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Fake electronics; real problems

They come from China, arriving by air in the US and Europe: billions of dollars worth of counterfeit electronics. In a series of raids in just three weeks in 2007, US and EU customs agencies found 360,000 counterfeit components worth $1.3 billion, including fake Intel chips and components falsely labeled with the brand names of 40 technology companies.

An International Problem

Over the past few years, law enforcement agencies from the US, EU, and Canada have made over 400 seizures of counterfeit Cisco network products and fake labels with an estimated value of over $76 million. Such raids have increased recently as companies that feel the economic impact of counterfeiting pressure their governments to help. The Alliance for Gray Market and Counterfeit Abatement estimates that one in ten technology products is counterfeit. The organization's president says that American companies lose $250 billion every year to counterfeiting, about $40 billion of which affects technology companies.

Illegally manufactured counterfeit electronics are generally less reliable than their genuine counterparts. Batteries can explode or ignite, and computer equipment may stop functioning. Even if the electronics appear to function properly, they may pose hidden threats. Consumer electronics manufactured in China, including USB drives, MP3 players, and digital photo frames, have made headlines for infecting the personal computers of American consumers who purchased the electronics in US stores.

Counterfeit equipment can be programmed to contain backdoors – hidden entry points that allow unauthorized remote access. Backdoors and other malware allow compromised electronics to be used for espionage, remote control, and Internet-based attacks. As concerned as consumers should be, businesses and the government stand to suffer more from such infiltration.

An International Response

Because the US government operates sensitive equipment and weapons systems, it is imperative that it be able to trust the technology it uses. In 2005, the US Navy unknowingly purchased and installed counterfeit Cisco switches in its network. An investigation of the money trail proved that the switches had been manufactured in China and acquired through the gray market. A series of civil legal proceedings followed, and the Navy Criminal Investigative Service viewed the purchase and installation as a potential breach of national security and a violation of the Trade Agreements Act.

The life cycle of microchips from design to production takes place over several continents, and less than 25% of microchip manufacturing takes place inside American borders. This makes it difficult to trace the origins of chips and integrated circuits. In response, DARPA (Defense Advanced Research Projects Agency) is working with US technology firms and universities including MIT and Johns Hopkins to develop methods of preventing and detecting chip vulnerabilities.

Efforts to curb intellectual property crime have increased in the past few years. In 2007, intellectual property-related federal convictions were up 92% from 2005. North American and European agencies, including the FBI, the US Department of Justice, and several national customs agencies, have been tasked with cracking down on counterfeits. In addition, law enforcement agencies are working with China’s Ministry of Public Security to push for joint criminal investigations of intellectual property violations.

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