Countering Counterfeit Parts, Part 2
With cooperation from international governments, business and law enforcement agencies, in 2007 the U.S. customs and border protection agency successfully prevented millions of dollars worth of counterfeit electronic components and hardware from entering into the electronics supply chain - but that's just the tip of the iceberg. The U.S Chamber of Commerce estimates the global market for counterfeit electronics may be as high as $10 billion.
Recognizing that ongoing efforts to deter component buyers from going outside the authorized channels have failed to thwart the practice, authorized distributors, manufacturers and industry associations are now shifting gears. Industry leaders are now focused on educating buyers about how to handle counterfeit product, including proper methods of disposal.
Complete Destruction
For example, to ensure devices identified as fake or substandard do not get back into circulation, it is essential that the product is not just disposed of, but rendered completely unusable. Once a counterfeit event is reported, law enforcement officials will direct buyers with suspected counterfeits to hold the product, submit it for evidence or destroy it, said Sharron Peek, manager of internal audit quality for Avnet Inc., Phoenix. Since most OEMs do not have their own onsite scrap facilities, and there is no authority to certify scrap services, buyers should carefully qualify these suppliers to assure parts are properly and thoroughly destroyed.
A reputable scrap service provider should have tight security, stringent process controls and local reclamation capability. "I recently evaluated a possible scrap service, and when I toured the facility I was told their crusher had not been used recently, yet I found intact parts in the crusher bin," Peek said. "This was a red flag for me. I also did not like the fact that the parts were then shipped offshore for reclamation. I want to be able to see that the parts are destroyed and that the only thing left to reclaim is precious metals."
With individual chips selling for $100 or more on the black market, companies cannot merely rely on a destruct certificate as evidence that product is destroyed. "We have heard of a number of instances where a destruct certificate was provided, yet the parts were not actually destroyed," John Sullivan, director of Worldwide Security and Corporate Flight Operations, Texas Instruments, Dallas. "That is why we have a policy of conducting random checks on our suppliers, and we will either oversee the process ourselves or use a trusted third party to witness the procedure."
Legal Eagles
As chairman of the Semiconductor Industry Association's Anti-Counterfeiting Task Force, Sullivan is also actively involved in industry efforts to develop better strategies for enforcing intellectual property (IP) rights. In hopes of increasing the number of suspected counterfeit cases that authorities can successfully prosecute, the association recently hired a law firm in California to act as a central repository for information on counterfeiting and other forms of IP theft from semiconductor makers. The firm will collect this evidence, build a strong case and then present the information to law enforcement officials, notes Robin B. Gray, Jr., executive vice president of the National Electronic Distributors Association (NEDA), Alpharetta, Ga. "Law enforcement simply does not have the resources necessary to pursue all these cases," he said. "By handing them a gift wrapped case, we expect to be able to really affect the number of perpetrators who are punished."
In another effort to bolster better enforcement of IP rights and prosecution of offenders, the U.S. Chamber of Commerce's Coalition Against Counterfeiting and Piracy is driving passage of the bill, "Prioritizing Resources and Organization for Intellectual Property Act of 2007." The coalition, of which NEDA is a member, is among a variety of groups that are supporting the legislation, more commonly known as the PRO-IP Act. The bill, which was passed by the House of Representatives in May, seeks to toughen criminal and civil penalties for copyright infringements and strengthen the federal anti-piracy effort with the creation of a new cabinet-level copyright "czar" who would be responsible for coordinating federal resources.
For law enforcement and government officials, the counterfeit challenge is compounded by an uncertainty of the true extent of the problem. The Department of Commerce's Office of Technology Evaluation estimates the market for electronic components ranges from $1 billion to $10 billion annually. It is conducting a mandatory counterfeit parts survey for the entire electronics supply chain to formulate a more precise measure of the impact of counterfeit electronics on U.S. national security, supply chain integrity and industrial capabilities. Input for the survey will be solicited from printed circuit board manufactures, electronic component makers, franchised and broker distributors, end users, defense depots and military prime contractors. The Department of Commerce plans to issue a formal statement on the survey's findings in the fall.
Get Mad
Despite the good intentions of the industry's many anti-counterfeit advocates, a more satisfactory resolution will not come until there is a collective sense of indignation throughout the supply chain. "What I see is almost an acceptance of the inevitability of this problem," said Steve Schultz, director of strategic planning and communications for Avnet Logistics, Phoenix.
Schultz admits that there is no easy solution to this dilemma, particularly for a company that needs parts which are no longer available through authorized sources. Yet he argues that if the industry continues to treat the counterfeiting issue like little more than a nuisance, then there is no hope of combating the threat to the economic and personal well-being of our society. He said, "We need to get mad and turn that passion into more constructive collaborative action to resolve this issue."
Part One: what happens when good customers buy bad components?