The gloves are coming off in the government’s fight against counterfeit parts and intellectual property protection.
Brian Toohey, president of the Semiconductor Industry Association, testified Tuesday before the Senate Armed Services Committee calling counterfeit parts "a ticking time bomb." China’s role in counterfeiting featured centrally in the Committee’s discussion of the problem. (If you have a few hours, I suggest you watch the hearing here.)
"The catastrophic failure risk inherently found in counterfeit semiconductors places our citizens and military personnel in unreasonable peril," said Toohey. The SIA estimates that counterfeits cost US-based semiconductor companies more than $7.5 billion a year.
The SIA’s recommendations for stemming the tide of counterfeits includes strengthening the partnerships among the chip industry, the Department of Defense, the Department of Justice, and the US Customs and Border Patrol; better procurement procedures on the part of the DoD; and stronger international enforcement of intellectual property (IP) rights, including more aggressive prosecution of counterfeiters.
The Committee’s hearing comes on the heels of a report released last week to Congress by the Office of the National Counterintelligence Executive (NCIX) titled "Foreign Spies Stealing US Economic Secrets in Cyberspace." Not surprisingly, the report fingers China as one of the two prime suspects in the illegal acquisition of US IP (the other was Russia):
Chinese actors are the world’s most active and persistent perpetrators of economic espionage. US private sector firms and cyber security specialists have reported an onslaught of computer network intrusions that have originated in China, but the Intelligence Community cannot confirm who was responsible.
The report documents cases of employees at Boeing, DuPont, Ford, Rockwell, and Vaspar stealing IP by downloading documents to thumb drives or emailing the documents as attachments. (The report was unclear whether the employees named in the report were Chinese Americans or Chinese nationals.)
The report also described a more insidious cyber-attack of Google’s network in January 2010. NCIX “identified the Chinese Government as the sponsor of intrusions,” the report claims. “Google subsequently made accusations that its source code had been taken -- a charge that Beijing continues to deny.”
There was a time not too long ago that the US government and the chip industry were loath to speak publicly about the problems of counterfeiting and corporate espionage. But as the threat has escalated, and the stakes have risen, the debate has become very public. And increasingly China is being held up as the evil perpetrator.
You have to start to wonder if the increasingly direct accusations within the US electronics industry and by the US government will contribute to a chilling of relationships between the two countries. If so, it could prove problematic if China retaliates, since many US electronics companies are deeply invested in design, supply, and manufacturing operations inside the PRC.
What’s needed to prevent this scuffle from escalating? Admission of the severity of the problem by the Chinese government would be a good starting point. Direct dialogue between China and the US is another good idea. And perhaps industry associations on both sides should convene a summit to address the problem. The economies of the US and China are too tightly connected to allow the pressure to build much further.