The Counterfeit Electronics Problem

doi:10.4236/jss.2013.17003

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Open Journal of Social Sciences

2013. Vol.1, No.7, 12-16

Published Online December 2013 in SciRes (http://www.scirp.org/journal/jss) http://dx.doi.org/10.4236/jss.2013.17003

Open Access

The Counterfeit Electronics Problem

Michael Pecht

Center for Advanced Life Cycle Engineering (CALCE), University of Maryland, College Park, MD, USA

Email: pecht@calce.umd.edu, diganta@umd.edu

Received August 2013

Counterfeit electronics have been reported in a wide range of products, including computers, telecommu-

nications equipment, automobiles, avionics and military systems. Counterfeit electronic products include

everything from very inexpensive capacitors and resistors to costly microprocessors to servers. This paper

describes the counterfeit electronic products problem, and discusses the implication of counterfeit elec-

tronics on the electronic supply chain. We then present counterfeit detection and prevention techniques

for electronics.

Keywords: Counterfeiting; Supply Chain; Authentication

Introduction

Counterfeiting is an infringement of the legal rights of an

owner of intellectual prope rty (Tiku, Das, & Pecht, 2004). Coun-

terfeit goods mean any goods, including packaging, bearing with-

out authorization a trademark which is identical to the trade-

mark validly registered in respect of such goods, or which can-

not be distinguished in its essential aspects from such a trade-

mark, and which thereby infringes the rights of the owner of the

trademark in question under the law of the country (of importa-

tion) (World Trade Organization, 2006).

Counterfeiting exists, because it is a way to make money by

by-passing the research, development, marketing and sometimes

the quality and reliability aspects of the original product. Some-

times these look-alike products are sold on the open-market

under a slightly different brand name; other times the products

are sold as the original. The first type of product usually in-

volves the issue of intellectual property and copyright infringe-

ment and can be associated with a specific manufacturer. The

latter product is usually slipped into the stream of commerce

surreptitiously, often through unknowing or corrupt distribution

channels and it is hard to trace it back to the original source.

This paper deals with the second type of counterfeiting.

Counterfeit electronics have been found in computers and

telecommunication products, as well as automobiles, avionics

and even military electronics. Whenever a product can be made

cheaper than the original, counterfeiting can occur. Counter-

feiting has been found to be further encouraged if there is a lack

of supply of the original product. In fact, products and systems

that are in service for long periods of time or have long-term

warranty requirements are particularly susceptible to counterfeit

products. The reason is primarily associated with the obsoles-

cence (lack of availability) of the products used in these sys-

tems. When the demand for replacement products becomes

high, the price of such parts increases providing counterfeiters’

opportunities for profit. In addition, replacement of obsolete

products often leads to purchases from less reliable sources

such as part brokers1 and online exchange services instead of

franchised2 or independent3 distributors. In cases of brokers and

online exchange services, the actual sellers are often unidenti-

fied.

Risks from Counterf eit Electronics

It is estimated that legitimate electronics companies miss out

on about $100 billion of global revenue every year because of

counterfeiting (Pecht & Tiku, 2006). That figure takes into ac-

count only the profits that counterfeiters siphon off from man-

ufacturers; it ignores the added repair and maintenance costs

necessitated by defective bogus parts and the expenses of trying

to identify and intercept suspected counterfeiters.

The economic repercussions of counterfeit products reach far

beyond the cost of merely replacing the items. For example, an

electronic component that may be worth only $2 can cost as

much as $20 to replace if it is detected to be counterfeit after it

is mounted onto a circuit board (Sullivan & Graham, 2001),

and failures of systems that use counterfeit electronics can

cause loss of mission, safety problems, and significant mainte-

nance and logistics cost s.

For the consumer, the failures of systems that use counter-

feits can lead to safety and security problems. Even if the fake

part works, at least initially, it still poses reliability risks, be-

cause it hasn’t undergone the legitimate manufacturer’s rigor-

ous quality assurance processes (Pecht & Tiku, 2006).

When counterfeit parts make their way into safety related

applications, there is risk to the system manufacturers since the

original counterfeit part manufacturer(s) may not be identified

or be brought into any legal or regulatory system. Even in cases

of failures of electronics in commercial applications, the final

products manufacturer will remain liable for failures due to

counterfeit parts. They will have little chance to recoup the cost

of such liabilities from a counterfeit part manufacturer. It will

be hard to locate, prosecute or even recover the penalties from

Part brokers are scouting agencies for “hard to find” replacement parts and

components that hold inventory of possible sources of parts and not the parts

themsel ves and may also search for parts only when the need arises.

2The term “franchise” refers to a continuing commercial relationship be-

tween the franchisee and the franchiser. Franchisee distributors are those

who hav e signed sell ing and market ing contract with part manufact

urers for

the distribution of goods or services identified by the franchiser’s trademark

or trade name.

Independent distributors are aftermarket sources of parts that offer end

users parts and service. They make a one-

time purchase of parts without

continued commercial relationship with t he manufacturer/suppl i er.

M. PECHT

Open Access

them.

Counterfeiting issue can also be seen as a part quality prob-

lem. Counterfeit parts can have a major variation from the ori-

ginal parts in material, construction and electrical properties.

Even when the counterfeit parts are close to the original parts in

quality—they are still not manufactured and evaluated in ac-

cordance with the manufacturer’s standard qualification and ac-

ceptance procedures. These counterfeit electronic parts can be

copies of original parts but can also be re-labeled or repackaged,

and even be recovered from scrap and recycled.

Counterfeit parts pose another type of risk to the system ma-

nufacturers besides quality. The parts may not meet the safety

or environmental rules for the market in which the product is

marketed. For example, the European Union’s Restriction of

Hazardous Substance (RoHS) bans the use of lead and five

other substances from being used in electronics equipment sold

in Europe. If counterfeit parts that claim to be RoHS compliant

does contain the banned substances, the company making prod-

ucts with those parts may be liable for breach of the law. Some

analysts think that huge demand for RoHS compliant parts in

Europe will lead to shortages, which would indirectly facilitate

the entry of counterfeit RoHS parts in the supply chain through

part brokers (Carbone, 2006).

Detection of Counterfeits

The actual extent of counterfeit electronics is difficult to es-

timate. For an electronics equipment manufacturer, it is chal-

lenging to identify counterfeit product from among the thou-

sands of products used to assemble a system. In some cases, the

counterfeit may have been introduced several steps earlier in

the supply chain, and is part of a module or assembly sold by a

reputable company. Most manufacturers do not have the re-

sources to trace the actual origins of every part in the product.

Those who put counterfeit products in the supply chain go great

lengths to duplicate materials, part numbers, and serial numbers

to coincide with authentic products, making counterfeits hard to

detect. Sometimes the parts may actually work, at least in car-

rying out some functions for a short period of time. Thus, without

an anti-counterfeiting inspection procedure or construction ana-

lysis whereby the product is carefully analyzed, counterfeit pro-

ducts can enter into the supply chain undetected and be used in

a variety of applications.

The detection of counterfeit products usually occurs when

there is a system failure, and the subsequent root cause failure

analysis investigation reveals that a part is counterfeit. However,

failures are not always easily traceable and there can often be

confusion as to whether the part was defective, was damaged

(in assembly or use) or is counterfeit. In many cases, without

proper root cause analysis, the failure can be attributed incor-

rectly to other causes (Thomas, Ayers, & Pecht , 2002). Furthe r-

more, if the counterfeit functions as the original, it can be near-

ly impossible to detect, until a problem occurs. It would even

be harder to detect a counterfeit RoHS part since it would not

necessarily lead to system failure.

Examples of Cou nterfeit Electronic Products

Some examples of counterfeit products that have been pub-

licly reported are discussed in this section. These examples il-

lustrate the ease with which counterfeit electronics can find

their way into electronic systems. We have grouped the exam-

ples into three categories: relabeling, illegal manufacturing, and

scrap salvaging.

Examples of Relabeling

This section describes examples of counterfeiting where lo-

wer priced or lower grade items have been relabeled to appear

as a costlier or a higher grade item. This type of counterfeiting

largely occurs when new version products are introduced into

the market. Counterfeiters buy a different version of the parts at

a lower price, relabel them, and then resell them as the version

required by the customer at a higher price.

As early as in 1998, counterfeiters were repackaging 266-

MHz Pentium IIs as 300-MHz chips since 300-MHz Pentium II

chips cost $375 per processor, while 266-MHz Pentium II chips

cost $246 per processor. If a 266-MHz rated processor is oper-

ated at 300 MHz, it runs, but reliability becomes an issue since

it becomes hotter at 300 MHz and can then give incorrect an-

swers to instructions (Cnet Networks, 1998).

In May 2003, RAM Enterprises, a distributor, was convicted

for manufacture and resale of counterfeit parts, falsifying doc-

uments, making false statements and providing counterfeit parts

to companies for use in commercial and military aircraft and

weapons systems. RAM was found to have knowingly sold

counterfeit connectors that were allegedly manufactured by Tri-

Star Electronics International Inc. by including a “false certificate

of conformance” for part number M39029/4-112. In another in-

stance, RAM had used a solvent to remove color bands from

approximately 6500 connectors procured from Air-Electro Inc.

(a maker of mil-spec connectors) to make them appear of a

higher grade (Sullivan, 2003).

In the Fall of 2003, AMD conducted some raids in Europe,

where some of its low speed, low priced microprocessors were

being relabeled as high speed, high priced chips. On investiga-

tion it was found that some resellers in Shenzhen, China were

performing the remarking. AMD also purchased some micro-

processors from the resellers and found them to be fakes (Ta-

kahash, 2004).

Examples of Illegal Manufacturing

This section describes examples where complete parts have

been manufactured and labeled to appear to come from an ori-

ginal manufacturer. These parts are then sold as being manufac-

tured by the legitimate manufacturer.

On October 23, 2006, GIDEP issued an alert about a silicon-

controlled rectifier, JAN2N1774A, of General Electric (GE)

with lot code 9240. Lockheed Martin Missiles and Fire Control

had experienced a high failure rate of these parts with the GE

logo. Failure analysis of the devices by Lockheed Martin re-

vealed poor materials and workmanship in numerous areas (e.g.,

nail bonds to die, lead crimps, marking permanence and die at-

tach) (Government-Industry Data Exchange Program, 2006).

In early 2006, BAe Systems and Platform Solutions received

104 pieces of the CY37032P44-125AI parts, (Cypress Semi-

conductors with date code 0223 and the mark lot number

709673) from Aztec Components, a part broker. This lot of

parts exhibited a high reject rate during programming at a test

laboratory. Cypress Semiconductors checked the date code and

lot number and the logo on the top surface of the parts and

found that the markings were all forged (Government-Industry

Data Exchange Program, 2006).

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BAE Systems and Platform Solutions found another problem

with 500 pieces of Linear Technology M38510/14802BXA

parts they bought from Electronic Components Inc., a broker in

2006. On visual inspection, it was found the parts to be laser-

marked rather than ink-stamped as is the case with Linear Te-

chnology’s parts. The die of the suspected part was compared

with that of a known good part and found to be 50% smaller.

Also the mask set and wire bonding material were found to be

different (Government-Industry Data Exchange Program, 2006).

On February 24, 2003, Maxim Integrated Products and its

wholly owned subsidiary, Dallas Semiconductor, posted an alert

on its website regarding counterfeit Maxim/Dallas Nonvolatile

Static Ram (NVSRAM) modules (DS1230, DS1245, DS1250)

being sold in Asia. The parts had been disguised and marketed

under the Dallas Semiconductor label, using Dallas Semicon-

ductor marked shipping tubes and boxes. The alert stated that

the customer returns for these imitation modules revealed a

wide variation of components and assembly techniques, quite

different from the authentic parts (Electronics Supply and Ma-

nufacturing, 2003).

In some cases, the copies of products had comparatively easy

to identify mistakes in their labels. On Sep 28, 2005 X-bit labs

reported that forged hard disk drives similar to Maxtor Corps

MaXline II HDDs were being sold in the Japanese markets. The

counterfeit hard disk drives had incorrect font on the label and

used lower case “X” letter in the brand name of MaXLine II

(Shilov, 2005). Similarly, in 2003, Agilent Technologies Inc.

had an experience with counterfeit parts when a customer re-

turned an optocoupler for failure analysis. The part, which was

bought through a broker, came under suspicion when the cus-

tomer found the word “Singapore” spelled incorrectly on the

part (Sullivan, 2003).

Examples of Scrap Salvaging

This section describes examples where defective or outdated

items meant for scrap have been salvaged and then re-circulated

into the supply chain. Electronic parts that are scrapped but not

destroyed are cleaned, reworked and returned to the supply

chain.

On September 28, 2004, GIDEP issued an alert regarding un-

authorized distribution of Philips Semiconductors Part number

PCD3311CT (musical tone generator IC) (Government-Indus-

try Data Exchange Program, 2004) after L-3 Communication

Sys tems—East of Camden, N.J. reported numerous failures.

Philips Semiconductors found that the parts appeared to be

scrap material that had somehow showed up on the gray market.

Philips also indicated that they have received other similar cus-

tomer complaints for parts with this part number purchased

from unauthorized resellers.

On April 15, 2003, GIDEP issued an alert about a precision

operational amplifier, LT1097S8 of Linear Technology Corp.

(LTC) with lot code 0103. Textron Systems had experienced a

high failure rate of these parts. LTC’s visual and destructive

physical analysis revealed the parts to be counterfeit. LTC also

noted that the top of some parts appeared to have been sanded

down and remarked; indicating that the parts were eight years

older than they actually were date coded (Government-Industry

Data Exchange Program, 2003).

In January 2005, Advanced Micro Devices (AMD), working

in cooperation with Taiwanese authorities, seized a total of

60,000 counterfeit AMD microprocessors worth US $9.46 mil-

lion during a raid on an electronics company in Tainan, south-

ern Taiwan. The raid turned up suspect AMD microprocessors,

including K7 [AMD Athlon XP] and K8 [AMD Athlon 64]

models. The defective microprocessors, which were meant for

scrap had been stolen from one of AMD’s three packaging

plants in Asia and shipped to Taiwan for remarking (Shilov,

2005).

On June 04, 2003, GIDEP issued an alert regarding the pres-

ence of a non-Cypress die within a Cypress military package

5962-8871305RA/PALC16L8-30DMB (a 20 pin CDIP, digital

memory, lot code TAH9949). This part had become obsolete in

1999, and Telephonics had purchased more than 100 parts from

two different brokers in April 2003. Since Telephonics engi-

neers could not program the part with the Cypress algorithm,

they performed a failure analysis that revealed a smaller die

than that of a similar part with lot code THA9916. Also, while

the THA9916 part had the Cypress logo, TAH9949 part had the

MMI logo. Cypress has since indicated that traceability desig-

nators for military parts were missing in the purchased parts

and that the “country of origin” code was wrong (TAH instead

of THA for Thailand) (Government-industry Data Exchange

Program, 2003).

Prevention Efforts

There are organizations that monitor and report on counter-

feit products. One of the most active is the US Department of

Defense Government-Industry Information Exchange Program

(GIDEP); others include the US Department of Energy (DoE)

Lessons Learned Program, the US Defense Industrial Supply

Center, the Electronic Resellers Association International (ERAI),

and the International Anti-Counterfeiting Coalition (IACC)

(Science Applications International Corporation, 2002). These

programs have been effective in alerting companies of known

counterfeit products, but do not solve the cause of the problem.

To stop counterfeit products being introduced into assembled

systems, manufacturers of critical systems must use checks and

safeguards to ens ure that the parts and modules contained within

their systems are not counterfeit. These safeguards can range

from specially designed tests, to aggressive overt and covert au-

thentication techniques. Such overt or covert product protection

makes counterfeiting harder and more expensive. Effective

overt authenticating technologies enable the public to recognize,

avoid, and report instances of counterfeiting, and covert tech-

nologies can alert company representatives and enforcement

authorities to counterfeiting activity. Anti-counterfeiting tech-

nologies also provide evidential support in a court of law,

where issues of product genuineness and liability may have to

be determined (Tiku, Das, & Pecht, 2004). Different types of

authentication techniques are available like data matrix codes,

RFID tags, photonic inks, and microtaggants which can be used

for rapid product authentication. We go over these techniques

briefly and understand their interesting features.

A tool for supply chain management and retail inventory

control is radio fr equency i dentific ation (R FID) ( SATO America,

2006). Radio Frequency Identification (RFID) is an automatic

identification method, relying on storing and remotely retriev-

ing data using devices called RFID tags or transponders. RFID

system consists of a tag, reader and a database. Chip-based

RFID tags contain microchip and an antenna and are used to

store and transmit authenticating data such as manufacturer

name, brand name, model and a unique serial number. RFID

tags are attached to or incorporated into a product for the pur-

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Open Access

pose of identification using radio waves. RFID reader, an an-

tenna packaged with a transceiver and decoder, emits radio

wave activating the RFID tag so it can read a nd write data to it.

The reader decodes the data encoded in the tag’s integrated cir-

cuit (silicon chip) and the data is passed to the host computer or

the database. RFID tags have many applications in automated

manufacturing and logistics control. But use of RFIDs demands

that companies agree on a standard encoding scheme; to date

that hasn’t happened (Pecht & Tiku, 2006).

Another tool is data matrix code, which is a 2D code used for

storing product specific information like identification number

of the manufacturer, identification number of the part type, and

the serial number of the specific part (Agapakis & Stuebler,

2006). The term matrix code applies to 2-D codes that code the

data based on the position of black spots within a matrix. Each

black element is of the same dimension and it is the position of

the element that codes the data. Data matrix codes are applied

with lasers directly on the part and are durable and typically

lasts the life of the part. These codes are read with a reader,

which can be linked to shop floor computer networks and ac-

cessed from remote locations. They have numerous advantages

over barcodes. They don’t require any labels for marking. Also,

they oc c up y on e-te nth of the space of the 1D barcode while sto-

ring greater amount of information and thus can identify very

small components and dense sub-assemblies, which have no

space for labels.

Photonic inks are manufactured to first be invisible, and se-

condly to photo-decay at precise wavelengths and are used in

anti-counterfeiting measures (Bastia, 2002). Apart from authen-

tication, photonic inks can also be used to embed a 2-D barcode

into the product, or the product packaging in a covert fashion.

These barcodes may contain data such as point of manufacture,

distribution or even product specific data such as product type

or other signature data.

Microtaggants is a covert tool for product authentication.

Several different taggants are available. The taggants are used

to create unique code that can serve as a unique fingerprint for a

product. Examples of taggants include polymer based and rare

earth material based. An example of a complete system using

taggants is described in next section.

Authentication technologies should be used at each and every

level of the supply chain from die to the final product packag-

ing so that counterfeit parts don’t find their way into the prod-

uct. In-built authentication technologies not only help in track-

ing and tracing of parts through the supply chain but also aids

in identifying counterfeit parts. Although no authentication te-

chnique is full proof but in many cases if the cost of fraud to the

perpetrators can be made high enough then that can be a deter-

rent.

Each of the anti-counterfeiting methods has a cost and an as-

sociated effectiveness. Nevertheless, the International Anti-

counterfeiting Coalition (IACC) reported in 2001 that Fortune

500 companies each spend between $2 million and $4 million

(some companies are reported to be spending up to $10 million)

annually to combat global counterfeiting (Sullivan, 2002). The

goal is to keep counterfeit products out of the consumers’ hands

and the reseller channels.

Summary and Future Directions

Counterfeiting is an infringement of the legal rights of an

owner of intellectual property. High profits, low risk of detec-

tion, and weak prosecution contribute to the supply of counter-

feit parts. Counterfeiting of electronic parts causes potential

hazards including safety and loss of profits to companies, as

well as maligning the reputation of manufacturers and distribu-

tors. All types of parts and part manufacturers are susceptible to

counterfeiting, as illustrated by the examples provided in this

paper. A number of laws have been enacted in the United States

to penalize counterfeit activities and other IP violations. Several

private and public organized groups have also taken notice of

and created technological and information-sha ring tool s to help

the industry detect and avoid the use of counterfeit parts. But

these measures do not solve the cause of the problem.

As illustrated by most of the examples of counterfeiting pro-

vided in this paper, parts bought through sources other than the

manufacturers or authorized distributors have turned out to be

counterfeit. The or iginal equipment manufacture rs (OEMs) should

particularly avoid purchasing from unauthorized sources like

part brokers since they have no direct relation or any commit-

ment to the manufacturer or the buyer of the parts. Part brokers

have negligible control over their supply and can be duped into

purchasing and selling counterfeits. Furthermore, brokers can

close shop at any time after supplying the parts, leaving the cus-

tomer without the possibility of any follow-up action (Tiku,

Das, & Pecht, 2004).

There are two complementary and parallel technical efforts

in mitigating the impact of counterfeit parts. The first one is

driven by the part manufacturers who can make their products

harder to copy and make it easier to detect duplicates. The se-

cond effort comes from the point of view of part users whose

effort is self protective in making sure that they can reduce the

chances of buying counterfeit parts. The authentication techno-

logies can work for both types of efforts. The direction of sci-

entific research needs to ensure that the authentication methods

can be made compatible with the production processes without

major modifications or economic impacts. The research also

needs to ensure that the addition of such methods do not result

in unintended quality and reliability problems for the users.

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