Countering Counterfeits

Counterfeiting is a major problem for the electronics industry. That much is well known and acknowledged by everyone with a stake in the market. The good news is that the industry has been taking steps to combat the problem with some success.

As mentioned in our previous post, Kristal Snyder and the Electronic Resellers Association International (ERAI) recently held a conference in Las Vegas that revolved completely around detecting, avoiding, and mitigating the effects of counterfeit components. (See: Don't Blame Independent Distributors Alone for Fake Parts, Part 1 and Don't Blame Independent Distributors Alone for Fake Parts, Part 2.)

The ERAI is a global service organization that monitors, investigates, and reports issues affecting the supply chain. This year's conference was one of the best attended in years, and the general conclusion from participants I spoke with was that it was chock full of great information. Many attendees came hungry for knowledge on how to avoid counterfeits and set themselves apart from the "bad" distributors out there. This was very refreshing and disproves the theory that independent distributors simply don't care about the issue of counterfeiting.

Here are some of the highlights from the ERAI Conference and actions being contemplated or already introduced to help independent distributors fight the spread of counterfeit products:

• G19 Committee. Phil Zulueta, chairman of the G19 Counterfeit Electronic Components Committee, led the drafting of the AS5553 standard for detecting and avoiding counterfeit components. This standard was adopted by NASA in 2008 and by the US Department of Defense, and it became an SAE Standard in 2009. The new AS6081 standard is currently under way, specifically intended for independent distributors, and it's very similar to the AS5553 but contains prescriptive counterfeit parts avoidance requirements.

  A dream team of representatives from the major players in the electronics industry has come together to support Zulueta in drafting this standard. Completion of the AS6081 standard is expected by the end of 2011 so that independent distributors will be able to have compliance verified through a third-party certification body, and OEMs with the AS5553 standard in place will be able to flow the requirement down to their distributors. The scope of the standard includes risk mitigation through a control plan, component testing and verification, and enhancing the process with counterfeit focus. More information on this standard is available on the SAE site.

• Make it legal; counterfeit parts won't be returned. One other informative speaker at the ERAI event was Keith Gregory, litigation partner at Greenberg & Bass LLP, and a long-standing general counsel for the ERAI, who is well versed in the legalities of the electronics industry. He told independents to put this wording in their purchasing terms and conditions: "Counterfeits parts have no value." It's a very simple statement, but it can be effective in voiding transactions where components are suspected to be counterfeit.

  Many distributors want to do the right thing by confiscating the suspected counterfeit materials so that these don't end up back in the supply chain. However, without the proper wording in purchasing terms, the fear is that there could be legal ramifications for not fulfilling the payment side of a purchasing agreement. Gregory assured the ERAI conference participants that a company can legally confiscate the parts when there is a preponderance of evidence that they are fake and the proper wording is already included in the purchasing agreements. In a case when parts are quarantined, the burden of proof would then be on the seller of the components to prove that the parts are not, in fact, counterfeit, via testing at a third-party lab.

• Moving beyond the visual testing standard. Debra Eggeman, executive director of Independent Distributors of Electronics Association (IDEA), a non-profit organization for advancing industry ethics, establishing standards, and promoting education in the industry, was also in attendance with her team. She noted that the IDEA-STD-1010-A standard for visually inspecting components was first released in 2006 and has been widely adopted as industry standard for inspecting components.

  The newest revision to this standard the IDEA-STD-1010-B was just released in June and includes some major redesign to coincide with changes in the industry. The update will address changes in techniques used by counterfeiters, the need to look beyond visual inspection, the use of test houses, making the standard more visual and less wordy, and the discussion of advanced inspection techniques.

In a subsequent blog, I will discuss and offer practical suggestions for detecting and helping the industry fight the problem of counterfeiting.