via online auction, use a third-party escrow mechanism to control payment so you pay only after you've received and verified the components.
You may further want to consider restricting your use of independent distributors to those who subscribe to self-policing organizations that have business practice standards like The Independent Distributors of Electronics Association. Then audit them for compliance.
Put in place business processes that reduce the likelihood of having to buy from independent distributors or brokers: Proactively manage your product lifecycle vs. component lifecycle differences and align your design and supply chains.
If your procurement is outsourced to another entity (for instance, an EMS provider or Contract Manufacturer), be sure to understand and validate their sources of supply. Audit their methodologies and purchasing records for the types of components you use.
Bad parts are not always counterfeit; sometimes parts that have already been marked but failed functional or other testing, or were otherwise damaged, and were meant to be scrapped show up and are sold as new. Sometimes old parts, perhaps reclaimed from scrapped equipment, are remarked with a current date code. Make sure your component manufacturers have disposition methods that assure none of their scrap is brought to market by "dumpster divers".
Understand the issues in Intellectual Property protection in China (and wherever you do business) and take appropriate action. Clive Jones, managing director of Economic Data Resources, has produced a report for DCA partner Technology Forecasters entitled The Chinese Challenge - Electronics Intellectual Property in China Manufacturing and Markets.
Don't depend on enforcement in China to solve your counterfeiting problem. Criminal prosecution occurred in only 1 of 489 cases (45 total) with an average fine of $794, and damages of $19 in 2000, according to China's State Administration of Industry and Commerce Annual Statistics 1. Deterrence has not been a strength of this policy.
Further Reading
For further reading on this material, please see DCA's Winter 2007 Newsletter.
Below is a partial list of recent articles and other resources on this topic.
US Patent & Trademark Office November 7-8, 2007: USPTO China Road Show in San Jose, CA Tom Valliere will speak on supply chain IP issues affecting electronics manufacturing in China. Topics will include the problem of counterfeit components and their detection and prevention.
Consumer Product Safety Commission October 30, 2007:Connecticut Electric Recalls Counterfeit Square D Circuit Breakers Due To Fire Hazard They're counterfeiting Square D's products; are they counterfeiting yours?
SourceESB August 8, 2007:Busting the Myths About Counterfeiting Tom Valliere busts some myths while validating others.
OECD June 4, 2007: THE ECONOMIC IMPACT OF COUNTERFEITING AND PIRACY PART IV. EXECUTIVE SUMMARY The magnitude and effects of counterfeiting and piracy are of such significance that they compel strong and sustained action from governments, business and consumers. More effective enforcement is critical in this regard, as is the need to build public support to combat the counterfeiting and piracy. Increased co-operation between governments, and with industry, would be beneficial, as would better data collection.
EE Times Distribution Insider April 15, 2007: Managing Counterfeiting in the Supply Chain A supply chain pedigree for every part...
SourceESB September 19, 2006: Counterfeiting Moves Up the Technology Ladder Counterfeit components have long been a problem in the electronics industry, but lately, parts counterfeiters are becoming more technically savvy.
Purchasing Magazine May 18, 2006: Watch out for bogus RoHS parts The threat of counterfeit parts is not a new problem for electronics buyers, but it could take on a new wrinkle as the deadline for the European Union's Restriction of Hazardous Substances (RoHS) directive approaches. Buyers could soon see counterfeit RoHS parts hit the open market. These would be parts that are billed as RoHS compliant, but in fact are not.
IEEE Spectrum May 2006: Bogus! ...For the manufacturer whose product line has been compromised, a less tangible but still significant problem is the tarnishing of the company's image and brand. Counterfeiters also cheat legitimate manufacturers by bypassing the research, development, and marketing that went into the original product... [ed. note: DCA was interviewed for this article but no content was credited, though much is directly attributable; we are listed as a "resource" at the end of the article]
Electronic News December 7, 2005: Counterfeiters Compliant In one of the strangest twists in the industry’s move to green components, some of the companies hawking counterfeit parts are claiming their parts are Restriction of Hazardous Substances (RoHS) compliant.
Test & Measurement World February 1, 2005 Counterfeit! A good overview of the challenges the industry faces, not the least of which is resources to test parts...
Electronics Supply & Manufacturing: 11/01/04 Caution: Counterfeiters at work (hardcopy only - p. 15) A summary of the SNC Counterfeiting and IP Theft panel session.
EE Times October 29, 2004 Kyocera recalls cell phone batteries after counterfeits emerge Big market, high margins, why not counterfeit? See also the U.S. Consumer Product Safety Commission notice.
Supply Network Conference: September 29, 2004 Panel on Counterfeiting and IP Theft DCA chaired a panel on these emerging issues as the industry migration to China continues. Learn from Dewey Ballantine, the Semiconductor Industry Association, the Independent Distributors or Electronics Association, and Cisco/AGMA what's being done to curb these problems and how you can minimize their impact when doing business in China. The short presentation is available via the link.
U.S. Consumer Product Safety Commission June 24, 2004 CPSC, Verizon Wireless Announce Recall of Counterfeit Cell Phone Batteries
Electronics Supply & Manufacturing: 5/01/04 The billion dollar problem ...[I]n a society where pirating of everything from Microsoft Corp.'s Windows operating systems to DVD movies is rampant, cracking down isn't easy. As authorities in coastal cities move against counterfeiters, the operators retreat to the poorer, interior cities, where jobs are so scarce that counterfeiting operations are welcome...
Electronic Business: 5/01/04 Thwarting counterfeiters "It's UL's opinion that 'United we stand, divided we fall' is critical in the war on counterfeiting. If companies band together and bring our resources to bear on counterfeiters, we have a chance to stop counterfeiting."
Electronic News: 4/23/04 China IP Theft May Get Worse "Once China begins opening the doors on indigenous exports, the supply chain is expected to become flooded with counterfeit parts."
Texas Instruments PCN 20040331005: 4/1/04 Counterfeit PAL Alert Military 16L8 devices marked "©MMI". TI is now using their excellent PCN system to alert their customer base of counterfeiting instances.
The Hindu Business Line: 2/11/04 But I am the original The story behind Analog Devices' discovery of counterfeit parts in India
Analog Devices Press Release: 1/22/04 ANALOG DEVICES' GLOBAL FIGHT FOR INTELLECTUAL PROPERTY PROTECTION BOOSTED The Delhi High Court has granted an injunction ordering an India-based distributor to immediately stop importing and distributing energy-metering semiconductor chips from a Chinese semiconductor manufacturer because the chips are counterfeits, which infringe on copyrights and valid patents held by ADI...
ERAI: Counterfeit Parts List An interesting list from the broker industry organization. Sort of chronological order until the end of the list...
Brokerlynx: Counterfeit Parts Search Another broker site trying to self-police, which is noble. Check out the search engine on the home page for counterfeit parts. Must login for more information.
DigiTimes: 1/02/04 Fake analog chips spreading in China, damaging consumer products the fake chips ... are passed off as power management (PWM) ICs and metal-oxide semiconductor field effect transistors (MOSFETs) made by international or Taiwanese companies for use in consumer electronics.
Electronic Business: 1/01/04 Don't get burned by bogus parts Every company has been burned by counterfeit components, says one industry insider. "If they tell you they haven't, they're probably lying," says Ken Stanvick, who worked 25 years in electronics manufacturing before cofounding consultancy Design Chain Associates.
CNETAsia:11/21/03 Creative to make 'clones' of own products "...We can't beat them, so we'll join them. We will build this device in China and use the same manufacturing skills and do it in a big way..." [that's one way to fight counterfeiting!]
DigiTimes:10/13/03 More fake DRAM modules spreading in China, hurting spot prices The intensified spreading of fake DRAM modules in China has hurt spot prices for DRAM chips during the past few weeks, said some memory module makers.
Electronic News: 9/30/03 Special Report : PCB Battle Goes Global ... Sources in the industry, who asked not to be named because they have contracts with major OEMs, say Cisco pushed its PCB manufacturing to Asia to cut costs and ran into a problem with counterfeit boards on the gray market.
EBN: 8/18/03 Counterfeit parts nettle buyers China seemingly unable to stem tide of bad components
People's Daily: 7/23/03 China Faces Uphill Battle against Counterfeits China is still faced with an uphill battle against counterfeiting though the government had gained initial success in curbing the wide-spread infringement on intellectual property rights, according to results of a survey by China's top policy consultation agent.
US News & World Report: 7/14/03 A world of fakes Not focused on electronic components, but interesting information, such as Products from China, Taiwan, and Hong Kong made up 78 percent of the fakes seized by customs last year. "There are thousands, if not millions, of people in China devoted to counterfeiting, including entire towns," says Peter Lowe, director of the International Chamber's Counterfeiting Intelligence Bureau, based in London
ERAI: 7/10/03 Trip Report to Asia Interesting section on a Counterfeit / Re-Marked Flea Market in Shenzhen
SIA: 5/15/03 Seventh World Semiconductor Council Issues Key Policy Recommendations "There are an increasing number of instances of counterfeiting of IC's and other semiconductors...The WSC will develop recommendations to its respective Governments / Authorities scheduled for the Governments/Authorities Meeting on Semiconductors (GAMS) to take place in California in November 2003. These recommendations should not impose new legal requirements on industry. "
The Economist: 5/15/03 Counterfeiting: Imitating property is theft "The international capital of counterfeiting is undoubtedly China. At least $16 billion-worth of goods sold each year inside the country are counterfeit, according to one conservative estimate."
EBN: 5/9/03 Grand jury finds RAM Enterprises guilty of counterfeit connector trafficking
EBN: 4/21/03 Bogus parts still entering from Asia-Pacific
Bourns: 3/26/03 Notice to Bourns Customers and Potential Customers "...counterfeit Bourns® trimmers are appearing in the marketplace in certain countries..."
Dallas Semi/Maxim: 2/24/03 WARNING! INFERIOR LOOK-ALIKE COMPONENTS!
IEEE Spectrum: 2/03 Leaking Capacitors Muck up Motherboards This particular episode affected quite a number of end users via PC motherboards. A good collection of information related to it is at Carey Holtzmann's web site. See "Leaking Capacitors" in the left column.
Purchasing:11/21/02 How to spot counterfeit parts The article doesn't address the title subject until you're near the end of it. And even then it gives sparse advice on the topic focusing instead on how to avoid counterfeit parts and what the issues are in doing business in China.
Hynix: 10/8/02 Hynix acts against Counterfeit Memory Distributors See related earlier press release with pictures of real vs. bogus DRAMs: Hynix Alerts Customers of Counterfeit DRAMs
Electronic News: 9/2/02 Counterfeit Wave Rises In The East
NEC:7/9/02 NEC Compound Semiconductor Devices, Ltd. Counterfeit Warning
Transparency International: 5/14/02 Transparency International Bribe Payers Index While not precisely on the subject of counterfeit parts, bribery, corruption, and counterfeiting all have some common root causes and enablers. "Russian, Chinese, Taiwanese and S. Korean companies [are] widely seen using bribes in developing countries. [A] High propensity to bribe overseas [is] also seen for companies from Italy, Hong Kong, Malaysia, United States, Japan, France and Spain".
DCA has direct experience with counterfeit parts. We can help you detect, prevent, and rectify counterfeit component problems. Please contact us for more information.
