Counterfeiting has been around for millennia, but technology, globalisation and longer supply chains mean that fake components and products pose greater threats to the manufacturer than ever before, as E&T reports.
A thousand years ago, one of the top technologists of the day was the swordsmith. His skill was quite truly a matter of life and death for the sword's owner, so it should be no surprise that the very best weapons proudly carried their maker's name: Ulfberht.
Yet, so did some of the worst - and not because the swordsmith sometimes got it wrong. These broken blades were examples of that age-old phenomenon: counterfeiting.
'If you've got a market, you will be counterfeited. If you have a brand name with credibility, you will be counterfeited,' says Dave Dossett, executive chairman of electrotechnical industry group BEAMA.
Counterfeiting is about intentional misrepresention. It is not cloning, although that may infringe on IP. It can be refurbished or remanufactured items if they are represented or relabelled as originals. As well as the obvious iPods, designer clothing, perfume, watches, alcohol and DVDs, the UK government's Consumer Direct service says tools and vehicle parts are among the most commonly faked items.
Indeed, go to any outdoor market in the UK or abroad and you can almost certainly find something fake. The things you would not normally imagine being faked - food or even brand-name toilet paper - are there. The rule of thumb is that if it seems too cheap to be real, then it is probably fake.
The same is just as true in business. Whether it be Cisco routers - US agencies have made hundreds of seizures of fake networking gear in the last few years - electrical accessories or electronic components, if there is a market for it, someone is probably counterfeiting it.
For manufacturers the danger is two-fold. On the one hand, there is the risk of buying fake products and parts for your own use, and on the other there's the likelihood of having your own products faked, with all the financial, reputational and legal problems that can bring.
On the electrical side, discovered counterfeits include plugs, sockets, lamps, cables, connectors and, even more worryingly, fuses and circuit breakers. 'Obviously those products are safety-critical and a counterfeit could lead to death, injury, whatever,' says Dossett.
'We're talking here about straightforward brand counterfeiting. They look like and are sold as the real thing, some are relatively good quality, some are appalling. For example there were 20,000 Schneider circuit breakers found with no circuit breaker - just a spring-loaded switch.'
He adds that if counterfeits get into the supply chain, 'when people complain, it's to the original manufacturer - that's why manufacturers are required to take action. If you don't, you could be held partly responsible in some jurisdictions'.
On the electronic components side, the counterfeiters' tactics are different, but the results can be just as bad, says Bill Barthel, manager of global manufacturing technology development at manufacturing services company Plexus Corp.
'Most of these components are recovered from electronic devices shipped to China as waste or for recycling,' he says. 'Most consumers believe they are helping the environment, but unfortunately this is raw material for the stream of counterfeit material entering the global supply chain.'
He adds that even Plexus discovered that it had been sending scrap parts to a recycler without checking what would happen to them next.
'We could have been feeding our own chain,' he exclaims. 'Now we require our recycler to destroy them. It is unfortunate - there are some good recyclers - but Plexus will not buy refurbished parts. That's not to say that there isn't a place in the world for those, but it's the difference between whether you're building an MP3 player or a heart defibrillator.'
Other possible sources for counterfeit material include failed parts from scrap bins at chip manufacturing plants, and parallel or 'shadow' production lines, where the product is copied either in the real factory after hours on a 'black shift', or on a secondary production line.
'People making fakes is quite rare - we only see a black shift once in a while,' says Art Ogg, director of quality at electronics distributor World Micro, and a certified professional inspector with expertise in analysing the counterfeiters' methods.
'But if a factory is doing a black shift it's a tough nut to crack because they're building a real part, but unauthorised. They might use sub-spec parts or components - the way we detect those is there's typically a high fall-out rate because they don't test. But everything will look good, with the right labels and so on. That's very very hard to detect.'
Ogg says it is more common that component counterfeiters will re-mark scrap, recovered or even genuine parts, perhaps with a more recent date code or a slightly different specification. They may apply a completely different product ID, especially if they are counterfeiting an obsolete or legacy component that has gone out of production, or a part that is on allocation because the real manufacturer cannot meet demand.
'One reason it's so profitable is there's very little R&D and testing, all they do is re-mark,' he says. 'Sometimes they work well - or appear to. For example, it might be the difference between a commercial and mil-spec part - the bad guys will buy perfectly good commercial parts and re-mark them with a military part number. The electronics manufacturer probably won't detect it until it gets out into a stress environment and it fails. Then they analyse it and say it's a failed part - they may not even realise it's fake.'
Detecting the counterfeits
Some counterfeit chips can be detected by looking for missing moulding marks - removed when the original part number was ground off - or using solvents to remove the blacking used to cover the old markings. However, the counterfeiters are continually improving their game.
'I've been following this for the last five years - it's an arms race,' Ogg explains. 'At first the fakes were very crudely done, you could almost detect them with the naked eye. Over the years they've got better and better - I suspect it's now being done in relatively high-tech factories, using the same machines as the OEM, for example, to do laser marking.
'When we find something we've never seen before, we bring it into the lab and dissect it, then we write papers and share them with others. There's quite a lot of us doing this now.'
The most important thing is to acknowledge that there is a major issue here, and take action - jointly, if possible, because it is a shared problem - to deal with it, says Dossett.
'We have worked with our members to organise raids on factories in China and so on. Thirteen million fake products have been seized in the last few years, and that's probably only the tip of the iceberg,' he says.
'Most of our members denied they had a problem when we started this programme around 2000, until we showed them. For example, a firm that had 80 per cent of the Nigerian market suddenly found itself with 20 per cent - the rest was still the same brand, but it was Chinese counterfeits.'
Bill Barthel agrees, suggesting an important role here for industry associations such as the SMTA, of which he is vice-president, in defining procedures to minimise and mitigate counterfeiting.
'While aerospace and defence are aware, because they're more vulnerable, many other sectors with legacy support needs have not realised the threat yet. But when the typical counterfeit operation puts components on the market, they don't target just one sector,' he says.
'So the G-19 committee from aerospace has developed the AS5553 standard ('Counterfeit Electronic Parts; Avoidance, Detection, Mitigation, and Disposition'), but there's no equivalent for medical, say - and they will get burnt. So we are trying to gather support for global industry associations.' He adds that the SMTA has a symposium on counterfeit electronics scheduled for later this year in the US.
Cleaning up China
All the statistics point to mainland China being the primary - but by no means the only - source of counterfeits. For example, US Department of Commerce figures for November 2009 reported that 42 per cent of counterfeit electronic components came from China, with the next largest sources being Taiwan at 10 per cent and the Philippines at 8 per cent.
'We have 1,000 Chinese companies on our database,' confirms Dossett. 'A lot of these things start from export fairs where traders offer [fake] brand name products and place manufacturing contracts.'
He adds that the Chinese government does recognise the problem and has legislation in place. And while enforcement can still be affected by local political pressures, he says that local Chinese courts are now faster than UK courts at taking action against counterfeiters.
Charles Battersby, author of 'The Counterfeit Electronic Components Minefield', published by trade association the Component Obsolescence Group International, suggests that the industry has only itself to blame. He says that once western companies outsourced production to China to save money, it was inevitable that the knowledge and skills of their subcontractors would leak into the illicit channel.
This should have been no surprise, he says: historically, other developing economies - the young USA included - built up their industries in part by misappropriating IP from other countries.
He adds that Chinese OEMs avoid counterfeiters by buying not from the 'Chinese open market', but directly from the component manufacturer or a Chinese VAT-registered distributor - a licensed company with significant resources which is only allowed to deal with legitimate organisations.
'If you've got a good relationship with a supplier, they'll continue to do well for you. But if you go out on a limb...' he says. 'It has to come from top management - don't buy from the open market unless you can trace it.'