Counterfeit Electronics: Coming to a Store Near You

Ten days ago, on July 1, 2006, it became illegal in the European Union to sell electronics that contain more than a very small amount of lead, mercury, cadmium, and a few other hazardous chemicals. These new Reduction of Hazardous Substances (RoHS) regulations present a golden opportunity for electronics counterfeiters to re-label and re-package lead-containing electronics to look like they meet the RoHS requirements.

What is electronics counterfeiting? Anyone who has strolled through a crowded street-level market in New York City has had the chance to buy things like "Rolix" watches and maybe even "Ipods" (not "iPods"). This kind of counterfeiting, where someone makes a cheap imitation of an expensive product and labels it with an almost-like name, is pretty easy to spot and avoid. But it is only the tip of a huge iceberg that costs legitimate manufacturers up to $100 billion a year in lost revenue, according to some estimates.

Most of the counterfeiting goes on far out of sight of consumers, among the thousands of manufacturers, suppliers, and parts brokers who provide the components for both consumer items and industrial electronics systems. Electronics supply chains are increasingly global, and increasingly use the Internet as a marketing and communications tool. The problem with global Internet-based supply chains is that purchasers and suppliers rarely meet face-to-face. This makes it easy for an unethical engineering firm to set up as a legitimate manufacturer and resell used ICs salvaged from old computers as new parts, for example. Another ploy is to relabel cheap, poorly performing parts as expensive better-performing ones. The manufacturer who trusts the part's label and builds a bogus two-dollar IC into a five-hundred-dollar motherboard, which thereupon fails, has got a huge financial headache on his hands. And even worse, the part can perform just well enough to leave the factory, only to fail when it gets to the consumer.

A recent article in IEEE Spectrum Magazine by Michael Pecht and Sanjay Tiku describes some of the ways manufacturers can guard against these problems. One obvious way would be to test parts as they arrive. Years ago, this practice was not uncommon, but it is costly and recent trends have been to move component testing away from the user and toward the supplier. But this requires a level of trust between supplier and user that some suppliers obviously don't deserve.

If the supply chain consisted of just two links, a manufacturer might be able to vet each supplier thoroughly and establish trustworthiness that way. But take the example of a criminally incompetent supplier a few years ago, who stole a formula for the electrolyte used in electrolytic capacitors, a very common type of cheap electronic component. He got the formula wrong, but went ahead and mixed up a batch anyway and sold it to some capacitor manufacturers. They used it to make their capacitors, they sold the capacitors to a board-making company, who sold the boards to computer makers. Some time later, the bad electrolyte began to fail and ruined hundreds, if not thousands, of computers. There were at least five links in this defective supply chain, not counting middlemen and suppliers, and the only problem was at the head of the chain, where it was hard to detect. The harm in this case was a flurry of failed computers, but suppose a bad capacitor went into a heart pacemaker? The harm that counterfeit parts cause isn't only financial. Reputations can be ruined and people can die. But connecting the dots to find out who was responsible is often an impossible task.

Counterfeit electronics is an obvious case of unethical engineering. Someone with enought technical expertise to know what parts are in demand and how to fake them is profiting illegally and immorally from counterfeiting of this kind. Although it happens all over the world, including the United States, the fact that a huge part of all electronics manufacturing is done in Asia means that many counterfeiters also hail from the East. Ironically, a friend of mine who is a native of Hong Kong characterizes the engineering environment in China in recent years as "the wild wild West," associating it with California gold rushes, wide-open cities, and general hell-raising. This anything-goes atmosphere encourages fly-by-night counterfeiting operations and worse. Although China has anti-counterfeiting laws on the books and stages highly publicized raids on counterfeiters from time to time, the sheer volume of fake goods produced means that most fakers never get caught.

If there weren't so many fakers in the first place, things would improve on their own. What if more engineers in China joined professional organizations with a strong commitment to ethical behavior? The Chinese government is suspicious of any organization that is not tightly under its control, but it would certainly have no objection to professional organizations that oblige their members not to engage in counterfeiting.

By many measures, the economies in China, India, Malaysia, Singapore, and elsewhere in Asia are still maturing. In the 1800s, when the British Empire's economy vastly overshadowed that of the United States, it was very common for unethical U. S. publishers to print unauthorized editions of British authors' works. Eventually, an international copyright agreement was hammered out, and as more U. S. publishers agreed to pay copyright to British authors, British publishers did the same for U. S. authors, and the marketplace became more efficient overall. Something like this may take place in Asia, but first, as in the United States, the professional culture will have to change.

Counterfeiting electronics, like counterfeiting money, is an act that benefits the counterfeiter substantially (for a while, anyway) while spreading harm randomly and diffusely everywhere else. There will always be some criminals, but wherever there are enough professionals to band together to take common action and to declare themselves committed to upholding the highest principles of their profession, they can bring about a change in their culture. And this is something no amount of law enforcement can do.

Sources: The IEEE Spectrum article "Bogus" is at http://www.spectrum.ieee.org/may06/3423.