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Counterfeits: Battling A Growing Problem

(01/26/2012)

Counterfeits: Battling A Growing Problem

 

By Dale Lillard, Lansdale Semiconductor

 

As seen in the January 26, 2012 edition of the RF Globalnet (www.rfglobalnet.com) newsletter.

 

Counterfeits continued to be a major topic at the military-sponsored Diminishing Manufacturing Sources and Material Shortages (DMSMS) and Standardization Conference held in Hollywood, FL, from August 29 through September 1, 2011. The conference was started in 1982 to help mitigate DMSMS, and now it also includes a focus on the growing problem of counterfeits.

Counterfeit parts are not just a DMS problem. While counterfeits are often found in the supply chain when a part is DMS, they are also common when a part is still available in the market.  Barry Birdsong, Quality, Safety, and Mission Assurance Directorate Parts and Materials Program Manager for the Missile Defense Agency, stated that of the 8 counterfeit components found since 2004, only 4 were considered DMS while the other 4 were still available from manufacturers. This is a result of a faulty procurement process that historically purchased product of unknown origin from the lowest bidder with no regard for the system risk and possibility of failure that could be caused by counterfeits.

Still, the reality is if a legitimate component is not on the shelf at an authorized distributor when it is needed and for the same or a better price than it has been procured for in the past, then the component is often sourced outside authorized sales channels to meet the required delivery and costs. This standard purchasing process increases the possibility of receiving counterfeits. The solution is to plan far enough ahead to give your procurement department enough lead time and pricing flexibility to purchase through authorized sales channels and from legitimate aftermarket manufacturers. Lead times for DMS products often are lengthy, but given time, good product can be sourced. The major distributors such as Avnet and Arrow recognize the problem and have aligned with aftermarket manufacturers to ensure legitimate product can be provided.

There has been a substantial increase in the last three years of counterfeit integrated circuits. There are many more parts being counterfeited, and they are harder to identify. Industry and government have recognized the risks and are taking action to mitigate the procurement of counterfeits. Defense contractors are making more of an effort to purchase from authorized sales channels when possible. Distributors have been forced to be both police and investigators to ensure their customers receive legitimate product, so they are implementing processes to evaluate product that is suspect. An entire industry now exists just to provide investigation tools and services to identify bad product. The Defense Supply Center Columbus (DSCC) has instituted a qualification process for distributors and brokers supplying products to them that helps prevent counterfeits, and the government has also stepped up its efforts to stop counterfeiting, recognizing its negative impact on defense and commerce and that it is a danger to public health, public safety, and fair competition.

John Morton, Director of U.S. Immigration and Customs Enforcement, confirmed that the government is stepping up its enforcement efforts against counterfeit products in general. All industries, including software, pharmaceuticals, medical supplies, and semiconductors, are affected. Recently, there have been 20,000 seizures, 2,000 cases of counterfeits, and 365 arrests. He estimates that 40% of the supply chain is affected by counterfeit parts. He urged reporting any counterfeits to the National Intellectual Property Rights Coordination Center by calling 1-866-IPR-2060 or 703-603-3800 or by sending a fax to 703-603-3872. For more information on how -and what -to report, see their web site: www.iprcenter.gov.  The IPR Center coordinates investigations with federal, state, local, and international law enforcement agencies. The IPR Center encourages members of the general public, rights holders, trade associations, law enforcement, and government agencies to report instances of intellectual property theft to them for prompt action.

The growth of the counterfeit industry has also increased the problem of maintaining a reliable source of components for long-life systems. More caution by the users is mandatory when products are not procured from the original manufacturer, authorized sales channel, or authorized aftermarket manufacturer. Otherwise, the increased likelihood of a counterfeit part getting into the system increases the possibility of a system failure.

Board level and box level testing will catch a majority of the package-related counterfeits before they impact a system in the field. Although most counterfeit integrated circuits ultimately are found before the product is installed in a system, there are still costs associated with finding and replacing them. It also impacts readiness, as a part may spend years in a warehouse before it is sent to the field for use and then detected. While it has been sitting undetected in someone’s warehouse, it also may have become harder to find a legitimate part to replace it. Since replacing such a part with a known good one can take time, some effort also needs to be made to check existing inventories, particularly if they were purchased outside the manufacturer’s normal sales channels.

The first step is to check procurement records for product that has been purchased and stored for future use to ensure it is not counterfeit. After confirming that all inventory is good product, procurement processes should be reviewed and incoming inspection procedures tightened to ensure that only legitimate product goes to the production line.

The quantity of counterfeit product will continue to grow as long as there are willing buyers. Although the least costly and quickest solution in the past was to use Internet brokers and distributors, counterfeits have changed the picture so drastically that this is a risky solution. With counterfeits, the possibility of product failure has increased to the point that the users must protect themselves by testing incoming product before using it, thus increasing both the cost and the risk. To avoid this risk, the simplest option is for the user to purchase product from the original manufacturer, the manufacturer’s authorized sales channels, or a franchised aftermarket manufacturer -even though at first blush this might appear to be a more costly and time-consuming solution. Ultimately, the cost is much lower, since the product purchased is genuine and usually has already been tested by a reliable supplier.

Counterfeiters are getting better and bolder. They will continue to thrive if there is a market for them to serve. It is getting more difficult to identify counterfeit products, which increases the risk when product is purchased outside of authorized sales channels. When counterfeits are found, they should not be returned to the source but held and reported to the National Property Rights Center (1-866-IPR-2060).