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Who Are the Real Victims of Counterfeiting?

Oct. 2, 2023
The pain and suffering caused when counterfeit electronic components fail can have devastating consequences—especially given the ubiquity of semiconductors and other components in the electronic devices that thread throughout our lives.

Written by: Gary Beckstedt

White-collar crimes are often viewed as victimless. The financial consequences can be steep, but those they hurt are often viewed as amorphous corporations that likely deserved whatever comeuppance they got. While it’s tempting to think the same way about counterfeit electronic components, the pain and suffering caused when they fail can have devastating consequences for people from all walks of life—especially given the ubiquity of semiconductors and other components in the electronic devices that thread throughout our lives. They’re in the vehicles we drive, the planes we fly in and the ships that bring products to our shores. They’re in the medical equipment used to diagnose and treat disease, in the defense systems meant to keep us safe and even in the everyday appliances that keep us well-fed and comfortably housed. They run our banks, payment systems and, increasingly, our schoolrooms. They power all the ways we keep in touch.

When they fail, there are consequences. And unfortunately for us all, the problem is enormous. Every year, more than 1 trillion microchips are manufactured around the world. If even 1% of that total is mirrored counterfeit circles—a number hard to pin down due to the illegal nature of the activity—that means 10 billion fakes enter the supply chain annually. If the imposters don’t fail during manufacturing, testing or soon afterward, they get stripped from their original devices and recirculated on the grey market until they do. It’s a high-stakes problem whose carrots—profits for counterfeiters—are bigger than its sticks.

Let’s look at one of the more publicized instances investigators tied directly to the failure of a component.

Devastating Consequences of Counterfeit Electronic Components

The Federal Aviation Administration (FAA) heavily regulates aircraft parts, yet they still slip into the supply chain. The Senate Armed Services Report in 2012 was a watershed moment for many. The committee’s investigation discovered 1,800 instances (cases) of counterfeit electronic parts being installed in cargo and surveillance planes, collision avoidance systems, submarines, weapon systems and more—all in all, more than one million suspected fakes. It didn’t provide any evidence that the phony parts resulted in injury or death, but the implication was clear—and it didn’t pull any punches on who was to blame. While the counterfeits emanated largely from China, the report concluded that “the defense industry’s reliance on unvetted independent distributors to supply electronic parts for critical military applications results in unacceptable risks to national security and the safety of U.S. military personnel.”

Although that report was published more than a decade ago, and much has been done since then to counteract the phenomenon, the problem persists in military and civilian supply chains alike. In the past two years, the FAA has published unapproved parts notifications for bushings, adhesives, traffic collision avoidance system transmitters, GPS deviation converters, landing gear lock blocks, engine mount vibration isolators and more.

Let your mind wander around the instrument panel of an aircraft for a moment. Each of those dials and gauges tells a story. Each of the controls provides the plot. And behind them are thousands of electronic components that dictate the performance of every aspect of the aircraft, from taxi and takeoff to descent and landing. But if the plane in your mind’s eye is a fighter jet, you may not have considered one of the most vital lifesaving devices in the cockpit—the ejector seat.

For First Lt. David Schmitz, the failure of the ejector seat’s components may have cost him his life. As he aborted a landing attempt, the seat sent him airborne, but the parachute incorporated with it never deployed. Investigators found that transistors and microchips inside the sequencer showed telltale signs of counterfeiting, such as gouging, scratch marks and coating irregularities. Were they to blame? The pilot’s widow has sued three defense contractors to find out. The component manufacturers are cited in the lawsuit, too, along with an accusation that the sequencer manufacturer destroyed evidence. Read the full story in the Air Force Times and take particular note of one of its last lines: the pilot’s seat hadn’t been fixed in three years because of a spare parts shortage.

Telling the Stories

The risks of counterfeit components are rife with speculation. Lawyers often lock down investigations and outcomes. The companies whose products have been counterfeited aren’t keen to talk about it. A comprehensive review of the literature on counterfeiting by the Library of Congress postulates that “counterfeit goods pose significant risks to public health and safety, including injury, illness and death,” but goes on to note that “there is little to no data on the prevalence of health and safety consequences due to counterfeit goods,” and that case studies tend to cite anecdotal evidence and seizure data. “Relationships can be inferred,” it states, “but no conclusive statements can be made.”

That said, the report goes on to note that “recent studies highlighting the threats associated with more harmful, safety-critical counterfeit markets’ identified hundreds of counterfeit microchips in the defense supply chain, indicating that this is a continuing concern. Likewise, the U.S. Department of Homeland Security found that 15% of all spare and replacement microchips purchased by the Pentagon are counterfeit.”

With the international counterfeit market estimated to be worth hundreds of billions of dollars, it stands to reason that the defense supply chain isn’t an outlier. Wherever there is money to be made from counterfeit electronic components, there are counterfeit components to be had. Savvy (and even not so savvy) counterfeiters take advantage of intellectual property theft, reverse engineering, limited oversight, far-flung supply chains, and component scarcity—none of which are rare. However, the role of specific components involved in a product’s failure gets murky. Sometimes, the cause-and-effect is clear, as in two cases of electrocution attributed to faulty mobile phone chargers. But even the Semiconductor Industry Association cites examples of product failures caused by counterfeit components that “could have” or “had the potential” to cause injury, but none that actually did.

Causation is difficult to pinpoint from publicly available sources—the news says your house burned down, but it failed to say the bogus chip in your smart thermostat started the fire. But that doesn’t let counterfeit electronic components off the hook. With a 35% increase in counterfeit and nonconforming parts reported to the international ERAI from 2021 to 2022, vigilance is always the better part of valor.

1. European Anti-Fraud Office, Combatting a growing global threat – Counterfeit Semiconductor Products, December 2022

2. United States Senate Committee on Armed Services, Senate Armed Services Committee Releases Report on Counterfeit Electronic Parts, May 2012

3. Library of Congress, U.S. Intellectual Property and Counterfeit Goods— Landscape Review of Existing/Emerging Research, A Report Prepared by the Federal Research Division, Library of Congress, Under an Interagency Agreement with the U.S. Patent and Trademark Office, U.S. Department of Commerce, February 2020

4. OECD/EUIPO (2022), Dangerous Fakes: Trade in Counterfeit Goods that Pose Health, Safety and Environmental Risks, Illicit Trade, OECD Publishing, Paris, https://www.oecd-ilibrary.org/governance/dangerous-fakes_117e352b-en.

5. Semiconductor Industry Association, semiconductors.org/policies/anti-counterfeiting

6. ERAI, Inc.,ERAI 2022 Annual Report

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