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Fight Chinese Counterfeiting? Forget It

One of the biggest electronics supply chain challenges today is the counterfeiting and copying of Western components for sale into the huge China market. There has been a lot of talk and some effort to clamp down on it, but in the eyes of one major semiconductor CEO, it's a waste of time.

Industry associations and the US government “can lobby all they like, but China doesn't care,” Steve Sanghi, Microchip Technology's CEO, told me during the recent Design West event. “They know basically the US government officials will cave, because they've got a bigger agenda and need China's support in Korea or the UN. There are larger political issues. It's politics, and industry suffers.”

Sanghi hasn't seen “any tangible progress” from the US Semiconductor Industry Association. “None. Zero.”

Broken record
China continues to have a terrible record on protecting intellectual property. Sometimes it seems as if the country endorses counterfeiting.

Sanghi has firsthand knowledge of the situation. For some time, Microchip sold PIC microcontroller parts to the white-goods conglomerate Haier. But he said Haier formed a semiconductor subsidiary, Shanghai Haier Integrated Circuits, which proceeded to copy some PIC products. “They took our data sheets and apps notes and translated them into Chinese, filed patents and apps notes, and published them in China.”

Microchip filed a patent infringement lawsuit against SHIC on the Fourth of July of 2007. Nearly six years later, the case is unresolved.

Microchip CEO Steve Sanghi: 'In China, when you sign a contract, it means nothing.'

Microchip CEO Steve Sanghi: “In China, when you sign a contract, it means nothing.”

Think different
I asked Sanghi whether he buys into the theory that the Chinese think differently about property rights.

I buy that argument. If we are business partners and you and I sign a contract, I fundamentally believe you have the best of intentions to abide by the contract. In China, that's not the case. In China, when you sign a contract, it means nothing. If you cheat and make money, you can probably tell that accomplishment to your friends proudly. People will say, “He's really smart.” Here, if I did that, people would say, “You better not do business with Steve Sanghi.”

Interestingly, one Chinese publication wrote in its coverage of the lawsuit's filing:

A senior manager with the Haier Group says that now so-called intellectual propriety protection is a tool for multinational companies to lambaste others in order to retain their technology monopoly. This tool is more lethal than trade barriers and 60 percent of Chinese export companies are suffering this kind of technical barrier set by foreign countries, the manager reveals.

The experience hasn't altered Microchip's China strategy much. After all, it's impossible to abandon one of the world's biggest electronics markets. However, Microchip is now more diligent about filing patents in China and turning the technology crank on its products, so copycats stay behind.

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22 comments on “Fight Chinese Counterfeiting? Forget It

  1. Daniel
    May 1, 2013

    “The experience hasn't altered Microchip's China strategy much. After all, it's impossible to abandon one of the world's biggest electronics markets.”

    Brain, that's important. None of the companies want to neglect the huge Chinese market. Even Chinese government also knows this factor well.

  2. SP
    May 2, 2013

    Well this is nothing urprising about the chinese market. From many years they have been copying things and anything that has a mark “Made in China” is more cheaper. Almost everything in electrinics industry has a fake model made in china no matter how small or how big the stuff is. There is no business ethics. If you give your design for manufacturing in China, dont be surprised they will copy the design and start manufactring with the label Made in China.

  3. t.alex
    May 2, 2013

    eeprom contents, controller/firmware code, flash memory content, etc. all of these if not encrypted properly will all be cloned in no time..

    But I am wonder as China is getting all the bad reputation, is it as bad in some other places, for example India?

  4. Redding McLemore
    May 2, 2013

    Mr. Sanghi has minced no words and speaks what others are either afraid to say or have merely  given up shouting.  Indeed the issuance of the 2012 NDAA section 818 puts the onus upon the prime contractor to ensure no counterfeits get into the supply chain.  instead of trade embargos on non-responsive countries, our government is forced to place the burden on the contractor.    In a 2008 article in Fordham Intellectual Property, Media and Entertainment Law Journal (volume 19, issue 1), Luara Nastase gives a fantastic overview of the problem from many angles.  What stuck with me is that the western world is so dependent upon China that we have effectively agreed not to take substantial actions because China will counter with denied access to their inexpensive labor. One wonders if the problem may devolve as other countries become low cost labor providers but without the potential of Intellectual Property violation.  A smart country would certainly market itself that way.  In the end, perhaps it might not be ethics that trumps counterfeits, but economics after all.

  5. Brian Fuller
    May 2, 2013

    Agreed. The more worrying point he made was that political arm-twisting is not really going to be very tough because there are other global fish to fry for China and the U.S. 

     

  6. _hm
    May 2, 2013

    Mr Sanghi's example may be very special case. Also, we have heard other part of story from Haier. In general Chinese organization can design much better product, if required.

    We should not fear China for counterfeiting, but we should for new evolutionary designs. Looks at so many succcessful Chinese organizations.

  7. garyk
    May 2, 2013

    I don't think the US can afford to forget it! The US caused this problem by letting CHINA control the Contract Manufacturing. May be the US should design some thing with a design flaw that will fail quickly and let CHINA steal the design.

    Set up Contract Manufacturing control by US, we can't let CHINA control the CM's

    Who checking up on Human Rights and Conflict Minerals Reporting in CHINA. Do we believe the reporting?

  8. Brian Fuller
    May 2, 2013

    Gary, funny you suggest that because I asked Sanghi that very question and he didn't really rise to the bait. He said U.S. companies need simply to relentlessly innovate to stay ahead of China in technology innovation. 

    That said, I talked to another industry exec some months ago who said 15 years ago they did leave behind old, out of date architectural plans that were copied by a Chinese rival to that rival's detriment. 

     

  9. garyk
    May 3, 2013

    Brian, Sanghi is right! The US needs to start bring CM,s back to the US and building CM,s in the US.

  10. SP
    May 4, 2013

    US shops are flooded with products made in china. You pick up anything in Walmart or any other such shops, its hard to find stuff Made in US. Its almost impossible for US to say no to China.

  11. Adeniji Kayode
    May 4, 2013

    @Sp,

    you are right on that, the only thing that is yet to have a “Made in China” are human being. Every other things you could think of are made in China such as tooth pick and tooth brush.

    But tnen Is there nothing that can be done to protect designs from being imitated?

    Does it really mean that copyright is actually the right to copy?

  12. Adeniji Kayode
    May 4, 2013

    @Sp,

    you are right but do you think its too early or too late to say “No” to China?

  13. SP
    May 5, 2013

    @Adenji. That's nice to hear. The only thing they cannot copy is human.Well its all biological so they cannot copy otherwise they will do that also 🙂

    I guess the culture in China is that everyone is ok with copying. Its completely supported by the Government. Also the copyright laws are also like that it will support Chinese actions.

  14. SP
    May 5, 2013

    @Adeniji, whether its too early or too late to say No to China. Well US is not in a position to say NO now to China. I think its China who will set the rule in the game. There is a flood of Made in China products all over the world especially in US. Its never to late to say No but the question is whether they will. There will be so many political and industry wise repurcussions. Almost all US companies have their manufactring divisions directly or indirectly in China. And since China has Communist government they will keep their interest in the first place.

    Sometime back there was a news that China holds more US dollars than US.

  15. Anand
    May 5, 2013

    Industry associations and the US government “can lobby all they like, but China doesn't care

    @Brian, thanks for the post. Its really sad to that Chinese government has totally failed in protecting the intellectual property. I think only solution to this challenge is that all countries should come together and warn the chinese government that if IP theft is not stopped then they will boycott the chinese products. Such tactics will definitely put pressure on the chinese government.

  16. Anand
    May 5, 2013

    Almost all US companies have their manufactring divisions directly or indirectly in China.

    @SP, I totally agree with you. US is highly dependent on China because many US companies have their manufactring divisions directly or indirectly in China. I think slowly US should start shifting such jobs back to US or to some other developing nations so that their dependancy on China reduces.

  17. Anand
    May 5, 2013

    In general Chinese organization can design much better product, if required.

    @_hm, nodoubt china can design much better products, but the problem is they are stealing most of the IP from different companies and they are building on it. This will definitely given the chinese companies an added advantage because they can save R&D cost. 

  18. Anand
    May 5, 2013

    From many years they have been copying things and anything that has a mark “Made in China” is more cheaper.

    @SP, I agree with you. The “Made in China” is more cheapter because compononents used inside the product are of low quality. Moreover since the companies just copy the existing designs, they save a lot on R&D cost. This give chinese companies added advantage and flexibility to price their proudcts low. 

  19. _hm
    May 6, 2013

    @Anandvy: I respect Chinese engineer. They conduct due diligence in new product design. They may follow good ideas and learn new solutions.

    But that is also true for most engineers throughout world. Most organization also study good product. It is very hard to indict Chinese engineer.

     

  20. Daniel
    May 7, 2013

    “From many years they have been copying things and anything that has a mark “Made in China” is more cheaper. Almost everything in electrinics industry has a fake model made in china no matter how small or how big the stuff is. There is no business ethics. If you give your design for manufacturing in China, dont be surprised they will copy the design and start manufactring with the label Made in China.”

    SP, if you are not giving your design also, they will do the duplication through other sources. Their main intention is to bring an exact model of device with same functionality and features for Chinese citizens. Hence they can have the device at a low cost.

  21. keilaniswk
    May 23, 2013

    China has a low artificial value of it's currency, has very cheap (almost enslaved) labor and a huge population and a large geographic size ( = a huge market for everything).

    That alone made china a very attractive market.

    But, the chineese government wanted fast (= break-neck) growth and decided to go the way of surpluse trade balance and mega hoding of foreign currency (trilions now).

    Now china is the largest importer of raw material and energy, and the largest exporter of manufactured goods at the same time!

    Add counterfeit to that and you get a very grim picture of chinese cheap exports flooding the planet (literaly!). And that is where I see the solution to this situation.

    World-wide trade laws and agreements put various measers againest market flooding. A good example is the current EU measures to push back chinese PV modules eports flooding the EU market, using customes tarrifs or equivilent they are adding about 50% cost to the Chinese imports of PV into the EU.

    Similar measures can be taken by all countries (if they can proove a case of market flooding to the WTO).

  22. Hailey Lynne McKeefry
    May 31, 2013

    This post is certainly disheartening, to say the least. If the problem lies at the cultural level, and by this account it seems that it does, is there anything that customers or goverments can do to make a positive shift? That's not a retorical question…I'd really like to know. What one thing would you suggest that might make a baseline shift in this situation? Take a second and pretend you run the world.

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